<PAGE> 1
As filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 333-65231
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2
Amendment #3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FORTIS BENEFITS INSURANCE COMPANY
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota
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(State or other jurisdiction of incorporation or organization)
63
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(Primary Standard Industrial Classification Code Number)
81-0170040
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(I.R.S. Employer Identification No.)
500 Bielenberg Drive
Woodbury, Minnesota 55125
651-738-4000
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(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Rhonda J. Schwartz, Esquire
500 Bielenberg Drive
Woodbury, Minnesota 55125
651-738-4000
-----------------------------------------------------------------
(Name, address including zip code, and telephone number, including
area code, of agent for service)
Approximate Date of Commencement of Proposed Sale to Public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box:
/X/
-----------------------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Title of each Proposed Proposed maximum
class of securities Amount to be maximum offering aggregate Amount of
to be registered registered price per unit offering price registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interests under flexible * * (None registered herewith)
premium deferred
fixed annuity
contracts
</TABLE>
* The maximum aggregate offering price is estimated solely for the purpose of
determining the registration fee. The amount being registered and the proposed
maximum offering price per unit are not applicable in that these securities are
not issued in predetermined amounts or units.
<PAGE> 2
FORTIS BENEFITS INSURANCE COMPANY
Cross-Reference Sheet
Pursuant to Regulation S-K
Item 501(b)
<TABLE>
<CAPTION>
Form S-2 Item Number Prospectus Caption
- -------------------- ------------------
<S> <C>
1. Forepart of the Registration Cover Page; Table of Contents;
Statement and Outside Front Distribution and Servicing
Cover Page of Prospectus
2. Inside Front and Back Other Information; Reports
Cover Pages of Prospectus
3. Summary Information, Risk Summary of Contract Features or, as to ratio of
Factors and Ratio of earnings to fixed charges, Not Applicable
Earnings to
Fixed Charges
4. Use of Proceeds The Variable Account; The
Portfolios; The Fixed Account
5. Determination of Offering Not Applicable
Price
6. Dilution Not Applicable
7. Selling Security Holders None
8. Plan of Distribution Distribution and Servicing
9. Description of Securities Cover Page; The Variable Account; Series Fund;
to be Registered The Fixed Account; Accumulation Period;
Charges and Deductions; General Provisions
10. Interests of Named Legal Matters
Experts and Counsel
11. Information with Respect Fortis Benefits/Fortis Financial Group Member;
to the Registrant Further Information About Fortis Benefits;
Financial Statements; Distribution and
Servicing
12. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act
Liabilities
</TABLE>
<PAGE> 3
TRIPLE
CROWN
VARIABLE
ANNUITY
Contracts Under Flexible
Premium Deferred
Combination Variable and
Fixed Annuity Contracts
PROSPECTUS DATED
May 1, 2000
[FORTIS SOLID PARTNERS, FLEXIBLE SOLUTIONS(SM) LOGO]
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
<TABLE>
<S> <C> <C>
MAILING STREET ADDRESS: PHONE: 1-800-963-9222
ADDRESS: 500 BIELENBERG DRIVE
P.O. BOX 64273 WOODBURY
ST. PAUL MINNESOTA 55125
MINNESOTA 55164
</TABLE>
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. Under the variable return accumulation option, you can
choose among the following investment portfolios:
<TABLE>
<S> <C>
Federated American Leaders Fund II Federated International Equity Fund II
Federated Equity Income Fund II Federated Prime Money Fund II
Federated Fund for U.S. Government Federated Small Cap Strategies Fund II
Securities II Federated Strategic Income Fund II
Federated Growth Strategies Fund II Federated Utility Fund II
Federated High Income Bond Fund II
</TABLE>
It is anticipated that the following three additional portfolios will be
available to you sometime in June of 2000. See your representative for their
current availability.
<TABLE>
<S> <C>
Federated International Small Company Fund Federated Large Cap Growth Fund II
II
Federated Quality Bond Fund II
</TABLE>
The accompanying prospectus for these investment portfolios describes the
investment objectives, policies and risks of each of the portfolios. You can
choose among different guarantee periods under the guaranteed interest
accumulation option, each of which has its own current interest rate which is
guaranteed for the entire guarantee period. In states where guarantee periods
fixed accounts are not offered, you can choose an interest in a fixed account
which has a minimum interest rate guarantee and a higher current rate which can
be changed from time to time.
There are two different forms of contract offered by this prospectus. One form
is offered where all of the proposed owners of the contract are less than 61
years old when the contract is purchased. A second form is offered where one or
more of the proposed owners are 61 years old, or older. The differences between
the two forms of contracts are: (1) the death benefit provided; (2) the
provision for withdrawals from the contract without a surrender charge during
the surrender charge period, and (3) the mortality and expense risk charge
imposed. These provisions are discussed in this prospectus under the sections
entitled (1) Accumulation Period--Benefit Payable on Death of Owner (or
Annuitant); (2) Charges and Deductions--Surrender Charge--Free Surrenders; and
(3) Charges and Deductions--Charges Against the Variable Account.
This prospectus gives you information about the contracts 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, 2000, 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 LOGO] and Fortis(SM) are registered servicemarks of Fortis (NL) N.V. and
Fortis (B).
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms Used in this Prospectus....................... 3
Information Concerning Fees and Charges..................... 4
Summary of Contract Features................................ 7
Fortis Benefits/Fortis Financial Group Member............... 9
- The Variable Account................................. 9
- The Portfolios....................................... 9
The Fixed Account........................................... 9
- Guarantee Periods Fixed Account...................... 10
- Market Value Adjustment.............................. 10
- General Account Fixed Account........................ 11
- General Account Fixed Account Transfers.............. 11
- Investments by Fortis Benefits....................... 11
Accumulation Period......................................... 12
- Issuance of a Contract and Purchase Payments......... 12
- Contract Value....................................... 12
- Allocation of Purchase Payments and Contract Value... 13
- Total and Partial Surrenders......................... 13
- Telephone Transactions............................... 14
- Benefit Payable on Death of Owner (or Annuitant)..... 14
The Annuity Period.......................................... 15
- Annuity Commencement Date............................ 15
- Commencement of Annuity Payments..................... 15
- Relationship Between Subaccount Investment
Performance and Amount of Variable Annuity Payments... 16
- Annuity Options...................................... 16
- Death of Annuitant or Other Payee.................... 16
- Contract Owner Services.............................. 16
- Dollar Cost Averaging........................... 16
- Rebalancing..................................... 17
Charges and Deductions...................................... 17
- Premium Taxes........................................ 17
- Charges Against the Variable Account................. 17
- Tax Charge........................................... 17
- Surrender Charge..................................... 17
- Free Surrenders................................. 18
- Nursing Care/Hospitalization Waiver of Surrender
Charges............................................. 18
- Miscellaneous........................................ 18
- Reduction of Charges................................. 18
General Provisions.......................................... 18
- The Contracts........................................ 18
- Postponement of Payment.............................. 19
- Misstatement of Age or Sex and Other Errors.......... 19
- Assignment........................................... 19
- Beneficiary.......................................... 19
- Reports.............................................. 19
Rights Reserved By Fortis Benefits.......................... 19
Distribution................................................ 20
Federal Tax Matters......................................... 20
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
Voting Privileges........................................... 25
Legal Matters............................................... 26
Other Information........................................... 26
Contents of Statement of Additional Information............. 26
Fortis Benefits Financial Statements........................ F-1
Appendix A--Sample Market Value Adjustment Calculations..... A-1
Appendix B--Explanation of Expense Calculations............. B-1
Appendix C--Sample Death Benefit Calculations............... C-1
Appendix D--Participating Portfolios........................ D-1
Appendix E--Pro Rata Adjustments............................ E-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> 5
SPECIAL TERMS USED IN THIS PROSPECTUS
Accumulation Period The time period under a contract between the contract
issue date and the Annuity Commencement Date.
Accumulation Unit A unit of measure used to calculate the owners'
interest in the Variable Account during the
Accumulation Period.
Annuitant A person during whose life annuity payments are to be
made by Fortis Benefits under the contract. The
Annuitant is the person named in the application for
the contract. If such person dies before the Annuity
Commencement Date and there is an additional annuitant
named in the application, the additional annuitant
shall become the Annuitant. If there is no named
additional annuitant, or the additional annuitant has
predeceased the annuitant who is named in the
application, the owner, if he or she is a natural
person, shall become the Annuitant.
Annuity Commencement DateThe date on which the Annuity Period commences.
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.
Beneficiary The person entitled to receive the death benefits under
the terms of the contract.
Fixed Account The Guarantee Periods Fixed Account or the General
Account Fixed Account.
Fixed Annuity Option An annuity option under which Fortis Benefits promises
to pay the Annuitant or any other payee that you
designate one or more fixed payments.
General Account Fixed
Account The name of the alternative under which purchase
payments are allocated to Fortis Benefits' general
account.
Guarantee Periods Fixed
Account The non-unitized separate account that Fortis Benefits
uses to account for amounts allocated to guarantee
periods.
Market Value Adjustment Positive or negative adjustment in Guarantee Periods
Fixed Account value that we make if such value is paid
out more than fifteen days before or after the end of a
guarantee period in which it was being held.
Non-Qualified Contracts Contracts that do not qualify for the special federal
income tax treatment applicable in connection with
certain retirement plans.
Portfolio Each separate investment portfolio eligible for
investment by the Variable Account as set forth on the
cover page of this prospectus.
Qualified Contracts Contracts that are qualified for the special federal
income tax treatment applicable in connection with
certain retirement plans.
Valuation Date All business days except, with respect to any
subaccount of the Variable Account, 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 Period The period that starts at the close of regular trading
on the New York Stock Exchange on a Valuation Date and
ends at the close of regular trading on the exchange on
the next succeeding Valuation Date.
Variable Account The segregated asset account referred to as Variable
Account D of Fortis Benefits Insurance Company
established to receive and invest purchase payments
under contracts.
Variable Annuity Option An annuity option under which Fortis Benefits promises
to pay the Annuitant or any other payee 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.
3
<PAGE> 6
INFORMATION CONCERNING FEES AND CHARGES
CONTRACTOWNER TRANSACTION CHARGES
<TABLE>
<S> <C> <C> <C>
Front-End Sales Charge Imposed on Purchases................. 0%
Maximum Surrender Charge for Sales Expenses................. 7%
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF YEARS SURRENDER CHARGE AS A
SINCE PURCHASE PERCENTAGE OF
PAYMENT WAS APPLIED PURCHASE PAYMENT
------------------- ---------------------
<S> <C>
Less than 3 7%
At least 3 but less than 4 5%
At least 4 but less than 5 4%
At least 5 but less than 6 3%
At least 6 but less than 7 2%
7 or more 0%
</TABLE>
<TABLE>
<S> <C> <C> <C>
Other Surrender Fees........................................ 0%
Exchange Fee................................................ 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE............................ $ 0
</TABLE>
<TABLE>
<CAPTION>
ALL CONTRACT ONE OR MORE CONTRACT
OWNERS UNDER 61 OWNERS 61 OR OLDER
--------------- --------------------
<S> <C> <C>
VARIABLE ACCOUNT ANNUAL CHARGES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge...................... 1.10% 1.30%
Variable Account Administrative Charge................. 0.10% 0.10%
---- ----
Total Variable Account Annual Expenses............... 1.20% 1.40%
</TABLE>
MARKET VALUE ADJUSTMENT WITH RESPECT TO GUARANTEE PERIODS FIXED ACCOUNT
Surrenders and other withdrawals from the Guarantee Periods 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. It is computed pursuant to a formula that is described in more
detail under "Market Value Adjustment."
PORTFOLIO ANNUAL EXPENSES
The following table illustrates the advisory fees and other expenses applicable
to the Portfolios. Except as noted, the following figures are a percentage of
average net assets and are based on figures for the year ended December 31,
1999. The information set forth in this table was provided to Fortis Benefits by
the Portfolio managers and Fortis Benefits has not independently verified such
information. These expenses are reflected in the Portfolio's net asset value and
are not deducted from a contract's account value.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
OPERATING
INVESTMENT EXPENSES
ADVISORY AND OTHER (AFTER EXPENSE
MANAGEMENT FEE EXPENSES REIMBURSEMENT)(A)
-------------- -------- -----------------
<S> <C> <C> <C>
Federated American Leaders Fund II.......................... 0.75% 0.13% 0.88%
Federated Equity Income Fund II (b)......................... 0.55% 0.39% 0.94%
Federated Fund for U.S. Government Securities II............ 0.60% 0.18% 0.78%
Federated Growth Strategies Fund II......................... 0.55% 0.30% 0.85%
Federated High Income Bond Fund II.......................... 0.60% 0.19% 0.79%
Federated International Equity Fund II...................... 0.54% 0.71% 1.25%
Federated International Small Company II (c)................ 0.69% 0.81% 1.50%
Federated Large Cap Growth II (c)........................... 0.50% 0.40% 0.90%
Federated Prime Money Fund II............................... 0.50% 0.23% 0.73%
Federated Quality Bond Fund II (c).......................... 0.60% 0.10% 0.70%
Federated Small Cap Strategies Fund II...................... 0.00% 1.03% 1.03%
Federated Strategic Income Fund II.......................... 0.00% 0.85% 0.85%
Federated Utility Fund II................................... 0.75% 0.19% 0.94%
</TABLE>
- ------------------------------
(a) The total operating expenses of each of the funds, absent the voluntary
waiver of a portion of the management fee, would have been; American Leaders
Fund II--1.13%; Equity Income Fund II--1.64%; Fund for U.S. Government
Securities--1.03%; Growth Strategies II--1.30%; International Equity Fund
II--1.72%; Small Cap Strategies Fund II--13.65%; Strategic Income Fund
II--3.08%; Utility Fund II--1.19%.
4
<PAGE> 7
(b) This Portfolio has adopted a Rule 12b-1 distribution plan but has no present
intention of paying or accruing the 12b-1 fee under the plan. If the
Portfolio were paying or accruing the 12b-1 fee, the Portfolio would be able
to pay up to 0.25% of its average daily net Portfolio assets for the 12b-1
fee. See "Distribution of Fund Shares" in the Portfolio Prospectus.
(c) Estimated for current year, net of preimbursement. Prior to reimbursement
fund expense estimates are: Large Cap Growth II--1.19%; International Small
Company--2.06%; Quality Bond Fund II--1.74%.
EXAMPLES*
A. CONTRACTS/ALL OWNERS UNDER 61
If you surrender your contract, 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>
Federated American Leaders Fund II.......................... $84 $127 $146 $238
Federated Equity Income Fund II............................. 84 129 149 244
Federated Fund for U.S. Government Securities II............ 83 124 141 227
Federated Growth Strategies Fund II......................... 84 126 145 234
Federated High Income Bond Fund II.......................... 83 125 142 228
Federated International Equity Fund II...................... 88 138 165 275
Federated International Small Company II.................... 90 146 177 300
Federated Large Cap Growth II............................... 84 128 147 240
Federated Prime Money Fund II............................... 82 123 139 222
Federated Quality Bond Fund II.............................. 82 122 137 219
Federated Small Cap Strategies Fund II...................... 85 132 154 253
Federated Strategic Income Fund II.......................... 84 126 145 234
Federated Utility Fund II................................... 84 129 149 244
</TABLE>
If you commence an annuity payment option, or do not surrender your contract,
you would pay the following cumulative expenses on a $1000 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>
Federated American Leaders Fund II.......................... $21 $64 $110 $238
Federated Equity Income Fund II............................. 21 66 113 244
Federated Fund for U.S. Government Securities II............ 20 61 105 227
Federated Growth Strategies Fund II......................... 21 63 109 234
Federated High Income Bond Fund II.......................... 20 62 106 228
Federated International Equity Fund II...................... 25 75 129 275
Federated International Small Company II.................... 27 83 141 300
Federated Large Cap Growth II............................... 21 65 111 240
Federated Prime Money Fund II............................... 19 60 103 222
Federated Quality Bond Fund II.............................. 19 59 101 219
Federated Small Cap Strategies Fund II...................... 22 69 118 253
Federated Strategic Income Fund II.......................... 21 63 109 234
Federated Utility Fund II................................... 21 66 113 244
</TABLE>
B. CONTRACTS/ONE OR MORE OWNERS 61 OR OLDER
If you surrender your contract, 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>
Federated American Leaders Fund II.......................... $86 $133 $156 $258
Federated Equity Income Fund II............................. 86 135 159 264
Federated Fund for U.S. Government Securities II............ 85 130 151 248
Federated Growth Strategies Fund II......................... 86 132 155 255
Federated High Income Bond Fund II.......................... 85 131 152 249
Federated International Equity Fund II...................... 90 144 175 295
Federated International Small Company II.................... 92 152 187 319
Federated Large Cap Growth II............................... 86 134 157 260
Federated Prime Money Fund II............................... 84 129 149 243
Federated Quality Bond Fund II.............................. 84 128 147 240
Federated Small Cap Strategies Fund II...................... 87 138 164 273
Federated Strategic Income Fund II.......................... 86 132 155 255
Federated Utility Fund II................................... 86 135 159 264
</TABLE>
5
<PAGE> 8
If you commence an annuity payment option, or do not surrender your contract,
you would pay the following cumulative expenses on a $1000 investment, assuming
a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Federated American Leaders Fund II.......................... $23 $70 $120 $258
Federated Equity Income Fund II............................. 23 72 123 264
Federated Fund for U.S. Government Securities II............ 22 67 115 248
Federated Growth Strategies Fund II......................... 23 69 119 255
Federated High Income Bond Fund II.......................... 22 68 116 249
Federated International Equity Fund II...................... 27 81 139 295
Federated International Small Company II.................... 29 89 151 319
Federated Large Cap Growth II............................... 23 71 121 260
Federated Prime Money Fund II............................... 21 66 113 243
Federated Quality Bond Fund II.............................. 21 65 111 240
Federated Small Cap Strategies Fund II...................... 24 75 128 273
Federated Strategic Income Fund II.......................... 23 69 119 255
Federated Utility Fund II................................... 23 72 123 264
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
------------------------------
The foregoing tables and examples are included to assist you in understanding
the transaction and operating expenses imposed directly or indirectly under the
contracts and the Portfolios. Amounts for state premium taxes or similar
assessments will also be deducted, where applicable.
See Appendix B for an explanation of the calculation of the amounts set forth
above.
6
<PAGE> 9
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.
"We," "our," and "us" mean Fortis Benefits Insurance Company. "You" and "your"
mean a reader of this prospectus who is contemplating making purchase payments
or taking any other action in connection with a contract.
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 or 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 $500 (or $50 if part of a systematic
investment plan). For contracts issued in the state of Washington only, a single
purchase payment may be made and no further purchase payments can be accepted.
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 Guarantee
Periods Fixed Account (or to the General Account Fixed Account if the owner
resides in a state in which the Guaranteed Periods Fixed Account is not
offered), or to a combination thereof. Subsequent purchase payments are
allocated in the same way, or pursuant to different allocation percentages that
you may subsequently request in writing.
VARIABLE ACCOUNT INVESTMENT OPTIONS
Each of the subaccounts of the Variable Account invests in shares of a
Portfolio. 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. A full
description of the Portfolios and their investment objectives, policies, risks
and expenses can be found in the current prospectus for the Portfolio, which
accompanies this prospectus, and the Statement of Additional Information for the
Portfolio which is available upon request. (See Appendix D which contains a
summary of the investment objectives of each Portfolio.)
FIXED ACCOUNT INVESTMENT OPTIONS
Either a Guarantee Periods Fixed Account or a General Account Fixed Account is
available, depending upon your state of residence.
Any amount allocated by the owner to the Guarantee Periods 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 (less
in some states where required by state limitations). If amounts are transferred,
surrendered or otherwise paid out more than fifteen days before or after the end
of the applicable guarantee period other than the one-year guarantee period, a
Market Value Adjustment will be applied to increase or decrease the amount that
is paid out. Accordingly, the Market Value Adjustment can result in gains or
losses to you.
Any amount allocated to the General Account Fixed Account will accrue interest
at a minimum effective annual rate plus such additional excess interest rate
which we may declare from time-to-time.
For a more complete discussion of the Fixed Accounts investment option 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 of a Guarantee Periods
Fixed Account to another or into a subaccount. There are limitations on the
frequency and amounts of transfers from the General Account Fixed Account. 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 (1) the Annuity Commencement Date, or
(2) if the owner is a non-natural person, the Annuitant's death. Amounts
surrendered from the Guarantee Periods Fixed Account may be subject to a Market
Value Adjustment. See "Total and Partial Surrenders" and "Market Value
Adjustment." Particular attention should be paid to the tax
7
<PAGE> 10
implications of any surrender, including possible penalties for premature
distributions. See "Federal Tax Matters."
CHARGES AND DEDUCTIONS
We deduct daily charges at a percentage rate per annum of the value of the
average net assets in the Variable Account for the mortality and expense risks
we assume. The percentage rate for contracts issued where all owners are less
than 61 years old at the time of purchase is 1.20%. The percentage rate for
contracts issued where one or more owner is 61 years old, or older, at the time
of purchase is 1.40%. Also, there may be state premium tax charges deducted from
your contract value. See "Charges and Deductions."
ANNUITY PAYMENTS
The contract provides several types of annuity benefits to you or other persons
you properly designate to receive such payments, including Fixed and Variable
Annuity Options. You have considerable flexibility in choosing the Annuity
Commencement Date. However, the tax implications of an Annuity Commencement Date
must be 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 of the death of the owner, or the Annuitant if the owner is a
non-natural person, prior to the Annuity Commencement Date, a death benefit is
payable. See "Benefit Payable on Death of Owner (or Annuitant)."
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 may 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 a 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 64273, St. Paul,
Minnesota, 55164: 1-800-963-9222. 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 1-800-963-9222.
Any purchase payment or other communication, except a free-look 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.
FINANCIAL AND PERFORMANCE INFORMATION
The information below reflects the Accumulation Unit information for subaccounts
of the Variable Account through December 31, 1999.
<TABLE>
<CAPTION>
FEDERATED FEDERATED FEDERATED FEDERATED FEDERATED FEDERATED FEDERATED
AMERICAN EQUITY GROWTH HIGH INCOME INTERNATIONAL FEDERATED U.S. GOV'T PRIME
LEADERS INCOME STRATEGIES BOND EQUITY UTILITY SECURITIES MONEY
--------- --------- ---------- ----------- ------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
Accum Unit In
Force.............. 3,498,862 2,050,103 1,428,283 556,260 588,883 574,348 309,410 123,772
Accum Unit Values.... $ 10.535 $ 11.723 $ 17.144 $10.092 $17.590 $10.067 $ 9.831 $10.323
January 3, 1999
Accum Unit Values.... $ 10.000 $ 10.000 $ 10.000 $10.100 $10.000 $10.000 $10.000 $10.000
<CAPTION>
FEDERATED FEDERATED
STRATEGIC SMALL CAP
INCOME STRATEGIES
--------- ----------
<S> <C> <C>
December 31, 1999
Accum Unit In
Force.............. 58,402 86,286
Accum Unit Values.... $10.308 $13.841
January 3, 1999
Accum Unit Values.... $10.000 $10.000
</TABLE>
Audited financial statements of the available subaccounts 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
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<PAGE> 11
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 "Further 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
1999, Fortis Benefits had approximately $101 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. That 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, and
disability income products.
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 $406 billion in assets at the end of 1999.
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 a number of subaccounts. The assets in each subaccount
are invested exclusively in one of the Portfolios listed on page one of this
prospectus. 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
eliminated.
THE PORTFOLIOS
You may choose from among a number of Portfolios. Each is a mutual fund
available for purchase only as a funding vehicle for benefits under variable
life insurance and variable annuities issued by Fortis Benefits and other life
insurance companies. (See Appendix D for a summary of the investment objectives
of each Portfolio.) Each Portfolio corresponds to one of the subaccounts of the
Variable Account. The assets of each Portfolio are separate from the others, and
each Portfolio operates as a separate investment portfolio whose performance has
no effect on the investment performance of any other Portfolio. See the
prospectus for each Portfolio for more detailed information for each Portfolio,
such as its investment policies and restrictions, charges, risks associated with
investing in it, and other aspects of its operations. A prospectus for the
Portfolios you are considering must accompany this prospectus and you should
read it together with this prospectus. Federated Advisers is the investment
adviser for all of the Portfolios other than Federated International Equity Fund
II, which is advised by Federated Global Research Corp. You may obtain any
prospectus without charge from Fortis Benefits by calling 1-800-963-9222, or
writing P.O. Box 64273, St. Paul, Minnesota 55164.
Fortis Benefits purchases and redeems Portfolios' shares for the Variable
Account at their net asset value without any sales or redemption charges. We
automatically reinvest any dividend 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 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.
Portfolios may also be available to registered separate accounts supporting
variable annuity and variable life products of other participating insurance
companies, as well as to the Variable Account and other separate accounts of
Fortis Benefits. Although Fortis Benefits does not anticipate any disadvantages
to this, there is a possibility that a material conflict may arise between the
interest of the Variable Account and one or more of the other separate accounts
participating in the Portfolios. A conflict may occur due to a change in law
affecting the operations of variable life and variable annuity separate
accounts, differences in the voting instructions of the owners and those of
other companies, or some other reason. In the event of conflict, Fortis Benefits
will take any steps necessary to protect you or your beneficiaries.
THE FIXED ACCOUNT
This prospectus offers interests in either of two Fixed Accounts, depending upon
your state. The Fixed Accounts are (1) a Guarantee Periods Fixed Account or (2)
a General Account Fixed Account. This prospectus refers to both of these Fixed
Accounts as the Fixed Account unless a distinction is not relevant.
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<PAGE> 12
We offer a Guaranteed Periods Fixed Account in most states. However, in a
limited number of states we offer a General Account Fixed Account in lieu of the
Guarantee Periods Fixed Account. You should ask Fortis Benefits or your account
representative to determine which Fixed Account is available in your state.
Charges under the contract are the same as when you allocate monies to the
Variable Account, except that we do not impose the Variable Account charges for
mortality and expense risk and administrative expenses (see Charges and
Deductions--Charges Against the Variable Account) on amounts of Contract Value
in the Fixed Account.
GUARANTEE PERIODS FIXED ACCOUNT
Any amount that you allocate to the Guarantee Periods Fixed Account earns a
guaranteed interest rate beginning on the date of your allocation. This
guaranteed interest rate continues for a number of years (not to exceed ten)
that you select. At the end of this guarantee period, we will allocate your
contract value in that guarantee period, including accrued interest, to a new
guarantee period of the same length, unless we have received your written
request to allocate this amount to a different guarantee period or periods or to
one or more of the subaccounts. We must receive this written request at least
three business days prior to the end of the guarantee period. The first day of
the new guarantee period (or other reallocation) will be the day after the end
of the prior guarantee period. We will notify you at least 45 days, and not more
than 75 days, prior to the end of any guarantee period. For contracts issued in
the state of Oregon, we will not automatically renew your contract value to a
new guarantee period, nor may you choose a new guarantee period, that extends
beyond the contract Annuity Commencement Date.
We currently make available ten different guarantee periods, ranging from one to
ten years. All ten of these guarantee periods may not be available in some
states because of state limitations. Each guarantee period has its own
guaranteed interest rate, which may differ from those for other guarantee
periods. For contracts issued in the state of Oregon, you may not select a
guarantee period that extends beyond the Annuity Commencement Date. From time to
time we will, at our discretion, change the guaranteed interest rate for future
guarantee periods of various lengths. These changes will not affect the
guaranteed interest rates being paid on guarantee periods that have already
commenced. Each allocation or transfer of an amount to a guarantee period
commences the running of a new guarantee period for that amount. The amount will
earn a guaranteed interest rate that will continue unchanged until the end of
that period. The guaranteed interest rate will never be less than an effective
annual rate of 3%.
Fortis Benefits declares the guaranteed interest rates from time to time as
market conditions dictate. Fortis Benefits advises you of the guaranteed
interest rate for a chosen guarantee period:
- at the time we receive a purchase payment; we effect a transfer, or we
renew a guarantee period.
Fortis Benefits has no specific formula for determining the guaranteed interest
rates for the guarantee periods. The rate may be influenced by, but not
necessarily correspond to, interest rates generally available on the types of
investments acquired with amounts allocated to the guarantee period. See
"Investments by Fortis Benefits." In determining guaranteed interest rates, may
also consider, among other factors,
- the duration of a guarantee period,
- regulatory and tax requirements,
- our sales and administrative expenses,
- our assumed risks,
- our profitability objectives, and
- general economic trends.
FORTIS BENEFITS' MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED
INTEREST RATES TO BE DECLARED. FORTIS BENEFITS CANNOT PREDICT OR ASSURE THE
LEVEL OF ANY FUTURE GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL
RATE OF 3%.
You may get information about the guaranteed interest rates applicable to the
various guarantee periods at any time from our home office or from your sales
representative.
MARKET VALUE ADJUSTMENT
We usually apply a Market Value Adjustment:
- for contracts with amounts allocated to the Guarantee Periods Fixed
Account,
- to any Fixed Account Value that we (1) pay out on surrender, (2)
transfer, (3) apply to an annuity option, or (4) pay out as a single sum
in lieu of an annuity,
- before the end of the guarantee period in which we hold the Fixed
Account.
However, we do not apply a Market Value Adjustment to any Fixed Account Value
that we:
- pay out during the period beginning fifteen days before, and 15 days
after, the end of a guarantee period in which we hold Fixed Account
Value;
- we pay out, or transfer, to the Variable Account, on an automatic
periodic basis under a formal Fortis Benefits program for that purpose,
which may be subject to conditions and limitations in your state (see
your sales representative for information about program availability and
conditions and limitations in your state);
- pay out as a death benefit under a contract; or
- pay out, or transfer, from the one-year guarantee period.
The Market Value Adjustment may increase or decrease the amount of Fixed Account
Value being withdrawn or transferred. The comparison of two guaranteed interest
rates determines whether the Market Value Adjustment produces an increase or a
decrease. The first rate to compare is the guaranteed interest rate for the
amount being transferred or withdrawn. The second rate is the guaranteed
interest rate then being offered for new guarantee periods of the same duration
as that remaining in the guarantee period from which the Fixed Account Value are
being withdrawn or transferred. If the first rate exceeds the second by more
than 1/2% (1/4% for contracts issued in the state of Florida), the Market Value
Adjustment produces an increase. If the first rate does not exceed the second by
at least 1/2% (1/4% for contracts issued in the state of Florida), the Market
Value Adjustment produces a decrease. Sample calculations are shown in Appendix
A.
10
<PAGE> 13
The Market Value Adjustment will be determined by multiplying the amount being
withdrawn or transferred from the guarantee period (before deduction of any
applicable surrender charge) by the following factor:
<TABLE>
<S> <C> <C> <C> <C>
1 + I n/12
------------ - 1
( 1 + J + .005 )
</TABLE>
where,
- I is the guaranteed interest rate being credited to the amount being
withdrawn from the existing guarantee period,
- J is the guaranteed interest rate then being offered 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), and
- N is the number of months remaining in the existing guarantee period
(rounded up to the next higher number of months).
GENERAL ACCOUNT FIXED ACCOUNT
We hold amounts that you allocate to the General Account Fixed Account in the
general account of Fortis Benefits. We have not registered interests in the
General Account Fixed Account under the Securities Act of 1933, and we have not
registered the General Account Fixed Account as an investment company under the
Investment Company Act of 1940, because of exemptive and exclusionary
provisions. Accordingly, neither the General Account Fixed Account nor any
interests in that Account are subject to these Acts and, the staff of the
Securities and Exchange Commission has not reviewed the disclosures in the
prospectus relating to the General Account Fixed Account. Disclosures regarding
the Fixed Account may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses. For contracts with amounts
allocated to the General Account Fixed Account, this prospectus serves as a
disclosure document only for the aspects of the contract involving the Variable
Account. This prospectus contains only selected information regarding the
General Account Fixed Account. You can get more information about the General
Account Fixed Account from Fortis Benefits' home office or from your sales
representative.
Fortis Benefits guarantees that the contract value in the General Account Fixed
Account will accrue interest at an effective annual rate of at least 3%,
independent of the actual investment experience of the general account. We may,
at our sole discretion, credit higher rates of interest. However, we have no
obligation to credit interest in excess of the guaranteed rate of 3% per year.
We will not modify any interest rate in excess of 3% per year for any amount in
the General Account Fixed Account more than once each calendar year. We will
quote any higher rate of interest at an effective annual rate. The rate of any
excess interest that we initially or subsequently credit to any amount can in
many cases vary, depending on when you originally allocated that amount to the
General Account Fixed Account. Once credited, we:
- make such interest part of the contract value in the General Account
Fixed Account,
- guarantee the interest, and
- subject the interest to applicable fees and charges.
GENERAL ACCOUNT FIXED ACCOUNT TRANSFERS
Transfers out of the General Account Fixed Account have special limitations.
Prior to the Annuity Commencement Date, you may transfer part or all of the
contract value from the General Account Fixed Account to the Variable Account,
provided that:
(1) no more than one such transfer is made each contract year,
(2) no more than 50% of the General Account Fixed Account value is transferred
at any time (unless the balance in the General Account Fixed Account after
the transfer would be less than $1,000, in which case we may transfer up to
the entire balance),
(3) at least $1,000 is transferred at any one time (or, if less, the entire
amount in the General Account Fixed Account), and
(4) you may not make a transfer into the General Account Fixed Account within
six months after a transfer out of that Account. Nevertheless, we may, in
our discretion, permit a continuing request for transfer of lesser specified
amounts automatically on a periodic basis. However, we reserve the right to
discontinue or modify any such arrangements in our discretion. You may make
no transfer from the General Account Fixed Account after the Annuity
Commencement Date.
INVESTMENTS BY FORTIS BENEFITS
Our obligations with respect to the Guarantee Periods Fixed Account and the
General Account Fixed Account are legal obligations of Fortis Benefits. Our
general account assets support the obligations, as well as the obligations we
incur under other insurance and annuity contracts. Investments purchased with
amounts allocated to both Fixed Accounts are the property of Fortis Benefits,
and you have no legal rights in such investments. We have sole discretion over
the investment of assets in our general account and in the Fixed Account,
subject to applicable law.
We will invest amounts in the Fortis Benefits' general account and the Fixed
Account in compliance with applicable state insurance laws and regulations
concerning the nature and quality of investments for the general account. 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, within specified limits and subject to certain
standards and limitations. See "Fortis Benefits' Financial Statements" for
information on Fortis Benefits' investments. Fortis Advisers Inc. manages
amounts held in the general account and in the Fixed Account.
Fortis Benefits intends to consider the return available on the instruments in
which the Fixed Account invests, when Fortis Benefits establishes guaranteed
interest rates. This return is only one of many factors that we consider in
determining the guaranteed interest rates. See "Guarantee Periods Fixed
Account."
Fortis Benefits generally expects to invest the amounts that you allocate to the
Fixed Account in debt instruments that approximately match Fortis Benefits'
liabilities with regard to (1) the guarantee periods for purchase payments
allocated to Guarantee
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<PAGE> 14
Periods Fixed Accounts and (2) expected holding periods for purchase payments
allocated to the General Account Fixed Account. Fortis Benefits expects that
these will include primarily the following types of debt instruments:
(1) securities issued by the United States Government or its agencies or
instrumentalities, which securities may or may not be guaranteed by the
United States Government;
(2) debt securities which have an investment grade, at the time of purchase,
within the four highest grades assigned by Moody's Investors Services, Inc.
("Moody's") (Aaa, Aa, A or Baa), Standard & Poor's Corporation ("Standard &
Poor's") (AAA, AA, A or BBB), or any other nationally recognized rating
service;
(3) other debt instruments including, but not limited to, issues of, or
guaranteed by banks or bank holding companies and corporations, which
obligations, although not rated by Moody's or Standard & Poor's, we deem to
have an investment quality comparable to securities that may be purchased as
stated above; and
(4) other evidences of indebtedness secured by mortgages or deeds of trust
representing liens upon real estate.
Nevertheless, Fortis Benefits has no obligation to invest amounts allocated to
the Fixed Account according to any particular strategy, except as may be
required by applicable state insurance laws and regulations.
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
Fortis Benefits reserves 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 Fortis Benefits' home office. If
we cannot credit 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 crediting 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.
Except as noted below, you may make 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 credit 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 in good order. For
contracts issued in the state of Washington only, a single purchase payment may
be made and no further purchase payments can be accepted.
Each additional purchase payment must be at least $500 (or $50 if part of a
systematic investment plan). 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 Fortis Benefits'
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
systematic investment 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.
We may cancel any contract with a contract value of less than $1,000 on any
Valuation Date. We will notify the owner at least 90 days in advance of our
intention to cancel the contract. We would consider a cancellation to be 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.
The contract guarantees no 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 (1) the number of Accumulation Units and (2) Accumulation Unit values
that we determine 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 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
12
<PAGE> 15
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 the net investment factor is less than
one, the subaccount's Accumulation Unit value has decreased.
Determination of Fixed Account Value. Fortis Benefits guarantees a contract's
Fixed Account value. Therefore, Fortis Benefits bears the investment risk for
amounts allocated to the Fixed Account, except to the extent that:
(1) Fortis Benefits may vary the guaranteed interest rate for future guarantee
periods for Guarantee Periods Fixed Accounts and the current interest for
General Account Fixed Accounts (subject to the 3% effective annual minimum)
and
(2) the Market Value Adjustment for Guarantee Periods Fixed Accounts imposes
investment risks on you.
The contract's Fixed Account value on any Valuation Date is equal to the
following amounts, in each case increased by accrued interest:
- The amount of purchase payments or transferred amounts allocated to the
Fixed Account; less
- The amount of any transfers or surrenders out of the Fixed Account.
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
- the Fixed Account (and to guarantee periods within the Fixed Account for
contracts issued in states where the Guarantee Periods Fixed Account is
offered), or
- a combination of the Variable Account or Fixed Account.
Percentages must be in whole numbers. The total allocation must equal 100%. You
may change the percentage allocations for future purchase payments, 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 or into the Fixed Account,
- from the Fixed Account to one of the available subaccounts, or
- in the case of a Guarantee Periods Fixed Account, transfers from one
guarantee period to another guarantee period.
You must request transfers by written request to Fortis Benefits' home office,
or by telephone transfer as described below. We currently impose no charge for
any transfer. However, transfers from a guarantee period other than the one-year
guarantee period of a Guarantee Period Fixed Account that are (1) more than
fifteen days before or after the expiration thereof, or (2) are not a part of a
formal Fortis Benefits program for the transfer of earnings of the Fixed
Account, may be subject to a Market Value Adjustment. See "Market Value
Adjustment." We restrict transfers of contract value from the general account
Fixed Account in both amount and timing. See "Fixed Account--General Account
Fixed Account--General Account Fixed Account Transfers."
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 Fixed Account.
Nevertheless, we may permit a continuing request for transfers of lesser
specified amounts automatically on a periodic basis. However, 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. We
will count all transfers between and among the subaccounts of the Variable
Account and the Fixed Account as one transfer, if all the transfer requests are
made at the same time as part of one request. We will execute the transfers and
determine all values in connection with transfers as of the end of the Valuation
Period in which we receive the transfer request. We will add or deduct
respectively from the transferred amount the amount of any positive or negative
Market Value Adjustment associated with a transfer from a guarantee period of
the Guarantee Periods Fixed Account.
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. You
must request total surrender by a written request sent to Fortis Benefits' 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 Fortis
Benefits receives the written request for total surrender at its home
office, less
- any applicable surrender charge and plus or minus
- any applicable Market Value Adjustment. See "Market Value Adjustment."
We must receive the 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 Fortis
Benefits' home office of the written request. We may postpone payment, however,
in certain circumstances. See "Postponement of Payment."
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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. You may surrender a portion of the Fixed Account value
and/or the Variable Account at any time during the life of the Annuitant and
prior to the Commencement Date. You must request partial surrender by a written
request sent to Fortis Benefits' home office. We will not accept a partial
surrender request unless the net proceeds payable to you are at least $1,000.
Fortis Benefits 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 if applicable, that you wish to partially surrender. If you
do not specify, we take the partial surrender from the subaccounts and 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
amount payable to you by:
- any applicable surrender charge and
- if the surrender is from a guarantee period, other than the one-year
guarantee period, by any applicable negative Market Value Adjustment, or
increased by any positive Market Value Adjustment unless the surrender is
(1) within 15 days before or after the expiration of a guarantee period,
or (2) is a part of a formal Fortis Benefits program for the transfer of
earnings from the Fixed Account.
The partial surrender will be effective at the end of the Valuation Period in
which Fortis Benefits receives the written request for partial surrender at its
home office. We will pay partial surrenders as we describe above for total
surrenders.
The Internal Revenue Code imposes a penalty tax 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,
Section 403(b) of the Internal Revenue Code, bars distributions of voluntary
salary reduction amounts under tax deferred annuity contracts: prior to one of
the following events: (1) attainment of age 59 1/2 by the employee or, (2) 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 program
and systematic withdrawal. 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 OWNER (OR ANNUITANT)
If the owner dies prior to the Annuity Commencement Date, we will pay a death
benefit. If there is more than one owner, we will pay the death benefit upon the
first death. If the owner is a non-natural person, we will pay a death benefit
upon the death of the Annuitant prior to the Annuity Commencement Date. In this
case, 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 Annuitants so named.
The term "decedent" in the death benefit description below refers to the death
of the owner unless the owner is a non-natural person. In that case, we will
read that term to refer to the death of the Annuitant. Also, the death benefit
description refers to the age of the owner. If the owner is a non-natural
person, the relevant age that we use will instead be that of the Annuitant.
Additionally, the death benefit description makes reference to "Pro Rata
Adjustments." A Pro Rata Adjustment is calculated separately for each
withdrawal, creating a decrease in the death benefit proportional to the
decrease the withdrawal makes in the contract value. Pro Rata Adjustments are
made for amounts withdrawn for partial surrenders and any associated surrender
charge (which we shall deem to be an amount withdrawn).
The death benefit will be different if all of the owners are less than 61 years
old than if one or more of them is 61 years old, or older, when the contract is
purchased.
Benefit/All Owners Less Than 61. If all of the owners are less than 61 years
old, when the contract is purchased, the death benefit will be the greatest of
(1), (2), (3), or (4) as follows:
(1) The contract value as of the date used for valuing the death benefit.
(2) The highest Anniversary Value on each of the contract's anniversaries prior
to the earlier of: (a) the decedent's death, or (b) the owner's attainment
of age 80.
An Anniversary Value is equal to:
(i) the contract value on the anniversary, plus
(ii) any purchase payments made since the anniversary, reduced by
(iii) pro rata adjustments for any withdrawals made since the anniversary.
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<PAGE> 17
(3) If the decedent dies prior to the date the owner reaches age 80, the amount
of the death benefit is the sum of:
(i) the accumulation (without interest) of purchase payments, reduced by
pro rata adjustments for any withdrawals; plus
(ii) an amount equal to interest on such net accumulation value, as it is
adjusted for each applicable purchase payment and pro rata adjustment,
at an effective annual rate of 4.0% (3% for policies issued in the
State of Washington).
The resulting amount will be referred to as the "Roll-up Amount."
If the decedent dies on or after the date the owner reaches age 80, the
amount of the death benefit is equal to:
(iii) the "Roll-up Amount" as of the date the owner reached age 80; plus
(iv) the accumulation (without interest) of purchase payments made on or
after the date the owner reach age 80; reduced by
(v) pro rata adjustments for any withdrawals made on or after the date the
owner reached age 80.
(4) the accumulation (without interest) of purchase payments reduced by any
withdrawals.
We describe the pro rata adjustments referred to above more fully in Appendix E
at the end of this prospectus.
Benefit/One or More Owners 61. If one or more of the owners is 61 years old, or
older, when the contract is purchased, the death benefit will be the same as
provided above, except that all references to age 80 in (2) and (3) are changed
to age 75.
See Appendix C for sample death benefit calculations.
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, up to age 110, in your
application. The Annuity Commencement Date marks the beginning of the period
during which an Annuitant or other payee that you designate receives annuity
payments under the contract. The Annuity Commencement Date must be at least two
years after the date of issue of your contract.
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 to us in order to advance or defer the Annuity
Commencement Date. We must receive the request at our home office at least
thirty days before the then-scheduled Annuity Commencement Date. The new Annuity
Commencement Date must also be at least thirty days after we receive your
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 that 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 change other than the premium tax charge.
Otherwise, Fortis Benefits 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 any 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
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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.
RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS
The amount of an annuity payment depends on the average effective net interest
return of a subaccount during the period since the preceding payment, as
follows:
- if the return is higher than 3% annually, the Annuity Unit Value will
increase, and the second payment will be higher than the first; and
- if the return is lower than 3% 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, (See "Charges and Deductions--Charges Against
the Variable Account.") 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 and conditions for 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, but 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 any 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 make no 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
The amounts that we generally pay on the death of the annuitant during the
Annuity Period are the continuation of annuity payments (1) for any remaining
guarantee period or (2) 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 option in effect.
We describe additional rules applicable to such distributions under
Non-Qualified contracts under "Federal Tax Matters--Required Distributions for
Non-Qualified Contracts." Our description does not apply to contracts issued in
connection with qualified plans, but similar rules apply to the plans
themselves.
CONTRACT OWNER SERVICES
Dollar Cost Averaging. If you reside in a state where we offer the General
Account Fixed Account, you can elect when you apply for your contract to
allocate your initial purchase payment to a special account in the Fixed Account
where it will be credited with interest at a guaranteed fixed rate. Amounts will
be transferred from the special account to a designated Portfolio on a periodic
basis over a designated period of time. If you request a transfer (other than
the dollar cost averaging transfers) or a withdrawal from amounts in the special
account, the dollar cost averaging program will end. Any amounts remaining in
the dollar cost averaging special account will, unless otherwise directed,
immediately be transferred to the other options according to your previous
allocation instructions we have on file.
You can also elect at any time to have money in one of the available investment
allocation options transferred on a system-
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atic basis over a designated period of time to one or more of the other
available Portfolios.
Dollar cost averaging does not assure a profit or protect against a loss should
market prices decline. Transfers under this program do not count against any
limitations otherwise provided limiting transfers among the available investment
options. Ask your Fortis representative about the specific terms of the dollar
cost averaging programs currently available.
Rebalancing. You can have your contract value automatically readjusted among the
available investment allocation options on a selected periodic basis. The
amounts you have in each selected available investment allocation option will
grow or decline in value at different rates during each time period. Rebalancing
is intended to transfer amounts among the chosen available investment allocation
options in order to retain the allocation percentages you specify. Rebalancing
does not assure a profit or protect against a loss should market prices decline
and should be reviewed periodically, as your needs may change. Transfers under
this program do not count against any limitations otherwise provided limiting
transfers among the available investment options. Ask your Fortis representative
about the specific terms of the rebalancing program currently available.
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 on a pro-rata basis from the then-current Fixed
Account value and, by redemption of Accumulation Units, the then-current
Variable Account value in each subaccount.
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 at a nominal annual
rate as follows:
- If all of the owners of a contract are less than 61 years old when the
contract is purchased, the rate is 1.10% of the average daily net assets
of the Variable Account.
- If one or more of the owners of the contract is 61 years old, or older,
the rate is 1.30% of the average daily net assets of the Variable
Account.
We assess this charge during both the Accumulation Period and the Annuity
Period. We guarantee not to increase this charge for the duration of the
contract.
The mortality risk borne by Fortis Benefits arises from its 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, Fortis Benefits bears a mortality risk in that it guarantees to pay a
death benefit upon the death of an Annuitant or owner prior to the Annuity
Commencement Date.
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 charges against the Variable Account described above are for the purposes
described and Fortis Benefits may receive a profit as a result of these charges.
SURRENDER CHARGE
We deduct no sales charge from purchase payments. We deduct a surrender charge
on certain total or partial surrenders. We use the revenues from the surrender
charge 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. Subject to the deemed order of withdrawal rules set forth
below, 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
been previously surrendered the purchase payments).
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We determine the portion of a surrender qualifying for free surrender treatment
by deeming amounts to be withdrawn in the following order:
- For contracts issued where all of the owners of the contract were less
than 61 years old when the contract was purchased:
1. purchase payments that we received more than seven years before the
surrender date, and therefore not subject to a surrender charge.
2. 10% of purchase payments that we received less than seven years before
the surrender date.
3. purchase payments that we received less than seven years before the
surrender date and that you have not previously surrendered.
4. earnings.
- For contracts issued where one or more of the owners of the contract was
61 years old, or older, when the contract was purchased:
1. earnings.
2. purchase payments that we received more than seven years before the
surrender date, and therefore not subject to a surrender charge.
3. 10% of purchase payments that we received less than seven years before
the surrender date.
4. purchase payments that we received less than seven years before the
surrender date and that you have not previously surrendered.
We impose no 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 the contracts only since 1999, and, 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. Surrender charges apply only 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 that we
received made less than seven years before the surrender date). The surrender
charges are:
<TABLE>
<CAPTION>
NUMBER OF YEARS SURRENDER CHARGE
SINCE PURCHASE AS A PERCENTAGE OF
PAYMENT WAS APPLIED PURCHASE PAYMENT
------------------- ------------------
<S> <C>
Less than 3 7%
At least 3 but less than 4 5%
At least 4 but less than 5 4%
At least 5 but less than 6 3%
At least 6 but less than 7 2%
7 or more 0%
</TABLE>
We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent the surrender charge is insufficient, we
will pay such costs from our general account assets. Those assets will include
any profit that we derive from the mortality and expense risk charge.
Nursing Care/Hospitalization Waiver of Surrender Charges. We deduct no surrender
charge 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, to be an organic disease.
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
prospectuses.
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) 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 page. 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.
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POSTPONEMENT OF PAYMENT
With respect to amounts in the Portfolios of the Variable Account, payment of
any amount due upon a total or partial surrender, death or under an annuity
option will ordinarily be made within seven days after all documents required
for such payment are received by us at our home office. However, Fortis Benefits
may defer the determination, application or payment of any death benefit,
transfer, partial or total surrender or annuity payment, to the extent dependent
on Accumulation or Annuity Unit Values as follows: (1) for any period during
which the New York Stock Exchange is closed (other than customary weekend and
holiday closings) or trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission, (2) for any period during
which any emergency exists as a result of which it is not reasonably practicable
for Fortis Benefits to determine the investment experience for the Contract, or
(3) for such other periods as the Securities and Exchange Commission may by
order permit for the protection of investors.
Additionally, 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. Fortis Benefits 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 will credit or charge the amount of any
adjustment with interest at the effective rate of 3% 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 to Fortis Benefits'
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 the home
office of Fortis Benefits. 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.
We will determine the Beneficiary, as follows, upon the death of an owner, or
the Annuitant if the owner is a non-natural person, prior to the Annuity
Commencement date:
- If there is any surviving owner, the surviving owner will be the
Beneficiary (this overrides any other beneficiary designation).
- 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, 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 Portfolios, but not necessarily of the
Variable Account or Fortis Benefits.
RIGHTS RESERVED BY FORTIS BENEFITS
Fortis Benefits reserves the right to make certain changes if, in its 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. Fortis Benefits will obtain your
approval of the changes and approval from any appropriate regulatory authority,
if required by law.
Examples of the changes Fortis Benefits 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 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 Fortis Benefits to
take, including to change the way Fortis Benefits assesses charges, but
without increasing, as to any then outstanding contract,
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the aggregate amount of the types of charges that Fortis Benefits has
guaranteed.
DISTRIBUTION
Fortis Investors, Inc. ("Fortis Investors") is the principal underwriter of the
contracts. The contracts will be sold by individuals who (1) are licensed by
state insurance authorities to sell the contracts of Fortis Benefits and (2)
registered representatives of broker-dealer firms or representatives of other
firms that are exempt from broker dealer regulation. Fortis Investors and any
other broker-dealer firm 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 selling brokers in varying amounts.
Fortis Investors does not expect the allowance, under normal circumstances, to
exceed 4.75% of purchase payments plus a servicing fee of .25% of contract value
per year, starting in the first contract year. Fortis Investors may, under
certain flexible compensation arrangements, pay lesser or greater allowances and
larger or smaller service fees to 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, 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 $30,705,769, $32,874,801 and $48,774,402 to
Fortis Investors for annuity contract distribution services during 1997, 1998
and 1999, respectively. Of these amounts, $5,091,431 in 1997, $5,389,151 in 1998
and $7,643,966 in 1999 was not reallowed to other broker-dealers or exempt
firms. The distribution agreement provides for Fortis Benefits to indemnify
Fortis Investors (and its agents, employees, and controlling persons) for
certain damages and expenses, including those arising under federal securities
laws.
See the Notes to Fortis Benefits' Financial Statements for the amounts Fortis
Benefits has paid to Fortis Investors for various services.
Fortis Investors is an indirect subsidiary of Fortis AMEV and Fortis AG. 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. $157,238,983 of interests in the Guarantee Periods Fixed Account and
an indefinite amount of interests in the Variable Account have been registered
with the Securities and Exchange Commission.
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, and 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 the "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 "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 reaches age 59 1/2
- made to a Beneficiary on or after your death,
- made upon your disability or that of another payee, or
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<PAGE> 23
- part of a series of substantially equal annuity payments for your life or
life expectancy or 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, partial surrender or assignment of a contract, or
- 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 other
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
For a Non-Qualified Contract to receive annuity tax treatment 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 owner. Where the owner or
other person receiving payments is not a natural person, the required
distributions under Section 72(s) apply on the death of the primary Annuitant.
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 educational 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.
We discuss the tax implications of these plans 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 the
investments underlying the Non-Qualified Contracts. We believe that the
investments will satisfy those
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requirements. Failure to do so would result in immediate taxation to you or
another person receiving annuity payments 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 upon 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 contract 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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FURTHER INFORMATION ABOUT FORTIS BENEFITS
GENERAL
Fortis Benefits offers and sells insurance products, including fixed and
variable life insurance policies, fixed and variable annuity contracts, and
group life, accident and health insurance policies. Fortis Benefits markets its
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 Interfinancial, Inc.
which is wholly owned by Fortis, Inc., both having the address of 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 N.V. AMEV., 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) 1999 1998 1997 1996 1995
-------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums and policy charges........................... $1,403,291 $1,299,770 $1,238,006 $1,295,878 $1,232,329
Net investment income................................. 238,698 234,043 228,724 206,023 203,537
Net realized gains (losses) on investment............. 25,962 52,404 41,101 25,731 55,080
Other income.......................................... 53,848 44,671 36,458 31,725 33,085
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES..................................... $1,721,299 $1,630,888 $1,544,289 $1,559,357 $1,524,031
========== ========== ========== ========== ==========
Total benefits and expenses........................... $1,598,266 $1,538,604 $1,442,059 $1,470,066 $1,442,270
Federal Income taxes.................................. 40,327 30,402 35,120 31,099 27,891
Net income............................................ 83,206 61,882 67,110 58,192 53,870
BALANCE SHEET DATA
Total assets.......................................... $9,610,139 $7,598,186 $6,819,484 $5,951,876 $5,143,012
Total liabilities..................................... 8,760,587 6,712,728 5,939,378 5,171,203 4,431,914
Total shareholder's equity............................ 849,552 885,468 880,106 780,673 711,098
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1999 COMPARED TO 1998
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. In the fourth quarter of 1999, the
Company assumed a block of business from an affiliated Company, United Family
Life Insurance Company. This assumed business is primarily pre-need life
insurance designed to pre-fund funeral expenses and is sold as individual and
group life and annuity products. Pre-need business represents $36 million in
gross premium in 1999. Group disability and dental, group medical, group life,
annuity and individual life and pre-need represented 39%,32%, 18%, 8% and 3%,
respectively of premium in 1999 and 38%, 36%, 19%, 7% and 0% respectively in
1998. The Company had less capital gains from fixed income investments in 1999
as compared to 1998. During 1999, the Company decreased its common stock
holdings as a result of investment portfolio realignment which resulted in
equity gains.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1999 and 1998
resulted in recognition of realized gains and losses upon sales of securities.
BENEFITS
The total year-to-date policyholder benefit to premium ratio decreased to 80% in
1999 from 83% in 1998. The group disability and dental, group medical, group
life, annuity and individual life, and pre-need benefit to premium ratios for
the year ended December 31, were 83%, 80%, 70%, 94%, and 87% respectively in
1999 and 83%, 85%, 73%, 108% and 0% respectively in 1998. The group medical
business experienced a lower premium to benefit ratio due to rate increases and
better management of claims. Group life had improved mortality in 1999. The
annuity and individual life business also experienced strong market performance,
in addition to lower interest crediting on the Company's interest sensitive and
investment products.
EXPENSES
Commission rates have decreased from the levels in 1998. 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.
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The Company's general and administrative expense to premium ratio decreased
slightly to 22% in 1999 down from 23% in 1998. A principal reason for this
expense reduction is the combining of three group medical cost centers into one.
The Company continued to monitor expenses, striving to improve the expense to
premium ratio, while maintaining quality and timely services to policyholders.
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 benefit to premium 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 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.
MARKET RISK AND RISK MANAGEMENT
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.
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 calculations 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 98% investment grade bonds
as of December 31, 1999 and the Company does not expect this percentage to
change significantly in the future.
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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 relies on the non-IT systems including
the embedded technology and facility related systems. In addition, the Company
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 part of the
Team. The Team consists of employees at each subsidiary, audit, legal and
outside consultants. The Team has developed and executed a comprehensive plan
(Plan) designed to make the Company's IT systems Year 2000 ready. The Plan
covered four stages including (i) inventory, (ii) assessment, (iii) programming,
and (iv) testing and certification. Programming, testing and certification of
all systems and applications were completed in December, 1999; therefore, the
Company has completed its Plan. The Company also inventoried its various
facility locations and the systems that related thereto, including embedded
technologies. These areas were also part of the Plan and were completed.
The Company identified third parties with which they have a material
relationship in both sending and receiving information from those entities, with
respect to current Year 2000 readiness. This action has also been completed as
part of the Plan.
Costs. The cost of the Company's portion of the Year 2000 project is estimated
at $26.9 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. For the year ended December 31,
1999, approximately $11.4 million (pre-tax) was expensed by the Company.
Risks. The Company limited the potential impact of the Year 2000 by monitoring
the progress of its own Year 2000 project and those of its critical external
relationship (both I/T and non-I/T) and by developing contingency/recovery
plans. Those contingency plans identified the mission critical systems and
relationships and put action plans in place to address a Year 2000 issue. To
date, none of the contingency plans have been implemented. In addition, no
significant Year 2000 issue has arisen which has had a material adverse effect
on the Company's results of operations, liquidity or financial condition
Contingency Plans. Consistent with prudent due diligence efforts, the Company
defined contingency plans aimed at ensuring the continuity of critical business
functions before and after December 31, 1999, should there have been or in the
future, be, an unexpected system failure. The Company developed plans that are
designed to reduce the negative impact on the Company, and provide methods of
returning to normal operations, if failure occurs.
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, and Beneficiaries after the death of
the Annuitant or owner, have the voting interest during the annuity period.
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
Fortis Benefits determines that it is permitted to vote shares of the Portfolios
in its own right, it 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,
- 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 owners 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 participants 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 proce-
25
<PAGE> 28
dures 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 law 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................
Services.......................................
- Safekeeping of Variable Account Assets.....
- Experts....................................
- Principal Underwriter......................
Taxation Under Certain Retirement Plans........
Withholding....................................
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> 29
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheets of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL)
N.V., as of December 31, 1999 and 1998, and the related statements of income,
changes in shareholder's equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company at December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
[/s/ ERNST & YOUNG]
February 17, 2000
Minneapolis, Minnesota
F-1
<PAGE> 30
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
1999--$2,802,697; 1998--$2,315,904).................... $2,706,372 $2,402,343
Equity securities, at fair value (cost 1999--$81,554;
1998--$141,947)........................................ 85,021 157,851
Mortgage loans on real estate, less allowance for possible
losses (1999 and 1998--$11,085)........................ 754,514 610,131
Policy loans.............................................. 83,439 74,950
Short-term investments.................................... 115,527 31,868
Real estate and other investments......................... 47,502 36,156
---------- ----------
3,792,375 3,313,299
Cash and cash equivalents................................... 18,670 668
Receivables:
Uncollected premiums...................................... 62,938 61,883
Reinsurance recoverable on unpaid and paid losses......... 23,471 14,853
Other..................................................... 19,406 17,641
---------- ----------
105,815 94,377
Accrued investment income................................... 55,464 42,831
Deferred policy acquisition costs........................... 430,192 331,938
Property and equipment at cost, less accumulated
depreciation.............................................. 25,118 30,712
Deferred federal income taxes............................... 52,467 17,904
Other assets................................................ 1,582 3,923
Due from affiliates......................................... 8,304 --
Assets held in separate accounts............................ 5,120,152 3,742,403
---------- ----------
Total assets................................................ $9,610,139 $7,578,055
========== ==========
</TABLE>
F-2
<PAGE> 31
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance................ $1,106,269 $ 450,776
Interest sensitive and investment products............. 1,147,657 1,238,125
Accident and health.................................... 940,865 861,334
---------- ----------
3,194,791 2,550,235
Unearned revenues......................................... 28,673 13,393
Other policy claims and benefits payable.................. 265,486 255,350
Policyholder dividends payable............................ 7,939 8,189
---------- ----------
3,496,889 2,827,167
Accrued expenses.......................................... 59,409 57,860
Current income taxes payable.............................. 1,838 4,168
Other liabilities......................................... 120,110 86,226
Due to affiliates......................................... -- 9,479
Liabilities related to separate accounts.................. 5,082,341 3,707,687
---------- ----------
Total policy reserves and liabilities....................... 8,760,587 6,692,587
Commitments and contingencies
Shareholder's equity:
Common Stock, $5 par value:
Authorized, issued and outstanding shares--1,000,000... 5,000 5,000
Additional paid-in capital................................ 468,000 468,000
Retained earnings......................................... 427,811 344,605
Accumulated other comprehensive (loss) income............. (51,259) 67,863
---------- ----------
Total shareholder's equity.................................. 849,552 885,468
---------- ----------
Total policy reserves, liabilities and shareholder's
equity.................................................... $9,610,139 $7,578,055
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 32
STATEMENTS OF INCOME
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Insurance operations:
Traditional life insurance premiums....................... $ 301,377 $ 260,567 $ 269,540
Interest sensitive and investment product policy
charges................................................ 99,047 85,551 77,429
Accident and health insurance premiums.................... 1,002,867 953,652 891,037
---------- ---------- ----------
1,403,291 1,299,770 1,238,006
Net investment income....................................... 238,698 234,043 228,724
Net realized gains on investments........................... 25,962 52,404 41,101
Other income................................................ 53,848 44,671 36,458
---------- ---------- ----------
Total revenues.............................................. 1,721,799 1,630,888 1,544,289
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance................................ 218,993 189,337 204,497
Interest sensitive investment products.................... 93,668 96,178 103,077
Accident and health claims................................ 812,149 798,036 707,113
---------- ---------- ----------
1,124,810 1,083,551 1,014,687
Policyholder dividends...................................... 3,114 3,486 2,935
Amortization of deferred policy acquisition costs........... 43,078 33,365 43,931
Insurance commissions....................................... 124,601 118,710 107,378
General and administrative expenses......................... 302,663 299,492 273,128
---------- ---------- ----------
Total benefits and expenses................................. 1,598,266 1,538,604 1,442,059
---------- ---------- ----------
Income before federal income taxes.......................... 123,533 92,284 102,230
Federal income taxes........................................ 40,327 30,402 35,120
---------- ---------- ----------
Net income.................................................. $ 83,206 $ 61,882 $ 67,110
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 33
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
TOTAL STOCK CAPITAL EARNINGS (LOSS) INCOME
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997.................. $ 780,673 $5,000 $468,000 $265,613 $ 42,060
Comprehensive income:
Net income........................... 67,110 -- -- 67,110 --
Change in unrealized gains (losses)
on investments, net................ 32,323 -- -- -- 32,323
---------
Total Comprehensive income.............. 99,433
--------- ------ -------- -------- ---------
Balance, December 31, 1997................ 880,106 5,000 468,000 332,723 74,383
Comprehensive income:
Net income........................... 61,882 -- -- 61,882 --
Change in unrealized gains (losses)
on investments, net................ (6,520) -- -- -- (6,520)
---------
Total Comprehensive income.............. 55,362
Dividend................................ (50,000) -- -- (50,000) --
--------- ------ -------- -------- ---------
Balance, December 31, 1998................ 885,468 5,000 468,000 344,605 67,863
Comprehensive income:
Net income........................... 83,206 -- -- 83,206 --
Change in unrealized gains (losses)
on investments, net................ (119,122) -- -- -- (119,122)
---------
Total Comprehensive income.............. (35,916)
--------- ------ -------- -------- ---------
Balance, December 31, 1999................ $ 849,552 $5,000 $468,000 $427,811 $ (51,259)
========= ====== ======== ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 34
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 83,206 $ 61,882 $ 67,110
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase (decrease) in future policy benefit
reserves for traditional, interest sensitive and
accident and health policies...................... 97,931 106,135 (2,496)
Increase (decrease) in other policy claims and
benefits and policyholder dividends payable....... 5,012 (2,514) 68,070
Provision for deferred federal income taxes......... 29,454 417 (6,449)
Decrease in income taxes payable.................... (2,330) (6,381) (6,875)
Amortization of deferred policy acquisition costs... 43,078 33,365 43,931
Policy acquisition costs deferred................... (96,308) (73,147) (69,694)
Provision for mortgage loan losses.................. -- -- 1,388
Provision for depreciation.......................... 12,807 12,409 14,351
Write-off of investment............................. -- -- 3,000
Amortization of investment (discounts) premiums,
net............................................... 1,930 (3,200) (466)
Change in receivables, accrued investment income,
unearned premiums, accrued expenses and other
liabilities....................................... 27,227 (4,455) (2,720)
Net realized gains on sold investments.............. (25,962) (52,404) (41,101)
Other............................................... -- 169 (12,496)
----------- ----------- -----------
Net cash provided by operating activities................ 176,045 72,276 55,553
INVESTING ACTIVITIES
Purchases of fixed maturity investments.................. (1,654,104) (2,380,511) (3,611,770)
Sales and repayments of fixed maturity investments....... 1,675,488 2,428,207 3,378,898
(Increase) decrease in short-term investments............ (83,659) 38,669 112,280
Purchases of other investments........................... (305,889) (408,998) (209,771)
Sales of other investments............................... 353,267 352,873 205,084
Purchases of property and equipment...................... (7,213) (356) (4,242)
Cash received pursuant to reinsurance assumption
agreement.............................................. 3,374 -- --
Other.................................................... -- -- (617)
----------- ----------- -----------
Net cash (used in) provided by investing activities...... (18,736) 29,884 (130,138)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received................................ 237,375 215,693 200,760
Surrenders and death benefits.......................... (416,537) (326,457) (190,361)
Interest credited to policyholders..................... 39,855 49,371 53,613
Dividend................................................. -- (50,000) --
----------- ----------- -----------
Net cash (used in) provided by financing activities...... (139,307) (111,393) 64,012
Increase (decrease) in cash and cash equivalents......... 18,002 (9,233) (10,573)
Cash and cash equivalents at beginning of year........... 668 9,901 20,474
----------- ----------- -----------
Cash and cash equivalents at end of year................. $ 18,670 $ 668 $ 9,901
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 35
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Assets and liabilities transferred in reinsurance transactions (Note 8):
<TABLE>
<S> <C>
Non-Cash Assets Received:
Fixed maturities.......................................... $ 517,091
Other Investments......................................... 121,696
Other Assets.............................................. 12,763
Deferred Acquisition Costs................................ 35,882
---------
Total value of assets received.............................. $ 687,432
=========
Non-Cash Liabilities Assumed:
Future policy benefit reserves............................ $(685,932)
Claim reserves............................................ (4,874)
---------
Total Liabilities Assumed................................... $(690,806)
=========
</TABLE>
F-7
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Fortis Benefits Insurance Company (the Company) is an indirect wholly-owned
subsidiary of Fortis, Inc. (Fortis), which itself is an indirect, wholly-owned
subsidiary of Fortis (B) and Fortis (NL) N.V. The Company is incorporated in
Minnesota and distributes its products in all states except New York. The
Company's revenues are derived principally from group employee benefits products
and from individual life and annuity products.
Effective October 1, 1999, the Company assumed pre-need life insurance business
from an affiliate on a 100% co-insurance basis. These life insurance and annuity
products are marketed in connection with the advance funding of funeral
expenses. (See Note 8 "Reinsurance" for more information on this reinsurance
transaction.)
BASIS OF STATEMENT PRESENTATION
During 1998, the Company adopted Statement of Financial Accounting Standards
Board (SFAS) 130, Reporting Comprehensive Income. SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this SFAS had no impact on the Company's net income or
shareholder's equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were reported
separately in shareholder's equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
Effective January 1, 1999, the Company adopted SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP 97-3
requires the estimation and recording of certain insurance-related assessments.
Because the Company previously recorded insurance-related assessments on this
basis, the adoption of SOP 97-3 had no impact on the results of operations or
financial position.
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FAS 133", which deferred to January 1, 2001 the effective date
of the accounting and reporting requirements of SFAS 133. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The adoption of SFAS 133 is not expected to have a material effect on the
Company's results of operations or financial position.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company follows accounting principles generally accepted in the United
States which differ in certain respects from statutory accounting practices
prescribed or permitted by regulatory authorities. The more significant of these
principles are set forth below:
REVENUE RECOGNITION AND FUTURE POLICY BENEFIT RESERVES
Premiums for traditional life insurance and pre-need life products are
recognized as revenues when due over the premium-paying period. Reserves for
future policy benefits are computed using the net level method and include
investment yield, mortality, withdrawal, and other assumptions based on the
Company's experience, modified as necessary to reflect anticipated trends and to
include provisions for possible unfavorable deviations.
Revenues for interest sensitive and investment products consist of charges
assessed against policy account balances during the period for the cost of
insurance, policy administration, and surrender charges. Future policy benefit
reserves are computed under the retrospective deposit method and consist of
policy account balances before applicable surrender charges. Policy benefits
charged to expense during the period include amounts paid in excess of policy
account balances and interest credited to policy account balances. Interest
crediting rates for universal life and investment products ranged from 3.5% to
12% in 1999, and 2.5% to 8.75% in 1998 and 1997.
F-8
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
A portion of the Company's pre-need life products provide an increasing future
benefit tied typically to the U.S. Consumer Price Index or a targeted growth
rate established at management's discretion. All pre-need life products that
have death benefit increases made at management's discretion are accounted for
as interest-sensitive life products.
Premiums for accident and health insurance products, including medical, long and
short-term disability and dental insurance products, are recognized as revenues
ratably over the contract period in proportion to the risk insured. Reserves for
future disability benefits are based on the 1987 Commissioners Group Disability
Table. The valuation interest rate is the Single Premium Immediate Annuity
valuation rate less 100 basis points. Claims in the first five years' are
modified based on the Company's actual experience.
CLAIMS AND BENEFITS PAYABLE
Other policy claims and benefits payable for reported and incurred but not
reported claims and related claims adjustment expenses are determined using
case-basis estimates and past experience. The methods of making such estimates
and establishing the related liabilities are continually reviewed and updated.
Any adjustments resulting therefrom are reflected in income currently.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, which vary with and are directly related to
the production of new business, are deferred to the extent recoverable and
amortized. For traditional and pre-need life insurance and long-term care
products (included as accident and health products), such costs are amortized
over the premium paying period. For interest sensitive and investment products,
such costs are amortized in relation to expected future gross profits.
Estimation of future gross profits requires significant management judgment and
are reviewed periodically. As excess amounts of deferred costs over future
premiums or gross profits are identified, such excess amounts are expensed.
INVESTMENTS
The Company's investment strategy is developed based on many factors including
insurance liability matching, rate of return, maturity, credit risk, tax
considerations and regulatory requirements.
All fixed maturity investments and all marketable equity securities are
classified as available-for-sale and carried at fair value.
Changes in fair values of available for sale securities, after related deferred
income taxes and after adjustment for the changes in the pattern of amortization
of deferred policy acquisition costs and participating policyholder dividends,
are reported directly in shareholder's equity as accumulated other comprehensive
income and, accordingly, have no effect on net income. The unrealized
appreciation or depreciation is net of deferred policy acquisition cost
amortization and taxes that would have been required as a charge or credit to
income had such unrealized amounts been realized.
Mortgage loans constitute first liens on commercial real estate and other income
producing properties. The insurance statutes in Minnesota generally require that
the initial principal loaned not exceed 80% of the appraised value of the
property securing the loan. The Company's policy fully complies with this
statute. Mortgage loans on real estate are reported at amortized cost, less
allowance for possible losses. The change in the allowance for possible losses
is recorded with realized gains and losses on investments.
Policy loans are reported at their unpaid balance. Short term investments are at
cost which approximates fair value.
Real estate and other investments consist principally of property acquired in
satisfaction of debt and limited partnerships, respectively. Real estate is
recorded at cost less allowances for depreciation. The Company provides for
depreciation on a straight-line basis over the estimated useful lives. Other
investments are accounted for using the equity method of accounting.
Realized gains and losses on sales of investments, and declines in value judged
to be other-than-temporary, are recognized on the specific identification basis.
Investment income is recorded as earned.
F-9
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. The
Company provides for depreciation principally on the straight-line method over
the estimated useful lives of the related property. Depreciation expense was
$12,807,000, $12,409,000 and $14,351,000 for the year ended December 31, 1999,
1998 and 1997, respectively.
INCOME TAXES
Income taxes have been provided using the liability method. Deferred tax assets
and liabilities are determined based on the temporary differences between the
financial reporting and the tax bases and are measured using the enacted tax
rates.
SEPARATE ACCOUNTS
Revenues and expenses related to the separate account assets and liabilities are
excluded from the amounts reported in the accompanying statements of income.
Assets and liabilities associated with the separate accounts relate to deposits
and annuity considerations for variable life and variable annuity products for
which the contract holder, rather than the Company, bears the investment risk.
Separate account assets are reported at fair value and represent funds held for
the exclusive benefit of the variable annuity and variable life insurance
contract owners.
The Company receives mortality and expense risk fees from the separate accounts.
The Company also deducts monthly cost of insurance charges, and receives minimum
death benefit guarantee fees and issue and administrative fees from the variable
life insurance separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
GUARANTY FUND ASSESSMENTS
There are a number of insurance companies that are currently under regulatory
supervision. This may result in future assessments by state guaranty fund
associations to cover losses to policyholders of insolvent or rehabilitated
companies. These assessments can be partially recovered through a reduction in
future premium taxes in some states. The Company believes it has adequately
provided for the impact of future assessments relating to current insolvencies.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost which approximates fair value.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive income
which includes unrealized gains and losses on securities classified as
available-for-sale, net of the effect on deferred policy acquisition costs,
taxes and reclassification adjustment.
F-10
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 financial statements have been reclassified
to conform to the 1999 presentation.
2. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Fixed maturities:
Governments................................ $ 309,402 $ 46 $ 8,934 $ 300,514
Public utilities........................... 237,579 341 10,375 227,545
Industrial and miscellaneous............... 2,208,281 7,020 81,412 2,133,889
Other...................................... 47,435 184 3,195 44,424
---------- -------- -------- ----------
Total fixed maturities....................... 2,802,697 7,591 103,916 2,706,372
Equity securities............................ 81,554 5,825 2,358 85,021
---------- -------- -------- ----------
Total........................................ $2,884,251 $ 13,416 $106,274 $2,791,393
========== ======== ======== ==========
DECEMBER 31, 1998
Fixed maturities:
Governments................................ $ 321,047 $ 5,994 $ 436 $ 326,605
Public utilities........................... 190,792 7,769 1,704 196,857
Industrial and miscellaneous............... 1,723,183 79,137 6,451 1,795,869
Other...................................... 80,882 2,181 51 83,012
---------- -------- -------- ----------
Total fixed maturities....................... 2,315,904 95,081 8,642 2,402,343
Equity securities............................ 141,947 18,238 2,334 157,851
---------- -------- -------- ----------
Total........................................ $2,457,851 $113,319 $ 10,976 $2,560,194
========== ======== ======== ==========
</TABLE>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1999, by contractual maturity, are shown below (in
thousands).
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 62,675 $ 62,547
Due after one year through five years....................... 681,595 671,472
Due after five years through ten years...................... 912,713 881,953
Due after ten years......................................... 1,145,714 1,090,400
---------- ----------
Total....................................................... $2,802,697 $2,706,372
========== ==========
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
F-11
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. INVESTMENTS (CONTINUED)
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 38% and 36% of outstanding principal
is concentrated in the states of New York, California and Florida, at December
31, 1999 and 1998, respectively. Loan commitments outstanding totaled
$12,350,000 at December 31, 1999.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $17,061,000 and $19,978,000 at
December 31, 1999 and 1998, respectively, on deposit with various governmental
authorities as required by law.
INVESTMENT IN MANAGED DENTAL INITIATIVE
In 1997, the Company acquired a 99% ownership in a managed dental initiative
called Dental Health Alliance, Inc. (DHA). Based on an analysis of future DHA
profitability, the entire investment of $8,132,000 was written-off at December
31, 1997.
NET UNREALIZED GAINS (LOSSES)
The adjusted net unrealized gains (losses) on investments recorded in
accumulated other comprehensive income for the year ended December 31, are set
forth below (in thousands):
<TABLE>
<CAPTION>
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1999
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $(168,542) $ 58,990 $(109,552)
Decrease in amortization of deferred policy acquisition
costs................................................. 9,142 (3,200) 5,942
Reclassification adjustment for gains (losses) realized
in net income......................................... (23,864) 8,352 (15,512)
--------- -------- ---------
Other comprehensive loss................................... $(183,264) $ 64,142 $(119,122)
========= ======== =========
DECEMBER 31, 1998
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 32,614 $(11,562) $ 21,052
Decrease in amortization of deferred policy acquisition
costs................................................. 414 (145) 269
Reclassification adjustment for gains (losses) realized
in net income......................................... (42,832) 14,991 (27,841)
--------- -------- ---------
Other comprehensive loss................................... $ (9,804) $ 3,284 $ (6,520)
========= ======== =========
DECEMBER 31, 1997
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 93,826 $(33,796) $ 60,030
Increase in amortization of deferred policy acquisition
costs................................................. (2,096) 771 (1,325)
Reclassification adjustment for gains (losses) realized
in net income......................................... (40,587) 14,205 (26,382)
--------- -------- ---------
Other comprehensive income................................. $ 51,143 $(18,820) $ 32,323
========= ======== =========
</TABLE>
F-12
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Major categories of net investment income and realized gains (losses) on
investments for each year were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities............................................ $167,027 $160,163 $160,444
Equity securities........................................... 7,320 8,656 9,306
Mortgage loans on real estate............................... 57,684 57,031 54,662
Policy loans................................................ 5,272 4,653 4,144
Short-term investments...................................... 844 1,701 2,851
Real estate and other investments........................... 6,375 8,194 4,635
-------- -------- --------
244,522 240,398 236,042
Expenses.................................................... (5,824) (6,355) (7,318)
-------- -------- --------
$238,698 $234,043 $228,724
======== ======== ========
NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Fixed maturities............................................ $ (9,750) $ 34,320 $ 13,827
Equity securities........................................... 33,613 8,512 26,760
Mortgage loans on real estate............................... -- (198) 301
Short-term investments...................................... -- 5 --
Real estate and other investments........................... 2,099 9,765 213
-------- -------- --------
$ 25,962 $ 52,404 $ 41,101
======== ======== ========
</TABLE>
Proceeds from sales of investments in fixed maturities were $1,627,450,000,
$2,460,316,000 and $3,360,682,000 in 1999, 1998 and 1997, respectively. Gross
gains of $11,996,000, $44,360,000 and $30,860,000 and gross losses of
$21,746,000, $10,040,000 and $17,033,000 were realized on the sales in 1999,
1998 and 1997, respectively.
F-13
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows (in
thousands):
<TABLE>
<CAPTION>
INTEREST
TRADITIONAL SENSITIVE AND
AND PRE-NEED INVESTMENT ACCIDENT AND
LIFE PRODUCTS HEALTH TOTAL
------------ ------------- ------------ --------
<S> <C> <C> <C> <C>
Balance, January 1, 1998.................... $22,169 $264,383 $ 5,190 $291,742
Acquisition costs deferred................ -- 69,921 3,226 73,147
Acquisition costs amortized............... (7,609) (20,256) (5,500) (33,365)
Decreased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities....... -- 414 -- 414
------- -------- ------- --------
Balance, December 31, 1998.................. 14,560 314,462 2,916 331,938
Acquisition costs deferred................ 33,783 81,016 17,391 132,190
Acquisition costs amortized............... (2,438) (38,831) (1,809) (43,078)
Decreased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities....... -- 9,142 -- 9,142
------- -------- ------- --------
Balance, December 31, 1999.................. $45,905 $365,789 $18,498 $430,192
======= ======== ======= ========
</TABLE>
Included in total policy acquisition costs deferred in 1999 is $35,882,000 of
present value of future profits (PVP) and $1,416,000 of subsequent acquisition
costs resulting from the reinsurance assumption agreement with United Family
Life Insurance Company, an affiliate, which became effective October 1, 1999.
PVP is being amortized against the expected premium revenue of the pre-need life
insurance business assumed. See Note 8 "Reinsurance" for more information on
this reinsurance transaction.
During 1999, 1998 and 1997, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized net capital gains resulted in increased (decreased) amortization of
deferred acquisition costs of $(224,000), $3,357,000 and $732,000, respectively.
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land........................................................ $ 1,900 $ 1,900
Building and improvements................................... 26,383 24,319
Furniture and equipment..................................... 76,604 87,714
-------- --------
104,887 113,933
Less accumulated depreciation............................... (79,769) (83,221)
-------- --------
Net property and equipment.................................. $ 25,118 $ 30,712
======== ========
</TABLE>
F-14
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
5. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables.... $1,061,883 $ 988,036 $947,711
Add: Incurred losses related to:
Current year.............................................. 824,949 826,009 773,316
Prior years............................................... (12,800) (27,973) (59,634)
---------- ---------- --------
Total incurred losses....................................... 812,149 798,036 713,682
Deduct: Paid losses related to:
Current year.............................................. 468,404 469,881 437,405
Prior years............................................... 266,025 254,308 235,952
---------- ---------- --------
Total paid losses........................................... 734,429 724,189 673,357
---------- ---------- --------
Balance as of December 31, net of reinsurance
recoverables.............................................. $1,139,603 $1,061,883 $988,036
========== ========== ========
</TABLE>
The table above compares to the amounts reported on the balance sheet in the
following respects: (1) the table above is presented net of ceded reinsurance
and the accident and health reserves reported on the balance sheet are gross of
ceded reinsurance; and (2) the table above includes accident and health benefits
payable which are included with other policy claims and benefits payable
reported on the balance sheet.
In each of the years presented above, the accident and health insurance line of
business experienced overall favorable development on claims reserves
established as of the previous year end. The favorable development was a result
of lower medical costs and a reduction of loss reserves due to lower than
anticipated inflation in medical costs.
The liability for unpaid accident and health claims includes $994,651,000,
$915,368,000 and $854,940,000 of total disability income reserves as of December
31, 1999, 1998 and 1997, respectively, which were discounted for anticipated
interest earnings using a rate which varies by incurral year.
6. FEDERAL INCOME TAXES
The Company reports its taxable income in a consolidated federal income tax
return along with other affiliated subsidiaries of Fortis. Income tax expense or
credits are allocated among the affiliated subsidiaries by applying corporate
income tax rates to taxable income or loss determined on a separate return basis
according to a Tax Allocation Agreement.
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial statement purposes and
for income tax purposes.
F-15
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
6. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Separate account assets/liabilities....................... $ 60,716 $ 87,300
Reserves.................................................. 35,843 27,586
Claims and benefits payable............................... 7,964 8,089
Accrued liabilities....................................... 6,973 10,113
Unrealized Losses......................................... 32,500 --
Investments............................................... 4,549 3,861
Other..................................................... 6,755 2,723
-------- --------
Total deferred tax assets................................... 155,300 139,672
Deferred tax liabilities:
Deferred policy acquisition costs......................... 98,539 82,031
Unrealized gains.......................................... -- 35,591
Fixed assets.............................................. 2,963 3,150
Investments............................................... 1,171 982
Other..................................................... 160 14
-------- --------
Total deferred tax liabilities.............................. 102,833 121,768
-------- --------
Net deferred tax asset...................................... $ 52,467 $ 17,904
======== ========
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets, and, therefore, no such valuation
allowance has been established.
The Company's tax expense (benefit) for the year ended December 31 is shown as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current..................................................... $10,873 $30,232 $41,569
Deferred.................................................... 29,454 170 (6,449)
------- ------- -------
$40,327 $30,402 $35,120
======= ======= =======
</TABLE>
Federal income tax payments and refunds resulted in net payments of $13,203,000,
$36,367,000 and $58,859,000 in 1999, 1998 and 1997, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate................................... 35.0% 35.0% 35.0%
Other, net.................................................. (2.4) (2.1) (.6)
---- ---- ----
32.6% 32.9% 34.4%
==== ==== ====
</TABLE>
F-16
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
7. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Premium and annuity considerations for the variable annuity
products and variable universal life products for which
the contract holder, rather than the Company, bears the
investment risk........................................... $5,082,341 $3,707,687
Assets of the separate accounts owned by the Company, at
fair value................................................ 37,811 34,716
---------- ----------
$5,120,152 $3,742,403
========== ==========
</TABLE>
8. REINSURANCE
In the second quarter of 1996, First Fortis Life Insurance Company (First
Fortis), an affiliate, received approval from the New York State Insurance
Department for a reinsurance agreement with the Company. The agreement, which
became effective as of January 1, 1996, decreased First Fortis' long-term
disability reinsurance retention from a $10,000 net monthly benefit to a $2,000
net monthly benefit for claims incurred on and after January 1, 1996. The
Company has assumed $6,580,000, $5,601,000 and $5,742,000 of premium from First
Fortis in 1999, 1998 and 1997, respectively. The Company has assumed
$11,047,000, $9,315,000 and $5,452,000 of reserves in 1999, 1998 and 1997,
respectively, from First Fortis.
In the fourth quarter of 1999, United Family Life Insurance Company (UFL), an
affiliate, received approval from the state of Georgia for a reinsurance
agreement with the Company. The agreement, which became effective October 1,
1999, provided for the cession of substantially all of UFL's pre-need life
insurance business on a 100% co-insurance basis. The Company assumed
approximately $690,806,000 of reserves and received approximately $654,924,000
of cash, investments (primarily fixed maturities and mortgages) and other assets
as of October 1, 1999. The $35,882,000 ceding commission was capitalized as an
acquisition cost (as described in Note 3). During the period October 1, 1999 to
December 31, 1999, the Company assumed $31,523,000 of premium under the
contract.
The maximum amount that the Company retains on any one life is $1,000,000 of
life insurance including accidental death. Amounts in excess of $1,000,000 are
reinsured with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums for the year ended December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Life insurance.............................................. $ 6,246 $ 6,983 $ 8,159
Accident and health insurance............................... 17,803 13,862 13,712
------- ------- -------
$24,049 $20,845 $21,871
======= ======= =======
</TABLE>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Life insurance.............................................. $ 478 $ 4,549 $ 2,973
Accident and health insurance............................... 13,669 9,465 14,781
------- ------- -------
$14,147 $14,014 $17,754
======= ======= =======
</TABLE>
Reinsurance ceded would become a liability of the Company in the event the
reinsurers are unable to meet the obligations assumed under the reinsurance
agreement. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities or economic characteristics of the reinsurers.
F-17
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
9. DIVIDEND RESTRICTIONS
Dividend distributions to the parent are restricted as to the amount by state
regulatory requirements. The Company had $49,286,000 free from such restrictions
as of December 31, 1999. Distributions in excess of this amount would require
regulatory approval.
10. REGULATORY ACCOUNTING REQUIREMENTS
Statutory-basis financial statements are prepared in accordance with accounting
practices prescribed or permitted by the Minnesota Department of Commerce.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners ("NAIC"), as well as state
laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed; such
practices may differ from state to state, may differ from company to company
within a state, and may change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification requires adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Minnesota has adopted Codification
effective January 1, 2001. Management has not yet determined the impact of
Codification to the Company's statutory-basis financial statements.
Insurance enterprises are required by State Insurance Departments to adhere to
minimum risk-based capital ("RBC") requirements developed by the NAIC. The
Company exceeds the minimum RBC requirements.
Reconciliations of net income and shareholder's equity on the basis of statutory
accounting to the related amounts presented in the accompanying statements were
as follows (in thousands):
<TABLE>
<CAPTION>
SHAREHOLDER'S
NET INCOME EQUITY
----------------------------- ---------------------
1999 1998 1997 1999 1998
-------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices........... $ 9,387 $14,841 $ 62,593 $ 497,858 $ 478,405
Deferred policy acquisition costs................. 54,049 39,782 25,763 430,192 331,938
Investment valuation differences.................. 953 745 (497) (103,361) 100,165
Deferred and uncollected premiums................. (4,637) 511 2,064 (13,188) (7,246)
Policy reserves................................... (20,070) (7,041) (19,363) (127,766) (156,889)
Commissions....................................... 79,067 -- (3,171) -- --
Current income taxes payable...................... (8,882) 925 6,450 (9,000) (10,920)
Deferred income taxes............................. (18,650) (417) 6,449 52,467 17,904
Realized gains on investments..................... 9 356 251 -- --
Realized gains (losses) transferred to the
Interest Maintenance Reserve (IMR), net of
tax............................................. (6,163) 22,748 9,644 -- --
Amortization of IMR, net of tax................... (8,565) (7,128) (6,315) -- --
Write-off of investment........................... -- (11,705) -- --
Pension expense................................... (1,475) 81 (4,153) (8,235) (6,440)
Property and equipment............................ -- -- -- 591 5,951
Interest maintenance reserve...................... -- -- -- 55,117 68,968
Asset valuation reserve........................... -- -- -- 72,940 90,986
Mortgage loans on real estate..................... -- -- -- -- (20,141)
Other, net........................................ 8,183 (3,521) (900) 1,937 (7,213)
-------- ------- -------- --------- ---------
As reported herein................................ $ 83,206 $61,882 $ 67,110 $ 849,552 $ 885,468
======== ======= ======== ========= =========
</TABLE>
F-18
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
11. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company receives various services from Fortis and its affiliates. These
services include assistance in benefit plan administration, corporate insurance,
accounting, tax, auditing, investment and other administrative functions. The
fees paid to Fortis, Inc. for these services for years ended December 31, 1999,
1998 and 1997, were $11,661,000, $13,077,000 and $12,015,000, respectively.
During 1997, Fortis, Inc. began providing information technology services to the
Company. Information technology expenses were $59,390,000, $55,910,000 and
$28,525,000 for years ended December 31, 1999, 1998 and 1997, respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $79,413,000, $72,638,000 and $72,105,000 in commissions to its affiliate,
Fortis Investors, Inc., for the years ended December 31, 1999, 1998 and 1997,
respectively.
Administrative expenses allocated for the Company may be greater or less than
the expenses that would be incurred if the Company were operating on a separate
company basis.
12. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS
The fair values for fixed maturity securities and equity securities are based on
quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
Mortgage loans are reported at unpaid principal balance less allowances for
possible losses. The fair values of mortgage loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Mortgage loans with
similar characteristics are aggregated for purposes of the calculations. The
carrying amount of policy loans reported in the Balance Sheet approximates fair
value. For short-term investments, the carrying amount is a reasonable estimate
of fair value. The fair values for the Company's policy reserves under the
investment products are determined using cash surrender value. Separate account
assets and liabilities are reported at their estimated fair values in the
Balance Sheet.
The fair values under all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk, such that the Company's
exposure to changing interest rates is minimized through the matching of
investment maturities with amounts due under insurance contracts.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities.............................. $2,706,372 $2,706,372 $2,402,343 $2,402,343
Equity securities............................. 85,021 85,021 157,851 157,851
Mortgage loans on real estate...................... 754,514 741,397 610,131 662,984
Policy loans....................................... 83,439 83,439 74,950 74,950
Short-term investments............................. 115,527 115,527 31,868 31,868
Assets held in separate accounts................... 5,120,152 5,120,152 3,742,403 3,742,403
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal)....................... $ 789,002 $ 763,861 $ 923,102 $ 894,019
Liabilities related to Separate Accounts........... 5,082,341 5,082,341 3,707,687 3,707,687
</TABLE>
F-19
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.
14. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company is an indirect wholly-owned subsidiary of Fortis, which sponsors a
defined benefit pension plan covering employees and certain agents who meet
eligibility requirements as to age and length of service. The benefits are based
on years of service and career compensation. Fortis Inc.'s funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes, and to charge each subsidiary an allocable amount based on its
employee census. Pension cost allocated to the Company amounted to approximately
$2,225,000, $1,627,000 and $1,594,000 for 1999, 1998 and 1997, respectively.
The Company participates in a contributory profit sharing plan, sponsored by
Fortis, covering employees and certain agents who meet eligibility requirements
as to age and length of service. Benefits are payable to participants on
retirement or disability and to the beneficiaries of participants in the event
of death. The first three percent of an employee's contribution is matched 200%
by the Company. The amount expensed was approximately $3,711,000, $3,610,000 and
$3,926,000 for 1999, 1998 and 1997, respectively.
In addition to retirement benefits, the Company participates in other health
care and life insurance benefit plans ("postretirement benefits") for retired
employees, sponsored by Fortis. Health care benefits, either through a Fortis
sponsored retiree plan for retirees under age 65 or through a cost offset for
individually purchased Medigap policies for retirees over age 65, are available
to employees who retire on or after January 1, 1993, at age 55 or older, with 15
years or more service. Life insurance, on a retiree pay all basis, is available
to those who retire on or after January 1, 1993.
There were no net postretirement benefit costs allocated to the Company for the
years ended December 31, 1999 and 1998. Costs allocated to the Company for the
year ended December 31, 1997 were $304,000, which includes the expected cost of
such benefits for newly eligible or vested employees, interest cost, gains and
losses arising from differences between actuarial assumptions and actual
experience, and amortization of the transition obligation. The Company made
contributions to the plans of approximately $19,000, $(5,200) and $20,000 in
1999, 1998 and 1997, respectively, as claims were incurred.
15. YEAR 2000 (UNAUDITED)
The Company utilizes Fortis and its computer systems to process Company
businesses. Fortis created a Year 2000 Project Office which was dedicated to
ensuring that all of the systems for Fortis and its subsidiaries and affiliates
were ready for year 2000. The estimated total cost of the Fortis Year 2000
Project was approximately $85 million. This cost reflects the total cost to the
Fortis U.S. companies (excluding the recent American Bankers Insurance Group
acquisition). The cost of the Company's portion is estimated at $26.9 million.
Approximately, $11.4 million was expensed by the Company in 1999.
As of December 20, 1999, 100% of the Mission Critical and non-Mission Critical
computer system lines of code that had been identified were renovated and tested
and were ready for year 2000. Although there have been several minor matters, as
of the date of this publication, no significant disruptions resulting from the
century date change have been detected in any of the mission critical systems.
The Company will continue to monitor the status of and exposure to any potential
Year 2000 issues.
F-20
<PAGE> 49
CONTRACTS UNDER
FLEXIBLE PREMIUM DEFERRED
COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
TRIPLE CROWN VARIABLE ANNUITY
Issued by
FORTIS BENEFITS INSURANCE COMPANY
(AND ITS VARIABLE ACCOUNT D)
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
This Statement of Additional Information is not a Prospectus. It is intended
that this Statement of Additional Information be read in conjunction with the
Prospectus for Contracts under flexible premium deferred combination variable
and fixed annuity contracts ("Contracts"), dated May 1, 2000. A copy of the
Prospectus may be obtained without charge from Fortis Investors, Inc.
1-800-963-9222, mailing address: P.O. Box 64273, St. Paul, MN 55164. You have
the option of receiving benefits under a Contract through Fortis Benefits'
Variable Account D or through Fortis Benefits' Guarantee Periods Fixed Account
or its General Account Fixed Account.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Fortis Benefits and the Variable Account..................................1
Calculation of Annuity Payments...........................................2
Services..................................................................3
o Safekeeping of Variable Account Assets................................3
o Experts...............................................................3
o Principal Underwriter ................................................3
Taxation Under Certain Retirement Plans...................................3
Withholding...............................................................8
Miscellaneous.............................................................8
Variable Account Financial Statements.....................................9
Appendix A -- Performance Information...................................A-1
</TABLE>
In order to supplement the description in the Prospectus, the following provides
additional information about the Contracts and other matters which may be of
interest to you. Terms used in this Statement of Additional Information have the
same meanings as are defined in the Prospectus under the heading "Special Terms
Used in This Prospectus."
FORTIS BENEFITS AND THE VARIABLE ACCOUNT
Fortis Benefits Life Insurance Company, the issuer of the Contracts, is a
Minnesota corporation qualified to sell life insurance and annuity contracts in
the District of Columbia and in all states except New York. Fortis Benefits is a
wholly-owned subsidiary of Interfinancial, Inc., a stock company organized under
the laws of Georgia, which itself is a wholly-owned subsidiary of Fortis, Inc.
Fortis, Inc. is a corporation based in New York, which manages the United States
operations of Fortis (NL) N.V. and Fortis (B).
1
<PAGE> 50
Fortis (NL) N.V. has been in business since 1847 and is a publicly-traded,
multi-national insurance, real estate, and financial services group
headquartered in The Netherlands. It is one of the largest holding companies in
Europe, with subsidiary companies in twelve countries on four continents. Fortis
(NL) N.V. is the third largest insurance company in the Netherlands.
Fortis (B) is a multi-national insurance, real estate and financial services
firm that has been in business since 1824. It has subsidiary companies in eight
countries. Fortis (B) is one of the largest life insurance companies in Belgium.
Fortis (NL) N.V. and Fortis (B) have combined assets of approximately $......
billion.
The assets allocated to the Variable Account are the exclusive property of
Fortis Benefits. Registration of the Variable Account under the Investment
Company Act of 1940 does not involve supervision of the management or investment
practices or policies of the Variable Account or of Fortis Benefits by the
Securities and Exchange Commission. Fortis Benefits may accumulate in the
Variable Account proceeds from charges under the Contracts and other amounts in
excess of the Variable Account assets representing reserves and liabilities
under Contracts and other variable annuity contracts issued by Fortis Benefits.
Fortis Benefits may from time to time transfer to its general account any of
such excess amounts.
Best's Insurance Reports has assigned Fortis Benefits a rating of A (Excellent)
for financial position and operating performance. Fortis Benefits has a rating
of AA- from Standard & Poor's. As defined by Standard & Poor's, insurers rated
AA- offer "very strong financial strength." These ratings represent such rating
agencies" independent opinion of Fortis Benefits" financial strength and ability
to meet policy holder obligations, but have no relevance to the performance and
quality of the assets in Subaccounts of the Variable Account.
CALCULATION OF ANNUITY PAYMENTS
FIXED ANNUITY OPTION
The amount of each annuity payment under a Fixed Annuity Option is fixed and
guaranteed by Fortis Benefits. Monthly fixed annuity payments will start as of
the end of the Valuation Period that contains the Annuity Commencement Date. At
that time, the Contract Value, after any Market Value Adjustment, is computed
and that portion of the Contract Value which will be applied to the Fixed
Annuity Option selected is determined. The amount of the first monthly payment
under the Fixed Annuity Option selected will be at least as large as would
result from using the annuity tables contained in the Contract to apply such
amount of Contract Value to the annuity form selected. The dollar amounts of any
fixed annuity payments after the first are specified during the entire period of
annuity payments according to the provisions of the annuity form selected.
VARIABLE ANNUITY OPTION
Annuity Units. To the extent a Variable Annuity Option has been selected, we
convert the Accumulation Units for each Subaccount of the Variable Account into
Annuity Units for each chosen Subaccount at their values determined as of the
end of the Valuation Period which contains the Annuity Commencement Date. As of
such time, any Fixed Account Value to be applied to a Variable Annuity Option is
also converted, after any Market Value Adjustment, to Annuity Units in the
Subaccounts selected based on the then-current Annuity Unit value. The initial
number of Annuity Units in each Subaccount is determined by dividing the amount
of the initial monthly variable annuity payment (see "Variable Annuity Option --
Variable Annuity Payments," below) allocable to that Subaccount by the value of
one Annuity Unit in that Subaccount as of the time of the conversion. The number
of Annuity Units for each Subaccount will remain constant, as long as an annuity
remains in force and the allocation among the Subaccounts has not changed.
The value of each Subaccount's Annuity Units will vary to reflect the investment
experience of the Subaccount as well as charges deducted from the Subaccount.
The value of each Subaccount's Annuity Units is equal to the prior value of the
Subaccount's Annuity Units multiplied by the net investment factor for that
Subaccount (discussed in the Prospectus
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under "Contract Value") for the Valuation Period ending on that Valuation Date,
with an offset for the 3% assumed interest rate used in the annuity tables of
the Contract.
Variable Annuity Payments. Variable annuity payments start at the end of the
Valuation Period that contains the Annuity Commencement Date, and will vary in
amount as the related Annuity Unit values vary. The amount of the first monthly
payment is shown on the annuity tables contained in the Contract for each $1,000
of Contract Value applied to the Variable Annuity Option selected as of the end
of such Valuation Period. The first variable annuity payment is, in effect,
allocated among the Subaccounts in the same proportion as the Contract Value is
allocated among the Subaccounts upon commencement of annuity payments.
Payments after the first will vary in amount and are determined on the first
Valuation Date of each subsequent monthly period. If the monthly payment under
the annuity form selected is based on the value of Annuity Units of a single
Subaccount, the monthly payment is found by multiplying the number of the
Contract's Annuity Units for the Subaccount by the Annuity Unit value of such
Subaccount as of the first Valuation Date in each monthly period following the
Annuity Commencement Date. If the monthly payment under the Variable Annuity
Option selected is based upon the value of Annuity Units in more than one
Subaccount, this is repeated for each applicable Subaccount. The sum of these
payments is the variable annuity payment.
GENDER OF ANNUITANT
The amount of each annuity payment ordinarily will be higher for a male
Annuitant than for a female Annuitant with an otherwise identical Contract. This
is because, statistically, females tend to have longer life expectancies than
males. However, there will be no differences between male and female Annuitants
in any jurisdiction, including Montana, where such differences are not
permitted. We will also make available Contracts with no such differences in
connection with certain employer-sponsored benefit plans. Employers should be
aware that, under most such plans, Contracts that make distinctions based on
gender are prohibited by law.
SERVICES
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
Title to the assets of the Variable Account is held by Fortis Benefits. The
assets of the Variable Account are kept segregated and held separate and apart
from Fortis Benefits' other assets.
EXPERTS
The financial statements of Fortis Benefits Insurance Company at December 31,
1999 and 1998, and for each of the three years in the period ended December 31,
1999, and the statements of net assets of Fortis Benefits Insurance Company
Variable Account D at December 31, 1999 and the related statements of changes in
net assets for each of the two years in the period ended December 31, 1999,
appearing in the Prospectus, this Statement of Additional Information and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such authority as experts in accounting and
auditing.
PRINCIPAL UNDERWRITER
Fortis Investors, Inc. ("Fortis Investors"), the principal underwriter of the
Contracts, is a Minnesota corporation and a member of the Securities Investors
Protection Corporation. The offering of the Contracts is continuous, and Fortis
Investors does not anticipate discontinuing the offering of the Contracts,
although it reserves the right to do so. Contracts generally will be issued for
Annuitants from ages zero to ninety in all states.
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TAXATION UNDER CERTAIN RETIREMENT PLANS
Federal income tax information concerning the purchase of Contracts for specific
types of retirement plans is set forth below. You should also refer to "Federal
Tax Matters" in the Prospectus. The tax information provided is not
comprehensive, and you should consult a qualified tax adviser before taking any
action in connection with a retirement plan.
SECTION 403(B) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS
OR PUBLIC EDUCATIONAL INSTITUTIONS
Purchase Payments. Under Section 403(b) of the Internal Revenue Code ("Code"),
payments made by certain employers (i.e., tax-exempt organizations meeting the
requirements of Section 501(c)(3) of the Code, or public educational
institutions) to purchase Contracts for their employees are excludible from the
gross income of employees to the extent that such aggregate purchase payments do
not exceed certain limitations prescribed by the Code. This is the case whether
the purchase payments are a result of voluntary salary reduction amounts or
employer contributions. Salary reduction payments are, however, subject to FICA
(social security) taxes.
Taxation of Distributions. Distributions from a Section 403(b) tax-deferred
annuity are taxed as ordinary income to the recipient as described under
"Federal Tax Matters" in the Prospectus. Taxable distributions received before
the employee attains age 59 1/2 generally are subject to a 10% penalty tax in
addition to regular income tax. Certain distributions are excepted from this
penalty tax, including distributions following the employee's death, disability,
separation from service after age 55, separation from service at any age if the
distribution is in the form of an annuity for the life (or life expectancy) of
the employee (or the employee and Beneficiary) and distributions not in excess
of deductible medical expenses. In addition, 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.)
Required Distributions. Generally, distributions from Section 403(b) annuities
must commence not later than April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2, and such distributions must be
made over a period that does not exceed the life expectancy of the employee
(or the employee and Beneficiary). A penalty tax of 50% would be imposed on any
amount by which the minimum required distribution in any year exceeded the
amount actually distributed in that year. In addition, in the event that the
employee dies before his or her entire interest in the Contract has been
distributed, the employee's entire interest must be distributed in accordance
with rules similar to those applicable upon the death of the Participant or
Payee in the case of a Non-Qualified Contract, as described in the Prospectus.
Certain of these and other provisions are incorporated in a special endorsement
attached to Contracts that are intended to qualify under Section 403(b), and
reference should be made to that endorsement for its complete terms.
Tax-Free Exchanges and Rollovers. The Code provides for the tax-free transfer of
one Section 403(b) annuity for another Section 403(b) annuity, and the IRS has
ruled (Revenue Ruling 90-24) that amounts transferred may qualify as tax-free
transfers under certain circumstances. In addition, Section 403(b)(8) of the
code permits tax-free rollovers from Section 403(b) programs to individual
retirement annuities or other Section 403(b) programs under certain
circumstances.
SECTION 401 QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY PLANS
Purchase Payments. Subject to certain limitations prescribed by the Code,
purchase payments made by an employer (or a self-employed individual) under a
pension, profit-sharing or annuity plan qualified under Section 401 or Section
403(a) of the Code are generally deductible by the employer and excluded from
the taxable income of the employee for federal income tax purposes, whether made
under a salary reduction agreement or directly by employer
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contributions. Salary reduction payments are, however, subject to FICA (social
security) taxes. Purchase payments made directly by an employee generally are
made on an after-tax basis.
Taxation of Distributions. Distributions from Contracts purchased under these
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions, as described under "Federal Tax
Matters -- Qualified Plans," in the Prospectus. However, if an employee or other
payee receives a "lump sum" distribution, as defined in the Code, from an exempt
employees' trust, the taxable portion of the distribution may be subject to
special tax treatment. For most individuals receiving lump sum distributions
after attaining age 59 1/2, the rate of tax may be determined under a special
5-year income averaging provision. Those who attained age 50 by January 1, 1986
may instead elect to use a 10-year income averaging provision based on the
income tax rates in effect for 1986. Taxable distributions received prior to
attainment of age 59 1/2 under a Contract purchased under a qualified plan are
subject to the same 10% penalty tax (and the same exceptions) as described above
with respect to Section 403(b) annuities.
Required Distributions. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuities.
Tax-Free Rollovers. If, within 60 days of receipt, an employee who receives a
single sum distribution transfers all of the taxable amount received to another
plan qualified under Section 401 or 403(a), or to an individual retirement
account or annuity as provided for under the Code, the transferred amount will
not be taxed in the year of distribution. Certain "partial" distributions may
also qualify for tax-free rollover treatment, but only if transferred to an
individual retirement account or annuity. However, income tax may be withheld
from the distribution unless the distribution is transferred directly from the
qualified plan to the individual retirement account or individual retirement
annuity.
INDIVIDUAL RETIREMENT ANNUITIES
Purchase Payments. Individuals may make contributions for individual retirement
annuity ("IRA") Contracts. Deductible contributions for any year may be made up
to the lesser of $2,000 or 100% of compensation for individuals who (1) are not
(and whose spouses are not) active participants in another retirement plan, (2)
are unmarried and have adjusted gross income of $25,000 or less, or (3) are
married and have adjusted gross income of $40,000 or less. An individual may
also establish an IRA for his or her spouse if they file a joint return for the
taxable year and his or her spouse earns less than the individual does for that
year. The annual purchase payments for both spouses' Contracts cannot exceed the
lesser of $4,000 or 100% of the couple's combined earned income, and no more
than $2,000 may be contributed to either spouse's IRA for any year. Individuals
who are active participants in other retirement plans and whose adjusted gross
income (with certain special adjustment) exceed the cut-off point ($25,000 for
unmarried, $40,000 for married persons filing jointly, and $0 for married
persons filing a separate return) by less than $10,000 are entitled to make
deductible IRA contributions in proportionately reduced amounts. For example, a
married individual who is an active participant in another retirement plan and
files a separate tax return is entitled to a partial IRA deduction if the
individual's adjusted gross income is less than $10,000 and no IRA deduction if
his or her adjusted gross income is equal to or greater than $10,000.
An individual may make non-deductible IRA contributions to the extent of (1) the
lesser of $2,000 ($4,000 in the case of a spousal IRA) or 100% of compensation
over (2) the IRA deductible contribution made with respect to the individual.
An individual may not make any contributions to his/her own IRA for the year in
which he/she reaches age 70 1/2 or for any year thereafter. Contributions to a
spouse's IRA may not be made for any year in which that spouse reaches age
70 1/2 or for any year thereafter.
Taxation of Distributions. Distributions from IRA Contracts are taxed as
ordinary income to the recipient, although special rules exist for the tax-free
return of non-deductible contributions. In addition, taxable distributions
received under an IRA Contract prior to age 59 1/2 are subject to a 10% penalty
tax in addition to regular income tax. Certain distributions are exempted from
this penalty tax including distributions following the owner's death or
disability or
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distribution in the form of an annuity for the life (or life expectancy) of the
owner (or the owner and beneficiary), or distributions not in excess of
deductible medical expenses or certain distributions to pay health insurance
premiums after an extended period of unemployment.
Required Distributions. The minimum distribution requirements for IRAs are
generally the same as described above with respect to Section 403(b) annuities.
Certain of these and other provisions are incorporated in a special endorsement
attached to IRA Contracts, and reference should be made to that endorsement for
its complete terms.
Tax-Free Rollovers. The Code permits funds to be transferred in a tax-free
rollover from a qualified employer pension, profit-sharing, annuity, bond
purchase or tax-deferred annuity plan to an IRA Contract if certain conditions
are met, and if the rollover of assets is completed within 60 days after the
distribution from the qualified plan is received. In addition, not more
frequently than once every twelve months, amounts may be rolled over tax-free
from one IRA to another, subject to the 60-day limitation and other
requirements. The once-per-year limitation on rollovers does not apply to direct
transfers of funds between IRA custodians or trustees.
SIMPLIFIED EMPLOYEE PENSION PLANS
Purchase Payments. Under Section 408(k) of the Code, employers may establish a
type of IRA plan referred to as a simplified employee pension plan (SEP).
Employer contributions to a SEP cannot exceed the lesser of $24,000 or 15% of
the employee's earned income. Employees of certain small employers may have
contributions made to a special kind of SEP (SARSEP) on their behalf on a salary
reduction basis if the SARSEP plan was in effect on December 31, 1996. These
salary reduction contributions may not exceed $9,500 in 1997, which is indexed
for inflation. Employees of tax-exempt organizations and state or local
government agencies have never been eligible for the salary reduction type of
SEP.
Taxation of Distributions. Generally, distribution payments from SEPs are
subject to the same distribution rules described above for IRAs.
Required Distributions. SEP distributions are subject to the same minimum
required distribution rules described above for IRAs.
Tax-Free Rollovers. Generally, rollovers and direct transfers may be made to and
from SEPs in the same manner as described above for IRAs, subject to the same
conditions and limitations. Rollovers to other IRAs, excluding SIMPLE IRAs are
also possible. Special rules apply if the rollover is from a SARSEP IRA.
SECTION 408(P) SIMPLE IRA PLANS
Purchase Payments: Under Section 408(p) of the Code, small employers may
establish a type of IRA plan referred to as a Savings Incentive Match Plan for
Employees (SIMPLE Plan). An employee may contribute annually through his or her
employer a pre-tax salary reduction contribution not to exceed the lesser of
$6,000 or 100% of compensation. The employer must annually either (1) match the
employee contribution dollar for dollar up to 3% of pay, or (2) make a 2% of pay
contribution for each eligible employee regardless of whether the employee makes
any salary reduction contribution. In two out of every five years, the employer
has the option to reduce the matching contribution as low as 1% of pay but
advance notice must be provided to employees.
Taxation of Distributions: Generally, distributions from SIMPLE IRA Plans are
subject to the same distribution rules described above for IRAs. However, if an
individual withdraws any amount from his SIMPLE IRA Plan within the first two
years of his or her commencement of participation in the employer"s SIMPLE IRA
Plan, the 10% penalty tax for premature distribution, if such tax applies, will
be increased to 25%.
Required Distributions: SIMPLE distributions are subject to the same minimum
distribution rules described above for IRAs.
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Tax-Free Rollovers: Generally, rollovers and direct transfers may be made to and
from SIMPLE IRAs in the same manner as described above for IRAs, subject to the
same conditions and limitations. Rollovers or transfers to other IRAs, other
than SIMPLE IRAs, are also possible but only after the second anniversary of
commencement of participation in the employer"s SIMPLE IRA Plan.
SECTION 457 UNFUNDED DEFERRED COMPENSATION PLANS OF PUBLIC EMPLOYERS
AND TAX-EXEMPT ORGANIZATIONS
Purchase Payments. Under Section 457 of the Code, all individuals who perform
services for a state or local government or governmental agency may participate
in a deferred compensation program. Other tax-exempt employers may establish
unfunded deferred compensation plans under Section 457 for employees and/or
independent contractors.
Though not actually a qualified plan as that term is normally used, this type of
program allows individuals to defer the receipt of compensation that otherwise
would be currently payable and therefore to defer the payment of federal income
taxes on such amounts. Assuming that the program meets the requirements to be
considered an eligible deferred compensation plan (an "EDCP"), an individual may
contribute (and thereby defer from current income for tax purposes) the lesser
of $7,500 or 33-1/3% of the individual's includible compensation. (Includible
compensation means compensation from the employer which would be currently
includible in gross income for federal tax purposes.) In addition, during the
last three years before an individual attains normal retirement age, additional
"catch-up" deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Contracts offered by this Prospectus. The Contract is owned by the employer and
is subject to the claims of the employer's creditors. The employee has no rights
or interest in the Contract and is entitled only to payment in accordance with
the EDCP provisions.
Taxation of Distributions. Amounts received by an individual from an EDCP are
includible in gross income for the taxable year in which such amounts are paid
or otherwise made available.
Distributions Before Separation from Service. Distributions generally are not
permitted under an EDCP prior to separation from service or reaching age 70 1/2,
except in cases of severe financial hardship. Hardship distributions are
includible in the gross income of the individual in the year in which paid.
Required Distributions. The distribution requirements for these qualified plans
are generally the same as described above with respect to Section 403(b)
annuities. However, if distributions do not commence before the employee's
death, the entire interest in the Contract must be distributed within 15 years
if the beneficiary is not the employee's surviving spouse.
Tax-Free Transfers. The Code permits the tax-free direct transfer of EDCP
amounts to another EDCP, subject to certain conditions. Any transfers must be
with employer consent.
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
Purchase Payments. Private taxable employers may establish unfunded,
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors. Certain
arrangements of tax-exempt employers entered into prior August 16, 1986, and not
subsequently modified, are also subject to the rules for private taxable
employer deferred compensation plans discussed below. (Unfunded deferred
compensation plans of other tax-exempt employers are generally subject to the
requirements of Section 457.)
These types of programs allow individuals to defer receipt of up to 100% of
compensation which would otherwise be includible in income and therefore to
defer the payment of federal income taxes on such amounts. Purchase payments
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made by the employer, however are not immediately deductible by the employer,
and the employer is currently taxed on any increase in Contract Value.
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Contract is owned
by the employer and is subject to the claims of the employer's creditors. The
individual has no right or interest in the Contract and is entitled only to
payment from the employer's general assets in accordance with plan provisions.
Taxation of Distributions. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
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.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and, with
respect to certain distributions from certain types of qualified retirement
plans, unless the proceeds are transferred directly to another qualified
retirement plan. Moreover, special "backup withholding" rules may require Fortis
Benefits to disregard the recipient's election if the recipient fails to supply
Fortis Benefits with a "TIN" or taxpayer identification number (social security
number for individuals), or if the Internal Revenue Service notifies Fortis
Benefits that the TIN provided by the recipient is incorrect.
MISCELLANEOUS
The computer systems Fortis Benefits uses to process policy transactions and
valuations need to be adjusted to be able to continue to administer its policies
after Year 2000. Fortis Benefits is devoting all resources necessary to make
these systems modifications and expects that the necessary changes will be
completed on time and in a way that will result in no disruption to its policy
servicing operations. However, as is the case with most system conversion
projects, risks and uncertainties exist, due in part to reliance on third party
vendors. Nonperformance by any of these entities, or other unforeseen
circumstances, could have a material adverse impact on Fortis Benefits" ability
to perform its policy servicing operations. Fortis Benefits is closely
monitoring these entities to avoid any unforeseen circumstances.
VARIABLE ACCOUNT FINANCIAL STATEMENTS
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Report of Independent Auditors
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying individual and combined statement of net assets
of the segregated subaccounts of Fortis Benefits Insurance Company Variable
Account D (comprised of, respectively, the Fortis Series Fund, Inc.'s Growth
Stock, U.S. Government Securities, Money Market, Asset Allocation, Diversified
Income, Global Growth, Aggressive Growth, Growth & Income, High Yield, Global
Asset Allocation, Global Bond, International Stock, Value, S & P 500, Blue Chip
Stock, Mid Cap Stock, Large Cap Growth and Small Cap Value Subaccounts; the
Wells Fargo Variable Trust's Large Cap (formerly Norwest ValuGrowth), Corporate
Bond (formerly Norwest Income), Small Cap Stock (formerly Norwest Small Company
Stock), Income Equity (formerly Norwest Income Equity), Growth, Equity Value,
and Asset Allocation Subaccounts; the Scudder Variable Life Investment Fund's
International Subaccount; the AIM Variable Insurance Funds, Inc.'s V.I. Value
and V.I. International Equity Subaccounts; the Alliance Variable Product Series'
Money Market, International and Premier Growth Subaccounts; the SAFECO Resource
Series' Growth and Equity Subaccounts; the Federated Insurance Series' U.S.
Government Securities II, High Income Bond Fund II, Utility II and American
Leaders II, Equity Income, Growth Strategies, International Equity, Money Fund,
Strategic Income and Small Cap Strategies Subaccounts; the Lexington Funds,
Inc.'s Natural Resources Trust and Emerging Markets Subaccounts; the MFS
Variable Insurance Trusts' Emerging Growth, High Income and World Government
Subaccounts; the Montgomery Variable Fund's Emerging Markets and Growth
Subaccounts; the Strong Variable Insurance Funds' Discovery II and International
II Subaccounts; the American Century Investments' VP Balanced and VP Growth
Subaccounts; the Van Eck Worldwide Insurance Trust's Worldwide Bond Fund and
Worldwide Hard Assets Fund Subaccounts; the Neuberger & Berman, Inc.'s AMT
Limited Maturity Bond and AMT Partners Subaccounts; and INVESCO, Inc.'s Health &
Sciences, Industrial Income and Technology Subaccounts) as of December 31, 1999,
and the related statements of changes in net assets for each of the two years in
the period indicated therein. These financial statements are the responsibility
of the management of Fortis Benefits Insurance Company. Our responsibility is to
express an opinion on these financial statements based on our audits.
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We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each individual and combined
portfolio subaccounts of Fortis Benefits Insurance Company Variable Account D at
December 31, 1999, and the changes in their net assets for the periods described
in the first paragraph, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 29, 2000
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Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets
December 31, 1999
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
------ ---- ------------ -------
<S> <C> <C> <C> <C>
Investments in Fortis Series Fund, Inc.:
Growth Stock 15,672,161 $ 406,002,966 $ 707,418,737 $ -
U.S. Government Securities 12,737,718 136,773,169 128,984,676 -
Money Market 9,538,854 106,396,795 106,849,478 -
Asset Allocation 26,682,308 425,490,477 607,857,655 -
Diversified Income 8,600,239 100,510,063 93,808,829 -
Global Growth 9,706,559 147,811,043 337,030,166 -
Aggressive Growth 6,319,174 92,702,665 213,523,620 -
Growth & Income 12,021,236 183,252,188 263,748,319 -
High Yield 6,735,712 67,699,350 61,249,180 -
Global Asset Allocation 4,324,442 54,275,326 56,954,204 3,940,809
Global Bond 2,237,913 24,325,958 22,968,150 5,321,709
International Stock 6,073,337 81,846,610 108,925,301 -
Value 4,893,678 64,346,791 76,592,910 -
S & P 500 14,784,128 246,758,049 335,023,114 -
Blue Chip Stock 10,256,993 161,163,763 224,955,877 7,504,950
Mid Cap Stock 1,945,774 18,209,316 20,783,004 4,432,968
Large Cap Growth 4,680,799 59,003,601 70,461,944 6,251,291
Small Cap Value 3,225,681 31,077,238 32,919,462 4,238,029
Investments in Wells Fargo Variable Trust:
Large Cap 4,050,545 40,739,690 48,728,059 -
Corporate Bond 3,156,263 34,258,453 30,994,498 -
Small Cap Stock 1,074,572 13,693,860 19,439,003 -
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE ANNUITY
VARIABLE UNITS CONTRACTS PER
ANNUITY CONTRACTS OUTSTANDING ACCUMULATION UNIT
----------------- ----------- -----------------
<S> <C> <C> <C>
Investments in Fortis Series Fund, Inc.:
Growth Stock $ 707,418,737 115,971,002 $ 6.10
U.S. Government Securities 128,984,676 7,442,096 17.33
Money Market 106,849,478 60,650,301 1.76
Asset Allocation 607,857,655 153,473,653 3.96
Diversified Income 93,808,830 46,409,349 2.02
Global Growth 337,030,166 10,278,210 32.79
Aggressive Growth 213,523,620 6,619,343 32.26
Growth & Income 263,748,319 11,205,593 23.54
High Yield 61,249,180 4,807,835 12.74
Global Asset Allocation 53,013,395 3,314,093 16.00
Global Bond 17,646,441 1,471,112 12.00
International Stock 108,925,301 5,644,969 19.30
Value 76,592,910 4,866,469 15.74
S & P 500 335,023,114 15,543,266 21.55
Blue Chip Stock 217,450,927 10,354,811 21.00
Mid Cap Stock 16,350,036 1,551,246 10.54
Large Cap Growth 64,210,653 4,359,013 14.73
Small Cap Value 28,681,433 2,690,372 10.66
Investments in Wells Fargo Variable Trust:
Large Cap 48,728,059 1,954,176 24.94
Corporate Bond 30,994,498 2,448,465 12.66
Small Cap Stock 19,439,003 870,214 22.34
</TABLE>
See accompanying notes.
3
<PAGE> 60
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
------ ---- ------------ -------
<S> <C> <C> <C> <C>
Investments in Wells Fargo Variable Trust
(continued):
Income Equity 7,400,237 $ 107,406,245 $ 126,470,04 $ -
Growth 2,539 56,265 61,191 -
Equity Value 11,023 100,121 101,743 -
Asset Allocation 84,861 1,186,936 1,223,699 -
Investments in Scudder Variable Life:
International 547,080 7,253,523 11,127,614 -
Investment in AIM Variable Insurance Funds, Inc.:
AIM V.I. Value 756,044 21,147,149 25,327,469 -
AIM V.I. International Equity 199,073 4,158,238 5,830,853 -
Investments in Alliance Variable Product Series:
Money Market 16,161,244 16,160,538 16,161,244 -
International 88,927 1,832,465 1,936,820 -
Premier Growth 205,736 6,838,663 8,322,024 -
Investments in SAFECO Resource Series:
Growth 183,868 3,925,516 4,137,039 -
Equity 109,268 3,267,025 3,389,495 -
Investments in Federated Insurance Series:
U.S. Government Securities II 455,093 4,814,185 4,805,781 -
High Income Bond Fund II 845,175 8,655,518 8,654,583 -
Utility II 461,922 6,595,434 6,628,581 -
American Leaders II 1,870,730 38,660,395 38,948,608 -
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE ANNUITY
VARIABLE UNITS CONTRACTS PER
ANNUITY CONTRACTS OUTSTANDING ACCUMULATION UNIT
----------------- ----------- -----------------
<S> <C> <C> <C>
Investments in Wells Fargo Variable Trust
(continued):
Income Equity $ 126,470,048 7,465,448 $16.94
Growth 61,191 5,570 10.99
Equity Value 101,743 10,275 9.90
Asset Allocation 1,223,699 116,844 10.47
Investments in Scudder Variable Life:
International 11,127,614 441,802 25.19
Investment in AIM Variable Insurance Funds, Inc.:
AIM V.I. Value 25,327,469 1,716,853 14.75
AIM V.I. International Equity 5,830,853 390,247 14.94
Investments in Alliance Variable Product Series:
Money Market 16,161,244 1,365,755 11.83
International 1,936,820 113,961 17.00
Premier Growth 8,322,024 272,720 30.51
Investments in SAFECO Resource Series:
Growth 4,137,039 258,197 16.02
Equity 3,389,495 206,128 16.44
Investments in Federated Insurance Series:
U.S. Government Securities II 4,805,781 465,254 10.33
High Income Bond Fund II 8,654,583 791,527 10.93
Utility II 6,628,581 629,267 10.53
American Leaders II 38,948,608 3,613,302 10.78
</TABLE>
See accompanying notes.
4
<PAGE> 61
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
------ ---- ------------ -------
<S> <C> <C> <C> <C>
Investments in Federated Insurance Series
(continued):
Equity Income 1,474,421 $ 22,067,348 $ 24,003,571 $ -
Growth Strategies 792,112 18,089,489 24,460,416 -
International Equity 374,338 6,926,572 10,346,692 -
Money Fund 1,277,722 1,277,722 1,277,722 -
Strategic Income 58,027 585,569 601,736 -
Small Cap Strategies 85,827 1,018,538 1,193,860 -
Investments In Lexington Funds Inc.:
Natural Resources Trust 73,363 948,113 917,767 -
Emerging Markets 10,269 95,712 131,543 -
Investments in MFS Variable Insurance Trust:
Emerging Growth 589,180 13,640,689 22,353,487 -
High Income 714,393 8,281,282 8,208,374 -
World Government 2,769 27,894 27,774 -
Investments in Montgomery Variable Funds:
Emerging Markets 94,425 946,072 1,025,458 -
Growth 25,820 442,230 474,822 -
Investments in Strong Variable Insurance Funds:
Discovery II 24,189 229,073 275,276 -
International II 165,232 2,307,910 2,704,840 -
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE ANNUITY
VARIABLE UNITS CONTRACTS PER
ANNUITY CONTRACTS OUTSTANDING ACCUMULATION UNIT
----------------- ----------- -----------------
<S> <C> <C> <C>
Investments in Federated Insurance Series
(continued):
Equity Income $ 24,003,571 2,050,104 $11.71
Growth Strategies 24,460,416 1,428,283 17.13
International Equity 10,346,692 588,884 17.57
Money Fund 1,277,722 123,772 10.32
Strategic Income 601,736 58,402 10.30
Small Cap Strategies 1,193,859 86,287 13.84
Investments In Lexington Funds Inc.:
Natural Resources Trust 917,767 78,556 11.68
Emerging Markets 131,543 9,772 13.46
Investments in MFS Variable Insurance Trust:
Emerging Growth 22,353,487 1,054,087 21.21
High Income 8,208,374 793,575 10.34
World Government 27,774 2,600 10.68
Investments in Montgomery Variable Funds:
Emerging Markets 1,025,458 95,471 10.74
Growth 474,822 23,740 20.00
Investments in Strong Variable Insurance Funds:
Discovery II 275,276 22,093 12.46
International II 2,704,840 169,164 15.99
</TABLE>
See accompanying notes.
5
<PAGE> 62
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
------ ---- ------------ -------
<S> <C> <C> <C> <C>
Investments in American Century Investments:
VP Balanced 190,403 $ 1,469,932 $ 1,483,239 $ -
VP Growth 50,032 588,549 742,475 -
Investments in Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 28,945 316,891 309,419 -
Worldwide Hard Assets Fund 74,633 800,476 817,979 -
Investments in Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 41,132 548,565 544,591 -
AMT Partners 31,884 622,336 626,209 -
Investments in INVESCO, Inc.:
Health & Sciences 126,669 1,884,155 2,029,234 -
Industrial Income 41,089 821,665 863,284 -
Technology 343,137 9,743,408 12,740,687 -
-------------- -------------- -----------
Totals $2,822,075,777 $3,950,503,433 $31,689,756
============== ============== ===========
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE ANNUITY
VARIABLE UNITS CONTRACTS PER
ANNUITY CONTRACTS OUTSTANDING ACCUMULATION UNIT
----------------- ----------- -----------------
<S> <C> <C> <C>
Investments in American Century Investments:
VP Balanced $ 1,483,239 92,929 $15.96
VP Growth 742,475 51,363 14.46
Investments in Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 309,419 28,632 10.81
Worldwide Hard Assets Fund 817,979 100,885 8.11
Investments in Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 544,591 49,413 11.02
AMT Partners 626,209 45,246 13.84
Investments in INVESCO, Inc.:
Health & Sciences 2,029,234 124,157 16.34
Industrial Income 863,284 54,213 15.92
Technology 12,740,687 345,121 36.92
-------------- -----------
Totals $3,918,813,677 497,265,487
============== ===========
</TABLE>
See accompanying notes.
6
<PAGE> 63
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets
Year ended December 31, 1999
<TABLE>
<CAPTION>
FORTIS U.S.
FORTIS GROWTH GOVERNMENT FORTIS MONEY FORTIS ASSET
STOCK SECURITIES MARKET ALLOCATION
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 156,278,060 $ 7,341,601 $ 2,857,701 $ 52,954,375
Mortality and expense and administrative charges (7,253,321) (1,829,055) (1,055,231) (7,448,244)
Net realized gain (loss) on investments 38,796,330 (473,995) 417,343 15,517,181
Net unrealized appreciation (depreciation) of investments
during the year 64,391,185 (9,573,286) 566,889 32,399,647
-------------- -------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations 252,212,254 (4,534,735) 2,786,702 93,422,959
CAPITAL TRANSACTIONS
Purchase of Variable Account units 5,164,180 12,588,731 100,156,439 29,210,874
Redemption of Variable Account units (98,848,155) (22,667,841) (64,268,081) (58,609,370)
Redemptions for mortality and expense and administrative
charges 7,253,321 1,829,055 1,055,231 7,448,244
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
-------------- -------------- ------------- -------------
Net increase (decrease) from capital transactions (86,430,654) (8,250,055) 36,943,589 (21,950,252)
Net assets at beginning of year 541,637,137 141,769,466 67,119,187 536,384,948
-------------- -------------- ------------- -------------
Net assets at end of year $ 707,418,737 $ 128,984,676 $ 106,849,478 $ 607,857,655
============== ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
FORTIS FORTIS
DIVERSIFIED FORTIS GLOBAL AGGRESSIVE
INCOME GROWTH GROWTH
------------ -------------- --------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 6,588,253 $ 6,231,012 $ 4,272,056
Mortality and expense and administrative charges (1,347,702) (3,494,668) (1,633,787)
Net realized gain (loss) on investments (450,747) 27,458,315 8,003,910
Net unrealized appreciation (depreciation) of investments
during the year (7,886,977) 93,670,078 97,554,749
------------ -------------- --------------
Net increase (decrease) in net assets resulting from
operations (3,097,173) 123,864,737 108,196,928
CAPITAL TRANSACTIONS
Purchase of Variable Account units 6,766,415 13,910,010 24,360,173
Redemption of Variable Account units (17,836,999) (66,121,442) (18,643,812)
Redemptions for mortality and expense and administrative
charges 1,347,702 3,494,668 1,633,787
Dividend income distribution to Fortis Benefits Insurance
Company - - -
------------ -------------- --------------
Net increase (decrease) from capital transactions (9,722,882) (48,716,764) 7,350,148
Net assets at beginning of year 106,628,884 261,882,193 97,976,544
------------ -------------- --------------
Net assets at end of year $ 93,808,829 $ 337,030,166 $ 213,523,620
============ ============== ==============
</TABLE>
See accompanying notes.
7
<PAGE> 64
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
FORTIS GLOBAL
FORTIS GROWTH & FORTIS HIGH ASSET FORTIS GLOBAL
INCOME YIELD ALLOCATION BOND
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 16,740,826 $ 5,638,326 $ 4,151,122 $ 934,589
Mortality and expense and administrative charges (3,525,734) (852,587) (725,621) (233,375)
Net realized gain (loss) on investments 10,556,035 (540,865) 797,158 (163,594)
Net unrealized appreciation (depreciation) of investments
during the year (944,596) (4,416,777) (5,443,279) (2,534,224)
------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 22,826,531 (171,903) (1,220,620) (1,996,604)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 6,731,588 7,450,001 5,772,394 6,930,636
Redemption of Variable Account units (35,318,719) (11,427,963) (7,483,000) (4,592,843)
Redemptions for mortality and expense and administrative
charges 3,525,734 852,587 725,621 233,375
Dividend income distribution to Fortis Benefits Insurance
Company - - (310,930) (224,878)
------------- ------------ ------------ ------------
Net increase (decrease) from capital transactions (25,061,397) (3,125,375) (1,295,915) 2,346,290
Net assets at beginning of year 265,983,185 64,546,458 59,470,739 22,618,464
------------- ------------ ------------ ------------
Net assets at end of year $ 263,748,319 $ 61,249,180 $ 56,954,204 $ 22,968,150
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FORTIS
INTERNATIONAL FORTIS
STOCK FORTIS VALUE S & P 500
------------- ----------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 118,653 $ 55,659 $ 47,291
Mortality and expense and administrative charges (1,171,613) (1,000,548) (3,567,274)
Net realized gain (loss) on investments 2,066,505 1,028,902 2,830,868
Net unrealized appreciation (depreciation) of investments
during the year 17,734,463 5,071,121 47,715,826
------------- ----------- ------------
Net increase (decrease) in net assets resulting from operations 18,748,008 5,155,134 47,026,711
CAPITAL TRANSACTIONS
Purchase of Variable Account units 24,277,772 6,767,673 125,498,102
Redemption of Variable Account units (12,675,634) (8,924,070) (41,233,954)
Redemptions for mortality and expense and administrative
charges 1,171,613 1,000,548 3,567,274
Dividend income distribution to Fortis Benefits Insurance
Company - - -
------------- ----------- ------------
Net increase (decrease) from capital transactions 12,773,751 (1,155,849) 87,831,422
Net assets at beginning of year 77,403,542 72,593,625 200,164,981
------------- ----------- ------------
Net assets at end of year $ 108,925,301 $76,592,910 $335,023,114
============= =========== ============
</TABLE>
See accompanying notes.
8
<PAGE> 65
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
FORTIS BLUE FORTIS MID FORTIS LARGE FORTIS SMALL
CHIP STOCK CAP STOCK CAP GROWTH CAP VALUE
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 3,230,163 $ 21,642 $ 1,132,189 $ 1,423,506
Mortality and expense and administrative charges (2,402,586) (152,523) (451,055) (251,882)
Net realized gain (loss) on investments 1,198,634 87,767 109,210 114,238
Net unrealized appreciation (depreciation) of investments
during the year 30,746,993 2,028,045 9,195,175 1,783,939
------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from 32,773,204 1,984,931 9,985,519 3,069,801
operations
CAPITAL TRANSACTIONS
Purchase of Variable Account units 49,470,137 8,507,383 45,928,848 17,798,817
Redemption of Variable Account units (5,494,982) (1,224,101) (706,824) (2,200,370)
Redemptions for mortality and expense and administrative
charges 2,402,586 152,523 451,055 251,882
Dividend income distribution to Fortis Benefits Insurance
Company (109,184) (4,648) (105,952) (139,251)
------------- ------------ ------------ ------------
Net increase (decrease) from capital transactions 46,268,557 7,431,157 45,567,127 15,711,078
Net assets at beginning of year 145,914,116 11,366,916 14,909,298 14,138,583
------------- ------------ ------------ ------------
Net assets at end of year $ 224,955,877 $ 20,783,004 $ 70,461,944 $ 32,919,462
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
WELLS FARGO WELLS FARGO WELLS FARGO
LARGE CAP CORPORATE BOND SMALL CAP
(FORMERLY (FORMERLY (FORMERLY
NORWEST NORWEST INCOME NORWEST SMALL
VALUGROWTH) EQUITY) COMPANY STOCK)
----------- ------------ ------------
OPERATIONS
<S> <C> <C> <C>
Dividend income $11,571,999 $ 1,501,450 $ -
Mortality and expense and administrative charges (531,353) (370,235) (177,088)
Net realized gain (loss) on investments 879,862 (183,430) (410,559)
Net unrealized appreciation (depreciation) of investments
during the year (1,863,822) (2,049,455) 8,208,680
----------- ------------ ------------
Net increase (decrease) in net assets resulting from 10,056,686 (1,101,670) 7,621,033
operations
CAPITAL TRANSACTIONS
Purchase of Variable Account units 6,308,101 12,059,360 1,380,420
Redemption of Variable Account units (3,919,806) (2,490,066) (3,031,763)
Redemptions for mortality and expense and administrative
charges 531,353 370,235 177,088
Dividend income distribution to Fortis Benefits Insurance
Company - - -
----------- ------------ ------------
Net increase (decrease) from capital transactions 2,919,648 9,939,529 (1,474,255)
Net assets at beginning of year 35,751,725 22,156,639 13,292,225
----------- ------------ ------------
Net assets at end of year $48,728,059 $ 30,994,498 $ 19,439,003
=========== ============ ============
</TABLE>
See accompanying notes.
9
<PAGE> 66
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
WELLS FARGO EQUITY
INCOME (FORMERLY WELLS FARGO
NORWEST INCOME WELLS FARGO WELLS FARGO ASSET
EQUITY) GROWTH * EQUITY VALUE * ALLOCATION *
-------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 1,270,864 $ 7 $ 207 $ 8,345
Mortality and expense and administrative charges (1,528,635) (128) (253) (2,723)
Net realized gain (loss) on investments 558,248 - - 87
Net unrealized appreciation (depreciation) of investments
during the year 5,205,012 4,926 1,622 36,841
------------ ------- -------- ----------
Net increase (decrease) in net assets resulting from
operations 5,505,489 4,805 1,576 42,550
CAPITAL TRANSACTIONS
Purchase of Variable Account units 36,840,158 56,259 99,914 1,182,701
Redemption of Variable Account units (3,461,257) (1) - (4,275)
Redemptions for mortality and expense and administrative
charges 1,528,635 128 253 2,723
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
------------ ------- -------- ----------
Net increase (decrease) from capital transactions 34,907,536 56,386 100,167 1,181,149
Net assets at beginning of year 86,057,023 - - -
------------ ------- -------- ----------
Net assets at end of year $126,470,048 $61,191 $101,743 $1,223,699
============ ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
AIM V.I.
SCUDDER AIM V.I. INTERNATIONAL
INTERNATIONAL VALUE EQUITY
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 825,077 $ 410,251 $ 188,386
Mortality and expense and administrative charges (123,780) (194,130) (40,956)
Net realized gain (loss) on investments 252,120 28,203 39,670
Net unrealized appreciation (depreciation) of investments
during the year 3,033,017 3,720,163 1,649,575
----------- ----------- ----------
Net increase (decrease) in net assets resulting from
operations 3,986,434 3,964,487 1,836,675
CAPITAL TRANSACTIONS
Purchase of Variable Account units 226,709 16,475,875 2,617,843
Redemption of Variable Account units (1,596,240) (279,283) (238,984)
Redemptions for mortality and expense and administrative
charges 123,780 194,130 40,956
Dividend income distribution to Fortis Benefits Insurance
Company - - -
----------- ----------- ----------
Net increase (decrease) from capital transactions (1,245,751) 16,390,722 2,419,815
Net assets at beginning of year 8,386,931 4,972,260 1,574,363
----------- ----------- ----------
Net assets at end of year $11,127,614 $25,327,469 $5,830,853
=========== =========== ==========
</TABLE>
* For the period from September 20, 1999 to December 31, 1999.
See accompanying notes
10
<PAGE> 67
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
MONEY ALLIANCE PREMIER SAFECO
MARKET INTERNATIONAL GROWTH GROWTH
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 980,514 $ 60,854 $ 99,520 $ -
Mortality and expense and administrative charges (93,511) (5,299) (35,830) (20,651)
Net realized gain (loss) on investments - 783,355 1,669,250 (539,748)
Net unrealized appreciation (depreciation) of investments
during the year (1,972) 85,364 257,229 702,775
--------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 885,031 924,274 1,990,169 142,376
CAPITAL TRANSACTIONS
Purchase of Variable Account units 200,368,900 61,396,606 13,223,689 4,984,999
Redemption of Variable Account units (201,747,571) (61,575,309) (15,623,413) (6,589,089)
Redemptions for mortality and expense and administrative charges 93,511 5,299 35,830 20,651
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
--------------- ------------ ------------ ------------
Net increase (decrease) from capital transactions (1,285,160) (173,404) (2,363,894) (1,583,439)
Net assets at beginning of year 16,561,373 1,185,950 8,695,749 5,578,102
--------------- ------------ ------------ ------------
Net assets at end of year $ 16,161,244 $ 1,936,820 $ 8,322,024 $ 4,137,039
=============== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FEDERATED U.S. FEDERATED
SAFECO GOVERNMENT HIGH INCOME
EQUITY SECURITIES II BOND FUND II
----------- ------------ -------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 179,477 $ 58,331 $ 384,300
Mortality and expense and administrative charges (15,168) (19,646) (42,973)
Net realized gain (loss) on investments 137,678 (28,762) (136,499)
Net unrealized appreciation (depreciation) of investments
during the year (20,217) (19,403) (121,670)
----------- ------------ -------------
Net increase (decrease) in net assets resulting from operations 281,770 (9,480) 83,158
CAPITAL TRANSACTIONS
Purchase of Variable Account units 2,726,246 6,472,452 21,516,246
Redemption of Variable Account units (1,922,280) (2,731,024) (16,700,953)
Redemptions for mortality and expense and administrative charges 15,168 19,646 42,973
Dividend income distribution to Fortis Benefits Insurance
Company - - -
----------- ------------ -------------
Net increase (decrease) from capital transactions 819,134 3,761,074 4,858,266
Net assets at beginning of year 2,288,591 1,054,187 3,713,159
----------- ------------ -------------
Net assets at end of year $ 3,389,495 $ 4,805,781 $ 8,654,583
=========== ============ =============
</TABLE>
See accompanying notes.
11
<PAGE> 68
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
FEDERATED FEDERATED FEDERATED
FEDERATED AMERICAN EQUITY GROWTH
UTILITY II LEADERS II INCOME STRATEGIES *
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 64,933 $ 459,974 $ 35,871 $ -
Mortality and expense and administrative charges (32,151) (183,354) (106,207) (90,114)
Net realized gain (loss) on investments (5,840) (274,924) 1,692 10,040
Net unrealized appreciation (depreciation) of investments during
the year (17,935) 111,282 1,936,223 6,370,927
------------ ------------- -------------- -------------
Net increase (decrease) in net assets resulting from operations 9,007 112,978 1,867,579 6,290,853
CAPITAL TRANSACTIONS
Purchase of Variable Account units 7,849,681 80,714,962 22,067,857 18,226,511
Redemption of Variable Account units (2,352,749) (43,728,259) (38,072) (147,062)
Redemptions for mortality and expense and administrative charges 32,151 183,354 106,207 90,114
Dividend income distribution to Fortis Benefits Insurance Company - - - -
------------ ------------- -------------- -------------
Net increase (decrease) from capital transactions 5,529,083 37,170,057 22,135,992 18,169,563
Net assets at beginning of year 1,090,491 1,665,573 - -
------------ ------------- -------------- -------------
Net assets at end of year $ 6,628,581 $ 38,948,608 $ 24,003,571 $ 24,460,416
============ ============= ============== =============
</TABLE>
<TABLE>
<CAPTION>
FEDERATED FEDERATED MONEY FEDERATED
INTERNATIONAL FUND* STRATEGIC
EQUITY* INCOME**
------------- ------------ ----------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 10,135 $ 45,051 $ -
Mortality and expense and administrative charges (34,075) (12,240) (1,532)
Net realized gain (loss) on investments (41) - 9
Net unrealized appreciation (depreciation) of investments during
the year 3,420,120 - 16,167
------------- ------------ ----------
Net increase (decrease) in net assets resulting from operations 3,396,139 32,811 14,644
CAPITAL TRANSACTIONS
Purchase of Variable Account units 6,923,501 8,313,016 586,922
Redemption of Variable Account units (7,023) (7,080,345) (1,362)
Redemptions for mortality and expense and administrative charges 34,075 12,240 1,532
Dividend income distribution to Fortis Benefits Insurance Company - - -
------------- ------------ ----------
Net increase (decrease) from capital transactions 6,950,553 1,244,911 587,092
Net assets at beginning of year - - -
------------- ------------ ----------
Net assets at end of year $ 10,346,692 $ 1,277,722 $ 601,736
============= ============ ==========
</TABLE>
* For the period from February 1, 1999 to December 31, 1999.
** For the period from June 1, 1999 to December 31, 1999.
See accompanying notes.
12
<PAGE> 69
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
LEXINGTON
FEDERATED NATURAL LEXINGTON MFS
SMALL CAP RESOURCES EMERGING EMERGING
STRATEGIES** TRUST MARKETS GROWTH
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ - $ 5,210 $ 275 $ -
Mortality and expense and administrative charges (2,128) (3,122) (293) (127,446)
Net realized gain (loss) on investments 74 (87,178) 35,831 969,753
Net unrealized appreciation (depreciation) of investments
during the year 175,321 128,261 25,869 7,798,184
------------ ----------- ----------- ------------
Net increase (decrease) in net assets resulting from operations 173,267 43,171 61,682 8,640,491
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,018,966 2,156,000 135,498 14,159,113
Redemption of Variable Account units (501) (1,817,326) (124,824) (7,363,014)
Redemptions for mortality and expense and administrative charges 2,128 3,122 293 127,446
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
------------ ----------- ----------- ------------
Net increase (decrease) from capital transactions 1,020,593 341,796 10,967 6,923,545
Net assets at beginning of year - 532,800 58,894 6,789,451
------------ ----------- ----------- ------------
Net assets at end of year $ 1,193,860 $ 917,767 $ 131,543 $ 22,353,487
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
MONTGOMERY
MFS HIGH MFS WORLD EMERGING
INCOME GOVERNMENT MARKETS
----------- --------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 401,657 $ 14,302 $ 74
Mortality and expense and administrative charges (77,640) (707) (3,647)
Net realized gain (loss) on investments (43,906) (24,456) 445,265
Net unrealized appreciation (depreciation) of investments
during the year (31,441) (1,365) 74,782
----------- --------- ------------
Net increase (decrease) in net assets resulting from operations 248,670 (12,226) 516,474
CAPITAL TRANSACTIONS
Purchase of Variable Account units 9,777,837 705,250 20,340,446
Redemption of Variable Account units (5,404,573) (990,963) (20,144,272)
Redemptions for mortality and expense and administrative charges 77,640 707 3,647
Dividend income distribution to Fortis Benefits Insurance
Company - - -
----------- --------- ------------
Net increase (decrease) from capital transactions 4,450,904 (285,006) 199,821
Net assets at beginning of year 3,508,800 325,006 309,163
----------- --------- ------------
Net assets at end of year $ 8,208,374 $ 27,774 $ 1,025,458
=========== ========= ============
</TABLE>
** For the period from June 1, 1999 to December 31, 1999.
See accompanying notes.
13
<PAGE> 70
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
STRONG STRONG AMERICAN
MONTGOMERY DISCOVERY INTERNATIONAL CENTURY VP
GROWTH FUND II II BALANCED
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 5,201 $ 27,272 $ 1,845 $ 204,087
Mortality and expense and administrative charges (4,566) (963) (3,930) (6,370)
Net realized gain (loss) on investments 233,717 (52,371) 606,345 11,391
Net unrealized appreciation (depreciation) of investments during
the year (1,115) 39,168 395,740 (74,370)
------------ ------------ ------------- -----------
Net increase (decrease) in net assets resulting from operations 233,237 13,106 1,000,000 134,738
CAPITAL TRANSACTIONS
Purchase of Variable Account units 3,986,865 1,505,925 17,404,182 713,675
Redemption of Variable Account units (4,518,176) (1,729,824) (16,023,839) (700,154)
Redemptions for mortality and expense and administrative charges 4,566 963 3,930 6,370
Dividend income distribution to Fortis Benefits Insurance Company - - - -
------------ ------------ ------------- -----------
Net increase (decrease) from capital transactions (526,745) (222,936) 1,384,273 19,891
Net assets at beginning of year 768,330 485,106 320,567 1,328,610
------------ ------------ ------------- -----------
Net assets at end of year $ 474,822 $ 275,276 $ 2,704,840 $ 1,483,239
============ ============ ============= ===========
</TABLE>
<TABLE>
<CAPTION>
VAN ECK
AMERICAN VAN ECK WORLDWIDE
CENTURY WORLDWIDE HARD
VP GROWTH BOND FUND ASSETS FUND
------------ ----------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ - $ 32,424 $ 5,800
Mortality and expense and administrative charges (1,427) (1,686) (3,390)
Net realized gain (loss) on investments 74,376 (59,331) 19,792
Net unrealized appreciation (depreciation) of investments during
the year 129,007 (13,943) 123,503
------------ ----------- ------------
Net increase (decrease) in net assets resulting from operations 201,956 (42,536) 145,705
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,507,118 1,050,294 5,494,999
Redemption of Variable Account units (1,098,083) (1,582,123) (5,197,598)
Redemptions for mortality and expense and administrative charges 1,427 1,686 3,390
Dividend income distribution to Fortis Benefits Insurance Company - - -
------------ ----------- ------------
Net increase (decrease) from capital transactions 410,462 (530,143) 300,791
Net assets at beginning of year 130,057 882,098 371,483
------------ ----------- ------------
Net assets at end of year $ 742,475 $ 309,419 $ 817,979
============ =========== ============
</TABLE>
See accompanying notes.
14
<PAGE> 71
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
NEUBERGER &
BERMAN AMT
LIMITED NEUBERGER & INVESCO
MATURITY BERMAN AMT HEALTH
BOND PARTNERS & SCIENCES
--------- ---------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 34,231 $ 22,384 $ 1,773
Mortality and expense and administrative charges (2,313) (3,261) (8,720)
Net realized gain (loss) on investments (20,107) (5,353) 58,119
Net unrealized appreciation (depreciation) of investments during the year (8,853) 32,264 (29,108)
--------- ---------- ------------
Net increase (decrease) in net assets resulting from operations 2,958 46,034 22,064
CAPITAL TRANSACTIONS
Purchase of Variable Account units 578,191 597,368 4,368,976
Redemption of Variable Account units (714,271) (873,323) (4,238,621)
Redemptions for mortality and expense and administrative charges 2,313 3,261 8,720
Dividend income distribution to Fortis Benefits Insurance Company - - -
--------- ---------- ------------
Net increase (decrease) from capital transactions (133,767) (272,694) 139,075
Net assets at beginning of year 675,400 852,869 1,868,095
--------- ---------- ------------
Net assets at end of year $ 544,591 $ 626,209 $ 2,029,234
========= ========== ============
</TABLE>
<TABLE>
<CAPTION>
INVESCO COMBINED
INDUSTRIAL INVESCO VARIABLE
INCOME TECHNOLOGY ACCOUNT
----------- ------------ ---------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 15,560 $ - $ 288,944,665
Mortality and expense and administrative charges (3,233) (18,191) (42,331,871)
Net realized gain (loss) on investments 50,003 1,995,638 114,341,208
Net unrealized appreciation (depreciation) of investments during the year 22,334 2,842,497 414,351,155
----------- ------------ ---------------
Net increase (decrease) in net assets resulting from operations 84,664 4,819,944 775,305,157
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,629,081 24,971,634 1,142,010,519
Redemption of Variable Account units (1,394,230) (18,308,129) (945,768,190)
Redemptions for mortality and expense and administrative charges 3,233 18,191 42,331,871
Dividend income distribution to Fortis Benefits Insurance Company - - (894,843)
----------- ------------ ---------------
Net increase (decrease) from capital transactions 238,084 6,681,696 237,679,357
Net assets at beginning of year 540,536 1,239,047 2,937,518,919
----------- ------------ ---------------
Net assets at end of year $ 863,284 $ 12,740,687 $ 3,950,503,433
=========== ============ ===============
</TABLE>
See accompanying notes.
15
<PAGE> 72
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
FORTIS U.S.
FORTIS GROWTH GOVERNMENT FORTIS MONEY FORTIS ASSET
STOCK SECURITIES MARKET ALLOCATION
------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 26,467,526 $ 8,254,423 $ 2,881,782 $ 944,495
Mortality and expense and administrative charges (7,108,278) (1,819,718) (754,138) (6,446,486)
Net realized gain (loss) on investments 34,160,134 378,287 317,058 5,833,283
Net unrealized appreciation (depreciation) of investments
during the year 29,707,787 2,601,264 (332,026) 80,554,775
------------- -------------- ------------ --------------
Net increase (decrease) in net assets resulting from 83,227,169 9,414,256 2,112,676 80,886,067
operations
CAPITAL TRANSACTIONS
Purchase of Variable Account units 8,096,970 29,320,325 56,925,744 38,225,062
Redemption of Variable Account units (83,484,018) (31,609,712) (41,411,119) (27,638,570)
Redemptions for mortality and expense and administrative
charges 7,108,278 1,819,718 754,138 6,446,486
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment
in subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
------------- -------------- ------------ --------------
Net increase (decrease) from capital transactions (68,278,770) (469,669) 16,268,763 17,032,978
Net assets at beginning of year 526,688,738 132,824,879 48,737,748 438,465,903
------------- -------------- ------------ --------------
Net assets at end of year $ 541,637,137 $ 141,769,466 $ 67,119,187 $ 536,384,948
============= ============== ============ ==============
</TABLE>
<TABLE>
<CAPTION>
FORTIS FORTIS
DIVERSIFIED FORTIS GLOBAL AGGRESSIVE
INCOME GROWTH GROWTH
-------------- --------------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 6,770,367 $ 295,915 $ 171,175
Mortality and expense and administrative charges (1,387,204) (3,706,532) (1,205,738)
Net realized gain (loss) on investments 248,128 15,447,835 1,786,779
Net unrealized appreciation (depreciation) of investments
during the year (806,741) 12,596,119 15,717,735
-------------- --------------- ------------
Net increase (decrease) in net assets resulting from 4,824,550 24,633,337 16,469,951
operations
CAPITAL TRANSACTIONS
Purchase of Variable Account units 11,808,123 5,585,488 6,778,089
Redemption of Variable Account units (9,454,092) (47,585,475) (13,235,104)
Redemptions for mortality and expense and administrative
charges 1,387,204 3,706,532 1,205,738
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment
in subaccount - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - -
-------------- --------------- ------------
Net increase (decrease) from capital transactions 3,741,235 (38,293,455) (5,251,277)
Net assets at beginning of year 98,063,099 275,542,311 86,757,870
-------------- --------------- ------------
Net assets at end of year $ 106,628,884 $ 261,882,193 $ 97,976,544
============== =============== ============
</TABLE>
See accompanying notes.
16
<PAGE> 73
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
FORTIS GLOBAL
FORTIS GROWTH FORTIS HIGH ASSET FORTIS GLOBAL
& INCOME YIELD ALLOCATION BOND
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 74,701 $ 5,211,819 $ 4,126,850 $ 963,909
Mortality and expense and administrative charges (3,367,889) (833,772) (659,482) (190,032)
Net realized gain (loss) on investments 3,162,729 117,060 501,769 158,614
Net unrealized appreciation (depreciation) of investments
during the year 26,107,816 (5,113,753) 3,060,304 1,473,210
-------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 25,977,357 (618,646) 7,029,441 2,405,701
CAPITAL TRANSACTIONS
Purchase of Variable Account units 34,565,822 17,120,211 9,260,170 6,259,719
Redemption of Variable Account units (12,370,869) (6,968,139) (3,266,333) (4,791,843)
Redemptions for mortality and expense and administrative
charges 3,367,889 833,772 659,482 190,032
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - (265,877) (241,695)
-------------- ------------ ------------ ------------
Net increase (decrease) from capital transactions 25,562,842 10,985,844 6,387,442 1,416,213
Net assets at beginning of year 214,442,986 54,179,260 46,053,856 18,796,550
-------------- ------------ ------------ ------------
Net assets at end of year $ 265,983,185 $ 64,546,458 $ 59,470,739 $ 22,618,464
============== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FORTIS
INTERNATIONAL FORTIS
STOCK FORTIS VALUE S & P 500
------------ ------------ -------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 5,327,524 $ 1,608,314 $ 2,986,482
Mortality and expense and administrative charges (950,221) (871,723) (1,887,000)
Net realized gain (loss) on investments 2,690,314 700,432 3,863,409
Net unrealized appreciation (depreciation) of investments
during the year 2,473,473 2,820,051 29,200,375
------------ ------------ -------------
Net increase (decrease) in net assets resulting from operations 9,541,090 4,257,074 34,163,266
CAPITAL TRANSACTIONS
Purchase of Variable Account units 16,782,466 26,693,597 100,704,775
Redemption of Variable Account units (8,715,471) (5,550,357) (19,641,461)
Redemptions for mortality and expense and administrative
charges 950,221 871,723 1,887,000
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount (4,534,143) (1,111,186) (6,137,363)
Dividend income distribution to Fortis Benefits Insurance
Company - - -
------------ ------------ -------------
Net increase (decrease) from capital transactions 4,483,073 20,903,777 76,812,951
Net assets at beginning of year 63,379,379 47,432,774 89,188,764
------------ ------------ -------------
Net assets at end of year $ 77,403,542 $ 72,593,625 $ 200,164,981
============ ============ =============
</TABLE>
See accompanying notes.
17
<PAGE> 74
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
FORTIS BLUE FORTIS MID FORTIS LARGE FORTIS SMALL
CHIP STOCK CAP STOCK * CAP GROWTH * CAP VALUE *
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 2,429,183 $ 19,450 $ 3,827 $ 189,053
Mortality and expense and administrative charges (1,324,309) (22,225) (6,487) (41,502)
Net realized gain (loss) on investments 368,440 (12,512) (8,719) (17,305)
Net unrealized appreciation (depreciation) of investments
during the year 23,595,863 545,643 2,263,168 58,284
------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 25,069,177 530,356 2,251,789 188,530
CAPITAL TRANSACTIONS
Purchase of Variable Account units 57,253,131 6,896,405 8,728,546 10,421,155
Redemption of Variable Account units (2,538,109) (225,181) (226,237) (610,438)
Redemptions for mortality and expense and administrative charges
1,324,309 22,225 6,487 41,502
Funding of subaccount by Fortis Benefits Insurance Company - 4,150,000 4,150,000 4,150,000
Redemption of Fortis Benefits Insurance Company investment in
subaccount (182,209) - - -
Dividend income distribution to Fortis Benefits Insurance
Company (106,437) (6,889) (1,287) (52,166)
------------- ------------ ------------ ------------
Net increase (decrease) from capital transactions 55,750,685 10,836,560 12,657,509 13,950,053
Net assets at beginning of year 65,094,254 - - -
------------- ------------ ------------ ------------
Net assets at end of year $ 145,914,116 $ 11,366,916 $ 14,909,298 $ 14,138,583
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NORWEST NORWEST SMALL
NORWEST INTERMEDIATE COMPANY
VALUGROWTH BOND STOCK
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 238,581 $ 1,098,033 $ 39,626
Mortality and expense and administrative charges (411,392) (207,725) (168,037)
Net realized gain (loss) on investments 14,844 58,241 222,258
Net unrealized appreciation (depreciation) of investments
during the year 5,752,937 (1,238,385) (2,310,701)
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 5,594,970 (289,836) (2,216,854)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 9,841,845 14,092,379 6,325,057
Redemption of Variable Account units (1,757,906) (1,034,235) (779,846)
Redemptions for mortality and expense and administrative charges
411,392 207,725 168,037
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - (1,710,197)
Dividend income distribution to Fortis Benefits Insurance
Company - - -
------------ ------------ ------------
Net increase (decrease) from capital transactions 8,495,331 13,265,869 4,003,051
Net assets at beginning of year 21,661,424 9,180,606 11,506,028
------------ ------------ ------------
Net assets at end of year $ 35,751,725 $ 22,156,639 $ 13,292,225
============ ============ ============
</TABLE>
* For the period from May 1, 1998 to December 31, 1998.
See accompanying notes.
18
<PAGE> 75
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
NORWEST AIM V.I.
INCOME SCUDDER AIM V.I. INTERNATIONAL
EQUITY INTERNATIONAL VALUE EQUITY
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 1,056,309 $ 896,543 $ 211,271 $ 12,369
Mortality and expense and administrative charges (888,643) (109,417) (18,617) (7,795)
Net realized gain (loss) on investments 230,940 30,845 847 (627)
Net unrealized appreciation (depreciation) of investments
during the year 8,996,308 252,510 460,156 23,040
------------ ----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations 9,394,914 1,070,481 653,657 26,987
CAPITAL TRANSACTIONS
Purchase of Variable Account units 37,762,541 1,811,004 4,403,159 1,598,178
Redemption of Variable Account units (1,797,881) (788,697) (103,173) (58,597)
Redemptions for mortality and expense and administrative
charges 888,643 109,417 18,617 7,795
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
------------ ----------- ----------- -----------
Net increase (decrease) from capital transactions 36,853,303 1,131,724 4,318,603 1,547,376
Net assets at beginning of year 39,808,806 6,184,726 - -
------------ ----------- ----------- -----------
Net assets at end of year $ 86,057,023 $ 8,386,931 $ 4,972,260 $ 1,574,363
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
MONEY ALLIANCE PREMIER
MARKET INTERNATIONAL GROWTH
------------- -------------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 1,519,027 $ 275,640 $ 43,994
Mortality and expense and administrative charges (71,287) (9,699) (21,589)
Net realized gain (loss) on investments - 670,420 539,395
Net unrealized appreciation (depreciation) of investments
during the year - (11,830) 1,207,289
------------- -------------- ------------
Net increase (decrease) in net assets resulting from operations 1,447,740 924,531 1,769,089
CAPITAL TRANSACTIONS
Purchase of Variable Account units 275,790,809 112,885,826 44,398,125
Redemption of Variable Account units (267,800,970) (115,289,922) (39,496,646)
Redemptions for mortality and expense and administrative
charges 71,287 9,699 21,589
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - -
------------- -------------- ------------
Net increase (decrease) from capital transactions 8,061,126 (2,394,397) 4,923,068
Net assets at beginning of year 7,052,507 2,655,816 2,003,592
------------- -------------- ------------
Net assets at end of year $ 16,561,373 $ 1,185,950 $ 8,695,749
============= ============== ============
</TABLE>
See accompanying notes.
19
<PAGE> 76
\
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
FEDERATED U.S. FEDERATED
SAFECO SAFECO GOVERNMENT HIGH INCOME
GROWTH EQUITY SECURITIES II BOND FUND II
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 611,481 $ 107,105 $ 1,490 $ 145,006
Mortality and expense and administrative charges (23,023) (8,994) (3,497) (14,352)
Net realized gain (loss) on investments (298,311) 106,229 38,761 102,512
Net unrealized appreciation (depreciation) of investments during
the year 20,810 181,464 10,223 70,747
------------ ----------- ----------- ------------
Net increase (decrease) in net assets resulting from operations 310,957 385,804 46,977 303,913
CAPITAL TRANSACTIONS
Purchase of Variable Account units 38,247,904 5,017,777 8,903,906 12,041,460
Redemption of Variable Account units (36,738,247) (4,563,051) (8,113,615) (11,229,632)
Redemptions for mortality and expense and administrative charges 23,023 8,994 3,497 14,352
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance Company - - - -
------------ ----------- ----------- ------------
Net increase (decrease) from capital transactions 1,532,680 463,720 793,788 826,180
Net assets at beginning of year 3,734,465 1,439,067 213,422 2,583,066
------------ ----------- ----------- ------------
Net assets at end of year $ 5,578,102 $ 2,288,591 $ 1,054,187 $ 3,713,159
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
LEXINGTON
FEDERATED NATURAL
FEDERATED AMERICAN RESOURCES
UTILITY II LEADERS II TRUST
---------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 17,235 $ 233,707 $ 43,384
Mortality and expense and administrative charges (3,159) (12,652) (3,193)
Net realized gain (loss) on investments (30,623) 274,612 (119,305)
Net unrealized appreciation (depreciation) of investments during
the year 3,687 77,514 (105,350)
---------- ----------- -----------
Net increase (decrease) in net assets resulting from operations (12,860) 573,181 (184,464)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 6,829,897 26,396,563 1,760,109
Redemption of Variable Account units (7,379,883) (28,510,268) (2,202,365)
Redemptions for mortality and expense and administrative charges 3,159 12,652 3,193
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - -
Dividend income distribution to Fortis Benefits Insurance Company - - -
---------- ----------- -----------
Net increase (decrease) from capital transactions (546,827) (2,101,053) (439,063)
Net assets at beginning of year 1,650,178 3,193,445 1,156,327
---------- ----------- -----------
Net assets at end of year $1,090,491 $ 1,665,573 $ 532,800
========== =========== ===========
</TABLE>
See accompanying notes.
20
<PAGE> 77
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
LEXINGTON MFS
EMERGING EMERGING MFS HIGH MFS WORLD
MARKETS GROWTH INCOME GOVERNMENT
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 6,180 $ 14,899 $ 68,432 $ 1,291
Mortality and expense and administrative charges (496) (10,192) (4,620) (565)
Net realized gain (loss) on investments (9,637) 533,200 (9,817) 3,733
Net unrealized appreciation (depreciation) of investments during
the year (21,006) 819,762 (69,962) 1,201
----------- ------------ ----------- -----------
Net increase (decrease) in net assets resulting from operations (24,959) 1,357,669 (15,967) 5,660
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,654,144 29,085,014 5,754,624 1,429,924
Redemption of Variable Account units (2,210,494) (27,832,016) (2,913,514) (1,219,491)
Redemptions for mortality and expense and administrative charges 496 10,192 4,620 565
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance Company - - - -
----------- ------------ ----------- -----------
Net increase (decrease) from capital transactions (555,854) 1,263,190 2,845,730 210,998
Net assets at beginning of year 639,707 4,168,592 679,037 108,348
----------- ------------ ----------- -----------
Net assets at end of year $ 58,894 $ 6,789,451 $ 3,508,800 $ 325,006
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MONTGOMERY STRONG
EMERGING MONTGOMERY DISCOVERY
MARKETS GROWTH FUND II
----------- ------------ -----------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 1,019 $ 27,444 $ 28,115
Mortality and expense and administrative charges (2,277) (5,823) (2,038)
Net realized gain (loss) on investments (251,784) 63,647 17,142
Net unrealized appreciation (depreciation) of investments during
the year 12,116 (104,066) 17,556
----------- ------------ -----------
Net increase (decrease) in net assets resulting from operations (240,926) (18,798) 60,775
CAPITAL TRANSACTIONS
Purchase of Variable Account units 3,568,166 958,991 8,735,012
Redemption of Variable Account units (3,677,901) (2,080,709) (8,549,511)
Redemptions for mortality and expense and administrative charges 2,277 5,823 2,038
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - -
Dividend income distribution to Fortis Benefits Insurance Company - - -
----------- ------------ -----------
Net increase (decrease) from capital transactions (107,458) (1,115,895) 187,539
Net assets at beginning of year 657,547 1,903,023 236,792
----------- ------------ -----------
Net assets at end of year $ 309,163 $ 768,330 $ 485,106
=========== ============ ===========
</TABLE>
See accompanying notes.
21
<PAGE> 78
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
AMERICAN AMERICAN VAN ECK
STRONG CENTURY VP CENTURY WORLDWIDE
INTERNATIONAL II BALANCED VP GROWTH BOND FUND
---------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 4,316 $ 97,253 $ 5,760 $ 7,031
Mortality and expense and administrative charges (1,711) (2,774) (2,218) (2,373)
Net realized gain (loss) on investments 62,354 (77,370) 67,659 45,162
Net unrealized appreciation (depreciation) of investments
during the year 9,766 86,667 32,986 5,746
------------- ------------ ------------ -----------
Net increase (decrease) in net assets resulting from operations 74,725 103,776 104,187 55,566
CAPITAL TRANSACTIONS
Purchase of Variable Account units 11,439,550 3,176,516 22,191,371 3,619,169
Redemption of Variable Account units (11,526,224) (2,521,079) (22,309,476) (3,073,617)
Redemptions for mortality and expense and administrative charges
1,711 2,774 2,218 2,373
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
------------- ------------ ------------ -----------
Net increase (decrease) from capital transactions (84,963) 658,211 (115,887) 547,925
Net assets at beginning of year 330,805 566,623 141,757 278,607
------------- ------------ ------------ -----------
Net assets at end of year $ 320,567 $ 1,328,610 $ 130,057 $ 882,098
============= ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
VAN ECK NEUBERGER &
WORLDWIDE BERMAN AMT NEUBERGER &
HARD ASSETS LIMITED BERMAN AMT
FUND MATURITY BOND PARTNERS
----------- ------------- -----------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 146,361 $ 23,272 $ 123,635
Mortality and expense and administrative charges (3,044) (2,433) (4,346)
Net realized gain (loss) on investments (314,422) (4,949) (90,988)
Net unrealized appreciation (depreciation) of investments
during the year (47,362) 3,288 (45,410)
----------- ------------ -----------
Net increase (decrease) in net assets resulting from operations (218,467) 19,178 (17,109)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 4,113,612 1,490,835 1,326,782
Redemption of Variable Account units (4,849,914) (1,173,233) (1,051,703)
Redemptions for mortality and expense and administrative charges
3,044 2,433 4,346
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - -
----------- ------------ -----------
Net increase (decrease) from capital transactions (733,258) 320,035 279,425
Net assets at beginning of year 1,323,208 336,187 590,553
----------- ------------ -----------
Net assets at end of year $ 371,483 $ 675,400 $ 852,869
=========== ============ ===========
</TABLE>
See accompanying notes.
22
<PAGE> 79
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
INVESCO INVESCO COMBINED
HEALTH & INDUSTRIAL INVESCO VARIABLE
SCIENCES INCOME TECHNOLOGY ACCOUNT
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 45,713 $ 25,527 $ 5,212 $ 75,909,596
Mortality and expense and administrative charges (4,325) (2,272) (2,193) (34,619,507)
Net realized gain (loss) on investments 83,990 (17,099) (30,307) 71,607,287
Net unrealized appreciation (depreciation) of investments
during the year 170,413 32,862 160,236 240,978,559
------------ ------------ ----------- ----------------
Net increase (decrease) in net assets resulting from operations 295,791 39,018 132,948 353,875,395
CAPITAL TRANSACTIONS
Purchase of Variable Account units 5,191,549 1,055,446 4,726,295 1,169,049,337
Redemption of Variable Account units (3,777,233) (893,692) (3,791,287) (950,418,556)
Redemptions for mortality and expense and administrative charges
4,325 2,272 2,193 34,619,507
Funding of subaccount by Fortis Benefits Insurance Company - - - 12,450,000
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - (13,675,098)
Dividend income distribution to Fortis Benefits Insurance
Company - - - (674,351)
------------ ------------ ----------- ----------------
Net increase (decrease) from capital transactions 1,418,641 164,026 937,201 251,350,839
Net assets at beginning of year 153,663 337,492 168,898 2,332,292,685
------------ ------------ ----------- ----------------
Net assets at end of year $ 1,868,095 $ 540,536 $ 1,239,047 $ 2,937,518,919
============ ============ =========== ================
</TABLE>
See accompanying notes.
23
<PAGE> 80
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements
December 31, 1999
1. GENERAL
FORTIS BENEFITS INSURANCE COMPANY
Variable Account D (the "Account") was established as a segregated asset account
of Fortis Benefits Insurance Company ("Fortis Benefits") on October 14, 1987
under Minnesota law. The Account is registered under the Investment Company Act
of 1940 as a unit investment trust. The variable annuity contracts are sold
under the names of EmPower Variable Annuity, Opportunity Variable Annuity, Wells
Fargo Passage Variable Annuity (formerly known as Norwest Passage Variable
Annuity), Masters Variable Annuity, Value Advantage Plus Variable Annuity and
Income Preferred Variable Annuity and Federated Triple Crown Variable Annuity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Account are segregated from Fortis Benefits' other assets. The
operations of the Account are part of Fortis Benefits. The following is a
summary of significant accounting policies consistently followed by the Account
in the preparation of its financial statements.
INVESTMENT TRANSACTIONS
Capital gain distributions from subaccounts are recorded on the ex-dividend date
and reinvested upon receipt.
INVESTMENT INCOME
Dividend income distributions from subaccounts are recorded on the ex-dividend
date and reinvested upon receipt.
24
<PAGE> 81
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of net assets at the date of
the financial statements and the reported amounts of net increase and decrease
in net assets from operations during the reporting period. Actual results could
differ from these estimates.
3. INVESTMENTS
There were 61 subaccounts within the Account. Investment in shares of the Fortis
Series Fund, Inc. (the "Series") subaccounts are stated at market value, which
is based on the percentage owned by the Account of the net asset value for the
respective portfolios of these Series. The Series' net asset value is based on
market quotations of the securities held in the portfolio. Investments in the
other subaccounts are valued at the net asset (market) value per share at the
close of business on December 31, as reported by the respective mutual fund.
On September 20, 1999, the Norwest Series Funds changed its name to the Wells
Fargo Variable Trust. As a result of the change from Norwest to Wells Fargo, the
following funds changed names: The Norwest Select Income Equity Fund changed to
Wells Fargo Variable Trust Equity Income Fund, the Norwest Select Valugrowth
Fund changed to Wells Fargo Variable Trust Large Company Growth Fund, the
Norwest Income Fund changed to the Wells Fargo Variable Trust Corporate Bond
Fund, and the Norwest Select Small Company Stock Fund changed to the Wells Fargo
Variable Trust Small Cap Stock Fund.
The cost of investments sold and redeemed is determined on the average cost
method. Unrealized appreciation or depreciation of investments represents the
Account's share of the subaccounts' undistributed net investment income,
undistributed realized gains or losses and unrealized appreciation or
depreciation.
25
<PAGE> 82
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
Purchases and sales of shares of the Fund are recorded on the trade date. The
number of shares and aggregate cost of purchases, including reinvested dividends
and realized capital gains, and aggregate cost of investments sold or redeemed
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock 4,978,132 2,488,571 $161,442,240 $ 60,051,825
U.S. Government Securities 1,916,594 2,147,519 19,930,332 23,141,836
Money Market 9,210,743 5,738,592 103,104,140 63,850,738
Asset Allocation 4,015,172 2,762,388 82,165,249 43,092,189
Diversified Income 1,206,078 1,555,645 13,354,668 18,287,745
Global Growth 770,088 2,667,719 20,141,023 38,663,127
Aggressive Growth 1,237,296 784,771 28,632,229 10,639,902
Growth & Income 1,147,912 1,657,035 23,472,414 24,762,684
High Yield 1,396,065 1,176,380 13,088,327 11,968,830
Global Asset Allocation 730,517 535,027 10,234,446 6,996,772
Global Bond 728,969 425,728 8,090,103 4,981,315
International Stock 1,543,903 815,081 24,396,424 10,609,129
Value 449,284 605,528 6,823,332 7,895,168
S & P 500 6,179,339 2,022,842 125,545,450 38,403,086
Blue Chip Stock 2,679,741 277,993 52,655,703 4,405,532
Mid Cap Stock 891,979 125,899 8,528,073 1,140,982
Large Cap Growth 3,491,409 50,255 47,009,337 703,566
Small Cap Value 1,921,850 222,974 19,193,803 2,225,383
Wells Fargo Variable Trust:
Large Cap 467,130 240,704 17,880,099 3,039,944
Corporate Bond 1,120,765 230,185 13,560,810 2,673,496
Small Cap Stock 122,610 269,659 1,382,121 3,442,322
Income Equity 2,148,439 203,437 38,111,023 2,903,009
Growth 2,183 - 56,266 1
Equity Value 10,708 - 100,121 -
Asset Allocation 75,891 302 1,191,046 4,188
Scudder Variable Life Investment Fund:
International 14,987 101,879 1,051,785 1,344,120
AIM Variable Insurance Funds, Inc.:
V.I. Value Fund 563,265 9,554 16,886,126 251,080
V.I. International Equity 121,509 9,905 2,806,228 199,314
</TABLE>
26
<PAGE> 83
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Alliance Variable Product Series:
Money Market 200,370,409 201,747,571 $201,349,414 $201,747,571
International 3,557,215 3,535,060 61,457,460 60,791,954
Premier Growth 385,714 459,541 13,323,209 13,954,163
SAFECO Resource Series:
Growth 243,582 321,802 5,005,304 7,128,837
Equity 88,378 61,277 2,905,724 1,784,602
Federated Insurance Series:
U.S. Government Securities II 610,469 256,608 6,530,790 2,759,786
High Income Bond Fund II 2,064,857 1,597,032 21,900,547 16,837,452
American Leaders II 3,837,639 2,066,898 81,174,935 44,003,183
Equity Income 1,474,209 2,456 22,103,728 36,380
Growth Strategies 798,642 6,531 18,226,511 137,022
International Equity II 374,118 439 6,933,636 7,065
Utility II 548,821 163,128 7,914,617 2,358,588
Money II 8,313,351 7,080,345 8,358,067 7,080,345
Strategic Income II 58,160 138 586,922 1,353
Small Cap II 85,863 36 1,018,966 427
Lexington Funds, Inc.:
Natural Resources Trust 170,459 145,816 2,161,210 1,904,504
Emerging Markets 135,638 14,322 135,773 105,456
MFS Variable Insurance Trust:
Emerging Growth 249,835 301,231 14,159,112 6,393,261
High Income 455,613 466,550 10,179,495 5,448,479
World Government 67,910 96,403 719,554 1,015,419
Montgomery Variable Funds:
Emerging Markets 2,441,174 2,392,615 20,357,660 19,699,007
Growth 235,480 260,002 3,992,065 4,284,459
Strong Variable Insurance Funds:
Discovery II 150,502 167,330 1,533,197 1,782,195
International II 1,729,393 1,600,904 17,406,027 15,417,494
American Century Investments:
VP Balanced 90,380 88,096 917,761 688,763
VP Capital Appreciation 141,050 105,438 1,507,118 1,023,707
</TABLE>
27
<PAGE> 84
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 96,979 142,677 $ 1,082,718 $ 1,641,454
Worldwide Hard Assets Fund 523,306 479,248 5,500,799 5,177,805
Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 43,964 54,339 612,422 734,378
AMT Partners 30,511 44,921 619,752 878,676
INVESCO, Inc.:
Health & Sciences 289,246 284,870 4,370,749 4,180,502
Industrial Income 81,284 69,977 1,644,642 1,344,227
Technology 1,106,916 850,184 24,971,634 16,312,491
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock 1,004,034 2,196,640 $ 34,564,496 $ 49,323,884
U.S. Government Securities 3,437,980 2,901,372 37,574,748 31,231,425
Money Market 5,363,997 3,716,023 59,807,526 41,094,061
Asset Allocation 2,001,168 1,458,017 39,169,557 21,805,287
Diversified Income 1,549,018 782,457 18,578,490 9,205,964
Global Growth 285,660 2,261,137 5,881,403 32,137,640
Aggressive Growth 487,885 901,804 6,949,264 11,448,325
Growth & Income 1,726,589 629,713 34,640,523 9,208,139
High Yield 2,152,596 667,421 22,332,030 6,851,079
Global Asset Allocation 936,706 250,285 13,387,020 3,303,440
Global Bond 631,500 440,320 7,223,628 4,874,924
International Stock 1,503,232 902,541 22,109,990 10,559,299
Value 1,993,402 477,833 28,301,911 5,961,110
S & P 500 6,188,109 1,534,358 103,691,257 21,915,415
Blue Chip Stock 3,595,998 155,356 59,682,314 2,458,315
Mid Cap Stock 1,205,928 26,346 11,055,855 244,582
Large Cap Growth 1,260,680 22,820 12,882,373 236,243
Small Cap Value 1,598,441 74,837 14,760,208 679,909
Norwest Select Fund:
ValuGrowth 660,500 120,742 10,080,966 1,743,062
Intermediate Bond 1,183,655 82,025 15,190,412 975,994
</TABLE>
28
<PAGE> 85
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Norwest Select Fund (continued):
Small Company Stock 517,603 197,617 $ 6,364,683 $ 2,267,785
Income Equity 2,588,219 119,655 38,818,850 1,566,941
Scudder Variable Life Investment Fund:
International 195,728 58,024 2,707,547 757,852
AIM Variable Insurance Funds, Inc.:
V.I. Value Fund 193,718 4,299 4,614,430 102,326
V.I. International Equity 83,290 3,047 1,610,547 59,224
Alliance Variable Product Series:
Money Market 277,309,836 267,800,970 277,309,836 267,800,970
International 6,931,865 7,035,341 113,161,466 114,619,502
Premier Growth 1,715,690 1,530,908 44,442,119 38,957,251
SAFECO Resource Series:
Growth 1,515,642 1,412,953 38,859,385 37,036,558
Equity 184,338 165,126 5,124,882 4,456,822
Federated Insurance Series:
U.S. Government Securities II 820,671 746,374 8,905,396 8,074,854
High Income Bond Fund II 1,126,285 1,022,148 12,186,466 11,127,120
Utility II 1,122,568 523,631 6,847,132 7,410,506
American Leaders II 1,344,922 1,430,779 26,630,270 28,235,656
Lexington Funds, Inc.:
Natural Resources Trust 126,536 155,785 1,803,493 2,321,670
Emerging Markets 200,566 261,939 1,660,324 2,220,131
MFS Variable Insurance Trust:
Emerging Growth 1,634,214 1,576,261 29,099,913 27,298,816
High Income 494,434 245,098 5,823,056 2,923,331
World Government 135,626 116,366 1,431,215 1,215,758
Montgomery Variable Funds:
Emerging Markets 454,651 469,946 3,569,185 3,929,685
Growth 63,835 140,023 986,435 2,017,062
Strong Variable Insurance Funds:
Discovery II 675,218 656,764 8,763,127 8,532,369
International II 1,257,834 1,256,817 11,443,866 11,463,870
American Century Investments:
VP Balanced 407,610 317,069 3,273,769 2,598,449
VP Growth 2,372,711 2,372,936 22,197,131 22,241,817
</TABLE>
29
<PAGE> 86
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 305,599 259,118 $ 3,626,200 $ 3,028,455
Worldwide Hard Assets Fund 328,539 372,387 4,259,973 5,164,336
Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 110,676 85,614 1,514,107 1,178,182
AMT Partners 73,345 56,959 1,450,417 1,142,691
INVESCO, Inc.:
Health & Sciences 396,457 288,098 5,237,262 3,693,243
Industrial Income 59,410 50,171 1,080,973 910,791
Technology 377,427 305,735 4,731,507 3,821,594
</TABLE>
Fortis Benefits' investment in the subaccounts represented the following number
of shares of the Funds held and aggregate cost of amounts invested at December
31, 1999:
<TABLE>
<CAPTION>
COST OF
SHARES SHARES
------- ----------
<S> <C> <C>
Fortis Series Fund, Inc.:
Global Asset Allocation 299,219 $3,216,120
Global Bond 518,523 5,286,998
Blue Chip Stock 342,151 3,533,258
Mid Cap Stock 415,029 4,149,737
Large Cap Growth 415,274 4,183,997
Small Cap Value 415,310 4,142,723
</TABLE>
30
<PAGE> 87
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
4. ACCOUNT CHARGES
ADMINISTRATION CHARGE
A $35 annual contract administrative charge is deducted each contract year from
the value of each Opportunity Variable Annuity and Masters Variable Annuity and
$30 for each EmPower Variable Annuity, Wells Fargo Passage Variable Annuity and
Value Advantage Plus Variable Annuity on each anniversary of the contract date
and upon total surrender of the contract. This charge will be waived during the
accumulation period if the contract value at the end of the contract year (or
upon total surrender) is $25,000 or more for the Opportunity Variable Annuity,
Masters Variable Annuity and Wells Fargo Passage Variable Annuity and $100,000
for the EmPower Variable Annuity.
In addition, Fortis Benefits assesses each subaccount of the Opportunity
Variable Annuity, Masters Variable Annuity, Income Preferred Variable Annuity
and Federated Triple Crown Variable Annuity, a daily charge for administrative
expense at annual rate of 0.10% of the net assets. For the EmPower Variable
Annuity and Wells Fargo Passage Variable Annuity, the daily charge is assessed
at an annual rate of 0.15%.
MORTALITY AND EXPENSE RISK CHARGE
Fortis Benefits assesses each subaccount of the Opportunity Variable Annuity,
Masters Variable Annuity and Wells Fargo Passage Variable Annuity a daily charge
for mortality and expense risk at an annual rate of 1.25% of the net assets. For
the EmPower Variable Annuity, the daily charge is assessed at an annual rate of
1.10%. For the Income Preferred Variable Annuity, the daily charge is assessed
at an annual rate of 1.85%. For the Value Advantage Plus Variable Annuity, the
mortality and expense risk charge is assessed at an annual rate of 0.45%. For
the Federated Triple Crown Variable Annuity, the mortality and expense risk
charge for contract owners less than 61 years old is 1.10%, and for contract
owners 61 years or older is 1.30%.
31
<PAGE> 88
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
4. ACCOUNT CHARGES (CONTINUED)
INVESTMENT RISK CHARGE
Fortis Benefits bears an investment risk associated with the Income Preferred
Variable Annuity in relation to the Guaranteed Payout Plan Benefit. With this
benefit Fortis bears the risk that investment performance is insufficient to
cover the guarantee of the return of purchase payment. Fortis assesses a daily
charge at an annual rate of .35% for this risk.
5. SURRENDER AND PREMIUM TAX CHARGES
FREE SURRENDERS
The following amounts can be withdrawn from the contract without a surrender
charge:
- Any purchase payments received more than five years prior to the
surrender date for Opportunity Variable Annuity and the Wells Fargo
Passage Variable Annuity, seven years for Masters Variable Annuity and
the Federated Triple Crown Variable Annuity, and nine years for Income
Preferred Variable Annuity and have not been previously surrendered.
- In any contract year, up to 10% of the purchase payments received less
than five years prior to the surrender date for Opportunity Variable
Annuity and Wells Fargo Passage Variable Annuity, seven years prior to
the surrender date for Masters Variable Annuity and the Federated
Triple Crown Variable Annuity, and nine years prior to the surrender
date for Income Preferred Variable Annuity
- For Masters Variable Annuity, Wells Fargo Passage Variable Annuity and
Federated Triple Crown Variable Annuity, any earnings that have not
been previously surrendered.
- For EmPower Variable Annuity and Value Advantage Plus Variable
Annuity, there is no surrender charge.
32
<PAGE> 89
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
5. SURRENDER AND PREMIUM TAX CHARGES (CONTINUED)
AMOUNT OF SURRENDER CHARGE
Surrender charges apply only if the amount being withdrawn exceeds the sum of
the amounts listed above under Free Surrenders. The surrender charge is based on
a percentage of the amount of purchase payments surrendered. The percentage of
payments is set at 5% during the first five years on the Opportunity Variable
Annuity and Wells Fargo Passage Variable Annuity contracts with a sliding scale
down to zero by the end of the fifth year. The percentage is set at 7% during
the first seven years of the Masters Variable Annuity contracts, with a sliding
scale down to zero by the end of the seventh year. The percentage is set at 8%
during the first nine years of the Income Preferred Variable Annuity contracts,
with a sliding scale down to zero by the end of the ninth year.
PREMIUM TAXES
Where premium taxes or similar assessments are imposed by states or other
jurisdictions upon receipt of purchase payments, Fortis Benefits pays such taxes
on behalf of the contract owner and will deduct a charge for these amounts from
the contract value upon surrender, death of the annuitant or contract owner, or
annuitization of the contract. In jurisdictions where premium taxes or similar
assessments are imposed at the time annuity payments begin, Fortis Benefits will
deduct a charge on a pro rata basis from the contract value at that time.
Surrender and premium tax charges are included in redemptions and are paid
directly to Fortis Benefits. The surrender and premium tax charges collected by
Fortis Benefits were $6,252,617 and $4,332,105 in 1999 and 1998, respectively.
6. FEDERAL INCOME TAXES
The operations of the Account form part of, and are taxed with, the operations
of Fortis Benefits, which is taxed as a life insurance company under the
Internal Revenue Code. As a result, the net asset value of the subaccounts are
not affected by income taxes on income distributions received by the
subaccounts.
33
<PAGE> 90
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
7. RELATED PARTY TRANSACTIONS
Fortis Advisers, Inc. (Fortis Advisers), an affiliate of Fortis Benefits,
provides investment management services to Fortis Series Fund, Inc. in exchange
for investment advisory and management fees. Investment advisory and management
fees are based on each portfolio's daily net assets and decrease through reduced
percentages as average daily net assets increase. The fees represent an
investment expense to Fortis Series Fund, Inc. which reduces the portfolios' net
assets. The fees charged by Fortis Advisers are not available on an individual
variable account basis. Fees for all variable accounts to which Fortis Advisers
provided investment management services amounted to $21,779,394 and $17,790,513
in 1999 and 1998, respectively.
8. YEAR 2000 (UNAUDITED)
The Account has no computer systems of its own and is, therefore, dependent upon
the systems of its affiliates, including Fortis Benefits Insurance Company
(Fortis Benefits), Fortis Advisers (Advisers) and certain other third parties.
Fortis Benefits and Advisers utilize Fortis Inc. (Fortis) to process their
businesses. Fortis created a Year 2000 Project which was dedicated to ensuring
that all systems for Fortis and subsidiaries and affiliates were Year 2000
ready. The estimated total cost of Fortis Year 2000 Project was approximately
$85 million. There were no costs allocated to the Account, as amounts are only
allocated to the affiliated companies.
As of December 20, 1999, 100% of the Mission Critical and non-Mission Critical
computer system lines of code that had been identified were renovated and tested
and were Year 2000 ready. Although there have been several matters, as of the
date of this publication, no significant disruptions resulting from the century
date change have been detected in any of its Mission Critical systems. Fortis
will continue to monitor the status of and respond to any potential Year 2000
issue.
34
<PAGE> 91
Appendix A
PERFORMANCE INFORMATION
In advertising and other sales material for the Contracts, yield and total
return information for the Subaccounts of the Variable Account may be included.
The information below provides investment results for the indicated Subaccounts
of the Separate Account. The results shown in this section are not an estimate
or guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
YIELD CALCULATIONS
Yield information for the Money Market Subaccount will be based on the seven
days ended on a specified date. It will be computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account (after the deduction of all asset based charges) having a
balance of one Accumulation Unit at the beginning of the period and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return , and multiplying the base period return by
(365/7), with the resulting yield figure carried to the nearest hundredth of one
percent. The seven day yield for the Money Market Subaccount as of December 31,
1999 was as follows:
Under 61 Over 60
-------- -------
3.41% 3.18%
An effective yield may also be quoted for the Money Market Subaccount. Effective
yield is calculated by compounding the current yield as follows:
Effective Yield = [(Base Period Return + 1) 365/7 ] - 1
The seven day effective yield for the Money Market Subaccount as of December 31,
1999 was as follows:
Under 61 Over 60
-------- -------
3.46% 3.23%
Yield information for the other Subaccounts will be based on the thirty days
ended on a specified date and carried to the nearest hundredth of a percent,
according to the following formula:
A - B
Yield = 2 [ ( ----- +1 ) 6 -1 ]
CD
Where:
A = net investment income earned during the period by the Portfolio
whose shares are owned by the Subaccount,
B = expenses accrued for the period,
C = the average daily number of Accumulation Units outstanding during
the period, and
D = the offering price per Accumulation Unit at the end of the last day
of the period.
A-1
<PAGE> 92
The following table sets figures for the thirty days ended December 31, 1999.
<TABLE>
<CAPTION>
Subaccount Yield
---------- -----
Under 6 1 Over 60
------- ---------
<S> <C> <C>
Federated Government Securities . . . . . . . . . . 2.51% 2.51%
Federated High Income Bond . . . . . . . . . . . . 8.06% 8.06%
</TABLE>
TOTAL RETURN CALCULATIONS
Total return information will be given for the one year and five year periods
ended on a specific date, provided that, if the registration statement has been
effective for a Subaccount only during a shorter period, then such shorter
period will be used.
Average Annual Total Return
Total average annual compounded rates of return for each period will be computed
to the nearest one hundredth of a percent, according to the following formula:
P(1 + T)n = CSV
Where: P = a hypothetical initial purchase payment of $1000,
T = average annual total return,
n = number of years, and
CSV = end of period Cash Surrender Value of hypothetical $1000
purchase payment made at the beginning of the period.
The following table shows total average annual rates of return for the period
indicated:
<TABLE>
<CAPTION>
OVER 60 UNDER 61
---------------------------------- ------------------------------------
Subaccount One Year Period Commencement One Year Period Commencement
Ended Dec. 31, To Dec. 31, Ended Dec. 31, To Dec. 31,
1999 1999 1999 1999
- ------------------------------------------------ --------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Federated American Leaders 5.14% 5.14% 5.35% 5.35%
Federated Equity Income 17.00% 17.00% 17.23% 17.23%
Federated U.S. Government Sec -1.89% -1.89% -1.69% -1.69%
Federated Growth Strategies 71.10% 71.10% 71.44% 71.44%
Federated High Income Bond 0.72% 0.72% 0.92% 0.92%
Federated International Equity 75.55% 75.55% 75.90% 75.90%
Federated Utility 0.47% 0.47% 0.67% 0.67%
Federated Strategic Income NA NA NA NA
Federated Small Cap Strategies NA NA NA NA
</TABLE>
A-2
<PAGE> 93
Cumulative Total Return
Total cumulative rates of return for each period will be computed to the nearest
one hundredth of a percent, according to the following formula:
CTR = CSV - P 100
-------
P
Where: P = a hypothetical initial purchase payment of $1,000,
CTR = cumulative total return, and
CSV = end of period Cash Surrender Value of hypothetical $1,000
purchase payment made at the beginning of the period.
<TABLE>
<CAPTION>
OVER 60 UNDER 61
---------------------------------- ------------------------------------
Subaccount One Year Period Commencement One Year Period Commencement
Ended Dec. 31, To Dec. 31, Ended Dec. 31, To Dec. 31,
1999 1999 1999 1999
- ------------------------------------------------ ----------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Federated American Leaders 5.14% 5.14% 5.35% 5.35%
Federated Equity Income 17.00% 17.00% 17.23% 17.23%
Federated U.S. Government Sec -1.89% -1.89% -1.69% -1.69%
Federated Growth Strategies 71.10% 71.10% 71.44% 71.44%
Federated High Income Bond 0.72% 0.72% 0.92% 0.92%
Federated International Equity 75.55% 75.55% 75.90% 75.90%
Federated Utility 0.47% 0.47% 0.67% 0.67%
Federated Strategic Income NA 2.97% NA 3.08%
Federated Small Cap Strategies NA 38.25% NA 38.41%
</TABLE>
Yield figures do not reflect any surrender charge, and yield and total return
figures do not reflect any premium tax charge. Yield and total return figures do
reflect the reimbursement of certain Fortis Series expenses. Current Fixed
Account effective annual rates of interest may also be quoted in advertising and
other sales materials, and these ratesdo not reflect any deductions or charges.
A-3
<PAGE> 94
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses of the issuance and distribution of the Contracts,
other than commissions on sales of the Contracts are as follows:
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Securities and Exchange Commission
registration fee $ -0-
Printing and engraving $ 3,000.00
Accounting fees and expenses $ 1,500.00
Legal fees and expenses $ 3,000.00
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 300.083 of Minnesota Law General Provision provides in part that a
corporation organized under such law shall have power to indemnify anyone made,
or threatened to be made, a party to a threatened, pending or completed
proceeding, whether civil or criminal, administrative or investigative, because
he is or was a director or officer of the corporation, or served as a director
or officer of another corporation at the request of the corporation.
Indemnification in such a proceeding may extend to judgments, penalties, fines
and amounts paid in settlement, as well as to reasonable expenses, including
attorneys' fees and disbursements. In a civil proceeding, there can be no
indemnification under the statute, unless it appears that the person seeking
indemnification has acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and its
shareholders and unless such person has received no improper personal benefit;
in a criminal proceeding, the person seeking indemnification must also have no
reasonable cause to believe his conduct was unlawful.
Article VI Section 5 of the By-laws of the Fortis Benefits Insurance Company
provides as follows:
Section 5. The Company shall indemnify (including therein the prepayment of
expenses) any person who is or was a director, officer or employee, or who
is or was serving at the request of the Company as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise for expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him with
respect to any threatened, pending or completed action, suit or proceedings
against him by reason of the fact that he is or was such a director,
officer or employee to the extent and in the manner permitted by law.
Section 12 of the Principal Underwriter agreement incorporated as exhibit 1
to this registration statement (which is incorporated herein by this reference)
provides that Fortis Investors, Inc. and Fortis Benefits will indemnify each
other, and each other's officers, directors and controlling persons, with
respect to certain types of misstatements or omissions in connection with the
offer and sale of the Certificates.
Certain officers, directors or controlling persons of Fortis Investors, Inc. are
also officers, directors and controlling persons of Fortis Benefits.
Pursuant to the Principal Underwriter and Servicing Agreement, Fortis
Investors has agreed to indemnify Variable Account D, Fortis Benefits, and each
of its officers, directors and controlling persons for damages and expenses (1)
arising out of certain material misstatements and omissions in connection with
the offer and sale of the Contracts, if the misstatement or omission was based
on information furnished by Fortis Investors or (2) otherwise arising out of
Fortis Investors' negligence, bad faith, willful misfeasance or reckless
disregard of its responsibilities. Pursuant to its Dealer Sales Agreements, a
form of which is filed as Exhibit 3(b) to this registration statement and is
incorporated herein by this reference, firms that sell the contracts agree to
indemnify Fortis Benefits, Fortis Investors, the Separate Account, and their
officers, directors, employees, agents, and controlling persons from liabilities
and expenses arising out of the wrongful conduct or omissions of said selling
firm or its officers, directors, employees, controlling persons or agents.
Item 16. Exhibits
1. (a) Form of Principal Underwriter and Servicing Agreement
(incorporated by reference from Form N-4 Registration Statement
of Fortis Benefits and its Variable Account D filed on January
11, 1994, File No. 33-73986);
(b) Form of Amendment to Principal Underwriting (incorporated by
reference from Form N-4 Registration Statement of Fortis Benefits
and its Variable Account D filed on January 11, 1994, File No.
33-73986).
<PAGE> 95
2. Form of Asset Transfer and Acquisition Agreement dated August 28,
1991 and supplement thereto dated October 1, 1991 (incorporated
by reference from Form 8-K filed on October 16, 1991 [as amended
by Form 8 filed on October 21, 1991], File No. 33-37576).
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) Amendment 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).
(d) Certificate of Amendment to Bylaws of depositor dated May 1,
1999 (incorporated by reference from Form 10-K of Fortis Benefits
Insurance Company filed March 29, 2000, File No. 33-37576).
4. (a) Form of Combination Fixed and Variable Annuity Contract to be
issued where all owners are less than 61 years old at time of
purchase (incorporated by reference from Form N-4 Registration
Statement of Fortis Benefits filed on October 2, 1998, File
333-65233;
(b) Form of Combination Fixed and Variable Annuity Contract to be
issued where one or more owners are 61 years old, or older, at
time of purchase (incorporated by reference from Form N-4
Registration Statement of Fortis Benefits filed on October 2,
1998, File 333-65233;
(c) Form of IRA Endorsement (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
March 28, 1991, File No. 33-37577);
(d) Form of Section 403(b) Annuity Endorsement (incorporated by
reference from Pre-Effective Amendment No. 1 to Form N-4
Registration Statement of Western Life and its Variable Account D
filed on March 28, 1991).
5. Opinion and consent of David A. Peterson, Esq., Assistant General
Counsel of Fortis Benefits Insurance Company, as to the legality
of the securities being registered - filed as a part of Amendment
No. 1 to this Form S-2 Registration Statement filed December 18,
1998.
10(a). 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).
(b) Fortis Appreciation Incentive Rights Plan (incorporated by
reference from Form 10-K of Fortis Benefits Insurance Company
filed March 29, 2000, File No. 33-37576).
23. Consent of Ernst & Young LLP - filed herewith.
24. Power of Attorney for Messrs. Freedman, and Clayton (incorporated
by reference from Form S-6 Registration Statement of Fortis
Benefits and its Variable Account C filed on December 17, 1993,
File No. 33-73138).
Item 17. Undertakings
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement,
including (but not limited to) any addition or deletion of a managing
underwriter.
<PAGE> 96
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the indemnification provision described in response to
Item 14, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will governed by the final adjudication of such issue.
<PAGE> 97
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this amended Registration Statement to be signed
on its behalf in the City of St. Paul, State of Minnesota on this 25th day of
April, 2000.
FORTIS BENEFITS INSURANCE COMPANY
(Registrant)
By:/s/
---------------------------------------
Robert Brian Pollock, President
As required by the Securities Act of 1933 and the Investment Company Act of
1940, this Registration Statement has been signed by the following persons, in
the capacities indicated, on April 25, 2000.
<TABLE>
<CAPTION>
<S> <C>
Signature Title With Fortis Benefits
- --------- --------------------------
* Chairman of the Board
---------------------------------
Allen Royal Freedman
* Director
---------------------------------
J. Kerry Clayton
Director
---------------------------------
Arie Aristide Fakkert
Director
---------------------------------
Alan W. Feagin
/s/ Director
---------------------------------
Dean C. Kopperud
/s/ President and Director
--------------------------------- (Chief Executive Officer)
Robert Brian Pollock
/s/
--------------------------------- Director
Michael John Peninger
/s/
---------------------------------- Treasurer (Principal
Larry M. Cains Accounting Officer and
Principal Financial Officer)
*By:/s/
------------------------------
Robert Brian Pollock
Attorney-in-Fact
</TABLE>
<PAGE> 98
EXHIBIT INDEX
Item
Number Description
- ------ -----------
23 Consent of Independent Auditors
<PAGE> 1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Statement of Additional Information and to the use of our report dated February
17, 2000 on the financial statements of Fortis Benefits Insurance Company and
our report dated March 29, 2000 on the financial statements of Fortis Benefits
Insurance Company Variable Account D in Amendment No. 3 to the Registration
Statement (Form S-2 No. 333-65231) and related Prospectus and Statement of
Additional Information of Fortis Benefits Insurance Company for the registration
of flexible premium deferred combination variable and fixed annuity contracts.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 28, 2000