<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED:
DECEMBER 31, 1999
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM: COMMISSION FILE NUMBER:
33-46620
------------------------
FORTIS BENEFITS INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
MINNESOTA 81-0170040
State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
500 BIELENBERG DRIVE, WOODBURY, MN 55125
(Address of principal executive offices)
Registrant's telephone number: (651) 738-4000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
/X/ Yes / / No
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Form S-2 Amended Registration Statement to be filed by the
Registrant are incorporated by reference into Parts I, II, III.
PART I
ITEM 1. BUSINESS
"Fortis Benefits/Fortis Financial Group Member" on page 10, and Further
Information About Fortis Benefits" on pages 22 through 23 of the prospectus
attached hereto as Exhibit No. 99 are incorporated herein.
Fortis Benefits seeks to compete primarily on the basis of customer service,
product design, and, in the case of variable products, the investment results
achieved. Many other insurance companies compete with Fortis Benefits in each of
its markets, including on the basis of price. Many of these companies, which
include some of the largest and best known insurance companies, have
considerably greater resources than Fortis Benefits.
The Company is subject to regulation and supervision by the insurance
departments of the states in which it is licensed to do business. This
regulation covers a variety of areas, including benefit reserve requirements,
adequacy of insurance company capital and surplus, various operational
standards, and accounting and financial reporting procedures. Fortis Benefits'
operations and accounts are subject to periodic examination by insurance
regulatory authorities.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed up to prescribed limits for insurance contract losses,
if covered, incurred by insolvent companies. The amount of any future
assessments of Fortis Benefits under these laws cannot be reasonably estimated.
Most of these laws do provide, however, that an assessment may be excused or
deferred if it would threaten an insurer's own financial strength.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Federal measures that may adversely affect the insurance
business include health care reform, employee benefit regulation, controls on
medicare costs and medical entitlement programs, tax law changes affecting the
taxation of insurance companies or of insurance products, changes in the
relative desirability of various personal investment vehicles, and removal of
impediments on the entry of banking institutions into the business of insurance.
Pursuant to state insurance laws and regulations, Fortis Benefits is
obligated to carry on its books, as liabilities, reserves to meet its
obligations under outstanding insurance contracts. These reserves are based on
assumptions about, among other things, future claims experience and investment
returns. Neither the reserve requirements nor the other aspects of state
insurance regulation provide absolute protection to holders of insurance
contracts, if Fortis Benefits were to incur claims or expenses at rates
significantly higher than expected or significant unexpected losses on its
investments.
ITEM 2. PROPERTIES
Fortis Benefits has approximately 2,200 employees and considers its employee
relations to be excellent; Fortis Benefits owns its Home Office building,
consisting of 295,000 square feet in Woodbury, Minnesota. It also has
administrative offices in Kansas City, Missouri. Fortis Benefits leases a
portion of that building consisting of 297,000 square feet. In addition Fortis
Benefits has several regional claims and sales offices throughout the United
States. Fortis Benefits occupies approximately 100% of its home office and 70%
of its administration building, which it expects will be adequate for its
purposes for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits, none of which, in the
opinion of the Company counsel, will result in a material liability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
<PAGE> 3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" from page 23 of the prospectus attached hereto as
Exhibit No. 99, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 23 through 25 of the prospectus attached hereto as Exhibit
No. 99 is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The matters set forth under the caption "Market Risk" in Management's
Discussion and Analysis of Results of Operations (Item 7 of this report) are
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
"FORTIS BENEFITS Financial Statements" contained in the prospectus attached
hereto as Exhibit No. 99 are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE> 4
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth is information concerning the Company's directors and executive
officers, to the extent responsible for its variable annuity operations,
together with their business experience and principal occupations for the past
five years:
OFFICER-DIRECTORS
Dean C. Kopperud, 47 Executive Vice-President (President - FFG)
Director since 1995
Robert Brian Pollock, 45 President and Chief Executive Officer;
Director Since 1988
Michael John Peninger, 45 Executive Vice President-(President-Group
Director since 1998 Nonmedical)
OTHER DIRECTORS
Allen Royal Freedman, 59 Chairman and Chief Executive Officer of Fortis, Inc.
Chairman of the Board
since 1995
J. Kerry Clayton, 54 President and Chief Operating Officer of Fortis,
Director Since 1997 Inc.; before then Executive Vice President of
Fortis, Inc.
Arie Aristide Fakkert, 56 General Manager of Fortis International N.V.
Director Since 1987
Alan W. Feagin Executive Vice President (President-Fortis Family)
Director since 1998
EXECUTIVE OFFICERS
Rhonda Schwartz, 41 Senior Vice President and General Counsel--Life and
Investment Products; before then secretary and
General Counsel of Fortis Inc.
Jon H. Nicholson, 50 Senior Vice President--Custom Solutions Group.
Peggy L. Ettestad, 42 Senior Vice President--Life Operations; before that
Vice President of General Electric Company.
Melinda S. Urion, 46 Senior Vice President--Chief Financial Officer since
1997; before then Senior Vice President--Finance &
CFO of American Express Financial Corporation.
Dickson W. Lewis, 51 Senior Vice President--Distribution and Marketing
since 1997; before then President of
Hedstrom/Blessing Marketing.
Fortis Benefits' officers serve at the pleasure of the board of directors,
and members of the board serve without compensation (except for expenses of
attending board meetings), until their successors are duly elected and
qualified.
Mr. Freedman is a director of Systems and Computer Technology Corporation
and Genesis Health Ventures. Mr. Freedman is also a director of the following
registered investment companies: Fortis Equity Portfolios, Inc.; Fortis Growth
Fund, Inc.; Fortis Fiduciary Fund, Inc., Fortis Income Portfolios, Inc.; Fortis
Securities, Inc.; Fortis Tax-Free Portfolios, Inc.; Fortis Money Portfolios,
Inc.; Fortis Advantage Portfolios, Inc.; Fortis World Wide Portfolios, Inc.;
Fortis Series Fund, Inc.; Special Portfolios, Inc.
<PAGE> 5
ITEM 11. EXECUTIVE COMPENSATION
Set forth below is certain information concerning the compensation of the
executive officers of Fortis Benefits.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ----------------------------------------
RIGHTS AWARDED/
OTHER ANNUAL APPRECIATION LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION RIGHTS PLAN PAYOUTS COMPENSATION(1)
- ------------------------------------- --------- --------- --------- ---------------- --------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert B. Pollock 1999 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
President and Chief Executive Officer 1998 300,000 126,225 0 0 0 16,439
1997 275,000 56,817 0 0 0 15,762
- -----------------------------------------------------------------------------------------------------------------------------------
Francis J. Guthrie 1999 260,000 88,125 0 2,091 0 16,200
Executive Vice President 1998 250,000 91,650 0 0 0 19,699
1997 235,000 140,388 0 0 0 15,762
- -----------------------------------------------------------------------------------------------------------------------------------
Clifford S. Korte 1999 170,000 48,375 0 1,664 0 13,102
Sr. Vice President-- 1998 150,000 60,840 0 0 41,796 13,050
Underwriting 1997 144,000 26,133 0 0 0 10,208
- -----------------------------------------------------------------------------------------------------------------------------------
William D. Greiter 1999 186,083 50,490 0 0 0 14,871
Senior Vice President-- 1998 195,000 50,490 0 0 0 15,129
Provider Markets 1997 187,000 48,195 0 0 0 14,112
- -----------------------------------------------------------------------------------------------------------------------------------
Michael John Peninger 1999 275,000 82,225 0 10,948 0 16,200
Executive Vice President 1998 230,000 78,000 0 0 0 16,439
(President Group Non-Medical) 1997 200,000 31,194 0 0 0 13,872
</TABLE>
- ------------------------------
(1) This column includes contributions made by Fortis Benefits for the year for
the benefit for the named individual to a defined contribution retirement
plan.
Aggregated Appreciation Rights Exercised in Last Fiscal Year
and FY-End Appreciation Rights Values
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Number of Appreciation Rights In-the-Money
Unexercised at Appreciation Rights
FY-End At FY-End
Exercisable/ Exercisable/
Name Rights Exercised Value Realized Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert B. Pollock 0 0 0/0 0/0
- ------------------------------------------------------------------------------------------------------------------------------------
Francis J. Guthrie 0 0 0/4680(a) 0/*(a)
0/411(b) 0/*(b)
- ------------------------------------------------------------------------------------------------------------------------------------
Clifford S. Korte 0 0 0/1530(a) 0/*(a)
0/134(b) 0/*(b)
- ------------------------------------------------------------------------------------------------------------------------------------
William D. Greiter 0 0 0/0 0/0
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Peninger 0 0 0/10,065(a) 0/*(a)
0/883(b) 0/*(b)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Rights related to Fortis Benefits Insurance Company
(b) Rights related to Fortis, Inc.
* Not available at this time
<PAGE> 6
Appreciation Rights Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Right Price
Appreciation
for Option Term (b)
Individual Grants -------------------
- ----------------------------------------------------------------------------------------
% of Total Rights
Appreciation Granted to
Rights Employees in Expiration
Name Granted(a) Fiscal Year Strike Price Date 5% 10%
- ---- ---------- ----------- ------------ ---- -------- ------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Robert B. Pollock 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Francis J. Guthrie 4680(c) 18% $50(c) 12/31/08 $18,151 $55,176
411(d) 18% $190(d) 12/31/08 $6,057 $18,413
- -----------------------------------------------------------------------------------------------------------------------------------
Clifford S. Korte 1,530(c) 6% $50(c) 12/31/08 $5,934 $18,038
134(d) 6% $190(d) 12/31/08 $1,975 $6,003
- -----------------------------------------------------------------------------------------------------------------------------------
William D. Greiter 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Michael J. Peninger 10,065(c) 38% $50(c) 12/31/08 $39,035 $118,664
883(d) 38% $190(d) 12/31/08 $13,013 $39,559
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) These Rights are granted under the Fortis Appreciation Incentive Rights
Plan. 75% of the value of the Rights granted to a participant have a
strike price which is based upon the value, per Right, of one-ten
millionth of the value of Fortis Benefits Insurance Company as of the
first day of the most recent calendar year. The value is established by
independent business appraisers. The value as of the three-year vesting
date is based upon of one-ten millionth, subject to adjustment, of the
value of Fortis Benefits Insurance Company as of such vesting date. The
one-ten millionth fraction may be adjusted for certain fundamental events
that might occur subsequent to the first day of the most recent calendar
year. The Plan participant is entitled to the difference between the value
per Right as of the exercise date and the strike price. The exercise right
may be deferred for seven years beyond the three year vesting date. 25% of
the value of the Rights granted to a participant are similarly based upon
the value of Fortis, Inc., the U.S. holding company of Fortis Benefits
Insurance Company and its U.S. affiliates. The valuation methodology of
Fortis, Inc. and the vesting, exercise rights and deferral rights
associated with those Rights are similar to that described above for
Fortis Benefits Insurance Company related Rights.
(b) The potential value assumes appreciation at the assumed annual rates
indicated and assumes that the exercise rights are deferred for the
complete seven year deferral period. If the Rights appreciate at lesser
rates when calculated as provided in the Plan and/or the Rights are not
deferred for the full possible deferral period, the realizable value will
be less than as indicated in the table above.
(c) Rights related to Fortis Benefits Insurance Company
(d) Rights related to Fortis, Inc.
As additional compensation to its employees and executive officers, Fortis
Benefits has an Employees' Uniform Retirement Plan and an Executive Retirement
Plan which generally provide an annual annuity benefit upon retirement at age 65
(or a reduced benefit upon early retirement) equal to: .9% of the employee's
Average Annual compensation up to the employee's social security covered
compensation, plus 1.3% of compensation above the social security covered
compensation, up to $255,300, as adjusted by an index, multiplied by the
employee's years of credited services.
In addition, Fortis Benefits provides an unfunded Supplemental Executive
Retirement Plan for certain executives of Fortis Benefits. Under the
Supplemental Executive Retirement Plan, the annual benefit is calculated by
subtracting the benefit payable under the Employees' Uniform Retirement Plan and
the estimated Social Security benefit from the "Target Benefit." The "Target
Benefit" is equal to 50% of Final Average Salary (average salary over the final
36 consecutive months of employment) reduced for less than 20 years of service
at retirement. Upon retirement prior to age 65 and after attaining age 55 with
10 years of service, special early retirement rules apply. The salary used to
calculate the Final Average Salary
<PAGE> 7
consists of regular compensation and the annual target incentive bonus of the
participant. None of the above-listed individuals are participants in this plan.
The following table illustrates the COMBINED estimated life annuity benefit
payable from the Employees' Uniform Retirement Plan and Executive Retirement
Plan to employees with the specified Final Average Salary and years of service
upon retirement.
PENSION PLAN TABLE*
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------------
FINAL AVERAGE SALARY 10 15 20 25 30 35
- --------------------------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
$125,000................... $15,005 $ 22,507 $ 30,010 $ 37,512 $ 45,015 $ 52,517
150,000................... 18,255 27,382 36,510 45,637 54,765 63,892
175,000................... 21,505 32,257 43,010 53,762 64,515 75,267
200,000................... 24,755 37,132 49,510 61,887 74,265 86,642
225,000................... 28,005 42,007 56,010 70,012 84,015 98,017
250,000................... 30,990 46,485 61,980 77,475 92,970 108,465
275,000+.................. 31,908 47,862 63,816 79,770 95,724 111,678
</TABLE>
- ------------------------
* The table excludes social security benefits. In general, for the purposes of
these plans, compensation includes salary and bonuses. The credited years of
service with Fortis Benefits for these individuals named in the Summary
Compensation Table above are as follows: 20, 6, 29, 16 and 15, respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES VOTING SHARES
- ------------------------------------------------- ----------- ------------------
<S> <C> <C>
Fortis, Inc. 1,000,000 100%
One Chase Manhattan Plaza
New York, NY 10005
</TABLE>
- ------------------------
(1) All of Fortis Benefits' outstanding shares are indirectly owned by Fortis,
Inc., One Chase Manhattan Plaza New York, NY 10005. Fortis, Inc. in turn is
wholly owned by Fortis International, Inc., which is wholly owned by
AMEV/VSB 1990 N.B. both of which share the same address with Fortisl(NL)
N.V., Archimiedeslaan 10, 3584 BA, Utrecht, The Netherlands. AMEV/VSB 1990
N.V. is 50% owned by Fortis(NL) N.V. and 50% owned, through certain
subsidiaries, by Fortis(B), Boulevard Emile Jacqmain 53, 1000 Brussels,
Belgium.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE> 8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)The following financial statements of Fortis Benefits Insurance Company
are included in Item 8:
Report of Independent Auditors
Balance Sheets at December 31, 1999 and 1998
Statements of Income for the years ended December 31, 1999, 1998, and 1997
Statements of Changes in Shareholder's Equity for the years ended December
31, 1999, 1998, and 1997
Statements of Cash Flows for the years ended December 31, 1999, 1998 and
1997.
Notes to Financial Statements
(a)(2)The information required by the following financial statement schedules of
Fortis Benefits Insurance Company are included in Item 8:
I. Summary of Investments--Other than investments in Related
Parties--Contained in the Notes to Financial Statements.
II. Condensed Financial Information of Registrant--Not Applicable.
III. Supplementary Insurance Information--Contained in Financial
Statements and Notes to Financial Statements.
IV. Reinsurance--Contained in the Notes to Financial Statements.
V. Valuation and Qualifying Accounts--Contained in Financial Statements
and Notes to Financial Statements.
All other schedules to the financial statements required by Article 7 of the
Regulation S-X are not required under the related instructions or are
inapplicable and therefore have been omitted.
(3) Listing of Exhibits
3.(a) Articles of Incorporation of Fortis Benefits Insurance Company
(incorporated by reference from Form S-6 Registration Statement of Fortis
Benefits and its Variable Account C filed on March 17, 1986, File No.
33-03919);
(b) By-laws of Fortis Benefits Insurance Company (incorporated by
reference from Form S-6 Registration Statement of Fortis Benefits and its
Variable Account C filed on March 17, 1986, File No. 33-03919);
(c) Amendments to Articles of Incorporation and By-laws dated November
21, 1991 (incorporated by reference from Post-Effective Amendment No. 1 to
the Form N-4 Registration Statement of Fortis Benefits and its Variable
Account D filed on March 2, 1992, File No. 33-37577).
(d) Amendments to By-laws dated May 1, 1999
4.(a) Form of Combination Fixed and Variable Group Annuity Contract
(incorporated by reference from Post-Effective Amendment No. 1 to the Form
N-4 Registration Statement of Fortis Benefits and its Variable Account D
filed on March 2, 1992, File No. 33-37577);
(b) Form of Certificate to be used in connection with Contract filed as
Exhibit 4(a) (incorporated by reference from the Post-Effective Amendment
No. 1 to the Form N-4 Registration Statement of Fortis Benefits and its
Variable Account D filed on March 2, 1992, File No. 33-37577);
<PAGE> 9
(c) Form of Application to be used in connection with Certificate filed
as Exhibit 4(b) (incorporated by reference from Post-Effective Amendment
No. 1 to the Form N-4 Registration Statement of Fortis Benefits and its
Variable Account D filed on March 2, 1992, File No. 33-37577);
(d) Form of IRA Endorsement (incorporated by reference from
Pre-Effective Amendment No. 1 to Form N-4 Registration Statement of Fortis
Benefits and its Variable Account D filed on March 28, 1991, File No.
33-37577);
(e) Form of Section 403(b) Annuity Endorsement (incorporated by
reference from Post-Effective Amendment No. 3 to the Form N-4 Registration
Statement of Fortis Benefits and its Variable Account D filed on March 1,
1990, File No. 33-19421);
(f) Annuity Contract Exchange Form (incorporated by reference from
Pre-Effective Amendment No. 1 to the Form N-4 Registration Statement of
Fortis Benefits and its Variable Account D filed on April 19, 1988, File
No. 33-19421).
10.(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.
24. Power of Attorney for Messrs. Freedman, Gaddy, Mackin, Meler, Mahoney,
Clancy, Keller, Greiter and Clayton (incorporated by reference from
Exhibit 11 to Form S-6 registration statement of Fortis Benefits, File No.
33-73138 filed on December 17, 1993).
99. Form of prospectus to be filed as part of Form S-2 Amended
Registration Statement of Fortis Benefits.
(b) Reports on Form 8-K filed in the fourth quarter of 1999
Form 8K report filed October 13, 1999, disclosing that the registrant
acquired substantially all of the insurance business of an affiliated
insurance company pursuant to a reinsurance agreement between the two
companies. File No. 33-46620.
(c) Exhibits
Included in 14 (a)(3) above
(d) Financial Statements Schedules
Included in 14 (a)(2) above
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FORTIS BENEFITS INSURANCE COMPANY
Registrant
March 27, 2000 By /s/ ROBERT B. POLLOCK
-----------------------------------------
Robert B. Pollock,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
March 27, 2000 By
-----------------------------------------
Larry M. Cains
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. The following
persons represent a majority of the Board of Directors of Fortis Benefits
Insurance Company:
By* Chairman of the March 27, 2000
------------------------------------- Board
Allen Royal Freedman
By /s/ ROBERT B. POLLOCK President and Chief March 27, 2000
------------------------------------- Executive Officer
Robert B. Pollock
By /s/ DEAN C. KOPPERUD Director March 27, 2000
-------------------------------------
Dean C. Kopperud
By* Director March 27, 2000
-------------------------------------
J. Kerry Clayton
*By /s/ ROBERT B. POLLOCK
-------------------------------------
Robert B. Pollock,
ATTORNEY-IN-FACT
<PAGE> 1
FORTIS
MASTERS+
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]
FORTIS BENEFITS INSURANCE COMPANY
<TABLE>
<S> <C> <C>
MAILING ADDRESS: STREET ADDRESS: PHONE:
P.O. BOX 64272 500 BIELENBERG DRIVE 1-800-800-2000
ST. PAUL, MINNESOTA 55164 WOODBURY, MINNESOTA 55125 EXTENSION 3057
</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 guaranteed interest accumulation option, you can
choose among ten different guarantee periods, each of which has its own interest
rate.
Under the variable return accumulation option, you can choose among one or more
of the following investment portfolios (those portfolios which have a non-Fortis
subadvisor includes the name of the subadvisor at the beginning of the portfolio
name):
<TABLE>
<S> <C>
Money Market Series T. Rowe Price -- Blue Chip Stock Series
U.S. Government Securities Series AIM -- Blue Chip Stock Series II
Diversified Income Series Lazard Freres -- International Stock
AIM -- Multisector Bond Series Series
High Yield Series Dreyfus -- Mid Cap Stock Series
Morgan Stanley -- Global Asset Allocation Berger -- Small Cap Value Series
Series Global Growth Series
Asset Allocation Series MFS -- Global Equity Series
Federated -- American Leaders Series Alliance -- Large Cap Growth Series
Value Series MFS -- Investors Growth Series
MFS -- Capital Opportunities Series Growth Stock Series
Growth & Income Series Aggressive Growth Series
Dreyfus -- S&P 500 Index Series
</TABLE>
The accompanying prospectuses for these investment portfolios describe the
investment objectives, policies and risks of each of the portfolios.
This prospectus gives you information about the contracts that you should know
before investing. This prospectus must be accompanied by a current prospectus of
the available investment portfolios. These prospectuses should be read carefully
and kept for future reference.
A Statement of Additional Information, dated May 1, 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.
<PAGE> 2
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................................ 6
- Fortis Benefits/Fortis Financial Group Member........ 9
The Variable Account........................................ 9
The Portfolios.............................................. 9
The Fixed Account........................................... 10
- Guaranteed Interest Rates/Guarantee Periods.......... 10
- Market Value Adjustment.............................. 10
- Investments by Fortis Benefits....................... 11
Accumulation Period......................................... 11
- Issuance of a Contract and Purchase Payments......... 11
- Contract Value....................................... 12
- Allocation of Purchase Payments and Contract Value... 13
- Total and Partial Surrenders......................... 13
- Telephone Transactions............................... 14
- Benefit Payable on Death of Contract 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... 15
- Annuity Options...................................... 15
- Death of Annuitant or Other Payee.................... 16
Charges and Deductions...................................... 16
- Premium Taxes........................................ 16
- Charges Against the Variable Account................. 16
- Tax Charge........................................... 16
- Surrender Charge..................................... 17
- Disability Waiver of Surrender Charges............... 17
- Miscellaneous........................................ 18
- Reduction of Charges................................. 18
General Provisions.......................................... 18
- The Contracts........................................ 18
- Postponement of Payment.............................. 18
- Misstatement of Age or Sex and Other Errors.......... 18
- Assignment........................................... 18
- Beneficiary.......................................... 18
- Reports.............................................. 19
Rights Reserved by Fortis Benefits.......................... 19
Distribution................................................ 19
Federal Tax Matters......................................... 19
Further Information About Fortis Benefits................... 21
- General.............................................. 21
- Ownership of Securities.............................. 21
- Selected Financial Data.............................. 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Voting Privileges........................................... 24
Legal Matters............................................... 24
Other Information........................................... 24
Contents of Statement of Additional Information............. 25
Fortis Benefits Financial Statements........................ F-1
Appendix A--Sample Market Value Adjustment Calculations..... A-1
Appendix B--Sample Death Benefit Calculations............... B-1
Appendix C--Explanation Of Expense Calculations............. C-1
Appendix D--Pro Rata Adjustments............................ D-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> 3
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 Period The time period following the Accumulation Period, during
which annuity payments are made by Fortis Benefits.
Annuity Unit A unit of measurement used to calculate variable annuity
payments.
Fixed Annuity 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.
Market Value Adjustment
Positive or negative adjustment in 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.
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,
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> 4
INFORMATION CONCERNING FEES AND CHARGES
CONTRACT OWNER TRANSACTION CHARGES
<TABLE>
<S> <C> <C> <C>
Front-End Sales Charge Imposed on Purchases................. 0%
Maximum Surrender Charge for Sales Expenses................. 7% (1)
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF YEARS SINCE SURRENDER CHARGE AS A
PURCHASE PAYMENT WAS CREDITED PERCENTAGE OF PURCHASE PAYMENT
- ----------------------------- ------------------------------
<S> <C>
Less than 2 7%
At least 2 but less than 4 6%
At least 4 but less than 5 5%
At least 5 but less than 6 3%
At least 6 but less than 7 1%
7 or more 0%
</TABLE>
<TABLE>
<S> <C> <C> <C>
Other Surrender Fees........................................ 0%
Exchange Fee................................................ 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE............................ $0
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge........................... 1.25%
Variable Account Administrative Charge...................... .10%
Total Variable Account Annual Expenses...................... 1.35%
</TABLE>
- ------------------------------
(1) This charge does not apply in certain cases such as partial surrenders each
year of up to 10% of "new purchase payments" as defined under the heading
"Surrender Charge," or payment of a death benefit.
MARKET VALUE ADJUSTMENT WITH RESPECT TO FIXED ACCOUNT
Surrenders and other withdrawals from the fixed account more than fifteen days
from the end of a guarantee period other than the one year guarantee period are
subject to a Market Value Adjustment. The Market Value Adjustment may increase
or reduce the fixed account value. We compute this adjustment according to a
formula that we describe in more detail under "Market Value Adjustment."
PORTFOLIO ANNUAL EXPENSES
<TABLE>
<CAPTION>
U.S. MULTI GLOBAL
MONEY GOVERNMENT DIVERSIFIED SECTOR HIGH ASSET ASSET AMERICAN
MARKET SECURITIES INCOME BOND YIELD ALLOCATION ALLOCATION LEADERS VALUE
SERIES SERIES SERIES SERIES (b) SERIES SERIES SERIES SERIES (c) SERIES
------ ---------- ----------- ---------- ------ ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee......... 0.30% 0.47% 0.47% 0.75% 0.50% 0.90% 0.47% 0.90% 0.70%
Other Expenses........... 0.05% 0.05% 0.07% 0.15% 0.07% 0.12% 0.05% 0.35% 0.06%
Total Fortis Series
Operating Expenses..... 0.35% 0.52% 0.54% 0.90% 0.57% 1.02% 0.52% 1.25% 0.78%
<CAPTION>
GROWTH
CAPITAL & S&P 500
OPPORTUNITIES INCOME INDEX
SERIES (c) SERIES SERIES
------------- -------- -------
<S> <C> <C> <C>
Investment Advisory and
Management Fee......... 0.90% 0.63% 0.40%
Other Expenses........... 0.35% 0.06% 0.06%
Total Fortis Series
Operating Expenses..... 1.25% 0.69% 0.46%
</TABLE>
<TABLE>
<CAPTION>
BLUE MID SMALL LARGE
CHIP BLUE CHIP CAP CAP GLOBAL GLOBAL CAP
STOCK STOCK INTERNATIONAL STOCK VALUE GROWTH EQUITY GROWTH
SERIES SERIES II (c) STOCK SERIES SERIES SERIES SERIES SERIES (c) SERIES
------ ------------- ------------- ------ ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment and Management Fee.......... 0.87% 0.95% 0.84% 0.90% 0.90% 0.70% 1.00% 0.90%
Other Expenses......................... 0.05% 0.35% 0.10% 0.28% 0.14% 0.07% 0.35% 0.07%
Total Fortis Series Operating
Expenses............................. 0.92% 1.30% 0.94% 1.18% 1.04% 0.77% 1.35% 0.97%
<CAPTION>
INVESTORS GROWTH AGGRESSIVE
GROWTH STOCK GROWTH
SERIES (c) SERIES SERIES
---------- ------ ----------
<S> <C> <C> <C>
Investment and Management Fee.......... 0.90% 0.61% 0.66%
Other Expenses......................... 0.35% 0.05% 0.06%
Total Fortis Series Operating
Expenses............................. 1.25% 0.66% 0.72%
</TABLE>
- ------------------------------
(a) As a percentage of portfolio average net assets based on 1999 historical
data, except that for American Leaders, Capital Opportunities, Blue Chip
Stock Series II, Global Equity and Investors Growth, these amounts are based
upon estimates for the current fiscal year.
4
<PAGE> 5
EXAMPLES*
If you surrender your contract in full at the end of any of the time periods
shown below, you would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market................................................ 80 107 136 198
U.S. Government Securities.................................. 82 112 145 216
Diversified Income.......................................... 82 112 146 218
Multisector Bond............................................ 86 123 164 255
High Yield.................................................. 82 113 147 221
Global Asset Allocation..................................... 87 127 170 267
Asset Allocation............................................ 82 112 145 216
American Leaders............................................ 89 134 181 290
Value....................................................... 84 120 158 243
Capital Opportunities....................................... 89 134 181 290
Growth & Income............................................. 83 117 153 233
S&P 500 Index............................................... 81 110 141 209
Blue Chip Stock............................................. 86 124 165 257
Blue Chip Stock II.......................................... 90 135 184 295
International Stock......................................... 86 125 166 259
MidCap Stock Series......................................... 88 132 178 283
Small Cap Value Series...................................... 87 128 171 269
Global Growth............................................... 84 119 157 242
Global Equity............................................... 90 137 186 300
Large Cap Growth Series..................................... 86 125 167 262
Investors Growth Series..................................... 89 134 181 290
Growth Stock................................................ 83 116 152 230
Aggressive Growth........................................... 84 118 155 237
</TABLE>
If you commence an annuity payment option, or do not surrender your contract,
you would pay the following cumulative expenses on a $1,000 investment, assuming
a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market................................................ 17 53 91 198
U.S. Government Securities.................................. 19 58 100 216
Diversified Income.......................................... 19 58 101 218
Multisector Bond............................................ 23 69 119 255
High Yield.................................................. 19 59 102 221
Global Asset Allocation..................................... 24 73 125 267
Asset Allocation............................................ 19 58 100 216
American Leaders............................................ 26 80 136 290
Value....................................................... 21 66 113 243
Capital Opportunities....................................... 26 80 136 290
Growth & Income............................................. 20 63 108 233
S&P 500 Index............................................... 18 56 96 209
Blue Chip Stock............................................. 23 70 120 257
Blue Chip Stock II.......................................... 27 81 139 295
International Stock......................................... 23 71 121 259
MidCap Stock Series......................................... 25 78 133 283
Small Cap Value Series...................................... 24 74 126 269
Global Growth............................................... 21 65 112 242
Global Equity............................................... 27 83 141 300
Large Cap Growth Series..................................... 23 71 122 262
Investors Growth Series..................................... 26 80 136 290
Growth Stock................................................ 20 62 107 230
Aggressive Growth........................................... 21 64 110 237
</TABLE>
- ------------------------------
* Does not include the effect of any Market Value Adjustment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
------------------------------
We have included the foregoing tables and examples to help you understand the
transaction and operating expenses we directly or indirectly impose under the
contracts and under the portfolios. We will also deduct amounts for state
premium taxes or similar assessments where these deductions are applicable.
See Appendix C for an explanation of the calculation of the amounts set forth
above.
5
<PAGE> 6
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 part of a qualified plan). Additional purchase payments
under a contract must be at least $50. See "Issuance of a Contract and Purchase
Payments."
ALLOCATION OF PURCHASE PAYMENTS
On the date that the contract is issued, the initial purchase payment is
allocated, as specified by you in the contract application, among one or more of
the portfolios, or to one or more of the guarantee periods in the fixed account,
or to a combination thereof. Subsequent purchase payments are allocated in the
same way, or pursuant to different allocation percentages that you may request
in writing.
VARIABLE ACCOUNT INVESTMENT OPTIONS
Each of the subaccounts of the Variable Account invests in shares of a
corresponding 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 and is managed
by Fortis Advisers, Inc. or a subadviser of Fortis Advisers, Inc. A full
description of the portfolios and their investment objectives, policies, risks
and expenses can be found in the current prospectus for the portfolios, which
accompanies this prospectus, and the portfolios' Statement of Additional
Information which is available upon request from Fortis Benefits at the address
and phone number on the cover of this prospectus.
FIXED ACCOUNT INVESTMENT OPTIONS
Any amount allocated by the owner to the fixed account earns a guaranteed
interest rate. The level of the guaranteed interest rate depends on the length
of the guarantee period selected by the owner. We currently make available ten
different guarantee periods, ranging from one to ten years.
If amounts are transferred, surrendered or otherwise paid out more than fifteen
days before or after the end of the applicable guarantee period other than the
one-year guarantee period, a Market Value Adjustment will be applied to increase
or decrease the amount of fixed account value that is paid out. Accordingly, the
Market Value Adjustment can result in gains or losses to you. There is no Market
Value Adjustment for transfers or surrenders from the one-year guarantee period
of the fixed account.
THE FIXED ACCOUNT INVESTMENT OPTION IS NOT AVAILABLE FOR CONTRACTS ISSUED IN THE
STATE OF PENNSYLVANIA.
For a more complete discussion of the fixed account investment options and the
Market Value Adjustment, see "The Fixed Account."
TRANSFERS
During the Accumulation Period, you can transfer all or part of your contract
value from one subaccount to another or into the fixed account and, subject to
any Market Value Adjustment, from one guarantee period to another or into a
subaccount. There is currently no charge for these transfers. We reserve the
right to restrict the frequency of or otherwise condition, terminate, or impose
charges upon, transfers from a subaccount during the Accumulation Period. During
the Annuity Period the person receiving annuity payments may make up to four
transfers (but not from a Fixed Annuity Option) during each year of the Annuity
Period. For a description of certain limitations on transfer rights, see
"Allocations of Purchase Payments and Contract Value--Transfers."
TOTAL OR PARTIAL SURRENDERS
Subject to certain conditions, all or part of the contract value may be
surrendered by you before the earlier of (1) the annuity commencement date, or
(2) if the owner is a non-natural person the Annuitant's death. Amounts
surrendered may be subject to a surrender charge and, in addition, amounts
surrendered from the fixed account may be subject to a Market Value Adjustment.
See "Total and Partial Surrenders," "Surrender Charge" and "Market Value
Adjustment." Particular attention should be paid to the tax implications of any
surrender, including possible penalties for premature distributions. See
"Federal Tax Matters."
ANNUITY PAYMENTS
The contract provides several types of annuity benefits to you or to other
persons you properly designate to receive such payments, including Fixed and
Variable Annuity Options. The owner has considerable flexibility in choosing the
annuity commencement date. However, the tax implications of an annuity
6
<PAGE> 7
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 to the beneficiary. See "Benefit Payable on Death of Contract 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 will be issued will be a bank trustee whose sole function is to
hold record ownership of the contract or an employer (or the employer's
designee) in connection with an employee benefit plan. In the latter cases,
certain rights that an owner otherwise would have under a contract may be
reserved instead by the employer.
TAX IMPLICATIONS
The tax implications for you or any other persons who may receive payments under
a contract, and those of any related employee benefit plan can be quite
important. A brief discussion of some of these is set out under "Federal Tax
Matters" in this prospectus and "Taxation Under Certain Retirement Plans" in the
Statement of Additional Information, but such discussion is not comprehensive.
Therefore, you should consider these matters carefully and consult a qualified
tax adviser before making purchase payments or taking any other action in
connection with a contract or any related employee benefit plan. Failure to do
so could result in serious adverse tax consequences which might otherwise have
been avoided.
QUESTIONS AND OTHER COMMUNICATIONS
Any question about procedures of the contract should be directed to your sales
representative, or Fortis Benefits' home office: P.O. Box 64272, St. Paul,
Minnesota, 55164: 1-800-800-2000, extension 3057. Purchase payments and written
requests should be mailed or delivered to the same home office address. All
communications should include the contract number, the owner's name and, if
different, the Annuitant's name. The number for telephone transfers is
1-800-800-2000 (extension 3057).
Any purchase payment or other communication, except a 10-day cancellation
notice, is deemed received at Fortis Benefit's home office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.
7
<PAGE> 8
FINANCIAL AND PERFORMANCE INFORMATION
The information presented below reflects the Accumulation Unit information for
subaccounts of the Variable Account through December 31, 1999.
<TABLE>
<CAPTION>
GLOBAL
MONEY U.S. GOV'T DIVERSIFIED GLOBAL HIGH ASSET ASSET
MARKET SECURITIES INCOME BOND YIELD ALLOCATION ALLOCATION
------ ---------- ----------- ------ ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
Accumulation Units in Force........ 59,567,286 6,961,590 46,271,405 1,402,949 4,713,245 152,820,325 3,230,112
Accumulation Unit Values........... 1,587 17,823 1,998 12,092 12,799 3,923 16,150
December 31, 1998
Accumulation Units in Force........ 39,532,433 7,577,700 51,323,231 1,236,211 4,984,906 3,315,158 160,803,266
Accumulation Unit Values........... 1.532 18.421 2.059 13.254 12.823 16.313 3.326
December 31, 1997
Accumulation Units in Force........ 31,491,629 7,743,923 49,942,498 1,123,401 4,194,544 2,918,483 156,035,843
Accumulation Unit Values........... $1.474617 $17.149938 $1.963344 $11.837281 $12.917282 $14.433538 $2.809839
December 31, 1996
Accumulation Units in Force........ 36,220,947 9,635,092 55,653,680 1,088,043 3,337,604 2,330,884 154,525,474
Accumulation Unit Values........... 1.418 15.935 1.801 11.961 11.928 12.884 2.368
January 1, 1996*
Accumulation Unit Values........... -- -- -- -- -- -- --
December 31, 1995
Accumulation Units in Force........ 26,915,975 10,989,914 59,213,865 574,142 2,321,419 1,117,596 148,700,081
Accumulation Unit Value............ $1.367 $15.805 $1.753 $11.743 $10.941 $11.590 $2.134
January 2, 1995*
Accumulation Unit Value............ -- -- -- $10.000 -- $10.000 --
December 31, 1994
Accumulation Units in Force........ 30,697,754 12,271,738 62,744,615 -- 1,216,957 -- 137,642,102
Accumulation Unit Value............ $1.311 $13.483 $1.515 -- -- $9.834 $1.773
May 1, 1994*
Accumulation Unit Value............ -- -- -- -- -- $10.0000 --
December 31, 1993
Accumulation Units in Force........ 21,315,022 15,601,818 56,005,709 -- -- -- 106,834,367
Accumulation Unit Value............ $1.278 $14.609 $1.621 -- -- -- $1.797
December 31, 1992
Accumulation Units in Force........ 20,674,556 9,505,984 19,353,521 -- -- -- 49,688,937
Accumulation Unit Value............ $1.261 $13.529 $1.457 -- -- -- $1.664
May 1, 1992*
Accumulation Unit Value............ -- -- -- -- -- -- --
December 31, 1991
Accumulation Units in Force........ 7,235,168.03 3,595,759.23 6,056,976.03 -- -- -- 17,772,322.83
Accumulation Unit Value............ $1.237 $12.921 $1.379 -- -- -- $1.577
December 31, 1990
Accumulation Units in Force........ 5,632,146.27 747,992.12 2,352,517.74 -- -- -- 8,249,373.75
Accumulation Unit Value............ $1.183 $11.450 $1.219 -- -- -- $1.252
<CAPTION>
GROWTH & INTERNATIONAL GLOBAL
VALUE INCOME S&P 500 BLUE CHIP STOCK GROWTH GROWTH STOCK
----- -------- ------- --------- ------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
Accumulation Units in Force........ 4,744,081 10,994,926 14,134,177 9,671,527 9,640,858 114,976,011 5,344,248
Accumulation Unit Values........... 15,875 23,775 22,189 21,571 33,343 5,925 19,711
December 31, 1998
Accumulation Units in Force........ 4,869,102 12,171,938 10,440,486 7,548,794 4,751,940 11,744,865 136,042,148
Accumulation Unit Values........... 14.768 21.767 18.689 18.238 16.113 21.433 3.870
December 31, 1997
Accumulation Units in Force........ 3,402,217 11,003,248 5,491,818 4,149,587 4,239,821 13,725,612 156,975,866
Accumulation Unit Values........... $13.651572 $19.487584 $14.786540 $14.429421 $14.021796 $19.507894 $3.296005
December 31, 1996
Accumulation Units in Force........ 1,071,648 7,892,683 1,259,758 915,358 3,137,348 13,713,860 169,095,500
Accumulation Unit Values........... 11.048 15.468 11.326 11.520 12.690 18.510 2.971
January 1, 1996*
Accumulation Unit Values........... 10.000 10.000 10.000 -- -- --
December 31, 1995
Accumulation Units in Force........ 4,204,164 1,157,064 10,769,830 160,247,280
Accumulation Unit Value............ $12.904 $11.271 $15.754 $2.587
January 2, 1995*
Accumulation Unit Value............ -- $10.000 -- --
December 31, 1994
Accumulation Units in Force........ 1,489,517 -- 10,055,959 148,657,108
Accumulation Unit Value............ $10.083 -- $12.236 $2.054
May 1, 1994*
Accumulation Unit Value............ $10.0000 -- -- --
December 31, 1993
Accumulation Units in Force........ -- -- 5,108,957 118,720,649
Accumulation Unit Value............ -- -- $12.784 $2.142
December 31, 1992
Accumulation Units in Force........ -- -- 698,720 79,582,321
Accumulation Unit Value............ -- -- $10.988 $1.996
May 1, 1992*
Accumulation Unit Value............ -- -- 10.0000 --
December 31, 1991
Accumulation Units in Force........ -- -- -- 42,946,178.33
Accumulation Unit Value............ -- -- -- $1.965
December 31, 1990
Accumulation Units in Force........ -- -- -- 14,690,313.64
Accumulation Unit Value............ -- -- -- $1.298
<CAPTION>
AGGRESSIVE MID CAP LARGE CAP SMALL CAP
GROWTH GROWTH GROWTH VALUE
---------- ------- --------- ---------
<S> <C> <C> <C> <C>
December 31, 1999
Accumulation Units in Force........ 6,379,981 1,441,402 3,962,830 2,496,974
Accumulation Unit Values........... 32,680 10,538 14,754 10,659
December 31, 1998
Accumulation Units in Force........ 6,165,803 765,338 842,995 1,098,102
Accumulation Unit Values........... 15.829 9.625 11.755 9.367
December 31, 1997
Accumulation Units in Force........ 6,551,677 -- -- --
Accumulation Unit Values........... $13.241215 -- -- --
December 31, 1996
Accumulation Units in Force........ 5,706,895 -- -- --
Accumulation Unit Values........... 13.232 -- -- --
January 1, 1996*
Accumulation Unit Values........... -- -- --
December 31, 1995
Accumulation Units in Force........ 3,033,587 -- -- --
Accumulation Unit Value............ $12.461 -- -- --
January 2, 1995*
Accumulation Unit Value............ -- -- -- --
December 31, 1994
Accumulation Units in Force........ 1,115,647 -- -- --
Accumulation Unit Value............ $9.723 -- -- --
May 1, 1994*
Accumulation Unit Value............ $10.0000 -- -- --
December 31, 1993
Accumulation Units in Force........ -- -- -- --
Accumulation Unit Value............ -- -- -- --
December 31, 1992
Accumulation Units in Force........ -- -- -- --
Accumulation Unit Value............ -- -- -- --
May 1, 1992*
Accumulation Unit Value............ -- -- -- --
December 31, 1991
Accumulation Units in Force........ -- -- -- --
Accumulation Unit Value............ -- -- -- --
December 31, 1990
Accumulation Units in Force........ -- -- -- --
Accumulation Unit Value............ -- -- -- --
</TABLE>
- -------------------------------
* Accumulation Unit value at date of initial registration statement
effectiveness
8
<PAGE> 9
Audited financial statements of the Variable Account are included in the
Statement of Additional Information.
Advertising and other sales materials may include yield and total return figures
for the subaccounts of the Variable Account. These figures are based on
historical results and are not intended to indicate future performance. "Yield"
is the income generated by an investment in the subaccount over a period of time
specified in the advertisement. This rate of return is assumed to be earned over
a full year and is shown as a percentage of the investment. "Total Return" is
the total change in value of an investment in the subaccount over a period of
time specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield figures
do not reflect the surrender charge and yield and total return figures do not
reflect premium tax charges. This makes the performance shown more favorable.
Financial information concerning Fortis Benefits is included in this prospectus
under "Additional Information About Fortis Benefits" and "Fortis Benefits
Financial Statements."
FORTIS BENEFITS/FORTIS FINANCIAL GROUP MEMBER
Fortis Benefits Insurance Company is the issuer of the contracts. At the end of
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. This group is a joint
effort by Fortis Benefits, Fortis Advisers, Inc., Fortis Investors, Inc., and
Fortis Insurance Company, to offer financial products through the management,
marketing, and servicing of mutual funds, annuities, and life insurance.
Fortis (NL)N.V. is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
(B) is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis (NL)N.V. and
Fortis (B) have merged their operating companies under the trade name of Fortis.
The Fortis group of companies is active in insurance, banking and financial
services, and real estate development in The Netherlands, Belgium, the United
States, Western Europe, and the Pacific Rim. The Fortis group of companies had
approximately $ billion in assets at the end of 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 subaccounts. The assets in each subaccount are invested
exclusively in one of the portfolios listed on the first page of the prospectus,
each of which represents a separate investment portfolio. 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 different portfolios. Each portfolio is a
mutual fund available for purchase only as a funding vehicle for benefits under
variable life insurance and variable annuity products. These variable life
insurance and variable annuity products are issued by Fortis Benefits and by
other life insurance companies. Each portfolio corresponds to one of the
subaccounts of the Variable Account. The assets of each portfolio are separate
from the assets of other portfolios. In addition, each portfolio operates as a
separate investment portfolio whose investment performance has no effect on the
investment performance of any other portfolio. We offer more detailed
information for each investment portfolio. This information includes the
investment policies, investment restrictions, charges, and risks attendant to
investing in each portfolio. This information also includes other aspects of
each portfolio's operations. You may find this information in the current
prospectus for each portfolio. These portfolio prospectuses must accompany this
prospectus, and you should read them in conjunction with it. You may obtain a
copy of each prospectus from us, free of charge, by calling 1-800-800-2000, ext.
3057, or by writing P.O. Box 64272, St. Paul, Minnesota 55164.
As noted, the investment portfolios may be available to registered separate
accounts of other participating insurance companies. These portfolios may also
be available 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. For example, a conflict may occur due to (1) a
change in law affecting the operations of variable life and variable annuity
separate accounts, (2) differences in the voting instructions of the contract
owners and those of other companies, or (3) some other reason. In the event of
conflict, Fortis Benefits will take any steps necessary to protect the contract
owners and variable annuity payees.
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 dividends or capital gain distributions attributable to
contracts in shares of the portfolio from which they are received at the
portfolio's net asset value on the date paid. These dividends and distributions
will have the effect of reducing the new asset value of each share of
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<PAGE> 10
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 such dividends
and distributions.
The portfolios available for investment by the Variable Account are listed on
the cover page of this prospectus.
THE FIXED ACCOUNT
GUARANTEED INTEREST RATES/GUARANTEE PERIODS
Any amount you allocate to the fixed account earns a guaranteed interest rate
beginning on the date you make the allocation. The guaranteed interest rate
continues for the number of years you select, up to a maximum of ten years. At
the end of your guarantee period, your contract value, including accrued
interest, will be allocated to a new guarantee period of equal length. However,
you may reallocate your contract value to a different guarantee period (or
periods) or to one (or more) of the subaccounts of the Variable Account. If you
decide to reallocate your contract value, you must do so by sending us a written
request. We must receive your written request at least three business days
before the end of your guarantee period. The first day of your new guarantee
period (or other reallocation) will be the day after the end of your previous
guarantee period. We will notify you at least 45 days and not more than 75 days
before the end of your guarantee period.
We currently offer ten different guarantee periods. These guarantee periods
range in length from one to ten years. Each guarantee period has its own
guaranteed interest rate, which may differ from those for other guarantee
periods. From time to time we will, at our discretion, change the guaranteed
interest rate for future guarantee periods. These changes will not affect the
guaranteed interest rates we are paying on current guarantee periods. Please
note, when you allocate or transfer an amount to a guarantee period, a new
guarantee period begins running with respect to that amount. Therefore, the
amount you allocate will earn a guaranteed interest rate that will not change
until the end of that period. In addition, the guaranteed interest rate will
never be less than an effective annual rate of 3%.
We declare the guaranteed interest rates from time to time as market conditions
dictate. We advise you of the guaranteed interest rate for a chosen guarantee
period at the time we receive a purchase payment from you, or at the time we
execute a transfer you have requested, or at the time a guarantee period is
renewed.
We do not have a specific formula for establishing the guaranteed interest rates
for the guarantee periods. Guaranteed interest rates may be influenced by the
available interest rates on the investments we acquire with the amounts you
allocate for a particular guarantee period. Guaranteed interest rates do not
necessarily correspond to the available interest rates on the investments we
acquire with the amounts you allocate for a particular guarantee period. See
"Investments by Fortis Benefits". In addition, when we determine guaranteed
interest rates, we may consider: (1) the duration of a guarantee period, (2)
regulatory and tax requirements, (3) sales and administrative expenses we bear,
(4) risks we assume, (5) our profitability objectives, and (6) general economic
trends.
FORTIS BENEFITS' MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED
INTEREST RATES WE DECLARE. WE CANNOT PREDICT OR ASSURE THE LEVEL OF ANY FUTURE
GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL RATE OF 3%.
THE FIXED ACCOUNT INVESTMENT OPTION IS NOT AVAILABLE FOR CONTRACTS ISSUED IN THE
STATE OF PENNSYLVANIA.
You may obtain information concerning the guaranteed interest rates that apply
to the various guarantee periods. You may obtain this information from our home
office or from your sales representative at any time.
MARKET VALUE ADJUSTMENT
Except as described below, we will apply a Market Value Adjustment to any fixed
account value that is:
- surrendered,
- transferred, or
- otherwise paid out
before the end of the guarantee period in which it is being held.
For example, we will apply a Market Value Adjustment to fixed account value that
we pay:
- as an amount applied to an annuity option, and
- as an amount paid as a single sum in lieu of an annuity.
The Market Value Adjustment we apply may increase or decrease the fixed account
value that is withdrawn or transferred. We determine whether the fixed account
value is increased or decreased by performing a comparison of two guaranteed
interest rates.
The first rate we compare is the guaranteed interest rate for the fixed account
value that is withdrawn or transferred from the existing guarantee period. The
second rate we compare is the guaranteed interest rate we are then offering for
new guarantee periods with durations equal to the number of years remaining in
the existing guarantee period. After comparing these two rates, we determine
whether the fixed account value is increased or decreased as follows:
- If the first rate exceeds the second rate by more than 1/2% (1/4% for
contracts issued in the state of Florida), the Market Value Adjustment
produces an increase in the fixed account value withdrawn or transferred.
- If the first rate does not exceed the second rate by at least 1/2% (1/4%
for contracts issued in the state of Florida), the Market Value
Adjustment produces a decrease in the fixed account value withdrawn or
transferred.
We will determine the Market Value Adjustment by multiplying the fixed account
value that is withdrawn or transferred from the existing guarantee period
(before deduction of any applicable surrender charge) by the following factor:
<TABLE>
<S> <C> <C> <C> <C>
1 + I n/12
------------ - 1
( 1 + J + .005 )
</TABLE>
where,
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<PAGE> 11
- I is the guaranteed interest rate we credit to the fixed account value
that is withdrawn or transferred from the existing guarantee period.
- J is the guaranteed interest rate we are then offering for new guarantee
periods with durations equal to the number of years remaining in the
existing guarantee period (rounded up to the next higher number of
years).
- N is the number of months remaining in the existing guarantee period
(rounded up to the next higher number of months).
You will find sample Market Value Adjustment calculations in Appendix A.
We do not apply a Market Value Adjustment to withdrawals and transfers of fixed
account value under four exceptions. We describe these exceptions below.
(1) We will not apply a Market Value Adjustment to fixed account value that we
pay out as a death benefit pursuant to a contract.
(2) We will not apply a Market Value Adjustment to fixed account value that is
withdrawn or transferred from the one-year guarantee period.
(3) We will not apply a Market Value Adjustment to fixed account value that we
pay out during a 30 day period that:
- begins 15 days before the end date of the guarantee period in which the
fixed account value was being held,
and that:
- ends 15 days after the end date of the guarantee period in which the
fixed account value was being held.
(4) We will not apply a Market Value Adjustment to fixed account value that is
withdrawn or transferred from a guarantee period on a periodic, automatic
basis. This exception only applies to such withdrawals or transfers under a
formal Fortis Benefits program for the withdrawal or transfer of fixed
account value.
We may impose conditions and limitations on any formal Fortis Benefits program
for the withdrawal or transfer of fixed account value. Ask your Fortis Benefits
representative about the availability of such a program in your state. In
addition, if such a program is available in your state, your Fortis Benefits
representative can inform you about the conditions and limitations that may
apply to that program.
INVESTMENTS BY FORTIS BENEFITS
Fortis Benefits' legal obligations with respect to the fixed account are
supported by our general account assets. These general account assets also
support our obligations under other insurance and annuity contracts. Investments
purchased with amounts allocated to the fixed account are the property of Fortis
Benefits, and you have no legal rights in such investments. Subject to
applicable law, we have sole discretion over the investment of assets in our
general account and in the fixed account. Neither our general account nor the
fixed account is subject to registration under the Investment Company Act of
1940.
We will invest amounts in our general account, and amounts in the fixed account,
in compliance with applicable state insurance laws and regulations concerning
the nature and quality of investments for the general account. Within specified
limits and subject to certain standards and limitations, these laws generally
permit investment in:
- federal, state and municipal obligations,
- preferred and common stocks,
- corporate bonds,
- real estate mortgages,
- real estate, and
- certain other investments.
See "Fortis Benefits' Financial Statements" for information on our investments.
Investment management for amounts in our general account and in the fixed
account is provided to us by Fortis Advisors, Inc.
When we establish guaranteed interest rates, we will consider the available
return on the instruments in which we invest amounts allocated to the fixed
account. However, this return is only one of many factors we consider when we
establish the guaranteed interest rates. See "Guaranteed Interest
Rates/Guarantee Periods".
Generally, we expect to invest amounts allocated to the fixed account in debt
instruments. We expect that these debt instruments will approximately match our
liabilities with regard to the guarantee periods. We also expect that these debt
instruments will primarily include:
(1) securities issued by the United States Government or its agencies or
instrumentalities. These securities may or may not be guaranteed by the
United States Government;
(2) debt securities that, at the time of purchase, have an investment grade
within the four highest grades assigned by Moody's Investors Services, Inc.
("Moody's"), Standard & Poor's Corporation ("Standard & Poor's"), or any
other nationally recognized rating service. Moody's four highest grades are:
Aaa, Aa, A, and Baa. Standard & Poor's four highest grades are: AAA, AA, A,
and BBB;
(3) other debt instruments including, but not limited to, issues of, or
guaranteed by, banks or bank holding companies and corporations. Although
not rated by Moody's or Standard & Poor's, we deem these obligations to have
an investment quality comparable to securities that may be purchased as
stated above;
(4) other evidences of indebtedness secured by mortgages or deeds of trust
representing liens upon real estate.
Except as required by applicable state insurance laws and regulations, we are
not obligated to invest amounts allocated to the fixed account according to any
particular strategy, See "Regulation and Reserves".
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
We reserve the right to reject any application for a contract or any purchase
payment for any reason. If we accept your issuing
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<PAGE> 12
instructions in the form received, we will credit the initial purchase payment
within two Valuation Dates after the later of (1) receipt of the issuing
instructions or (2) receipt of the initial purchase payment at our home office.
If we cannot apply the initial purchase payment within five Valuation Dates
after receipt because the issuing instructions are incomplete, we will return
the initial purchase payment unless you consent to our retaining the initial
purchase payment and applying it as of the end of the Valuation Period in which
the necessary requirements are fulfilled. The initial purchase payment must be
at least $5,000 ($2,000 for a contract issued pursuant to a qualified plan).
The date that we apply the initial purchase payment to the purchase of the
contract is also the contract issue date. The contract issue date is the date
used to determine contract years, regardless of when we deliver the contract.
Our crediting of investment experience in the Variable Account, or a fixed rate
of return in the fixed account, generally begins as of the contract issue date.
We will accept additional purchase payments at any time after the contract issue
date and prior to the annuity commencement date, as long as the Annuitant is
living. You must transmit purchase payments (together with any required
information identifying the proper contracts and accounts to be credited with
purchase payments) to our home office. We apply additional purchase payments to
the contract, and add to the contract value as of the end of the Valuation
Period in which we receive the payments.
Each additional purchase payment under a contract must be at least $50. The
total of all purchase payments for all Fortis Benefits annuities having the same
owner or Annuitant, may not exceed $1 million (not more than $500,000 allocated
to the fixed account) without our prior approval. We reserve the right to modify
this limitation at any time.
You may make purchase payments in excess of the initial minimum by monthly draft
against a bank account if you have completed and returned to us a special
authorization form. You may get the form from your sales representative or from
our home office. We can also arrange for you to make purchase payments by wire
transfer, payroll deduction, military allotment, direct deposit and billing.
Purchase payments by check should be made payable to Fortis Benefits Insurance
Company.
If the contract value is less than $1,000, we may cancel the contract on any
Valuation Date. We will notify you of our intention to cancel the contract at
least 90 days in advance of the cancellation date. If we do cancel your
contract, we consider such cancellation a full surrender of the contract.
CONTRACT VALUE
Contract value is the total of any Variable Account value in all the subaccounts
of the Variable Account, plus any fixed account value in all the guarantee
periods.
The contract does not guarantee a minimum Variable Account value. You bear the
entire investment risk for the contract value that you allocate to the Variable
Account.
Determination of Variable Account Value. A contract's Variable Account value is
based on the number of Accumulation Units and on Accumulation Unit values, which
are determined on each Valuation Date. The value of an Accumulation Unit for a
subaccount on any Valuation Date is equal to the previous value of that
subaccount's Accumulation Unit multiplied by that subaccount's net investment
factor (discussed directly below) for the Valuation Period ending on that
Valuation Date. At the end of any Valuation Period, a contract's Variable
Account value in a subaccount is equal to the number of Accumulation Units in
the subaccount times the value of one Accumulation Unit for that subaccount.
The number of Accumulation Units in each subaccount is equal to:
- Accumulation Units purchased at the time that any purchase payments or
transferred amounts are allocated to the subaccount; less
- Accumulation Units redeemed to pay for the portion of any transfers from
or partial surrenders allocated to the subaccount; less
- Accumulation Units redeemed to pay charges under the contract.
Net Investment Factor. The net investment factor for a subaccount is determined
by dividing (1) the net asset value per share of the portfolio shares held by
the subaccount, determined at the end of the current Valuation Period, plus the
per share amount of any dividend or capital gains distribution made with respect
to the portfolio shares held by the subaccount during the current Valuation
Period, minus a per share charge for the increase, plus a per share credit for
the decrease, in any income taxes assessed which we determine to have resulted
from the investment operation of the subaccount or any other taxes which are
attributable to this contract, by (2) the net asset value per share of the
portfolio shares held in the subaccount as determined at the end of the previous
Valuation Period, and subtracting from that result a factor representing the
mortality risk, expense risk and administrative expense charge.
If a subaccount's net investment factor is greater than one, the subaccount's
Accumulation Unit value has increased. If a subaccount's net investment factor
is less than one, the subaccount's Accumulation Unit value has decreased.
Determination of Fixed Account Value. A contract's fixed account value is
guaranteed by Fortis Benefits. Therefore, we bear the investment risk with
respect to amounts allocated to the fixed account, except to the extent that (1)
we may vary the guaranteed interest rate for future guarantee periods (subject
to the 3% effective annual minimum) and (2) the Market Value Adjustment imposes
investment risks on you.
The contract's fixed account value on any Valuation Date is the sum of its fixed
account values in each guarantee period on that date. The fixed account value in
a guarantee period is equal to the following amounts, in each case increased by
accrued interest at the applicable guaranteed interest rate:
- The amount of purchase payments or transferred amounts allocated to the
guarantee period; less
- The amount of any transfers or surrenders out of the guarantee period.
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<PAGE> 13
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Allocation of Purchase Payments. In your application for a contract, you may
allocate purchase payments, or portions of payments, to the:
- available subaccounts of the Variable Account, or
- to the guarantee periods in the fixed account, or
- to a combination of the two previous options.
Percentages must be in whole numbers and the total allocation must equal 100%.
The percentage allocations for future purchase payments may be changed, without
charge, at any time by sending a written request to Fortis Benefits' home
office. Changes in the allocation of future purchase payments will be effective
on the date we receive your written request.
Transfers. You may transfer contract value:
- from one available subaccount to another available subaccount, or
- from one available subaccount to the fixed account, or
- from one guarantee period to another guarantee period, or
- from one guarantee period to an available subaccount
You must request transfers by (1) a written request to Fortis Benefits' home
office, or by (2) a telephone transfer as described below. Currently, we do not
charge for any transfer. However, transfers from a guarantee period, other than
the one-year guarantee period, that are (1) more than 15 days before or 15 days
after the expiration of the existing guarantee period, or are (2) not a part of
a formal Fortis Benefits program for the transfer of fixed account value may be
subject to a Market Value Adjustment. See "Market Value Adjustment".
The minimum transfer from a subaccount or guarantee period is the lesser of:
- $1,000, or
- all of the contract value in the subaccount or guarantee period.
However, we may permit a continuing request for transfers of lesser specified
amounts automatically on a periodic basis. We reserve the right to restrict the
frequency of transfers or to otherwise condition, terminate, or impose charges
(not to exceed $25 per transfer) upon transfers. Where you make all your
transfer requests at the same time, as part of one request, we will count all
transfers between and among the subaccounts of the Variable Account and the
fixed account as one transfer. We will execute the transfers, and determine all
values in connection with the transfers, at of the end of the Valuation Period
in which we receive the transfer request. The amount of any positive or negative
Market Value Adjustment will be added to or deducted from the transferred
amount.
Certain restrictions on very substantial allocations to any one subaccount are
set forth under "Limitations on Allocations" in the Statement of Additional
Information.
TOTAL AND PARTIAL SURRENDERS
Total Surrenders. You may surrender all of the cash surrender value at any time
during the life of the Annuitant and prior to the annuity commencement date. If
you choose to make a total surrender, you must do so by written request sent to
our home office. We reserve the right to require that the contract be returned
to us prior to making payment, although this will not affect our determination
of the amount of the cash surrender value. Cash surrender value is:
- the contract value at the end of the Valuation Period during which we
receive the written request for the total surrender at our home office,
less
- any applicable surrender charge, and
- after we have applied any Market Value Adjustment.
See "Surrender Charge" and "Market Value Adjustment".
We must receive written consent of all collateral assignees and irrevocable
beneficiaries prior to any total surrender. We will generally pay surrenders
from the Variable Account within seven days of the date of receipt by our home
office of the written request. However, we may postpone payments in certain
circumstances. See "Postponement of Payment".
The amount we pay upon total surrender of the cash surrender value (taking into
account any prior partial surrenders) may be more or less than the total
purchase payments you made. After a surrender of the cash surrender value or at
any time the contract value is zero, all rights of the owner, Annuitant, or any
other person will terminate.
Partial Surrenders. At any time during the life of the Annuitant and prior to
the annuity commencement date, you may surrender a portion of the fixed account
and/or the Variable Account. You must request partial surrender by a written
request sent to Fortis Benefits' home office. We will not accept a partial
surrender request from you unless the net proceeds payable to you, as a result
of the request, are at least $1,000. We will surrender the entire cash surrender
value under the contract if the total contract value in both the Variable
Account and fixed account would be less than $1,000 after the partial surrender.
You should specify the subaccounts of the Variable Account or guarantee periods
of the fixed account that you wish to partially surrender. If you do not
specify, we take the partial surrender from the subaccounts and from the
guarantee periods of the fixed account on a pro rata basis.
We will surrender Accumulation Units from the Variable Account and/or dollar
amounts from the fixed account so that the total amount of the partial surrender
equals the dollar amount of the partial surrender request. We will reduce the
partial surrender by the amount of any applicable surrender charge. In addition,
if the surrender is from a guarantee period other than the one-year guarantee
period, we will reduce the amount payable to you by any negative Market Value
Adjustment, or we will increase the amount payable to you by any positive Market
Value Adjustment unless the surrender is (1) within 15 days before or 15 days
after the expiration of a guarantee period, or (2) is a part of a formal Fortis
Benefits program for the transfer or withdrawal of fixed account value. The
partial surrender will be effective at the end of the Valuation Period in which
we receive the written request for partial surrender at our home office.
Payments will generally be made within seven days of the effective date of such
request, although certain delays are permitted. See "Postponement of Payment".
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The Internal Revenue Code provides that a penalty tax will be imposed on certain
premature surrenders. For a discussion of this and other tax implications of
total and partial surrenders, including withholding requirements, see "Federal
Tax Matters". Also, under tax deferred annuity contracts pursuant to Section
403(b) of the Internal Revenue Code, no distributions of voluntary salary
reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.)
TELEPHONE TRANSACTIONS
You or your representative may make certain requests under the contract by
telephone if we have a written telephone authorization on file. These include
requests for (1) transfers, (2) withdrawals, and (3) changes in purchase payment
allocation instructions, dollar-cost averaging, portfolio rebalancing programs
and systematic withdrawals. Our home office will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures may include, among others, (1) requiring some form of personal
identification such as your address and social security number prior to acting
upon instructions received by telephone, (2) providing written confirmation of
such transactions, and/or (3) tape recording of telephone instructions. Your
request for telephone transactions authorizes us to record telephone calls. We
may be liable for any losses due to unauthorized or fraudulent instructions if
we do not employ reasonable procedures. If we do employ reasonable procedures,
we will not be liable for any losses due to unauthorized or fraudulent
instructions. We reserve the right to place limits, including dollar limits, on
telephone transactions.
BENEFIT PAYABLE ON DEATH OF CONTRACT OWNER (OR ANNUITANT)
If the owner dies prior to the annuity commencement date, we will pay a death
benefit to the beneficiary. If the contract 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 such 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 persons so named.
The term "decedent" in the death benefit description below refers to the death
of the contract owner unless the contract owner is a non-natural person, in
which case it refers to the death of the Annuitant. Also, the death benefit
description refers to the age of the contract owner. If the contract owner is a
non-natural person, the relevant age 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 shall be deemed to be an amount withdrawn), but not for any
contract fee-related surrenders.
The death benefit will equal the greatest of (1), (2), or (3):
(1) The contract value as of the date used for valuing the death benefit.
(2) The highest Anniversary Value of each of the contract's anniversaries prior
to the earlier of: (1) the decedent's death, or (2) the owner's attainment
of age 75.
An Anniversary Value is equal to:
(a) the contract value on the anniversary, plus
(b) any purchase payments made since the anniversary, reduced by
(c) pro rata adjustments for any withdrawals made since the anniversary.
(3) If the decedent dies prior to the date the owner reaches age 75, the amount
of the death benefit is the lesser of (a) and (b), as follows:
(a) 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 5.0%;
or
(b) 200% of (a)(i).
The resulting amount (the lesser of (a) and (b)) will be referred to as the
"Roll-Up Amount."
If the decedent dies on or after the date the owner reaches age 75, the
amount of the death benefit is equal to:
(a) the "Roll-Up Amount" as of the date the owner reached age 75; plus
(b) the accumulation (without interest) of purchase payments made on or
after the date the owner reached age 75; reduced by
(c) pro rata adjustments for any withdrawals made on or after the date the
owner reached age 75.
We describe the pro rata adjustments referred to above more fully in Appendix D
at the end of this prospectus.
See also Appendix A 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
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rights and privileges of a payee under the contract. If the beneficiary desires
an annuity option, the election should be made within 60 days of the date the
death benefit becomes payable. Failure to make a timely election can result in
unfavorable tax consequences. For further information, see "Federal Tax
Matters."
We accept any of the following as proof of death: (1) a copy of a certified
death certificate; (2) a copy of a certified decree of a court of competent
jurisdiction as to the finding of death; or (3) a written statement by a medical
doctor who attended the deceased at the time of death.
The Internal Revenue Code requires that a Non-Qualified Contract contain certain
provisions about an owner's death. We discuss these provisions below under
"Federal Tax Matters--Required Distributions for Non-Qualified Contracts." It is
imperative that written notice of the death of the owner be promptly transmitted
to us at our home office, so that we can make arrangements for distribution of
the entire interest in the contract to the beneficiary in a manner that
satisfies the Internal Revenue Code requirements. Failure to satisfy these
requirements may result in the contract not being treated as an annuity contract
for federal income tax purposes with possible adverse tax consequences.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
You may specify an annuity commencement date in your application. The annuity
commencement date marks the beginning of the period during which an Annuitant or
other payee designated by the owner receives annuity payments under the
contract. The annuity commencement date must be at least two years after the
contract issue date. You should consult your sales representative in this
regard.
The Internal Revenue Code may impose penalty taxes on amounts distributed either
too soon or too late depending on the type of retirement arrangement involved.
See "Federal Tax Matters". You should consider this carefully in selecting or
changing an annuity commencement date.
You must submit a written request in order to advance or defer the annuity
commencement date. We must receive the request at our home office at least 30
days before the then-scheduled annuity commencement date. The new annuity
commencement date must also be at least 30 days after we receive the written
request. You have no right to make any total or partial surrender during the
Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
We may pay the entire contract value, rather than apply the amount to an annuity
option if the contract value at the end of the Valuation Period which contains
the annuity commencement date is less than $1,000. We would make the payment in
a single sum to the Annuitant or other payee chosen by the owner and cancel the
contract. We would not impose any charge other than the premium tax charge.
Otherwise, we will apply (1) the fixed account value to provide a Fixed Annuity
Option and (2) the Variable Account value in any subaccount to provide a
Variable Annuity Option using the same subaccount, unless you have notified us
by written request to apply the fixed account value and Variable Account value
in different proportions. We must receive written request at our home office at
least 30 days before the annuity commencement date.
We will make annuity payments under a Fixed or Variable Annuity Option on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If you name more than one person as an
Annuitant, you may elect to name one of such persons to be the sole Annuitant as
of the annuity commencement date. We reserve the right to change the frequency
of any annuity payment so that each payment will be at least $50 ($20 in Texas).
The amount of each annuity payment will depend on (1) the amount of contract
value applied to an annuity option, (2) the form of annuity selected, and (3)
the age of the Annuitant. For information concerning the relationship between
the Annuitant's sex and the amount of annuity payments, including special
requirements in connection with employee benefits plans, see "Calculations of
Annuity Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity option
selected. The dollar amount of variable annuity payments varies during the
Annuity Period based on changes in Annuity Unit values for the subaccounts that
you choose to use in connection with your payments.
RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS
The amount of an annuity payment depends on the average effective net investment
return of a subaccount during the period since the preceding payment as follows:
- if the return is higher than 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, which are assessed at an annual rate of 1.35%.
We guarantee that the amount of each variable annuity payment after the first
payment will not be affected by variations in our mortality experience or our
expenses.
Transfers. A person receiving annuity payments may make up to four transfers a
year among subaccounts. The current procedures for and conditions on these
transfers are the same as we describe above under "Allocation of Purchase
Payments and Contract Value--Transfers". We do not permit transfers from a Fixed
Annuity Option during the Annuity Period.
ANNUITY OPTIONS
You may select an annuity option or change a previous selection by written
request. We must receive your request at least 30 days
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before the annuity commencement date. You may select one annuity form, although
payments under that form may be on a combination fixed and variable basis. If no
annuity form selection is in effect on the annuity commencement date, we usually
automatically apply Option B (described below), with payments guaranteed for ten
years. However, federal pension law may require that we make default payments
under certain retirement plans pursuant to plan provisions and/or federal law.
Tax laws and regulations may impose further restrictions to assure that the
primary purpose of the plan is distribution of the accumulated funds to the
employee.
Your contract offers the following options for fixed and variable annuity
payments. Under each of the options, we make payments as of the first Valuation
Date of each monthly period, starting with the annuity commencement date.
Option A, Life Annuity. We do not make payments after the annuitant dies. It is
possible for the annuitant to receive only one payment under this option, if the
annuitant dies before the second payment is due.
Option B, Life Annuity with Payments Guaranteed for 10 Years to 20 Years. We
continue payments as long as the annuitant lives. If the annuitant dies before
we have made all of the guaranteed payments, we continue installments of the
guaranteed payments to the beneficiary.
Option C, Joint and Full Survivor Annuity. We continue payments as long as
either the annuitant or the joint annuitant is alive. We stop payments when both
the annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
Option D, Joint and One-Half Contingent Survivor Annuity. We continue payments
as long as either the annuitant or the joint annuitant is alive. If the
annuitant dies first, we continue payments to the joint annuitant at one-half
the original amount. If the joint annuitant dies first, we continue payments to
the annuitant at the original full amount. We stop payments when both the
annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
We also have other annuity options available. You can get information about them
from your sales representative or by calling or writing to our home office.
DEATH OF ANNUITANT OR OTHER PAYEE
Under most annuity forms offered by us, the amounts, if any, payable on the
death of the Annuitant during the Annuity Period are the continuation of annuity
payments for any remaining guarantee period or for the life of any joint
Annuitant. In all such cases, the person entitled to receive payments also
receives any rights and privileges under the annuity form in effect.
Additional rules applicable to such distributions under Non-Qualified Contracts
are described under "Federal Tax Matters--Required Distributions for
Non-Qualified Contracts". Though the rules there described do not apply to
contracts issued in connection with qualified plans, similar rules apply to the
plans themselves.
CHARGES AND DEDUCTIONS
PREMIUM TAXES
We deduct state premium taxes as follows:
- when imposed on purchase payments, we pay the amount on your behalf and
deduct the amount from your contract value upon (1) our payment of
surrender proceeds or death benefit or (2) annuitization of a contract,
or
- when imposed at the time annuity payments begin, we deduct the amount
from your contract value.
Applicable premium tax rates depend upon your place of residence. Rates can
change by legislation, administrative interpretations, or judicial acts.
CHARGES AGAINST THE VARIABLE ACCOUNT
Mortality and Expense Risk Charge. We assess each subaccount of the Variable
Account with a daily charge for mortality and expense risk. This charge is a
nominal annual rate of 1.25% of the average daily net assets of the Variable
Account. It consists of approximately .8% for mortality risk and approximately
.45% for expense risk. We guarantee not to increase this charge for the duration
of the contract. This charge is assessed during both the Accumulation Period and
the Annuity Period.
The mortality risk borne by us arises from our obligation to make annuity
payments (determined in accordance with the annuity tables and other provisions
contained in the contract) for the full life of all Annuitants regardless of how
long all Annuitants or any individual Annuitant might live. In addition, we bear
a mortality risk in that we guarantee to pay a death benefit upon the death of
an Annuitant or owner prior to the annuity commencement date. We do not impose a
surrender charge upon payment of a death benefit. This places a further
mortality risk on us.
The expense risk we assume is that actual expenses incurred in connection with
issuing and administering the contract will exceed the limits on administrative
charges set in the contract.
We bear the loss if the administrative charges and the mortality and expense
risk charge are insufficient to cover the expenses and costs assumed.
Conversely, we profit if the amount deducted proves more than sufficient.
Administrative Expense Charge. We assess each subaccount of the Variable Account
with a daily charge at an annual rate of .10% of the average daily net assets of
the subaccount. We assess this charge during both the Accumulation Period and
the Annuity Period. This charge helps cover administrative costs such as those
incurred in issuing contracts, establishing and maintaining the records relating
to contracts, making regulatory filings and furnishing confirmation notices,
voting materials and other communications, providing computer, actuarial and
accounting services, and processing contract transactions. There is no necessary
relationship between the amount of administrative charges assessed on a given
contract and the amount of expenses actually incurred for that contract.
TAX CHARGE
We currently impose no charge for taxes payable by us in connection with the
contract, other than for applicable premium taxes.
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We reserve the right to impose a charge for any other taxes that may become
payable by us in the future for the contracts or the Variable Account.
The annual administrative charge and charges against the Variable Account
described above are for the purposes described. We may receive a profit as a
result of these charges.
SURRENDER CHARGE
We do not deduct a sales charge from purchase payments. We deduct surrender
charges on certain total or partial surrenders. We use the revenues from
surrender charges to partially pay our expenses in the sale of the contracts,
including (1) commissions, (2) promotional, distribution and marketing expenses,
and (3) costs of printing and distribution of prospectuses and sales material.
Free Surrenders. You can withdraw the following amounts from the contract
without a surrender charge:
- Any purchase payments that we received more than seven years before the
surrender date and that you have not previously surrendered;
- Any earnings that you have not previously surrendered;
- In any contract year, up to 10% of the purchase payments that we received
less than seven years before the surrender date (whether or not you have
previously surrendered the purchase payments).
Earnings are deemed to be withdrawn first. After all earnings have been
withdrawn, all purchase payments not subject to a surrender charge are deemed to
be withdrawn. After all purchase payments not subject to a surrender charge have
been withdrawn, all purchase payments subject to a surrender charge are deemed
to be withdrawn.
We do not impose a surrender charge on (1) annuitization or (2) payment of a
single sum because less than the minimum required contract value is available to
provide an annuity at the annuity commencement date or (3) payment of any death
benefit.
In addition, we have an administrative policy to waive surrender charges for
full surrenders of contracts that have been in force for at least ten years if
the amount then subject to the surrender charge is less than 25% of the contract
value. We have offered these contracts since 1991. Therefore, we have made no
waivers. We reserve the right to change or terminate this practice at any time,
both for new and for previously issued contracts.
Amount of Surrender Charge. We only apply surrender charges if the amount being
withdrawn exceeds the sum of the amounts listed above under "Free Surrenders"
(that is, if the amount being withdrawn includes purchase payments made less
than seven years prior to the surrender date). The surrender charges are:
<TABLE>
<CAPTION>
NUMBER OF YEARS SURRENDER CHARGE
SINCE PURCHASE AS A PERCENTAGE OF
PAYMENT WAS APPLIED PURCHASE PAYMENT
------------------- ------------------
<S> <C>
Less than 2 7%
At least 2 but less than 4 6%
At least 4 but less than 5 5%
At least 5 but less than 6 3%
At least 6 but less than 7 1%
7 or more 0%
</TABLE>
We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent that the surrender charge is insufficient,
we will pay such costs from our general account assets. These assets will
include any profit that we derive from the mortality and expense risk charge.
Nursing Care/Hospitalization Waiver of Surrender Charges. We do not deduct
surrender charges for a total or partial withdrawal:
- after a covered person has been confined in a hospital or skilled health
care facility for at least 60 consecutive days and the covered person
continues to be confined in the hospital or skilled care facility when
the request is made, or
- within 60 days following a covered person's discharge from a hospital or
skilled health care facility after confinement of at least 60 consecutive
days.
Confinement must begin after the effective date of this provision.
Covered persons are the contract owner or owners and the spouse of any contract
owner if the spouse is the Annuitant. We will not waive surrender charges when a
confinement is due to (1) substance abuse, or (2) mental or personality
disorders without a demonstrable organic disease. We consider a degenerative
brain disease such as Alzheimer's Disease an organic disease.
We provide this nursing care/hospitalization waiver of surrender charges by
means of a rider to the contract. This rider has not been approved in all
states. When you apply for a contract, you should check with your Fortis
Benefits representative to determine if this rider is available in your state.
DISABILITY WAIVER OF SURRENDER CHARGES
We will waive surrender charges on total or partial surrenders under the
following circumstances:
(1) if you become totally disabled after the contract is issued, or
(2) if the owner is a non-natural person, and the Annuitant becomes totally
disabled after the contract is issued.
However, waivers of surrender charges are subject to the following conditions:
(1) We will only waive surrender charges on total or partial surrenders of
purchase payments that were made prior to the owner's or the Annuitant's
total disability, and
(2) the owner's or the Annuitant's total disability must have begun before the
owner or the Annuitant has reached age 64, and
(3) the owner's or the Annuitant's total disability must have been continuous
for a period of twelve months or more.
This benefit terminates on the 65th birthday of the owner, or the 65th birthday
of the Annuitant if the owner is a non-natural person.
"Total Disability" means:
- the inability to engage in an occupation for compensation or profit.
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"Occupation" has one of two definitions. The applicable definition depends on
the length of the disability. "Occupation" is defined as:
(1) the inability to perform the substantial and material duties of the owner's
or the Annuitant's regular occupation during the first twelve months of
disability, and
(2) any job suited to the owner's or the Annuitant's education, training, or
experience after the first twelve months of disability.
We provide this "Disability Waiver of Surrender Charges" by attaching a rider to
the contract. This rider has not been approved in all states. You should check
with your sales representative to determine if this rider is available in your
state.
MISCELLANEOUS
The Variable Account invests in shares of the portfolios. Therefore, the net
assets of the Variable Account will reflect the investment advisory fees and
certain other expenses incurred by the portfolios and described in their
prospectus.
REDUCTION OF CHARGES
We will not impose a surrender charge under any contract owned by:
(A) Fortis, Inc. or its subsidiaries, and the following persons associated with
such companies, if at the contract issue date they are:
(1) officers and directors;
(2) employees; or
(3) spouses of any such persons or any of such persons' children,
grandchildren, parents, grandparents, or siblings--or spouses of any of
these persons;
(B) Series Fund directors, officers, or their spouses (or such persons'
children, grandchildren, parents or grandparents, or spouses of any such
persons); and
(C) representatives or employees (or their spouses) of Fortis Investors
(including agencies) or of other broker-dealers having a sales agreement
with Fortis Investors (or such persons' children, grandchildren, parents, or
grandparents, or spouses of any such persons).
GENERAL PROVISIONS
THE CONTRACTS
The entire contract includes any application, amendment, rider, endorsement, and
revised contract pages. Only an officer of Fortis Benefits can agree to change
or waive any provision of a contract. Any change or waiver must be in writing
and signed by an officer of Fortis Benefits.
The contracts are non-participating and do not share in dividends or earnings of
Fortis Benefits.
POSTPONEMENT OF PAYMENT
We may defer for up to 15 days the payment of any amount attributable to a
purchase payment made by check to allow the check reasonable time to clear. For
a description of other circumstances in which amounts payable out of Variable
Account assets could be deferred, see "Postponement of Payments" in the
Statement of Additional Information. We may also defer payment of surrender
proceeds payable out of the fixed account for a period of up to 6 months.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the Annuitant's age or sex was misstated, we pay the amount that the purchase
payments paid would have purchased at the correct age and sex. If we make any
overpayment because of incorrect information about age or sex, or any other
miscalculation, we deduct the overpayment from the next payment due. We add
underpayments to the next payment. We credit or charge the amount of any
adjustment with interest at the rate of 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 it to our home
office. The change will be effective on the date made, although we are not bound
by a change until the date we record it.
The rights under a contract are subject to any assignment of record at our home
office. An assignment or pledge of a contract may have adverse tax consequences.
See below under "Federal Tax Matters".
BENEFICIARY
You may name or change a beneficiary or a contingent beneficiary before the
annuity commencement date. You must send a written request of the change to
Fortis Benefits. Certain retirement programs may require spousal consent to name
or change a beneficiary. Applicable tax laws and regulations may limit the right
to name a beneficiary other than the spouse. We are not responsible for the
validity of any change. A change will take effect as of the date it is signed
but will not affect any payments we make or action we take before receiving the
written request. We also need the consent of any irrevocably named person before
making a requested change.
Upon the death of an owner, or Annuitant, if the owner is a non-natural person,
prior to the annuity commencement date, the beneficiary will be deemed as
follows:
- 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, then the estate of the last surviving owner will
be the beneficiary.
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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 any 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
We reserve the right to make certain changes if, in our judgment, they would
best serve the interests of owners and Annuitants or would be appropriate in
carrying out the purposes of the contracts. We will make any change only as
permitted by applicable laws. We will obtain your approval of the changes and
approval from any appropriate regulatory authority if required by law. Examples
of the changes we may make include:
- To operate the Variable Account in any form permitted under the
Investment Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any subaccount to another subaccount, or to one
or more separate accounts, or to the fixed account; or to add, combine,
or remove subaccounts in the Variable Account.
- To substitute, for the portfolio shares held in any subaccount, the
shares of another portfolio or the shares of another investment company
or any other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the contract as an
annuity.
- To change the time or time of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the contract in order to
conform with any action the above provisions permit us to take, including
to change the way we assess charges, but without increasing as to any
then outstanding contract the aggregate amount of the types of charges
that we have guaranteed.
DISTRIBUTION
Fortis Investors, Inc. ("Fortis Investors") is the principal underwriter of the
contracts. The contracts will be sold by individuals who are licensed by state
insurance authorities to sell the contracts of Fortis Benefits, and (1) are
registered representatives of Fortis Investors, or (2) are registered
representatives of other broker-dealer firms or (3) are representatives of other
firms that are exempt from broker dealer regulation. Fortis Investors and any
other broker-dealer firms are (1) registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as broker-dealers, and (2)
members of the National Association of Securities Dealers, Inc.
Fortis Investors will pay an allowance to its registered representatives and
selling brokers in varying amounts. Fortis Investors does not expect the
allowances under normal circumstances to exceed 6.25% of purchase payments plus
a servicing fee of .25% of contract value per year, starting in the first
contract year.
Fortis Investors may, under certain flexible compensation arrangements, pay
lesser or greater selling allowances and larger or smaller service fees to its
registered representatives and other broker dealer firms than as set forth
above. However, in such case, such flexible compensation arrangements will have
actuarial present values that are approximately equivalent to the amounts of the
selling allowances and service fees set forth above. Additionally, registered
representatives, broker-dealer firms and exempt firms may qualify for additional
compensation based upon meeting certain production standards. Fortis Investors
may charge back commissions paid to others if the contract upon which the
commission was paid is surrendered or cancelled within certain specified time
periods.
Fortis Benefits paid a total of $30,705,769, $32,874,801 and $48,774,402 to
Fortis Investors for annuity contract distribution services during 1997, 1998
and 1999, respectively, $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. In the
distribution agreement, Fortis Benefits has agreed to indemnify Fortis Investors
(and its agents, employees, and controlling persons) for certain damages and
expenses, including those arising under federal securities laws.
Fortis Benefits or Fortis Investors may also provide additional compensation to
broker-dealers in connection with sales of contracts. Compensation may include
financial assistance to broker-dealers in connection with (1) conferences, (2)
sales or training programs for their employees, (3) seminars for the public, (4)
advertising, (5) sales campaigns regarding contracts, and (6) other
broker-dealer sponsored programs or events. Compensation may also include trips
taken by invited sales representatives and their family members to locations
within or without the United States for business meetings or seminars. Fortis
Benefits or Fortis Investors may pay travel expenses that arise from these
trips.
See Notes to Fortis Benefits' Financial Statements as to amounts it has paid to
Fortis, Inc. for various services.
Fortis Investors is an indirect subsidiary of Fortis (NL)N.V. and Fortis (B).
Fortis Investors is under common control with Fortis Benefits. Fortis Investors'
principal business address is the same as that of our home office. Fortis
Investors is not obligated to sell any specific amount of interests under the
contracts. $110,000,000 of interests in the fixed account and an indefinite
amount of interests in the Variable Account have been registered with the
Securities and Exchange Commission.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes. These rules are based on laws, regulations and
interpretations that are subject to change at any time. This summary is not
comprehensive. We do not intend it as tax advice. Federal estate and gift tax
considerations, as well as state and local taxes, may also be material. You
should consult a qualified tax adviser as to the tax implications of taking any
action under a contract or related retirement plan.
NON-QUALIFIED CONTRACTS
Section 72 of the Internal Revenue Code ("Code") governs the taxation of
annuities in general. Neither you nor any other person may exclude or deduct
purchase payments under
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Non-Qualified Contracts from gross income. However, you are not currently taxed,
until receipt, on any increase in the accumulated value of a Non-Qualified
Contract that results from (1) the investment performance of the Variable
Account, or (2) interest credited to the fixed account. Owners who are not
natural persons ARE taxed annually on any increase in the contract value subject
to exceptions. You may wish to discuss this with your tax adviser.
The following discussion applies generally to contracts owned by natural
persons.
In general, surrenders or partial withdrawals under contracts are taxed as
ordinary income to the extent of the accumulated income or gain under the
contract. If you assign or pledge any part of the value of a contract, you pay
on the value so pledged or assigned to the same extent as a partial withdrawal.
With respect to annuity payment options, the tax consequences may vary depending
on the option elected under the contract. Until the "investment in the contract"
is recovered, generally only the portion of the annuity payment that represents
the amount by which the contract value exceeds the "investment in the contract"
will be taxed. In general, "investment in the contract" is the aggregate amount
of purchase payments made. After recovery of an Annuitant's or other payee's
"investment in the contract," the full amount of any additional annuity payments
is taxable.
For variable annuity payments, in general, the taxable portion of each annuity
payment (prior to recovery of the "investment in the contract") is the amount of
the payment less the nontaxable portion. The nontaxable portion of each payment
is the "investment in the contract" divided by the total number of expected
annuity payments.
For fixed annuity payments, in general, prior to recovery of the "investment in
the contract," there is no tax on the amount of each payment that bears the same
ratio to that payment as the "investment in the contract" bears to the total
expected value of the annuity payments for the term of the payments. However,
the remainder of each annuity payment is taxable. The taxable portion of a
distribution (in the form of an annuity or a single sum payment) is taxed as
ordinary income.
For purposes of determining the amount of taxable income resulting from
distributions, all contracts and other annuity contracts we or our affiliates
issue to you within the same calendar year will be treated as if they were a
single contract.
You, or any other payee, will pay a 10% penalty on the taxable portion of a
"premature distribution." Generally, an amount is a "premature distribution"
unless the distribution is:
- made on or after you or another payee reach age 59 1/2, or is
- made to a beneficiary on or after your death, or is
- made upon your disability or that of another payee, or is
- part of a series of substantially equal annuity payments for your life or
life expectancy, or is
- part of a series of substantially equal annuity payments for the life or
life expectancy of you AND your beneficiary.
Premature distributions may result, for example, from:
- an early annuity commencement date
- an early surrender or partial surrender of a contract
- an assignment of a contract
- the early death of an Annuitant other than you or another person
receiving annuity payments under the contract
If you transfer ownership of a contract, or designate an Annuitant or payee
other than yourself, you may have certain income or gift tax consequences that
are beyond the scope of this discussion. If you are contemplating any transfer
or assignment of a contract, you should contact a competent tax adviser.
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
In order that a Non-Qualified Contract be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires:
- if any person receiving annuity payments dies on or after the annuity
commencement date but prior to the time the entire interest in the
contract has been distributed, the remaining portion of such interest
will be distributed at least as rapidly as under the method of
distribution being used as of the date of the person's death; and
- if you die prior to the annuity commencement date, the entire interest in
the contract will be distributed:
- within five years after your death, or
- as annuity payments that will begin within one year of your death and
will be made over your designated beneficiary's life or over a period
not extending beyond the life expectancy of that beneficiary.
However, if the owner's designated beneficiary is the surviving spouse, the
surviving spouse may continue the contract as the new contract owner. Where the
owner or other person receiving payments is not a natural person, the required
distributions under Section 72(A) apply on the death of the primary Annuitant.
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.
20
<PAGE> 21
QUALIFIED CONTRACTS
The contracts may be used with several types of tax-qualified plans. The tax
rules applicable to owners, Annuitants, and other payees vary according to the
type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a tax qualified plan on your behalf are excludable
from your gross income during the Accumulation Period. The portion, if any, of
any purchase payment that is not excluded from your gross income during the
Accumulation Period constitutes your "investment in the contract".
When annuity payments begin, you will receive back your "investment in the
contract" if any, as a tax-free return of capital. The Code provides which
portion of each payment is taxable and which portion is tax free. These rules
may vary depending on the type of tax qualified plan.
The contracts are available in connection with the following types of retirement
plans:
- Section 403(b) annuity plans for employees of certain tax-exempt
organizations and public education institutions;
- Section 401 or 403(a) qualified pension, profit-sharing, or annuity
plans;
- Individual retirement annuities ("IRAs") under Section 408(b);
- Simplified employee pension plans ("SEPs") under Section 408(k);
- SIMPLE IRA Plans under Section 408(p); and
- Section 457 unfunded deferred compensation plans of tax-exempt
organizations and private employer unfunded deferred compensation plans.
The tax implications of these plans are further discussed in the Statement of
Additional Information under the heading "Taxation Under Certain Retirement
Plans".
WITHHOLDING
Annuity payments and other amounts received under contracts are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Despite the recipient's election, the Code may require withholding from certain
payments outside the United States. The Code may also require withholding from
certain distributions from certain types of qualified retirement plans, unless
the proceeds are transferred directly from the qualified plan to another
qualified retirement plan. Moreover, special "backup withholding" rules may
require us to disregard the recipient's election if the recipient fails to
supply us with a "TIN" or taxpayer identification number (social security number
for individuals), or if the Internal Revenue Service notifies us that the TIN
provided by the recipient is incorrect.
PORTFOLIO DIVERSIFICATION
The United States Treasury Department has adopted regulations under Section
817(h) of the Code that set forth diversification requirements for investments
underlying Non-Qualified Contracts. We believe that the investments will satisfy
these requirements. Failure to do so would result in immediate taxation to you
or another person of all income credited to Non-Qualified Contracts. Also,
current regulations do not provide guidance as to any circumstances in which
control over allocation of values among different investment alternatives may
cause you or another person receiving annuity payments to be treated as the
owners of Variable Account assets for tax purposes. We reserve the right to
amend the contracts in any way necessary to avoid any such result. The Treasury
Department may establish standards in this regard through regulations or
rulings. Such standards may apply only prospectively, although retroactive
application is possible if the Treasury Department considered such standards not
to embody a new position.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized under the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange pursuant to the special
annuity contract exchange form we provide for this purpose is not generally a
taxable event under the Code. Moreover, your investment in the contract will be
the same as your investment in the product you exchanged out of.
Because of the complexity of these and other tax aspects in connection with an
exchange, you should consult a tax adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403 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.
FURTHER INFORMATION ABOUT FORTIS BENEFITS
GENERAL
We offer and sell insurance products, including fixed and variable life
insurance policies, fixed and variable annuity contracts, and group life,
accident and health insurance policies. We market our products to small
businesses 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 itself wholly owned by Fortis, Inc., both having an 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.
21
<PAGE> 22
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...................................... $1,721,799 $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 $7,578,055 $6,819,484 $5,951,876 $5,143,012
Total liabilities................................... 8,760,587 6,692,587 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 like, 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.
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
22
<PAGE> 23
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.
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
23
<PAGE> 24
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 have the voting interest during the
Annuity Period, and beneficiaries have the voting interest after the death of
the Annuitant or owner. However, if the Investment Company Act of 1940 or any
rules thereunder should be amended or if the present interpretation thereof
should change, and as a result we determine that we are permitted to vote shares
of the portfolios in our own right, we may elect to do so.
We determine the number of shares of a portfolio attributable to a contract as
follows:
- During the Accumulation Period, we divide the amount of contract value in
a subaccount by the net asset value of one share of the portfolio
corresponding to that subaccount. We make this calculation as of the
record date for the applicable portfolio.
- During the Annuity Period, or after the death of the Annuitant or owner,
we make a similar calculation. However, for subaccount value we use the
liability for future variable annuity payments allocable to that
subaccount as of the record date for the applicable portfolio. We
calculate the liability for future variable annuity payments on the basis
of the following on the record date:
- mortality assumptions,
- the assumed interest rate used in determining the number of Annuity
Units under the contract, and
- the applicable Annuity Unit value
During the Annuity Period, the number of votes attributable to a contract will
generally decrease since funds set aside to make the annuity payments will
decrease.
We will vote shares for which we have not received timely instructions, and any
shares attributable to excess amounts we have accumulated in the related
subaccount, in proportion to the voting instructions which we receive for all
contracts and other variable annuity contracts participating in a portfolio. To
the extent that we or any affiliated company holds any shares of a portfolio,
those shares will be voted in the same proportion as instructions for that
portfolio from all our policy holders holding voting interests in that
portfolio. Shares held by separate accounts other than the Variable Account will
in general be voted in accordance with instructions of owners in such other
separate accounts. This diminishes the relative voting influence of the
contracts.
Each person having a voting interest in a subaccount of the Variable Account
will receive proxy material, reports and other materials relating to the
appropriate portfolio. Under the procedures described above, these persons may
give instructions regarding:
- the election of the Board of Directors of the portfolios,
- ratification of the selection of a portfolio's independent auditors,
- the approval of the investment managers of a portfolio,
- changes in fundamental investment policies of a portfolio, and
- all other matters that are put to a vote of portfolio shareholders
LEGAL MATTERS
David A. Peterson, Esquire, Vice President and Assistant General Counsel with
our legal department has passed on the legality of the contracts described in
this prospectus. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have
advised Fortis Benefits on certain federal securities law matters.
OTHER INFORMATION
We have filed Registration Statements with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
contracts discussed in this prospectus. We have not included in the prospectus
all of the information set forth in the Registration Statement, amendments, and
exhibits thereto. We intend statements contained in this prospectus about the
content of the contracts and other legal instruments to be summaries. For a
complete statement of the terms of these documents, you should refer to the
instruments filed with the Securities and Exchange Commission.
24
<PAGE> 25
A Statement of Additional Information is available upon request. Its contents
are as follows:
CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION
<TABLE>
<S> <C>
Fortis Benefits and the Variable Account.......
Calculation of Annuity Payments................
Postponement of Payments.......................
Services.......................................
- Safekeeping of Variable Account Assets.....
- Experts....................................
- Principal Underwriter......................
Taxation Under Certain Retirement Plans........
Withholding....................................
Other Information..............................
Variable Account Financial Statements..........
APPENDIX A--Performance Information............
</TABLE>
FORTIS BENEFITS FINANCIAL STATEMENTS
The financial statements of Fortis Benefits that are included in this prospectus
should be considered primarily as bearing on our ability to meet our obligations
under the contracts. The contracts are not entitled to participate in our
earnings, dividends or surplus.
25
<PAGE> 26
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> 27
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> 28
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> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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> 35
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> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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 $ 497,85 $ 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> 44
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> 45
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> 46
APPENDIX A--SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
The formula which will be used to determine the Market Value Adjustment is:
<TABLE>
<S> <C> <C> <C> <C>
1 + I n/12
------------ - 1
( 1 + J + .005 )
</TABLE>
Sample Calculation 1: Positive Adjustment
<TABLE>
<S> <C>
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 7%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1 + .08 60/12
$10,000 X -------------- - 1 = $234.73
[( 1 + .07 + .005 ) ]
</TABLE>
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$10,234.73
Sample Calculation 2: Negative Adjustment
<TABLE>
<S> <C>
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 9%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1 + .08 60/12 = --
$10,000 X -------------- - 1 $666.42
[( 1 + .09 + .005 ) ]
</TABLE>
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,333.58
Sample Calculation 3: Negative Adjustment
<TABLE>
<S> <C>
Amount withdrawn or transferred $10,000
Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 7.75%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1 + .08 60/12
$10,000 X ---------------- - 1 = $114.94
[( 1 + .0775 + .005 ) ]
</TABLE>
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,885.06
- ------------------------------
* Assumed for illustrative purposes only.
A-1
<PAGE> 47
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<PAGE> 48
APPENDIX B--SAMPLE DEATH BENEFIT CALCULATIONS
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
DATE OF DEATH IS THE 3RD CONTRACT ANNIVERSARY --------- --------- ---------
<S> <C> <C> <C>
a. Purchase Payments Made Prior to Death, accumulated at
5% $32,000 $32,000 $32,000
b. Contract Value on Date of Death $20,000 $36,000 $25,000
c. 1 Year Ratchet Option Value $35,000 $36,000 $31,000
Death Benefit is larger of a, b, and c $35,000 $36,000 $32,000
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
DATE OF DEATH IS THE 5TH CONTRACT ANNIVERSARY --------- --------- ---------
<S> <C> <C> <C>
a. Purchase Payments Made Prior to Death, accumulated at
5% $34,000 $34,000 $34,000
b. Contract Value on Date of Death $38,000 $38,000 $28,000
c. 1 Year Ratchet Option Value $38,000 $40,000 $33,000
Death Benefit is larger of a, b, and c $38,000 $40,000 $34,000
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
DATE OF DEATH IS THE 10TH CONTRACT ANNIVERSARY --------- --------- ---------
<S> <C> <C> <C>
a. Purchase Payments Made Prior to Death, accumulated at
5% $36,000 $36,000 $36,000
b. Contract Value on Date of Death $39,000 $34,000 $31,000
c. 1 Year Ratchet Option Value $39,000 $37,000 $32,000
Death Benefit is larger of a, b, and c $39,000 $37,000 $36,000
</TABLE>
B-1
<PAGE> 49
(This page left blank intentionally)
<PAGE> 50
APPENDIX C--EXPLANATION OF EXPENSE CALCULATIONS
The expense for a given year is calculated by multiplying the projected
beginning of the year policy value by the total expense rate. The total expense
rate is the sum of the variable account expense rate plus the total portfolio
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Growth Stock Series is calculated as
follows:
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Total Variable Account Annual Expenses 1.35%
- --------------------------------------------------------------------------------
+ Total Series Fund Operating Expenses .66%
- --------------------------------------------------------------------------------
= Total Expense Rate 2.01%
- --------------------------------------------------------------------------------
</TABLE>
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = $1000.00 X .0201 = $20.10
Year 2 Beginning Policy Value = $1029.90
Year 2 Expense = $1029.90 X 0.0201 = $20.70
Year 3 Beginning Policy Value = $1060.69
Year 3 Expense = $1060.69 X .0201 = $21.32
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to:
$20.10 + $20.70 + $21.32 = $62.12
If the contract is surrendered, the surrender charge is the surrender charge
percentage times the purchase payment minus the 10% free withdrawal amount:
Surrender Charge Percentage X (Initial Premium - 10% Free Withdrawal) =
Surrender Charge
0.06 X ($1000.00 - $100.00) = $54.00
So the total expense if surrendered is $62.12 + $54.00 = $116.12
C-1
<PAGE> 51
(This page left blank intentionally)
<PAGE> 52
APPENDIX D--PRO RATA ADJUSTMENTS
Pro rata adjustments are made for withdrawals in calculating the death benefit
payable under the contract. The benefit is described under the section of this
prospectus entitled "Benefit Payable on Death of Contract Owner or Annuitant".
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 surrender charges, but not for any contract fee-related
surrenders.
Under the death benefit set forth as (2) in "Benefit Payable on Death of
Contract Owner or Annuitant", the pro rata adjustment for a given withdrawal is
equal to:
(a) the withdrawn amount, divided by
(b) the contract value immediately before the amount was withdrawn, the
result multiplied by
(c) the quality equal to:
(i) the contract value on the anniversary, plus
(ii) purchase payments made since the anniversary and before
withdrawal, minus
(iii) pro rata adjustments for withdrawals made since the anniversary
and before the given withdrawal.
Under the death benefit set forth as (3) in "Benefit Payable on Death of
Contract Owner or Annuitant", the pro rata adjustment for a given withdrawal is
equal to:
(a) the withdrawn amount, divided by
(b) the contract value immediately before the amount was withdrawn, the
result multiplied by
(c) the quantity equal to:
(i) the "Roll-Up Amount" prior to the withdrawal, plus
(ii) any purchase payments made on or after the date either the
contract owner or Annuitant first reaches his or her 75th birthday
and before the given withdrawal, reduced by
(iii) pro rata adjustments for any withdrawals made on or after the date
either the contract owner or Annuitant first reaches his or her
75th birthday and before the given withdrawal.
D-1
<PAGE> 1
EXHIBIT 99.3(d)
CERTIFICATE OF AMENDMENT
TO THE BYLAWS OF
FORTIS BENEFITS INSURANCE COMPANY
The following amendments to Article III. and Section 7. of Article VII. of the
Bylaws were adopted, by unanimous vote at the Annual Stockholders' Meeting held
April 30, 1999:
RESOLVED, that Article III. of the Company Bylaws is deleted in its
entirety and replaced with the following, effective May 1, 1999:
ARTICLE III.
OFFICERS
ELECTION AND REMOVAL
Section 1. The officers of the Company shall be elected to serve during the
pleasure of the Board of Directors, except that the Chairman, if any, and
the President shall be elected by the Board of Directors to serve for one
year or until the election and qualification of their successors; and the
Board of Directors may at any time create additional offices and define the
duties thereof, or, with or without cause, abolish offices and remove the
incumbents therefrom.
NUMBER
Section 2. The Board of Directors shall elect a President, a Secretary, and
a Treasurer, and may elect a Chairman, one or more Executive Vice
Presidents, one or more Vice Presidents, an Appointed Actuary, and such
additional officers as it may in its discretion determine. Any two (2) or
more offices may be held by the same person, except that no person shall
hold both the offices of Chairman and Secretary, and that no one person
shall hold both the offices of President and Secretary.
DUTIES OF CHAIRMAN
Section 3. The Chairman shall be responsible for making recommendations
concerning Company policy to the Board of Directors or the Executive
Committee and presiding at meetings of Stockholders and the Board of
Directors. The Chairman shall be consulted on major policy decisions and
shall act in an advisory capacity in connection with the business of the
corporation, and shall perform such other duties as may be specifically
assigned by the Board of Directors.
<PAGE> 2
DUTIES OF PRESIDENT
Section 4. The President shall be the Chief Executive Officer of the
Company with general responsibility for the efficient, profitable
management of the Company, and for designating the duties, powers and
authority of all officers and employees of the Company. The President
shall be a member of the Executive Committee and shall have the authority
to delegate any of said duties.
In the absence of the Chairman, the President shall assume the Chairman's
duties.
In the event of the inability of the President to act, the Executive Vice
President with the greatest seniority in the Group Non-Medical business
unit; otherwise the Executive Vice President with the greatest seniority in
the Fortis Financial Group business unit, shall perform the duties and
exercise the powers of the President until some person is appointed by the
Board of Directors or the Executive Committee.
DUTIES OF EXECUTIVE VICE PRESIDENT
Section 5. The Executive Vice Presidents shall assist the President, and
shall have specific accountability for the quality of performance in those
areas of the Company's operations which the President shall designate. The
Executive Vice Presidents shall have such additional responsibilities as
may be assigned by the Board of Directors or the President.
DUTIES OF THE VICE PRESIDENT
Section 6. The Vice Presidents, one or more of whom may be elected in the
discretion of the Board of Directors, shall have such duties as the Board
of Directors or the President shall prescribe.
DUTIES OF THE SECRETARY
Section 7. The Secretary shall take charge of and affix the seal of the
Company to all certificates of stock. The Secretary shall be present at
all meetings of the Stockholders and of the Board of Directors, shall
attend meetings of the Executive Committee and other committees as
requested, shall keep a true and accurate record of all meetings in books
provided for that purpose, and shall be the custodian of all the official
corporate papers of the Company except those of a financial nature. In the
absence of the Secretary, one or more Assistant Secretaries shall be
appointed by the President to execute the foregoing duties. The Secretary
shall perform such other assignments as may be made by the Board of
Directors or the President.
<PAGE> 3
DUTIES OF TREASURER
Section 8. The Treasurer shall be accountable, jointly with such other
officer or officers as may be designated by the Board of Directors, or the
President, for the safekeeping of all monies and securities of the Company,
consistent with the rules adopted by the Board of Directors therefor. The
Treasurer shall keep a complete record of all investments, mortgages and
securities and shall attend to the collection of payments and interest due
thereon, shall keep the Company's monies deposited in the name of the Company
unless the Board of Directors shall direct otherwise, control the amount of bank
balances in each depository of the Company, and shall have such other
responsibility as may be assigned by the Board of Directors or the President.
In the absence of the Treasurer, one or more Assistant Treasurers shall be
appointed by the President to execute the foregoing duties.
DUTIES OF APPOINTED ACTUARY
Section 9. The Appointed Actuary shall be responsible for the valuation of
liabilities, monitoring the adequacy of the reserves and the annual asset
adequacy analysis. The Appointed Actuary shall assist with the financial
reporting and annual and quarterly statement preparation and review, and shall
have such other duties as may be assigned by the Board of Directors or the
President. The Appointed Actuary shall meet the qualification standards
established by the American Academy of Actuaries.
DUTIES OF OTHER OFFICERS
Section 10. The Other Officers, who may be elected in such number and with
such titles as the Board of Directors may in its discretion determine, shall
have such duties as the Board of Directors or the President shall prescribe.
FURTHER RESOLVED, that Section 7. of Article VII. of the Company Bylaws is
deleted in its entirety and replaced with the following, effective May 1, 1999:
Section 7. Policies of insurance issued by the Company shall be signed by
the President or a Vice President and by the Secretary or other officer of the
Company. Both signatures may be facsimiled, engraved or printed if the policy
is countersigned by a duly authorized registrar, agent, officer or employee
designated by the President, or his designee, and Secretary, or Assistant
Secretary, for such purpose. All other contracts shall be signed by an officer
of the Company. Such signature may be facsimiled, engraved or printed if the
contract is countersigned by a duly authorized registrar, agent, officer or
employee designated by the President, or his designee, and Secretary, or
Assistant Secretary, for such purpose. The President, a Vice President or the
Treasurer shall execute the transfer and assignment of any and all securities
owned by the Company.
<PAGE> 1
Exhibit 99.10(B)
FORTIS APPRECIATION INCENTIVE RIGHTS PLAN
(AS ADOPTED EFFECTIVE JANUARY 1, 1999)
The Fortis Appreciation Incentive Rights Plan (the "Plan") is hereby
adopted by Fortis, Inc. (the "Corporation") effective as of January 1, 1999.
ARTICLE 1
PURPOSE
1.1 GENERAL. The Plan is intended to enhance the value, of Fortis, Inc.
and its subsidiaries by linking the financial interests of its eligible
employees to those of Corporation shareholders and by providing its eligible
employees with an incentive for outstanding performance. The Plan is further
intended to assist the Corporation in motivating, attracting, and retaining the
services of employees upon whose judgment, interest, and special effort the
successful conduct of the Company's operation is largely dependent. The Plan
addresses these objectives by providing eligible employees of the Corporation
and its operating subsidiaries with the opportunity to receive long term
incentive compensation based on the appreciation in value of Fortis, Inc. as
well as the appreciation in value of the Business Units with which the eligible
employee is affiliated.
ARTICLE 2
DEFINITIONS
2.1 DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section unless a clearly different meaning is required by the context. The
following words and phrases shall have the following meanings:
(a) "Appraiser" shall mean an independent third party
appraiser selected by the Committee from time to time to assist the
Committee in establishing the value of the Corporation and the Business
Units as of each Valuation Date.
(b) "Award" means a grant to a Participant of Fortis, Inc.
Appreciation Incentive Rights and/or Business Unit Appreciation
Incentive Rights.
(c) "Award Agreement" means any written agreement, contract,
or other instrument or document evidencing an Award.
(d) "Board" means the board of directors of the Corporation.
(e) "Business Unit" shall mean each direct or indirect
subsidiary of the Corporation which is designated by the Committee as
eligible for participation in
<PAGE> 2
the Plan. As of the Effective Date, the Business Units are listed on
Appendix A to the Plan.
(f) "Business Unit Appreciation Incentive Right" shall mean a
right granted to a Participant under Section 6.1 to receive a
designated increase in the Entity Value of the applicable Business Unit
from the date of the Award of such Right to the date of exercise of
such Right.
(g) "Business Unit Executive" shall mean each President of a
Business Unit and each other executive employee of a Business Unit who
is designated by the Committee for participation in the Plan.
(h) "Change in Control of Corporation" means and includes each
of the following:
(1) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of
the combined voting power of the then outstanding
voting securities of the Corporation entitled to vote
generally in the election of directors (the
"Outstanding Corporation Voting Securities");
provided, however, that for purposes of this
subsection (1), the following acquisitions shall not
constitute a Change in Control: (i) any acquisition
by a person who is on the date of this Agreement the
beneficial owner of 50% or more of the Outstanding
Corporation Voting Securities, (ii) any acquisition
by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any
corporation controlled by the Corporation, (iii) any
acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and
(iii) of subsection (2) of this Section 2.1(h), or
(iv) any acquisition of the securities of any parent
of the Corporation; or
(2) Consummation of a reorganization, merger, share
exchange or consolidation or sale or other
disposition, directly or indirectly, of 50% or more
of the net assets of the Corporation (a "Business
Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial
owners of the Outstanding Corporation Voting
Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 50% of the combined voting power of the
then outstanding voting securities entitled to vote
generally in the election of directors of the
corporation resulting from such Business Combination
-2-
<PAGE> 3
(including, without limitation, a corporation which
as a result of such transaction owns the Corporation
or all or substantially all of the Corporation's
assets either directly or through one or more
subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such
Business Combination, of the Outstanding Corporation
Voting Securities, (ii) no person (excluding any
corporation resulting from such Business Combination
or any employee benefit plan (or related trust) of
the Corporation or such corporation resulting from
such Business Combination) beneficially owns,
directly or indirectly, 50% or more of the combined
voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination, and (iii) at least a majority of the
members of the board of directors of the corporation
resulting from such Business Combination were members
of the Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination, and for the
purposes of this provision 50% of the net assets of
the Corporation shall be determined on a consolidated
basis with all subsidiaries and shall be based on the
net book value of the operating assets being sold or
retained as reflected on the audited consolidated
financial statements of the Corporation and its
subsidiaries for the fiscal year ending immediately
before the fiscal year in which the effective date of
Business Combination occurs, provided that the
granting of a security interest in or a pledge of the
assets of the Corporation or a subsidiary of the
Corporation shall not be a Change in Control of
Corporation unless and until the holder of such
security interest or pledge has taken all formal
steps necessary to declare a default and realize on
such security interest or pledge; or
(3) Approval by the shareholders of the Corporation of a
complete liquidation or dissolution of the
Corporation.
(i) A Change in Control of a Business Unit shall be determined
on the same criteria as applied to a Change in Control of Corporation
in Section 2.1(h) but with reference to such Business Unit only.
(j) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and all regulations promulgated thereunder.
(k) "Committee" means the committee established by the Board
as described in Article 4.
(l) "Corporation" means Fortis, Inc., a Nevada corporation.
-3-
<PAGE> 4
(m) "Disability" shall have the same meaning as it has in the
Corporation Employees Uniform Retirement Plan or any comparable plan
that replaces such plan, as such plan may be amended from time to time,
provided that, if such plan shall be terminated and not replaced by
another comparable plan, then Disability shall mean any illness or
other physical or mental condition of a Participant that renders the
Participant incapable of performing his customary and usual duties for
the Corporation or a Business Unit, or any medically determinable
illness or other physical or mental condition resulting from a bodily
injury, disease or mental disorder which, in the judgment of the
Committee, is permanent and continuous in nature; and the Committee may
require such medical or other evidence as it deems necessary to judge
the nature and permanency of the Participant's condition.
(n) "Effective Date" shall mean January 1, 1999.
(o) "Entity Value" shall mean (i) with respect to Fortis, Inc.
and the Business Units considered together, the aggregate value of such
entities as determined by the Committee as of each Valuation Date, and
(ii) with respect to each Business Unit, the value of such Business
Unit as determined by the Committee as of each Valuation Date. The
Committee shall determine the Entity Value of Fortis, Inc. and each
Business Unit with finality in its sole and uncontrolled discretion,
considering such factors as the Committee deems appropriate from time
to time, provided that the Committee shall consider information
provided by the Appraiser with respect to the value of Fortis, Inc. and
each Business Unit. If Fortis, Inc. or a Business Unit is sold, then
the Committee in its sole discretion may reduce or otherwise adjust the
Entity Value of such business entity to take into account reductions in
value related to the sale of such business entity, including but not
limited to taxes, advisor fees, and severance costs.
(p) "Exercise Period" means the 45 day period following the
formal announcement by the Committee of an Entity value.
(q) "Fortis, Inc. Appreciation Incentive Right" shall mean a
right granted to a Participant under Section 6.1 to receive a fraction
of the increase in the Entity Value of Fortis, Inc. from the effective
date of the Award of such Right to the date of exercise of such Right.
The fraction as of January 1, 1999 is one ten millionth and will be
adjusted under Section 4.1.
(r) "Fortis, Inc. Officer" shall mean the Chief Executive
Officer of the Corporation and any other officers of the Corporation
who are designated by the Committee for participation in the Plan.
(s) "Outstanding Appreciation Incentive Right" shall mean an
Appreciation Incentive Right which has been granted but which remains
outstanding for any reason.
-4-
<PAGE> 5
(t) "Participant" means a person who, as an employee or
officer of the Corporation or a Business Unit, has been designated by
the Committee for participation in the Plan and who has been issued one
or more Awards under the Plan.
(u) "Plan" means the Fortis Appreciation Incentive Rights
Plan, as amended from time to time.
(v) "Retirement" (1), for officers and employees, shall have
the same meaning as it has in the Corporation Employees Uniform
Retirement Plan or any comparable plan that replaces such plan, as such
plan may be amended from time to time, provided that, if such plan
shall be terminated and not replaced by another comparable plan, then
Retirement shall mean a Participant's termination of employment with
the Corporation or a Business Unit after attaining any normal or early
retirement age specified in any pension, profit sharing or other
retirement program sponsored by the Corporation or a Business Unit, or,
in the event of the inapplicability thereof with respect to the
individual in question, as determined by the Committee in its
reasonable judgment, and (2), for directors, shall mean any termination
of service as a director. A Participant shall not be retired in a
circumstance in which a Participant ceases to be an employee but
continues as a director of the Corporation, until the Participant
retires as a director.
(w) "Valuation Date" shall mean the last business day of each
calendar year or such more frequent date as the Committee may so
determine.
ARTICLE 3
ADMINISTRATION
3.1 COMMITTEE. The Plan shall be administered by a committee (the
"Committee") appointed by the Board or, at the discretion of the Board from time
to time, the Plan may be administered by the Board. The members of the Committee
shall be appointed by and may be changed at any time and from time to time in
the discretion of the Board. During any time that the Board is acting as
administrator of the Plan, it shall have all the powers of the Committee
hereunder, and any reference herein to the Committee (other than in this Section
3.1) shall include the Board.
3.2 ACTION BY THE COMMITTEE. For purposes of administering the Plan,
the following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present, and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting,
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Corporation or
any Business Unit, the Corporation's independent
-5-
<PAGE> 6
certified public accountants, or any executive compensation consultant or other
professional retained by the Corporation to assist in the administration of the
Plan.
3.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
authority and discretion to:
(a) Designate Business Units that shall participate in the
Plan;
(b) Designate Participants, determine the number of
Appreciation Incentive Rights for each Participant, including the mix
of each Participant's rights among Fortis, Inc. and one or more
Business Units;
(c) Select the Appraiser, determine the Entity Values,
Appreciation Incentive Right and adjust the number of Appreciation
Incentive Rights from time to time under Section 4.2;
(d) Certify and announce the beginning of each 45-day
Appreciation Unit Exercise Period under Article 7;
(e) Determine whether a Participant is Retired, Disabled, or
has otherwise terminated employment;
(f) Determine whether a Change in Control of the Corporation
or a Business Unit has occurred;
(g) Determine whether to modify the Valuation Date for the
exercise of a given Appreciation Incentive Right under Article 7;
(h) Determine whether the payment for Appreciation Incentive
Rights would violate restrictions of lenders under Section 7.6.
(i) Determine the terms and conditions of any Award granted
under the Plan, including but not limited to, any restrictions or
limitations on the Award, any schedule for lapse of forfeiture
restrictions or restrictions on the exercisability of an Award, and
accelerations or waivers thereof, based in each case on such
considerations as the Committee in its sole discretion determines;
(j) Accelerate the vesting or lapse of restrictions of any
outstanding Award, based in each case on such considerations as the
Committee in its sole discretion determines;
(k) Prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(l) Decide all other matters that must be determined in
connection with an Award;
-6-
<PAGE> 7
(m) Establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Plan;
(n) Make all other decisions and determinations that may be
required under the Plan or as the Committee deems necessary or
advisable to administer the Plan; and
(o) Amend the Plan or any Award Agreement as provided herein.
3.4. DECISIONS BINDING. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 4
LIMITATION ON AWARD OF APPRECIATION INCENTIVE RIGHTS
4.1. ADJUSTMENT OF VALUE OF AN APPRECIATION INCENTIVE RIGHT. The
Committee reserves the right as of any Valuation Date, to adjust the fraction
value of Appreciation Incentive Rights for the Corporation and/or any Business
Unit as the Committee deems appropriate in its sole discretion to reflect
contributions to capital to the Corporation and a Business Unit dividends,
extraordinary expenses, and such other financial events as the Committee deems
appropriate. If the fraction value of Appreciation Incentive Rights is so
adjusted, this shall adjust both Outstanding Appreciation Incentive Rights and
future grants of Appreciation Incentive Rights. Furthermore, if the fraction
value of Appreciation Incentive Rights is so adjusted, this shall be deemed to
automatically adjust the corresponding fractions set forth in Sections 2.1(o),
2.1(s), 6.1(b)(iv) and 7.5. For example, if as of a given Valuation Date the
Committee decided to adjust the number of Appreciation Rights of a given
Business Unit from one-ten millionth to one-eleven millionth, then each
Outstanding Appreciation Incentive Right for such Business Unit would thereafter
represent .0000000909 of the Entity Value of Such Business Unit for all purposes
under this plan.
ARTICLE 5
GRANT OF APPRECIATION INCENTIVE RIGHTS
5.1. GRANT OF APPRECIATION INCENTIVE RIGHTS. The Committee is
authorized to grant Appreciation Incentive Rights from time to time to
Participants as determined by the Committee in its sole discretion. All awards
of Appreciation Incentive Rights shall be evidenced by an Award Agreement. The
terms, methods of exercise, methods of settlement, and any other terms and
conditions of any Appreciation Unit shall be determined by the Committee at the
time of the grant of the Award and shall be reflected in the Award Agreement.
-7-
<PAGE> 8
ARTICLE 6
VESTING AND EXERCISE OF APPRECIATION INCENTIVE RIGHTS
6.1. VESTING OF APPRECIATION INCENTIVE RIGHTS. Each Award of
Appreciation Incentive Rights shall vest as of the third anniversary of the
effective date the Award was granted and the Participant must be actively
employed by the Company or a Business Unit as of such date for vesting to occur.
However, (i) a Participant shall become fully vested in all of his Appreciation
Incentive Rights as of the date of a Fortis, Inc. Change in Control; (ii) if a
Business Unit Change in Control occurs, then all Appreciation Incentive Rights
issued with respect to such Business Unit shall become fully vested as of the
date of such Change in Control; and (iii) if a Participant Retires, becomes
Disabled, or dies, then the Participant shall vest in 1/36th of each award for
each month elapsed from effective date of grant to the date of termination. For
this purpose, a Participant who works during any part of a calendar month shall
be deemed to have worked for the entire calendar month.
6.2 EXERCISE OF APPRECIATION INCENTIVE RIGHTS. Appreciation Incentive
Rights which have become vested may be exercised by a Participant only during an
Exercise Period. A terminated Participant must exercise all vested Appreciation
Incentive Rights during the next Exercise Period following his termination of
employment from the Corporation and all Business Units. A Participant who dies,
becomes Disabled, or Retires must exercise no later than First Exercise Period
following First anniversary of death, Disability, or Retirement. Any
Appreciation Incentive Rights not exercised as provided in this Section shall be
forfeited.
6.3 MANDATORY EXERCISE OF APPRECIATION INCENTIVE RIGHTS.
Notwithstanding anything to the contrary in this Plan, all vested Appreciation
Incentive Rights granted in an Award shall be automatically exercised on the
10th anniversary of the effective date the Award was granted.
6.4 DISCRETIONARY EXERCISE OF APPRECIATION INCENTIVE RIGHTS. The
Committee may at its discretion force the early exercise of Rights in order to
facilitate any reorganization, recapitalization, or other need of the
corporation. In requiring such mandatory exercise, the Committee in its
discretion shall select in its discretion which Outstanding Appreciation
Incentive Rights shall be exercised, without requirement that such exercise
affect Participants on an equal or pro rata basis.
6.5 RIGHT TO PAYMENT. Upon the exercise of an Appreciation Unit, the
Participant to whom it is granted has the right to receive the excess, if any,
of:
(i) One ten millionth (.0000001)(as adjusted under Section
4.2) of the Entity Value of Fortis, Inc. or the applicable Business
Unit as of the Valuation Date immediately preceding the date of
exercise, minus
-8-
<PAGE> 9
(ii) One ten millionth (.0000001)(as adjusted under Section
4.2) of the Entity Value of Fortis, Inc. or the applicable Business
Unit as of the Valuation Date immediately preceding the date of grant
(as specified in Award Agreement).
Upon exercise, the value of all Appreciation Incentive Rights shall be
paid solely in cash in one lump sum, unless payment is deferred by the
Participant pursuant to Article 8.
6.6 BENEFICIARIES. A Participant may, in the manner determined by the
Committee, designate a beneficiary to exercise the rights of the Participant and
to receive any distribution with respect to any Award upon the Participant's
death. A beneficiary, legal guardian, legal representative, or other person
claiming any rights under the Plan is subject to all terms and conditions of the
Plan and any Award Agreement applicable to the Participant, except to the extent
the Plan and Award Agreement otherwise provide, and to any additional
restrictions deemed necessary or appropriate by the Committee. If no beneficiary
has been designated or survives the Participant, payment shall be made to the
Participant's estate. Subject to the foregoing, a beneficiary designation may be
changed or revoked by a Participant at any time provided the change or
revocation is filed with the Committee.
6.7 RESTRICTIONS OF LENDERS. The Corporation's obligations under this
Plan shall be subject to, and may from time to time be prohibited by, agreements
that may be in effect from time to time among or between the Corporation or any
of its parents or Business Units and their respective lenders. In the event that
the Corporation would not be able to perform any of its agreements or fulfill
any of its obligations hereunder without violating such a loan agreement, the
Corporation shall be excused from such performance or fulfillment with no
liability therefor to the Participant; provided that if and when such
performance or fulfillment would no longer be such a violation, the Corporation
shall have the obligation to complete such performance or fulfillment at that
time.
ARTICLE 7
DEFERRAL OF PAYMENT FOR APPRECIATION INCENTIVE RIGHTS
7.1 ELECTION TO DEFER PAYMENT UPON EXERCISE OF APPRECIATION INCENTIVE
RIGHTS. A Participant may elect to defer receipt of the cash payment that would
otherwise be payable upon exercise of an Appreciation Incentive Right under
Article 6. Such election shall be made in writing and delivered to the Committee
not later than the day preceding the vesting date for the Appreciation Incentive
Rights with respect to which the Participant wishes to defer payment. As elected
by the Participant, such payment may be deferred under the terms of the Fortis
Deferred Investment Plan, and such deferral shall be governed solely by the
terms of such Plan.
-9-
<PAGE> 10
ARTICLE 8
AMENDMENT, MODIFICATION AND TERMINATION
8.1. AMENDMENT, MODIFICATION AND TERMINATION. The Board or the
Committee may, at any time and from time to time, amend, modify or terminate the
Plan without shareholder approval; provided, however, that the Board or
Committee may condition any amendment or modification on the approval of
shareholders of the Corporation if such approval is necessary or deemed
advisable with respect to tax, securities or other applicable laws, policies or
regulations.
8.2 RIGHTS PREVIOUSLY GRANTED. At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Appreciation Incentive
Right; provided, however, that such amendment, modification or termination shall
not, without the Participant's consent, reduce or diminish the value of such
Appreciation Incentive Right determined as if the Right had been exercised,
vested, cashed in or otherwise settled on the date of such amendment or
termination.
ARTICLE 9
GENERAL PROVISIONS
9.1. GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
9.2. NO RIGHTS TO AWARDS. No Participant or any eligible participant
shall have any claim to be granted any Award under the Plan, and neither the
Corporation nor the Committee is obligated to treat Participants or eligible
participants uniformly.
9.3. NO STOCKHOLDER RIGHTS. No Award gives the Participant any of the
rights of a shareholder of the Corporation.
9.4 NO SALE OR ASSIGNMENT OF AWARDS. Appreciation Incentive Rights
granted under this Plan may not be sold, assigned, devised, or transferred by a
Participant or Beneficiary in any manner whatsoever. Appreciation Incentive
Rights granted under this Plan shall not be subject to any lien, directly, by
operation of law or otherwise, including but not limited to execution, levy,
garnishment, attachment, pledge or bankruptcy.
9.5 PLAN IS UNFUNDED. This Plan is unfunded, and no assets have been
set aside in trust, escrow, or otherwise to pay benefits hereunder. The benefits
paid hereunder shall be paid solely from the general assets of the Corporation.
No Participant shall have any claim to payment hereunder greater than that of a
general, unsecured creditor of the Corporation.
-10-
<PAGE> 11
9.6. WITHHOLDING. The Corporation and each Business Unit shall have the
authority and the right to deduct or withhold, or require a Participant to remit
to the Corporation, an amount sufficient to satisfy federal, state, and local
taxes (including the Participant's FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of the Plan.
9.7. NO RIGHT TO CONTINUED SERVICE. Nothing in the Plan or any Award
Agreement shall interfere with or limit in any way the right of the Corporation
or any Business Unit to terminate any Participant's employment or status as an
officer, director or consultant at any time, nor confer upon any Participant any
right to continue as an employee or officer of the Corporation or any Business
Unit.
9.8 TERMINATION OF EMPLOYMENT. Whether military, government or other
service or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee in its discretion and in
accordance with law, and any determination by the Committee shall be final and
conclusive. A termination of employment shall not occur when a Participant
transfers from the Corporation to one of its subsidiaries or parents, transfers
from a subsidiary or parent to the Corporation, transfers from a parent to a
parent or transfers from a subsidiary to another subsidiary. A termination of
employment shall not occur when a Participant ceases to be an employee but
continues as a director of the Corporation.
9.9. INDEMNIFICATION. To the extent allowable under applicable law,
each member of the Committee and each other officer or employee of the
Corporation who assists in the administration of the Plan shall be indemnified
and held harmless by the Corporation from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by such member in connection
with or resulting from any claim, action, suit, or proceeding to which such
member may be a party or in which he may be involved by reason of any action or
failure to act under the Plan and against and from any and all amounts paid by
such member in satisfaction of judgment in such action, suit, or proceeding
against him provided he gives the Corporation an opportunity, at its own
expense, to handle and defend the same before he undertakes to handle and defend
it on his own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Corporation's Certificate of Incorporation or Bylaws, as a
matter of law, or otherwise, or any power that the Corporation may have to
indemnify them or hold them harmless.
9.10. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall
be taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the
Corporation or any Business Unit unless provided otherwise in such other plan.
9.11. EXPENSES. The expenses of administering the Plan shall be borne
by the Corporation and its Business Units.
-11-
<PAGE> 12
9.12. TITLES AND HEADINGS. The titles and headings of the Sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
9.13. GOVERNING LAW. To the extent not governed by federal law, the
Plan and all Award Agreements shall be construed in accordance with and governed
by the laws of the State of New York.
9.14 ADDITIONAL PROVISIONS. Each Award Agreement may contain such other
terms and conditions as the Committee may determine; provided that such other
terms and conditions are not inconsistent with the provisions of this Plan.
IN WITNESS WHEREOF, the foregoing is hereby acknowledged as being the
Fortis Business Unit Appreciation Incentive Rights Plan as adopted by the Board
of Directors of the Corporation on December 7, 1999.
FORTIS, INC.
By: __________________________
J. Kerry Clayton
Its: ___________________________
President
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<PAGE> 13
APPENDIX A
BUSINESS UNITS DESIGNATED UNDER SECTION 2.1(e)
Fortis, Inc.
Fortis Health Care
Fortis Benefits
Fortis Family
Fortis Financial Group
Assurant Group (effective January 1, 2000)
American Security Group (for 1999 only)
Fortis Advisers
Fortis Investors
ACSIA
First Fortis
Long Term Care
-13-
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000823533
<NAME> FORTIS BENEFITS INSURANCE COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 2,706,372
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 85,021
<MORTGAGE> 754,514
<REAL-ESTATE> 47,502
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0
0
<COMMON> 5,000
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1,403,291
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<UNDERWRITING-OTHER> 430,378
<INCOME-PRETAX> 123,533
<INCOME-TAX> 40,327
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</TABLE>
