<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1995.
REGISTRATION NOS. 33-
811-5439
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO.
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 32
------------------------
VARIABLE ACCOUNT D
OF
FORTIS BENEFITS INSURANCE COMPANY
(Exact Name of Registrant)
------------------------
FORTIS BENEFITS INSURANCE COMPANY
(Name of Depositor)
500 BIELENBERG DRIVE
WOODBURY, MINNESOTA 55125
(Address of Depositor's Principal Executive Offices)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE:
612-738-5000
------------------------
RHONDA J. SCHWARTZ, ESQ.
500 BIELENBERG DRIVE
WOODBURY, MINNESOTA 55125
(Name and Address of Agent for Service)
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
It is proposed that this filing will be come effective (check appropriate
box):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485.
/ / on pursuant to paragraph (b) of Rule 485.
/ / 60 days after filing pursuant to paragraph (a)(i) of Rule 485.
/ / 70 days after filing pursuant to paragraph (a)(ii) of Rule 485.
/ / on pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
/ / This post-effective amendment designated a new effective date for
a previously filed post-effective amendment.
------------------------
AN INDEFINITE AMOUNT OF THE SECURITIES BEING OFFERED HAS BEEN REGISTERED
PURSUANT TO A DECLARATION UNDER RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF
1940, SET OUT IN THE FORM N-4 REGISTRATION STATEMENT CONTAINED IN FILE NO.
33-19421. THE REGISTRANT FILED ITS RULE 24F-2 NOTICE FOR THE YEAR ENDED DECEMBER
31, 1994 ON FEBRUARY 27, 1995.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
ANOTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN PROSPECTUS
OR STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
FORM N-4 PROSPECTUS CAPTION
- -------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Cover Page......................................... Cover Page
2. Definitions........................................ Special Terms Used in This Prospectus
3. Synopsis of Highlights............................. Summary of Certificate Features
4. Condensed Financial Information.................... Further Information About Fortis Benefits
5. General Description of Registrant, Depositor and Cover Page; Summary of Certificate Features; Fortis
Portfolio Companies............................... Benefits/Fortis Financial Group Member; The Variable
Account; The Portfolios; The Fixed Account; Further
Information about Fortis Benefits
6. Deductions......................................... Summary of Certificate Features; Charges and Deductions
7. General Description of Variable Annuity Contracts.. Accumulation Period; General Provisions
8. Annuity Period..................................... The Annuity Period
9. Death Benefit...................................... Summary of Certificate Features; Accumulation Period
10. Purchase and Contract Value........................ Accumulation Period
11. Redemptions........................................ Summary of Certificate Features; Total and Partial
Surrenders
12. Taxes.............................................. Summary of Certificate Features; Federal Tax Matters
13. Legal Proceedings.................................. None
14. Table of Contents of the Statement of Additional
Information....................................... Contents of the Statement of Additional Information
15. Cover Page......................................... Cover Page
16. Table of Contents.................................. Table of Contents
17. General Information and History.................... Ownership of Securities (in Prospectus)
18. Services........................................... Services
19. Purchase of Securities Being Offered............... Distribution (in Prospectus)
20. Underwriters....................................... Services
21. Calculation of Performance Data.................... Appendix A to Statement of Additional Information
22. Annuity Payments................................... Calculation of Annuity Payments
23. Financial Statements............................... Variable Account Financial Statements
</TABLE>
<PAGE>
VALUE ADVANTAGE PLUS VARIABLE ANNUITY
Certificates Under Flexible
Premium Deferred
Combination Variable and
Fixed Annuity Contracts
PROSPECTUS DATED
February , 1996
FORTIS-Registered Trademark-
FORTIS BENEFITS INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE: 1-800-827-5877
P.O. BOX 64272 500 BIELENBERG DRIVE
ST. PAUL WOODBURY
MINNESOTA 55164 MINNESOTA 55125
This Prospectus describes interests under flexible premium deferred combination
variable and fixed annuity contracts issued either on a group basis or as
individual contracts by Fortis Benefits Insurance Company ("Fortis Benefits").
Participation in a group contract will be accounted for by the issuance of a
certificate showing your interest under the group contract. Participation in an
individual contract is shown by the issuance of an individual annuity contract.
The certificate and the individual contract are hereafter both referred to as
the "Certificate". The minimum under a Certificate is generally $5,000 for the
initial and $500 for each subsequent purchase payment.
A Certificate allows you to accumulate funds on a tax-deferred basis. You may
elect a guaranteed interest accumulation option through the Fixed Account or a
variable return accumulation option through Variable Account D (the "Variable
Account") of Fortis Benefits, or a combination of these two options. Under the
variable rate accumulation option, you can choose among the following
Portfolios:
<TABLE>
<S> <C>
Alliance Money Market Portfolio Montgomery Emerging Markets Fund
Alliance International Portfolio Montgomery Growth Fund
Alliance Premier Growth Portfolio Strong Discovery Fund
Federated High Yield Fund Strong Government Securities Fund
Federated Utility Fund Strong Advantage Fund
Federated Equity Growth & Income Fund Strong International Stock Fund
Lexington Natural Resources Trust TCI Balanced Fund
Lexington Emerging Markets Fund TCI Growth Fund
MFS Emerging Growth Series Van Eck Worldwide Bond Fund
MFS High Income Series Van Eck Gold and Natural Resources
MFS World Governments Series Fund
</TABLE>
The accompanying Prospectus for these Portfolios describes the investment
objectives, policies and risks of each of the Portfolios. In the states where
Guarantee Periods Fixed Accounts are offered (see "FIXED ACCOUNTS"), you can
choose among 10 different guarantee periods under the guaranteed interest
accumulation option, each of which has its own interest rate. In states where
Guarantee Periods Fixed Accounts are not offered, you can choose an interest in
the General Account Fixed Account with guaranteed interest.
You have the right to examine a Certificate during a "free look" period after
you receive the Certificate and return it for a refund of the amount of the then
current Certificate 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 Certificate.
For Certificates requiring a refund of all purchase payments, Fortis Benefits
will allocate all Net Purchase Payments made as a part of the purchase of the
Certificate to the Alliance Money Market Portfolio until the following number of
days after Fortis Benefits mails the Certificate to you: (1) the number of days
in the "free look" period, plus (2) five days. After the expiration of such
period, the Certificate Value will be allocated to the Fixed Account and the
Portfolios as directed by you.
The Certificate provides several different types of retirement and death
benefits, including fixed and variable annuity income options. You may make
partial surrenders of the Certificate Value or may totally surrender the
Certificate for its Cash Surrender Value.
This Prospectus gives prospective investors information about the Certificates
that they should know before investing. This Prospectus must be accompanied by a
current Prospectus of the Portfolios. These Prospectuses should be read
carefully and kept for future reference.
A Statement of Additional Information, dated February , 1996, about certain
aspects of the Certificates 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 of this Prospectus.
THESE POLICIES 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; AND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FORTIS-Registered Trademark- and Fortis-Registered Trademark- are registered
servicemarks of Fortis AMEV and Fortis AG.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms Used in this Prospectus.................................................................... 3
Information Concerning Fees and Charges.................................................................. 4
Summary of Certificate Features.......................................................................... 6
Fortis Benefits/Fortis Financial Group Member............................................................ 7
The Variable Account..................................................................................... 8
The Portfolios........................................................................................... 8
The Fixed Account........................................................................................ 8
- Guarantee Interest Periods Fixed Account........................................................... 8
- Market Value Adjustment.......................................................................... 9
- General Account Fixed Account...................................................................... 9
- General Account Fixed Account Transfers.......................................................... 10
- Investments by Fortis Benefits..................................................................... 10
- Fixed Account Value................................................................................ 10
Accumulation Period...................................................................................... 10
- Issuance of a Certificate and Purchase Payments.................................................... 10
- Certificate Value.................................................................................. 11
- Allocation of Purchase Payments and Certificate Value.............................................. 11
- Total and Partial Surrenders....................................................................... 12
- Benefit Payable on Death of Annuitant or Participant............................................... 13
The Annuity Period....................................................................................... 13
- Annuity Commencement Date.......................................................................... 13
- Commencement of Annuity Payments................................................................... 13
- Relationship Between Subaccount Investment Performance and Amount of Variable Annuity Payments..... 14
- Annuity Forms...................................................................................... 14
- Death of Annuitant or Other Payee.................................................................. 14
Charges and Deductions................................................................................... 14
- Premium Taxes...................................................................................... 14
- Charges Against the Variable Account............................................................... 15
- Annual Administrative Charge....................................................................... 15
- Tax Charge......................................................................................... 15
- Miscellaneous...................................................................................... 15
General Provisions....................................................................................... 15
- The Certificates................................................................................... 15
- Postponement of Payments........................................................................... 15
- Misstatement of Age or Sex and Other Errors........................................................ 15
- Assignment......................................................................................... 16
- Beneficiary........................................................................................ 16
- Reports............................................................................................ 16
Rights Reserved By Fortis Benefits....................................................................... 16
Distribution............................................................................................. 16
Federal Tax Matters...................................................................................... 17
Further Information about Fortis Benefits................................................................ 19
- General............................................................................................ 19
- Selected Financial Data............................................................................ 19
- Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 19
- Liquidity and Capital Resources.................................................................... 21
- Competition........................................................................................ 21
- Regulation and Reserves............................................................................ 21
- Employees and Facilities........................................................................... 22
- Directors and Executive Officers................................................................... 22
- Executive Compensation............................................................................. 23
- Ownership of Securities............................................................................ 24
Voting Privileges........................................................................................ 24
Legal Matters............................................................................................ 25
Other Information........................................................................................ 25
Contents of Statement of Additional Information.......................................................... 25
Fortis Benefits Financial Statements..................................................................... 25
Appendix A--Sample Market Value Adjustment Calculations.................................................. A-1
Appendix B--Explanation of Expense Calculations.......................................................... B-1
Appendix C--Participating Portfolios..................................................................... C-1
</TABLE>
THE CERTIFICATES ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. FORTIS BENEFITS DOES NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS WHICH IS NOT
INCLUDED IN THIS PROSPECTUS, THE RELATED STATEMENT OF ADDITIONAL INFORMATION, OR
ANY SUPPLEMENTS THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY
FORTIS BENEFITS.
<PAGE>
SPECIAL TERMS USED IN THIS PROSPECTUS
<TABLE>
<S> <C>
ACCUMULATION The time period under a Certificate between the Certificate Issue Date and the Annuity
PERIOD Commencement Date.
ACCUMULATION A unit of measure used to calculate the Participants' interest in the Variable Account during
UNIT the Accumulation Period.
ANNUITANT A person during whose life annuity payments are to be made by Fortis Benefits under the
Certificate.
ANNUITY The date on which the Annuity Period commences.
COMMENCEMENT
DATE
ANNUITY PERIOD The time period following the Accumulation Period, during which annuity payments are made by
Fortis Benefits.
ANNUITY UNIT A unit of measurement used to calculate variable annuity payments.
BENEFICIARY The person entitled to receive benefits under the terms of the Certificate.
CASH SURRENDER The amount payable to the Participant on surrender of the Certificate after all applicable
VALUE adjustments and deduction of all applicable charges.
CERTIFICATE The date on which the Certificate becomes effective as shown on the Certificate Data Page.
ISSUE DATE
CERTIFICATE The sum of the Fixed Account Value and the Variable Account Value.
VALUE
FIXED ACCOUNT The Guarantee Periods Fixed Account or the General Account Fixed Account.
FIXED ACCOUNT The amount of your Certificate Value which is in the Fixed Account.
VALUE
FIXED ANNUITY An annuity option under which Fortis Benefits promises to pay the Annuitant or any other payee
OPTION that you designate one or more fixed payments.
GENERAL ACCOUNT All assets of Fortis Benefits other than those in the Variable Account, and other than those
in any other legally segregated separate account established by Fortis Benefits.
GENERAL The name of the alternative under which purchase payments are allocated to Fortis Benefits
ACCOUNT FIXED General Account.
ACCOUNT
GUARANTEED The rate of interest we credit during any Guarantee Period, on an effective annual basis.
INTEREST RATE
GUARANTEE The period for which a Guaranteed Interest Rate is credited.
PERIOD
GUARANTEE The non-unitized separate account that Fortis Benefits uses to account for amounts allocated
PERIODS FIXED to Guarantee Periods.
ACCOUNT
HOME OFFICE Our office at 500 Bielenberg Drive, Woodbury, Minnesota 55125; 1-800-827-5877; Mailing
address: P.O. Box 64272, St. Paul, MN 55164.
MARKET VALUE Positive or negative adjustment in Fixed Account Value that we make if such value is paid out
ADJUSTMENT more than fifteen days before or after the end of a Guarantee Period in which it was being
held.
NET PURCHASE The gross amount of a purchase payment less any applicable premium taxes or similar
PAYMENT governmental assessments.
NON-QUALIFIED Certificates that do not qualify for the special federal income tax treatment applicable in
CERTIFICATES connection with certain retirement plans.
PARTICIPANT The person or company named in the application for a Certificate, who is entitled to exercise
all rights and privileges of ownership under the Certificate during the Accumulation Period.
PORTFOLIO Each separate investment portfolio eligible for investment by the Variable Account.
QUALIFIED Certificates that are qualified for the special federal income tax treatment applicable in
CERTIFICATES connection with certain retirement plans.
SUBACCOUNTS The several Subaccounts of the Variable Account, each of which invests its assets in a
different Portfolio.
VALUATION DATE All business days except, with respect to any Subaccount, days on which the related Portfolio
does not value its shares. Generally, the Portfolios value their shares on each day the New
York Stock Exchange is open.
VALUATION The period that starts at the close of regular trading on the New York Stock Exchange on a
PERIOD Valuation Date and ends at the close of regular trading on the exchange on the next succeeding
Valuation Date.
VARIABLE The segregated asset account referred to as Variable Account D of Fortis Benefits Insurance
ACCOUNT Company established to receive and invest purchase payments under Certificates.
VARIABLE The amount of your Certificate Value in the Subaccounts of the Variable Account.
ACCOUNT VALUE
VARIABLE An annuity option under which Fortis Benefits promises to pay the Annuitant or any other payee
ANNUITY OPTION chosen by you one or more payments which vary in amount in accordance with the net investment
experience of the Subaccounts selected by the Annuitant.
WRITTEN REQUEST A written, signed and dated request, in form and substance satisfactory to Fortis Benefits and
received at our Home Office.
</TABLE>
3
<PAGE>
INFORMATION CONCERNING FEES AND CHARGES
PARTICIPANT TRANSACTION CHARGES
<TABLE>
<S> <C>
Front-End Sales Charge Imposed on Purchases.................................................... 0%
Maximum Surrender Charge for Sales Expenses.................................................... 0%
Other Surrender Fees........................................................................... 0%
Exchange Fee................................................................................... 0%
ANNUAL CERTIFICATE ADMINISTRATION CHARGE.............................................................. $ 30
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge.............................................................. .45%
Variable Account Administrative Charge......................................................... 0 %
--
Total Variable Account Annual Expenses....................................................... .45 %
</TABLE>
MARKET VALUE ADJUSTMENT WITH RESPECT TO GUARANTEE PERIODS FIXED ACCOUNT
Surrenders and other withdrawals from the Guarantee Periods Fixed Account more
than fifteen days from the end of a Guarantee Period are subject to a Market
Value Adjustment. The Market Value Adjustment may increase or reduce the Fixed
Account Value. It is computed pursuant to a formula that is described in more
detail under "Market Value Adjustment."
PORTFOLIO ANNUAL EXPENSES (A)
<TABLE>
<CAPTION>
INVESTMENT TOTAL PORTFOLIO
ADVISORY AND OTHER OPERATING
MANAGEMENT FEE EXPENSES EXPENSES
-------------- -------- ----------------
<S> <C> <C> <C>
Alliance Money Market Portfolio............................. 0.00% 0.95% 0.95%
Alliance International Portfolio............................ 0.00% 0.95% 0.95%
Alliance Premier Growth Portfolio........................... 0.55% 0.40% 0.95%
Federated High Yield Fund................................... 0.00% 0.80% 0.80%
Federated Utility Fund...................................... 0.00% 0.85% 0.85%
Federated Equity Growth and Income Fund..................... 0.00% 0.85% 0.85%
Lexington Natural Resources Trust........................... 1.00% 0.55% 1.55%
Lexington Emerging Markets Fund............................. 0.85% 0.45% 1.30%
MFS Emerging Growth Series.................................. 0.75% 0.25% 1.00%
MFS High Income Series...................................... 0.75% 0.25% 1.00%
MFS World Governments Series................................ 0.75% 0.25% 1.00%
Montgomery Emerging Markets Fund............................ 1.25% 0.50% 1.75%
Montgomery Growth Fund...................................... 1.00% 0.25% 1.25%
Strong Discovery Fund....................................... 1.00% 0.20% 1.20%
Strong Government Securities Fund........................... 0.60% 0.42% 1.02%
Strong Advantage Fund....................................... 0.60% 0.42% 1.02%
Strong International Stock Fund............................. 1.00% 1.00% 2.00%
TCI Balanced Fund........................................... 1.00% 0.00% 1.00%
TCI Growth Fund............................................. 1.00% 0.00% 1.00%
Van Eck Worldwide Bond Fund................................. 0.75% 0.23% 0.98%
Van Eck Gold and Natural Resources Fund..................... 0.75% 0.21% 0.96%
</TABLE>
- ------------------------
(a) As a percentage of Portfolio average net assets based on historical data
for the fiscal year ended December 31, 1994 (April 30, 1995 for the two Van
Eck Portfolios), except that the expenses of the Montgomery and Strong
Portfolios are based upon an estimate of 1995 expenses. In the absence of
expense and fee waivers or expense reimbursements by the Portfolio
investment adviser, the total expenses of the following Portfolios would
have been as hereafter indicated rather than as listed above: Alliance
Money Market Portfolio-- 4.46%; Alliance International Portfolio--7.26%;
Alliance Premier Growth Portfolio--1.40%; Dreyfus Growth and Income
Portfolio--1.50%; Dreyfus Stock Index Portfolio--0.56%; Dreyfus Quality
Bond Portfolio--1.20%; Dreyfus Managed Assets Portfolio--1.13%; Federated
High Yield Fund--10.42%; Federated Utility Fund--55.43%; Federated Equity
Growth and Income Fund--25.96%; Lexington Emerging Markets Fund--6.28%; MFS
Emerging Growth Series--1.75%; MFS High Income Series--1.75%; and MFS World
Governments Series--1.38%.
4
<PAGE>
EXAMPLES*
If you COMMENCE AN ANNUITY payment option, or whether you DO or DO NOT surrender
your Certificate or commence an annuity payment option, 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>
Alliance Money Market Portfolio............................. 15 47 81 178
Alliance International Portfolio............................ 15 47 81 178
Alliance Premier Growth Portfolio........................... 15 47 81 178
Federated High Yield Fund................................... 14 43 74 162
Federated Utility Fund...................................... 14 44 76 167
Federated Equity Growth and Income Fund..................... 14 44 76 167
Lexington Natural Resources Trust........................... 21 65 112 242
Lexington Emerging Markets Fund............................. 19 58 100 216
MFS Emerging Growth Series.................................. 16 49 84 184
MFS High Income Series...................................... 16 49 84 184
MFS World Governments Series................................ 16 49 84 184
Montgomery Emerging Markets Fund............................ 23 71 122 262
Montgomery Growth Fund...................................... 18 56 97 210
Strong Discovery Fund....................................... 18 55 94 205
Strong Government Securities Fund........................... 16 49 85 186
Strong Advantage Fund....................................... 16 49 85 186
Strong International Stock Fund............................. 26 79 135 287
TCI Balanced Fund........................................... 16 49 84 184
TCI Growth Fund............................................. 16 49 84 184
Van Eck Worldwide Bond Fund................................. 16 48 83 181
Van Eck Gold and Natural Resources Fund..................... 15 48 82 179
Fixed Account............................................... 1 4 7 15
</TABLE>
- ------------------------
* For purposes of these examples, the effect of the annual Certificate
administration charge has been computed based on the average total Contract
Value during the year ended December 31, 1994 of similar contracts issued by
Fortis Benefits and the total actual amount of annual contract administration
charges collected during the year on those contracts. For the purpose of these
examples, Portfolio annual expenses are assumed to continue at the rates set
forth in the table above.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
------------------------
The foregoing tables and examples are included to assist you in understanding
the transaction and operating expenses imposed directly or indirectly under the
Certificates and the Portfolios. Amounts for state premium taxes or similar
assessments will also be deducted, where applicable.
See Appendix C for an explanation of the calculation of the amounts set forth
above.
5
<PAGE>
SUMMARY OF CERTIFICATE 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
Certificate as appropriate.
The Certificates are designed to provide individuals with retirement benefits
through the accumulation of Net 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 Certificate.
PURCHASE PAYMENTS
The initial purchase payment under a Certificate must be at least $5,000 ($2,000
for a Certificate pursuant to a qualified contract). Additional purchase
payments under a Certificate must be at least $500. See "Issuance of a
Certificate and Purchase Payments."
On the Certificate Issue Date, except as hereafter explained, the initial
purchase payment is allocated, as specified by the Participant in the
Certificate application, among one or more of the Subaccounts of the Variable
Account, or to one or more of the Guarantee Periods in the Guarantee Periods
Fixed Account (or to the General Account Fixed Account if the Participant
resides in a state in which the Guaranteed Periods Fixed Account is not
offered), or to a combination thereof. As previously indicated, if the
Participant resides in a state requiring a refund of all purchase payments under
the "free look" privilege, the initial purchase payment will be allocated to the
Alliance Money Market Portfolio until the expiration of the time period
described under "Allocation of Purchase Payments and Certificate Value"
hereafter. Thereafter, it will be allocated as specified by the Participant.
Subsequent purchase payments are allocated in the same way, or pursuant to
different allocation percentages that the Participant may subsequently request
In Writing.
VARIABLE ACCOUNT INVESTMENT OPTIONS
Each of the Subaccounts of the Variable Account invests in shares of a
Portfolio. Certificate Value in each of the Subaccounts of the Variable Account
will vary to reflect the investment experience of each of the corresponding
Portfolios, as well as deductions for certain charges.
Each Portfolio has a separate and distinct investment objective. A full
description of the Portfolios and their investment objectives, policies, risks
and expenses can be found in the current Prospectus for the Portfolio, which
accompanies this Prospectus, and the Statement of Additional Information for the
Portfolio which is available upon request.
FIXED ACCOUNT INVESTMENT OPTIONS
Either a Guarantee Periods Fixed Account or a General Account Fixed Account is
available, depending upon your state of residence.
Any amount allocated by the Participant to the Guarantee Periods Fixed Account
earns a Guaranteed Interest Rate. The level of the Guaranteed Interest Rate
depends on the length of the Guarantee Period selected by the Participant. We
currently make available ten different Guarantee Periods, ranging from one to
ten years. If amounts are transferred, surrendered or otherwise paid out more
than fifteen days before or after the end of the applicable Guarantee Period, a
Market Value Adjustment will be applied to increase or decrease the amount that
is paid out. Accordingly, the Market Value Adjustment can result in gains or
losses to you.
Any amount allocated to the General Account Fixed Account will accrue interest
at a minimum effective annual rate plus such additional excess interest rate
which we may declare from time-to-time.
For a more complete discussion of the Fixed Accounts investment option and the
Market Value Adjustment, see "The Fixed Account."
TRANSFERS
During the Accumulation Period, you can transfer all or part of your Certificate
Value from one Subaccount to another or into the Fixed Account and, subject to
any Market Value Adjustment, from one Guarantee Period of a Guarantee Periods
Fixed Account to another or into a Subaccount. There are limitations on the
frequency and amounts of transfers from the General Account Fixed Account. There
is currently no charge for these transfers. We reserve the right to restrict the
frequency of, or otherwise condition, terminate, or impose charges upon,
transfers from a Subaccount during the Accumulation Period. During the Annuity
Period the person receiving annuity payments may make up to four transfers (but
not from a Fixed Annuity Option) during each year of the Annuity Period. For a
description of certain limitations on transfer rights, see "Allocations of
Purchase Payments and Certificate Value Transfers."
TOTAL OR PARTIAL SURRENDERS
Subject to certain conditions, all or part of the Certificate Value may be
surrendered by the Participant before the earlier of the Annuitant's death or
the Annuity Commencement Date. Amounts surrendered from the Guarantee Periods
Fixed Account may be subject to a Market Value Adjustment. See "Total and
Partial Surrenders" and "Market Value Adjustment." Particular attention should
be paid to the tax implications of any surrender, including possible penalties
for premature distributions. See "Federal Tax Matters."
CHARGES AND DEDUCTIONS
Fortis Benefits deducts daily charges at a rate of .45 % per annum of the value
of the average net assets in the Variable Account for the mortality and expense
risks it assumes. There is also an annual administrative charge each year for
Certificate administration and maintenance. This charge is $30 per year (subject
to any applicable state law limitations) and is deducted on each anniversary of
the Certificate Issue Date and upon total surrender of the Certificate. Also,
there may be state premium tax charges deducted from your Certificate Value. See
"Charges and Deductions."
6
<PAGE>
ANNUITY PAYMENTS
The Certificate provides several types of annuity benefits to Participants or
other persons they properly designate to receive such payments, including Fixed
and Variable Annuity Options. The Participant has considerable flexibility in
choosing the Annuity Commencement Date. However, the tax implications of an
Annuity Commencement Date must be carefully considered, including the
possibility of penalties for commencing benefits either too soon or too late.
See "Annuity Commencement Date," "Annuity Forms" and "Federal Tax Matters" in
this Prospectus and "Taxation Under Certain Retirement Plans" in the Statement
of Additional Information.
DEATH BENEFIT
In the event that the Annuitant or Participant dies prior to the Annuity
Commencement Date, a death benefit is payable to the Beneficiary. See "Benefit
Payable on Death of Annuitant or Participant."
RIGHT TO EXAMINE THE CONTRACT
A Participant may elect during a "free look" period to cancel the Certificate
and receive a refund. See the cover page of this Prospectus.
LIMITATIONS IMPOSED BY RETIREMENT PLANS AND EMPLOYERS
Certain rights you would otherwise have under a Certificate 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 Certificate is issued.
The record owner of the group variable annuity contract pursuant to which
Certificates may be issued will be a bank trustee whose sole function is to hold
record ownership of the contract or an employer (or the employer's designee) in
connection with an employee benefit plan. In the latter cases, certain rights
that a Participant otherwise would have under a Certificate may be reserved
instead by the employer.
TAX IMPLICATIONS
The tax implications for Participants or any other persons who may receive
payments under a Certificate, 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 Certificate 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 Certificate should be directed to your
sales representative, or Fortis Benefits' Home Office: P.O. Box 64272, St. Paul,
Minnesota, 55164: 1-800-827-5877. Purchase payments and Written Requests should
be mailed or delivered to the same Home Office address. All communications
should include the Certificate number, the Participant's name and, if different,
the Annuitant's name. The number for telephone transfers is 1-800-827-5877.
Any purchase payment or other communication, except a free-look cancellation
notice, is deemed received at Fortis Benefit's Home Office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.
FINANCIAL AND PERFORMANCE INFORMATION
This Prospectus contains no Accumulation Unit Information for the applicable
Subaccounts of the Variable Account because no Certificates have been sold and
no Accumulation Units have been issued thereunder.
Audited financial statements of the available Subaccounts of the Variable
Account are not included in the Statement of Additional Information because
those Subaccounts have not yet commenced operations, have no assets or
liabilities, and have received no income nor incurred any expenses as of the
date of this Prospectus.
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 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, the issuer of the Certificates, was founded
in 1910. At the end of 1994, Fortis Benefits had approximately $61 billion of
total life insurance in force. Fortis Benefits is a Minnesota corporation and 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 AMEV and 50% by Fortis AG. Fortis, Inc. manages the United States
operations for these two companies.
Fortis Benefits is a member of the Fortis Financial Group, a joint effort by
Fortis Benefits, Fortis Advisers, Inc., Fortis Investors, Inc., and
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Time Insurance Company, offering financial products through the management,
marketing and servicing of mutual funds, annuities and life insurance and
disability income products.
Fortis AMEV is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis AMEV and Fortis AG
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
$108 billion in assets as of year-end 1994.
All of the guarantees and commitments under the Certificates are general
obligations of Fortis Benefits, regardless of whether the Certificate Value has
been allocated 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 Certificates.
THE VARIABLE ACCOUNT
The Variable Account, which is a segregated investment account of Fortis
Benefits, was established as Variable Account D by Fortis Benefits pursuant to
the insurance laws of Minnesota as of October 14, 1987. Although the Variable
Account is an integral part of Fortis Benefits, 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 Certificates and other variable
annuity contracts issued by Fortis Benefits will not be chargeable with
liabilities arising out of any other business of Fortis Benefits.
There are a number of Subaccounts in the Variable Account. The assets in each
Subaccount are invested exclusively in one of the Portfolios listed on page one
of this Prospectus. Income and both realized and unrealized gains or losses from
the assets of each Subaccount of the Variable Account are credited to or charged
against that Subaccount without regard to income, gains or losses from any other
Subaccount of the Variable Account or arising out of any other business we may
conduct. New Subaccounts may be added as new Portfolios are added and made
available. Correspondingly, if any Portfolios are eliminated, Subaccounts may be
eliminated from the Variable Account.
THE PORTFOLIOS
Certificate holders may choose from among a number of different Portfolios, each
of which is a mutual fund available for purchase only as a funding vehicle for
benefits under variable life insurance and variable annuities issued by Fortis
Benefits and other life insurance companies. (See Appendix C which contains a
summary of the investment objectives of each Portfolio.) Each Portfolio
corresponds to one of the Subaccounts of the Variable Account. The assets of
each Portfolio are separate from the others and each Portfolio operates as a
separate investment portfolio whose performance has no effect on the investment
performance of any other Portfolio. More detailed information for each Portfolio
offered, such as its investment policies and restrictions, charges, risks
attendant to investing in it, and other aspects of its operations, may be found
in the current prospectus for each Portfolio. Such a prospectus for the
Portfolios being considered must accompany this Prospectus and should be read in
conjunction herewith. A copy of each prospectus may be obtained without charge
from Fortis Benefits by calling 1-800-827-5877, or writing P.O. Box 64272, St.
Paul, Minnesota 55164.
Fortis Benefits purchases and redeems Portfolios' shares for the Variable
Account at their net asset value without the imposition of any sales or
redemption charges. Any dividend or capital gain distributions attributable to
Certificates are automatically reinvested in shares of the Portfolio from which
they are received at the Portfolio's net asset value on the date paid. Such
dividends and distributions will have the effect of reducing the net asset value
of each share of the corresponding Portfolio and increasing, by an equivalent
value, the number of shares outstanding of the Portfolio. However, the value of
your interest in the corresponding Subaccount will not change as a result of any
such dividends and distributions.
As indicated, Portfolios may also be available to registered separate accounts
offering variable annuity and variable life products of other participating
insurance companies, as well as to the Variable Account and other separate
accounts of Fortis Benefits. Although Fortis Benefits does not anticipate any
disadvantages to this, there is a possibility that a material conflict may arise
between the interest of the Variable Account and one or more of the other
separate accounts participating in the Portfolios. A conflict may occur due to a
change in law affecting the operations of variable life and variable annuity
separate accounts, differences in the voting instructions of the Participants
and those of other companies, or some other reason. In the event of conflict,
Fortis Benefits will take any steps necessary to protect the Participants and
variable annuity payees.
THE FIXED ACCOUNT
Interests in either of two different Fixed Accounts are offered by this
Prospectus, depending upon the state of residence of the Certificate applicant:
a Guarantee Periods Fixed Account or a General Account Fixed Account. Both of
these Fixed Accounts are referred to as the Fixed Account elsewhere in this
prospectus where a distinction is not relevant. A Guaranteed Periods Fixed
Account is offered to Certificate applicants in most states. However, in a
limited number of states, a General Account Fixed Account is offered in lieu of
the Guarantee Periods Fixed Account. Applicants should inquire of Fortis
Benefits or their account representative to determine which Fixed Account is
available in their state. Charges under the Certificate are the same as when the
Variable Account is being used, except that the .45% per annum charged for
mortality and expense risk and administrative expenses is not imposed on amounts
of Certificate Value in the Fixed Account.
GUARANTEE PERIODS FIXED ACCOUNT
Any amount allocated by the Participant to the Fixed Account earns a Guaranteed
Interest Rate commencing with the date of such allocation. This Guaranteed
Interest Rate continues for a number of years
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(not to exceed ten) selected by the Participant. At the end of this Guarantee
Period, the Participant's Certificate Value in that Guarantee Period, including
interest accrued thereon, will be allocated to a new Guarantee Period of the
same length unless Fortis Benefits has received a Written Request from the
Participant to allocate this amount to a different Guarantee Period or periods
or to one or more of the Subaccounts. We must receive this Written Request at
least three business days prior to the end of the Guarantee Period. The first
day of the new Guarantee Period (or other reallocation) will be the day after
the end of the prior Guarantee Period. We will notify the Participant at least
45 days and not more than 75 days prior to the end of any Guarantee Period.
We currently make available ten different Guarantee Periods, ranging 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 of
various lengths. These changes will not affect the Guaranteed Interest Rates
being paid on Guarantee Periods that have already commenced. Each allocation or
transfer of an amount to a Guarantee Period commences the running of a new
Guarantee Period with respect to that amount, which will earn a Guaranteed
Interest Rate that will continue unchanged until the end of that period. The
Guaranteed Interest Rate will never be less than an effective annual rate of 3%.
Fortis Benefits declares the Guaranteed Interest Rates from time to time as
market conditions dictate. Fortis Benefits advises a Participant of the
Guaranteed Interest Rate for a chosen Guarantee Period at the time a purchase
payment is received, a transfer is effectuated or a Guarantee Period is renewed.
Fortis Benefits has no specific formula for establishing the Guaranteed Interest
Rates for the Guarantee Periods. The rate may be influenced by, but not
necessarily correspond to, interest rates generally available on the types of
investments acquired with amounts allocated to the Guarantee Period. See
"Investments by Fortis Benefits." Fortis Benefits in determining Guaranteed
Interest Rates, may also consider, among other factors, the duration of a
Guarantee Period, regulatory and tax requirements, sales and administrative
expenses borne by Fortis Benefits, risks assumed by Fortis Benefits, Fortis
Benefits' profitability objectives, and general economic trends.
FORTIS BENEFITS' MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED
INTEREST RATES TO BE DECLARED. FORTIS BENEFITS CANNOT PREDICT OR ASSURE THE
LEVEL OF ANY FUTURE GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL
RATE OF 3%.
Information concerning the Guaranteed Interest Rates applicable to the various
Guarantee Periods at any time may be obtained from our Home Office or from your
sales representative.
MARKET VALUE ADJUSTMENT
For Certificates with allocations to the Guarantee Periods Fixed Account, if any
Fixed Account Value is surrendered, transferred or otherwise paid out before the
end of the Guarantee Period in which it is being held, a Market Value Adjustment
will be applied. However, NO Market Value Adjustment will be applied to amounts
that are paid out during the period beginning fifteen days before and ending
fifteen days after the end of a Guarantee Period in which it was being held.
This generally includes amounts that are paid out as a death benefit pursuant to
the Certificate, amounts applied to an annuity option, and amounts paid as a
single sum in lieu of an annuity.
The Market Value Adjustment may increase or decrease the amount of Fixed Account
Value being withdrawn or transferred. The comparison of two Guaranteed Interest
Rates determines whether the Market Value Adjustment produces an increase or a
decrease. The first rate to compare is the Guaranteed Interest Rate for the
amount being transferred or withdrawn. The second rate is the Guaranteed
Interest Rate then being offered for new Guarantee Periods of the same duration
as that remaining in the Guarantee Period from which the funds are being
withdrawn or transferred. If the first rate exceeds the second by more than
1/2%, the Market Value Adjustment produces an increase. If the first rate does
not exceed the second by at least 1/2%, the Market Value Adjustment produces a
decrease. Sample calculations are shown in Appendix A.
The Market Value Adjustment will be determined by multiplying the amount being
withdrawn or transferred from the Guarantee Period (before deduction of any
applicable surrender charge) by the following factor:
( 1 + I ) n / 12
----------- - 1
( 1 + J + .005 )
where,
- I is the Guaranteed Interest Rate being credited to the amount
being withdrawn from the existing Guarantee Period,
- J is the Guaranteed Interest Rate then being offered for new
Guarantee Periods with durations equal to the number of years remaining in
the existing Guarantee Period (rounded up to the next higher number of
years), and
-N is the number of months remaining in the existing
Guarantee Period (rounded up to the next higher number of months).
GENERAL ACCOUNT FIXED ACCOUNT
Accounts allocated to the General Account Fixed Account are held in the General
Account of Fortis Benefits. Because of exemptive and exclusionary provisions,
interests in the General Account Fixed Account have not been registered under
the Securities Act of 1933 and the General Account Fixed Account has not been
registered as an investment company under the Investment Company Act of 1940.
Accordingly, neither the General Account Fixed Account nor any interests therein
are subject to the provisions of these acts and, as a result, the staff of the
Securities and Exchange Commission has not reviewed the disclosures in the
Prospectus relating to the General Account Fixed Account. Disclosures regarding
the Fixed Account may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses. For Certificates with amounts
allocated to the General Account Fixed Account, this Prospectus is generally
intended to serve as a disclosure document only for the aspects of the
Certificate involving the Variable Account and contains only selected
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information regarding the General Account Fixed Account. More information
regarding the General Account Fixed Account may be obtained from Fortis
Benefits' Home Office or from your sales representative.
Fortis Benefits guarantees that Certificate Value in the General Account Fixed
Account will accrue interest at an effective annual rate of at least 3%,
independent of the actual investment experience of the General Account. We may,
at our sole discretion, credit higher rates of interest, although we are not
obligated to credit interest in excess of the guaranteed rate of 3% per year.
Any interest rate in excess of 3% per year with respect to any amount in the
General Account Fixed Account pursuant to a Certificate will not be modified
more than once each calendar year. Any higher rate of interest will be quoted at
an effective annual rate. The rate of any excess interest initially or
subsequently credited to any amount can in many cases vary, depending on when
that amount was originally allocated to the General Account Fixed Account. Once
credited, such interest will be guaranteed and will become part of Certificate
Value in the General Account Fixed Account from which deductions for fees and
charges may be made.
GENERAL ACCOUNT FIXED ACCOUNT TRANSFERS
Transfers out of the General Account Fixed Account have special limitations.
Prior to the Annuity Commencement Date, Participants may transfer part or all of
the Certificate Value from the General Account Fixed Account to the Variable
Account, provided that (1) no more than one such transfer is made each
Certificate year, (2) no more than 50% of the General Account Fixed Account
Value is transferred at any time (unless the balance in the General Account
Fixed Account after the transfer would be less than $1,000, in which case up to
the entire balance may be transferred), (3) at least $1,000 is transferred at
any one time (or, if less, the entire amount in the General Account Fixed
Account), and (4) you may not make a transfer into the General Account Fixed
Account within six months after a transfer out of such account. Irrespective of
the above, we may in our discretion permit a continuing request for transfer of
lesser specified amounts automatically on a periodic basis. However, we reserve
the right to discontinue or modify any such arrangements at our discretion. No
transfers from the General Account Fixed Account may be made after the Annuity
Commencement Date.
INVESTMENTS BY FORTIS BENEFITS
Our obligations with respect to the Guarantee Periods Fixed Account and the
General Account Fixed Account are legal obligations of Fortis Benefits and are
supported by our General Account assets, which also support obligations incurred
by us under other insurance and annuity contracts. Investments purchased with
amounts allocated to both Fixed Accounts are the property of Fortis Benefits and
Participants 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.
Amounts in the Fortis Benefits' General Account and the Fixed Account will be
invested 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 Fortis Benefits' investments. Investment management for amounts
in the General Account and in the Fixed Account is provided to Fortis Benefits
by Fortis Advisers, Inc.
Fortis Benefits intends to consider the return available on the instruments in
which it intends to invest amounts allocated to the Fixed Account when it
establishes Guaranteed Interest Rates. Such return is only one of many factors
considered in establishing the Guaranteed Interest Rates. See "Guarantee Periods
Fixed Account."
Fortis Benefits expects that amounts allocated to the Fixed Account generally
will be invested in debt instruments that approximately match Fortis Benefits'
liabilities with regard to the Guarantee Periods for Net Purchase Payments
allocated to Guarantee Periods Fixed Accounts and with regard to expected
holding periods for Net Purchase Payments allocated to the General Account Fixed
Account. Fortis Benefits expects that these will include primarily the following
types of debt instruments: (1) securities issued by the United States Government
or its agencies or instrumentalities, which securities may or may not be
guaranteed by the United States Government; (2) debt securities which have an
investment grade, at the time of purchase, within the four highest grades
assigned by Moody's Investors Services, Inc. ("Moody's") (Aaa, Aa, A or Baa),
Standard & Poor's Corporation ("Standard & Poor's") (AAA, AA, A or BBB), or any
other nationally recognized rating service; (3) other debt instruments
including, but not limited to, issues of or guaranteed by banks or bank holding
companies and corporations, which obligations although not rated by Moody's or
Standard & Poor's, are deemed by Fortis Benefits to have an investment quality
comparable to securities which may be purchased as stated above; and (4) other
evidences of indebtedness secured by mortgages or deeds of trust representing
liens upon real estate. Notwithstanding the foregoing, Fortis Benefits is not
obligated to invest amounts allocated to the Fixed Account according to any
particular strategy, except as may be required by applicable state insurance
laws and regulations. See "Regulation and Reserves."
FIXED ACCOUNT VALUE
The Certificate's Fixed Account Value on any Valuation Date is the sum of the
Net Purchase Payments allocated to the Fixed Account, plus any transfers from
the Variable Account, plus interest credited to the Fixed Account, less any
surrender charges or annual administrative charges allocated to the Fixed
Account or transfers to the Variable Account.
ACCUMULATION PERIOD
ISSUANCE OF A CERTIFICATE AND PURCHASE PAYMENTS
Fortis Benefits reserves the right to reject any application for a Certificate
or any purchase payment for any reason. If the issuing instructions can be
accepted in the form received, the initial purchase payment will be credited
within two Valuation Dates after the later of receipt of the issuing
instructions or receipt of the initial purchase payment at Fortis Benefits' Home
Office. If the initial purchase payment cannot be credited within five Valuation
Dates after receipt because the issuing instructions are incomplete, the initial
purchase
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payment will be returned unless the applicant consents to our retaining the
initial purchase payment and crediting it as of the end of the Valuation Period
in which the necessary requirements are fulfilled. The initial purchase payment
must be at least $5,000 ($2,000 for a Certificate issued pursuant to a qualified
plan).
The date that the initial purchase payment is applied to the purchase of the
Certificate is also the Certificate Issue Date. The Certificate Issue Date is
the date used to determine Certificate years, regardless of when the Certificate
is delivered. The crediting of investment experience in the Variable Account, or
a fixed rate of return in the Fixed Account, begins as of the Certificate Issue
Date.
The Participant may make additional purchase payments at any time after the
Certificate Issue Date and prior to the Annuity Commencement Date, as long as
the Annuitant is living. Purchase payments (together with any required
information identifying the proper Certificates and account to be credited with
purchase payments) must be transmitted to our Home Office. Additional purchase
payments are credited to the Certificate and added to the Certificate Value as
of the end of the Valuation Period in which they are received in good order.
Each additional purchase payment under a Certificate must be at least $500. The
total of all purchase payments for all Fortis Benefits annuities having the same
owner or participant, or annuitant, may not exceed $1 million (not more than
$500,000 allocated to the Fixed Account) without Fortis Benefits' prior
approval, and we reserve the right to modify this limitation at any time.
Purchase payments in excess of the initial minimum may be made by monthly draft
against the bank account of any Participant who has completed and returned to us
a special "Thrift-O-Matic" authorization form that may be obtained from your
sales representative or from our Home Office. Arrangements can also be made for
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 Certificate Value is less than $1,000, we may cancel the Certificate on
any Valuation Date. We will notify the Participant at least 90 days in advance
of our intention to cancel the Certificate. Such cancellation would be
considered a full surrender of the Certificate.
CERTIFICATE VALUE
Certificate Value is the total of any Variable Account Value in all the
Subaccounts of the Variable Account pursuant to the Certificate, plus any Fixed
Account Value.
There is no guaranteed minimum Variable Account Value. To the extent Certificate
Value is allocated to the Variable Account, you bear the entire investment risk.
DETERMINATION OF VARIABLE ACCOUNT VALUE. A Certificate's Variable Account Value
is based 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 Certificate'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 Net 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. If a Subaccount's net investment factor is greater than
one, the Subaccount's Accumulation Unit value has increased. If the net
investment factor is less than one, the Subaccount's Accumulation Unit value has
decreased. 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 Certificate, 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.
DETERMINATION OF FIXED ACCOUNT VALUE. A Certificate's Fixed Account Value is
guaranteed by Fortis Benefits. Therefore, Fortis Benefits bears the investment
risk with respect to amounts allocated to the Fixed Account, except to the
extent that (a) Fortis Benefits may vary the Guaranteed Interest Rate for future
Guarantee Periods for Guarantee Periods Fixed Accounts and the current interest
for General Account Fixed Accounts (subject to the 3% effective annual minimum)
and (b) the Market Value Adjustment for Guarantee Periods Fixed Accounts imposes
investment risks on the Participant.
The Certificate's Fixed Account Value on any Valuation Date is equal to the
following amounts, in each case increased by accrued interest:
- The amount of Net Purchase Payments or transferred amounts allocated to
the Fixed Account; less
- The amount of any transfers or surrenders out of the Fixed Account.
ALLOCATION OF PURCHASE PAYMENTS AND CERTIFICATE VALUE
ALLOCATION OF PURCHASE PAYMENTS. In the application for a Certificate, the
Participant can allocate Net Purchase Payments, or portions thereof, to the
available Subaccounts of the Variable Account or to the Fixed Account (and to
Guarantee Periods within the Fixed Account for Certificates issued in states
where the Guarantee Periods Fixed Account is offered), or a combination thereof.
Percentages must be in
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whole numbers and the total allocation must equal 100%. The percentage
allocations for future Net 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 Net Purchase Payments will be effective on the date
we receive the Participant's Written Request.
TRANSFERS. Transfers of Certificate Value from one available Subaccount to
another or into the Fixed Account, or from the Fixed Account to one of the
available Subaccounts, or in the case of a Guarantee Periods Fixed Account
transfers from one Guarantee Period to another Guarantee Period, can be made by
the Participant in Written Request to Fortis Benefits' Home Office, or by
telephone transfer as described below. There is currently no charge for any
transfer, although transfers from a Guarantee Period of a Guarantee Period Fixed
Account that are more than 15 days before or after the expiration thereof are
subject to a Market Value Adjustment. See "Market Value Adjustment." Transfers
of Certificate Value from the General Account Fixed Account are restricted in
both amount and timing. See "Fixed Account -- General Account Fixed Account --
General Account Fixed Account Transfers."
The minimum transfer from a Subaccount or Guarantee Period is the lesser of
$1,000 or all of the Certificate Value in the Subaccount or Fixed Account.
Irrespective of the above we may permit a continuing request for transfers of
lesser specified amounts automatically on a periodic basis. However, we reserve
the right to restrict the frequency of or otherwise condition, terminate or
impose charges (not to exceed $25 per transfer) upon transfers. We will count
all transfers between and among the Subaccounts of the Variable Account and the
Fixed Account as one transfer, if all the transfer requests are made at the same
time as part of one request. We will execute the transfers and determine all
values in connection with transfers as of the end of the Valuation Period in
which we receive the transfer request. The amount of any positive or negative
Market Value Adjustment associated with a transfer from a Guarantee Period of
the Guarantee Periods Fixed Account, respectively, will be added to or deducted
from the transferred amount.
If you complete and return the telephone transfer section of the application,
transfers may be made pursuant to telephone instructions. We will honor
telephone transfer instructions from any person who provides the correct
identifying information. Fortis Benefits will not be responsible for, and you
will bear the risk of loss from, oral instructions, including fraudulent
instructions, which are reasonably believed to be genuine. We will employ
reasonable procedures to confirm that telephone instructions are genuine, but if
such procedures are not deemed reasonable, we may be liable for any losses due
to unauthorized or fraudulent instructions. Our procedures are to verify address
and social security number, tape record the telephone call, and provide written
confirmation of the transaction. We may modify or terminate our telephone
transfer procedures at any time. The number for telephone transfers is
1-800-827-5877.
Certain restrictions on very substantial investments in any one Subaccount are
set forth under "Limitations on Allocations" in the Statement of Additional
Information.
TOTAL AND PARTIAL SURRENDERS
TOTAL SURRENDERS. The Participant may surrender all of the Cash Surrender Value
at any time during the life of the Annuitant and prior to the Annuity
Commencement Date by a Written Request sent to Fortis Benefits' Home Office. We
reserve the right to require that the Certificate 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 Certificate Value at the
end of the Valuation Period during which the Written Request for the total
surrender is received by Fortis Benefits at its Home Office, plus or minus any
applicable Market Value Adjustment. See "Market Value Adjustment."
The written consent of all collateral assignees and irrevocable beneficiaries
must be obtained prior to any total surrender. Surrenders from the Variable
Account will generally be paid within seven days of the date of receipt by
Fortis Benefits' Home Office of the Written Request. Postponement of payments
may occur, however, in certain circumstances. See "Postponement of Payment."
The amount paid upon total surrender of the Cash Surrender Value (taking into
account any prior partial surrenders) may be more or less than the total Net
Purchase Payments made. After a surrender of the Cash Surrender Value or at any
time the Certificate Value is zero, all rights of the Participant, Annuitant, or
any other person will terminate.
PARTIAL SURRENDERS. At any time prior to the Annuity Commencement Date and
during the lifetime of the Annuitant, the Participant may surrender a portion of
the Fixed Account Value and/or the Variable Account Value by sending to Fortis
Benefits' Home Office a Written Request. We will not accept a partial surrender
request unless the net proceeds payable to you as a result of the request are at
least $1,000. If the total Certificate Value in both the Variable Account and
Fixed Account would be less than $1,000 after the partial surrender, Fortis
Benefits will surrender the entire Cash Surrender Value under the Certificate.
In order for a request to be processed, the Participant must specify from which
Subaccounts of the Variable Account or Guarantee Periods of the Fixed Account,
if applicable, a partial surrender should be made.
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. The amount payable to
the Participant will be reduced by any applicable negative Market Value
Adjustment, or increased by any positive Market Value Adjustment. The partial
surrender will be effective at the end of the Valuation Period in which Fortis
Benefits receives the Written Request for partial surrender at its Home Office.
Payments will generally be made within seven days of the effective date of such
request, although certain delays are permitted. See "Postponement of Payment."
The Internal Revenue Code provides that a penalty tax will be imposed on certain
premature surrenders. For a discussion of this and other tax implications of
total and partial surrenders, including withholding requirements, see "Federal
Tax Matters." Also, under tax deferred annuity Certificates pursuant to Section
403(b) of the Internal Revenue Code, no distributions of voluntary salary
reduction amounts will
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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.)
BENEFIT PAYABLE ON DEATH OF ANNUITANT OR PARTICIPANT
If the Annuitant or Participant dies prior to the Annuity Commencement Date, a
death benefit will be paid to the Beneficiary. If more than one Annuitant has
been named, the death benefit payable upon the death of an Annuitant will only
be paid upon the death of the last survivor of the persons so named. The death
benefit will equal the greater of:
(1) the sum of all Net Purchase Payments made less all prior surrenders and any
applicable prior negative Market Value Adjustments (in the case of a
Certificate having a Guarantee Periods Fixed Account), or
(2) the Certificate Value adjusted by any applicable Market Value Adjustment (in
the case of a Certificate having a Guarantee Periods Fixed Account), as of
the date used for valuing the death benefit.
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 (a) receive a single sum payment, which terminates the
Certificate, or (b) select an annuity option. If the Beneficiary selects an
annuity option, he or she will have all the rights and privileges of a payee
under the Certificate. 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: a copy of a certified death
certificate; a copy of a certified decree of a court of competent jurisdiction
as to the finding of death; or a written statement by a medical doctor who
attended the deceased at the time of death.
If the Participant dies before the Annuitant and before the Annuity Commencement
Date with respect to a Non-Qualified Certificate certain additional requirements
are mandated by the Internal Revenue Code, which are discussed below under
"Federal Tax Matters-- Required Distributions for Non-Qualified Certificates."
It is imperative that Written Notice of the death of the Participant be promptly
transmitted to Fortis Benefits at its Home Office, so that arrangements can be
made for distribution of the entire interest in the Certificate to the
Beneficiary in a manner that satisfies the Internal Revenue Code requirements.
Failure to satisfy these requirements may result in the Certificate not being
treated as an annuity contract for federal income tax purposes, which could have
adverse tax consequences.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
The Participant may specify an Annuity Commencement Date in the application. The
Annuity Commencement Date marks the beginning of the period during which an
Annuitant or other payee designated by the Participant receives annuity payments
under the Certificate. We reserve the right to not permit an Annuity
Commencement Date which is on or after the Annuitant's 75th birthday.
Depending on the type of retirement arrangement involved, amounts that are
distributed either too soon or too late may be subject to penalty taxes under
the Internal Revenue Code. See "Federal Tax Matters." You should consider this
carefully in selecting or changing an Annuity Commencement Date.
In order to advance or defer the Annuity Commencement Date, the Participant must
submit a Written Request during the Annuitant's lifetime. The request must be
received 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 the Written Request is received. There is no right to make any total
or partial surrender during the Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
If the Certificate Value at the end of the Valuation Period which contains the
Annuity Commencement Date is less than $1,000, we may pay the entire Certificate
Value, without the imposition of any charges other than the premium tax charge,
if applicable, in a single sum payment to the Annuitant or other payee chosen by
the Participant and cancel the Certificate.
Otherwise, Fortis Benefits will apply (1) the Fixed Account Value to provide a
Fixed Annuity Option and (2) the Variable Account Value in any Subaccount to
provide a Variable Annuity Option using the same Subaccount, unless the
Participant has notified us by Written Request to apply the Fixed Account Value
and Variable Account Value in different proportions. Any such Written Request
must be received by us at our Home Office at least 30 days before the Annuity
Commencement Date.
Annuity payments under a Fixed or Variable Annuity Option will be made on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If more than one person is named as an
Annuitant, the Participant 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). There is no right to make any total or partial surrender during
the Annuity Period.
The amount of each annuity payment will depend on the amount of Certificate
Value applied to an annuity option, the form of annuity selected and the age of
the Annuitant. Information concerning the relationship between the Annuitant's
sex and the amount of annuity payments, including special requirements in
connection with employee benefits plans, is set forth under "Calculations of
Annuity
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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 form
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
If a Subaccount on which a variable annuity payment is based has an average
effective net investment return higher than 3% per annum during the period
between two such annuity payments, the Annuity Unit Value will increase, and the
second payment will be higher than the first. Conversely, if the Subaccount's
average effective net investment return over the period between the annuity
payments is less than 3% per annum, 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, net of
the mortality and expense risk and administrative expense charges, which are
assessed at a nominal aggregate annual rate of .45%. 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. During the Annuity Period, the 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 described above under
"Allocation of Purchase Payments and Certificate Value Transfers." Transfers
from a Fixed Annuity Option are not permitted during the Annuity Period.
ANNUITY FORMS
The Participant may select an annuity form or change a previous selection by
Written Request, which must be received by us at least 30 days before the
Annuity Commencement Date. One annuity form may be selected, although as
discussed above, payments under that form may be received on a combination fixed
and variable basis. If no annuity form selection is in effect on the Annuity
Commencement Date, in most cases we automatically apply Option B (described
below), with payments guaranteed for 10 years. If the Certificate is issued
under certain retirement plans, however, federal pension law may require that
payments be made pursuant to Option D (described below), unless otherwise
elected. 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.
The following options are available for fixed annuity payments and for variable
annuity payments.
OPTION A, LIFE ANNUITY. Payments are made as of the first Valuation Date of each
monthly period during the Annuitant's life, starting with the Annuity
Commencement Date. No payments will be made after the Annuitant dies. It is
possible for the payee 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. Payments are made as of the first Valuation Date of each monthly period
starting on the Annuity Commencement Date. Payments will continue as long as the
Annuitant lives. If the Annuitant dies before all of the guaranteed payments
have been made, we will continue installments of the guaranteed payments to the
Beneficiary.
OPTION C, JOINT AND FULL SURVIVOR ANNUITY. Payments are made as of the first
Valuation Date of each monthly period starting with the Annuity Commencement
Date. Payments will continue as long as either the Annuitant or the joint
Annuitant is alive. Payments will stop when both the Annuitant and the joint
Annuitant have died. It is possible for the payee or payees under this option to
receive only one payment, if both Annuitants die before the second payment is
due.
OPTION D, JOINT AND ONE-HALF CONTINGENT SURVIVOR ANNUITY. Payments are made as
of the first Valuation Date of each monthly period starting with the Annuity
Commencement Date. Payments will continue as long as either the Annuitant or the
joint Annuitant is alive. If the Annuitant dies first, payments will continue to
the joint Annuitant at one-half the original amount. If the joint Annuitant dies
first, payments will continue to the Annuitant at the original full amount.
Payments will stop when both the Annuitant and the joint Annuitant have died. It
is possible for the payee or payees under this option to receive only one
payment if both Annuitants die before the second payment is due.
We also have other annuity forms available and information about them can be
obtained 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 Fortis Benefits, 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
Certificates are described under "Federal Tax Matters--Required Distributions
for Non-Qualified Certificates." Though the rules there described do not apply
to Certificates issued in connection with qualified plans, similar rules apply
to the plans themselves.
CHARGES AND DEDUCTIONS
PREMIUM TAXES
The states of South Dakota and Wyoming impose a premium tax upon the receipt of
a purchase payment. In these states, and in any other state or jurisdiction
where premium taxes or similar assessments are imposed upon the receipt of
purchase payments, Fortis Benefits will pay such taxes on behalf of the
Participant and then deduct a charge
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for these amounts from the Certificate Value upon the surrender, death of
annuitant or Participant, or annuitization of the Certificate. In jurisdictions
where premium taxes or similar assessments are imposed at the time annuity
payments begin, Fortis Benefits will deduct a charge for such amounts from the
Certificate Value at that time. In such jurisdictions, the charge will be
deducted on a pro-rata basis from the then-current Fixed Account Value and, by
redemption of Accumulation Units, the then-current Variable Account Value in
each Subaccount. Similarly, Fortis Benefits may deduct premium taxes from
Certificate Value when no deduction was made from purchase payments, but is
subsequently determined to be due. Conversely, Fortis Benefits will credit to
the Certificate Value the amount of any deductions for premium taxes or similar
assessments that are subsequently determined not to be owed.
Applicable premium tax rates depend upon the Participant's then-current place of
residence. Applicable rates are subject to change by legislation, administrative
interpretations or judicial acts.
CHARGES AGAINST THE VARIABLE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. We will assess each Subaccount of the
Variable Account with a daily charge for mortality and expense risk at a nominal
annual rate of .45% of the average daily net assets of the Variable Account
(consisting of approximately .30% for mortality risk and approximately .15% for
expense risk). This charge is assessed during both the Accumulation Period and
the Annuity Period. We guarantee not to increase this charge for the duration of
the Certificate.
The mortality risk borne by Fortis Benefits arises from its obligation to make
annuity payments (determined in accordance with the annuity tables and other
provisions contained in the Certificate) for the full life of all Annuitants
regardless of how long all Annuitants or any individual Annuitant might live. In
addition, Fortis Benefits bears a mortality risk in that it guarantees to pay a
death benefit upon the death of an Annuitant or Participant prior to the Annuity
Commencement Date.
The expense risk assumed is that actual expenses incurred in connection with
issuing and administering the Certificate will exceed the limits on
administrative charges set in the Certificate.
If the administrative charges and the mortality and expense risk charge are
insufficient to cover the expenses and costs assumed, the loss will be borne by
the Company. Conversely, if the amount deducted proves more than sufficient, the
excess will be profit to the Company. The Company expects a profit from the
mortality and expense risk charge.
ANNUAL ADMINISTRATIVE CHARGE
A $30 annual administrative charge is deducted each Certificate year from the
Certificate Value on each anniversary of the Certificate Issue Date. (This
charge will be lower to the extent legally required in some states.) This charge
is to help cover administrative costs such as those incurred in issuing
Certificates, establishing and maintaining the records relating to Certificates,
making regulatory filings and furnishing confirmation notices, voting materials
and other communications, providing computer, actuarial and accounting services,
and processing Certificate transactions. We do not anticipate any profit from
this charge. This charge will initially be waived during the Annuity Period,
although Fortis Benefits reserves the right to reinstitute it at any time.
The annual administrative charge will be deducted by redemption of Accumulation
Units from each Subaccount of the Variable Account and from the Fixed Account in
the same proportion as the then-current Certificate Value is then allocated
among those alternatives pursuant to the Certificate. If the Certificate is
totally surrendered, the full annual administrative charge will be deducted at
the time of surrender.
TAX CHARGE
We currently impose no charge for taxes payable by us in connection with the
Certificate, other than for premium taxes and similar assessments when
applicable. We reserve the right to impose a charge for any other taxes that may
become payable by us in the future in connection with the Certificates or the
Separate Account.
MISCELLANEOUS
Because the Variable Account invests in shares of the Portfolios, the net assets
of the Variable Account will reflect the investment advisory fees and certain
other expenses incurred by the Portfolios that are described in their
prospectuses.
GENERAL PROVISIONS
THE CERTIFICATES
The Certificate, copies of any applications, amendments, riders, or endorsements
attached to the Certificate and copies of any supplemental applications,
amendments, endorsements, or revised Certificate pages which are mailed to you
are the entire Certificate. Only an officer of Fortis Benefits can agree to
change or waive any provisions of a Certificate. Any change or waiver must be in
writing and signed by an officer of Fortis Benefits. The Certificates are
non-participating and do not share in dividends or earnings of Fortis Benefits.
POSTPONEMENT OF PAYMENT
Fortis Benefits 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. Fortis Benefits may also defer
payment of surrender proceeds payable out of the Fixed Account for a period of
up to 6 months.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the age or sex of the Annuitant has been misstated, any amount payable will
be that which the purchase payments paid would have purchased at the correct age
and sex. If we have made any overpayments because of incorrect information about
age or sex, or any other miscalculation, Fortis Benefits will deduct the
overpayment from the next payment or payments due. We add underpayments to the
next payment. The amount of any adjustment will be credited or charged with
interest at the effective annual rate of 3% per year.
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ASSIGNMENT
Rights and interests under a Qualified Certificate may be assigned only in
certain narrow circumstances referred to in the Certificate. Participants and
other payees may assign their rights and interests under Non-Qualified
Certificates, including their ownership rights.
We take no responsibility for the validity of any assignment. A change in
ownership rights must be made in writing and a copy must be sent to Fortis
Benefits' Home Office. The change will be effective on the date it was made,
although we are not bound by a change until the date we record it.
The rights under a Certificate are subject to any assignment of record at the
Home Office of Fortis Benefits. An assignment or pledge of a Certificate may
have adverse tax consequences. See below under "Federal Tax Matters."
BENEFICIARY
Before the Annuity Commencement Date and while the Annuitant is living, the
Participant may name or change a beneficiary or a contingent beneficiary by
sending a Written Request of the change to Fortis Benefits. Under certain
retirement programs, however, spousal consent may be required to name or change
a beneficiary, and the right to name a beneficiary other than the spouse may be
subject to applicable tax laws and regulations. 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.
In the event of the death of a Participant or Annuitant prior to the Annuity
Commencement date the Beneficiary will be determined as follows:
- If there is any surviving Participant, the surviving Participant will be
the Beneficiary (this overrides any other beneficiary designation).
- If there is no surviving Participant, the Beneficiary will be the
beneficiary designated by the Participant.
- If there is no surviving Participant and no surviving beneficiary who has
been designated by the Participant, then the estate of the last surviving
Participant will be the Beneficiary.
REPORTS
We will mail to the Participant (or to the person receiving payments during the
annuity period), at the last known address of record, any reports and
communications 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
Fortis Benefits reserves the right to make certain changes if, in its judgment,
they would best serve the interests of Participants and Annuitants or would be
appropriate in carrying out the purposes of the Certificates. Any changes will
be made only to the extent and in the manner permitted by applicable laws. Also,
when required by law, Fortis Benefits will obtain your approval of the changes
and approval from any appropriate regulatory authority. Such approval may not be
required in all cases, however. Examples of the changes Fortis Benefits may make
include:
- To operate the Variable Account in any form permitted under the Investment
Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any Subaccount to another Subaccount, or to one
or more separate accounts, or to the Fixed Account; or to add, combine or
remove Subaccounts in the Variable Account.
- To substitute, for the Portfolio shares held in any Subaccount, the shares
of another Portfolio or the shares of another investment company or any
other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the Certificate 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 Certificate in order
to conform with any action the above provisions permit Fortis Benefits to
take, including to change the way Fortis Benefits assesses charges, but
without increasing as to any then outstanding Certificate the aggregate
amount of the types of charges which Fortis Benefits has guaranteed.
DISTRIBUTION
The Certificates will be sold by individuals who, in addition to being licensed
by state insurance authorities to sell the Certificates of Fortis Benefits, are
also registered representatives of Fortis Investors, Inc. ("Fortis Investors"),
the principal underwriter of the Certificates or registered representatives of
other broker-dealer firms or representatives of Jack White & Company. Fortis
Investors and Jack White & Company are registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 as broker-dealers
and are members of the National Association of Securities Dealers, Inc.
As compensation for distributing the Certificates, Fortis Benefits pays Fortis
Investors .35% annually of Contract Values in the Fixed Account. Fortis
Investors pays a selling allowance not in excess of said .35% of purchase
payments to other broker-dealer firms who sell the Certificates.
Fortis Benefits did not pay any amount to Fortis Investors in 1995 associated
with distribution of the Certificates since no Certificates were sold in 1995
and prior years. 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.
See Note 11 to the Notes to Fortis Benefits' Financial Statements as to amounts
it has paid to Fortis, Inc. for various services.
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Fortis Investors is an indirect subsidiary of Fortis AMEV and Fortis AG and is
therefore 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 Certificates.
$ of interests in the Guarantee Periods Fixed Account and an indefinite
amount of interests in the Variable Account have been registered with the
Securities and Exchange Commission.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes, which in the opinion of Fortis Benefits are
currently in effect. These rules are based on laws, regulations and
interpretations which are subject to change at any time. This summary is not
comprehensive and is not intended 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 Certificate or related retirement plan.
NON-QUALIFIED CERTIFICATES
Section 72 of the Internal Revenue Code ("Code") governs the taxation of
annuities in general. Purchase payments made under Non-Qualified Certificates
are not excludible or deductible from the gross income of the Participant or any
other person. However, any increase in the accumulated value of a Non-Qualified
Certificate resulting from the investment performance of the Variable Account or
interest credited to the Fixed Account is generally not taxable to the
Participant or other payee until received by him or her, as surrender proceeds,
death benefit proceeds, or otherwise. The exception to this rule is that,
generally, Participants who are not natural persons are taxed annually on any
increase in the Certificate Value. However, this exception does not apply in all
cases, and you may wish to discuss this with your tax adviser.
The following discussion applies generally to Certificates owned by natural
persons.
In general, surrenders or partial withdrawals under Certificates are taxed as
ordinary income to the extent of the accumulated income or gain under the
Certificate. If a Participant assigns or pledges any part of the value of a
Certificate, the value so pledged or assigned is taxed to the Participant as
ordinary income to the same extent as a partial withdrawal.
With respect to annuity payment options, although the tax consequences may vary
depending on the option elected under the Certificate, until the investment in
the Certificate is recovered, generally only the portion of the annuity payment
that represents the amount by which the Certificate Value exceeds the
"investment in the Certificate" will be taxed. In general, a person's
"investment in the Certificate" is the aggregate amount of purchase payments
made by him or her. After an Annuitant's or other payee's "investment in the
Certificate" is recovered, 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 Certificate") is
determined by a formula which establishes the specific dollar amount of each
annuity payment that is not taxed. This dollar amount is determined by dividing
the "investment in the Certificate" by the total number of expected annuity
payments. For fixed annuity payments, in general, prior to recovery of the
"investment in the Certificate," there is no tax on the amount of each payment
which bears the same ratio to that payment as the "investment in the
Certificate" 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 Certificates and other annuity contracts issued by us or our
affiliates to the Participant within the same calendar year will be treated as
if they were a single Certificate.
There is a 10% penalty under the Code on the taxable portion of a "premature
distribution." Generally, an amount is a "premature distribution" unless the
distribution is (1) made on or after the Participant or other payee reaches age
59 1/2, (2) made to a Beneficiary on or after death of the Participant, (3) made
upon the disability of the Participant or other payee, or (4) part of a series
of substantially equal annuity payments for the life or life expectancy of the
Participant or the Participant and Beneficiary. Premature distributions may
result, for example, from an early Annuity Commencement Date, an early
surrender, partial surrender or assignment of a Certificate or the early death
of an Annuitant who is not also the Participant or other person receiving
annuity payments under the Certificate.
A transfer of ownership of a Certificate, or designation of an Annuitant or
other payee who is not also the Participant, may result in certain income or
gift tax consequences to the Participant that are beyond the scope of this
discussion. A Participant contemplating any transfer or assignment of a
Certificate should contact a competent tax adviser with respect to the potential
tax effects of such transaction.
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CERTIFICATES
In order that a Non-Qualified Certificate be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires (a) if any
person receiving annuity payments dies on or after the Annuity Commencement Date
but prior to the time the entire interest in the Certificate 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 (b) if any Participant dies prior to the Annuity
Commencement Date, the entire interest in the Certificate will be distributed
(1) within five years after the date of that person's death or (2) as annuity
payments which will begin within one year of that Participant's death and which
will be made over the life of the Participant's designated Beneficiary or over a
period not extending beyond the life expectancy of that Beneficiary. However, if
the Participant's designated Beneficiary is the surviving spouse of the
Participant, the Certificate may be continued with the surviving spouse deemed
to be the new Participant. Where the Participant or other person receiving
payments is not a natural person, the required distributions provided by Section
72(A) apply upon the death of the primary Annuitant.
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No regulations interpreting the requirements of Section 72(s) have yet been
issued (although proposed regulations have been issued interpreting similar
requirements for qualified plans). Fortis Benefits intends to review and modify
the Certificate if necessary to ensure that it complies with the requirements of
Section 72(s) when clarified by regulation or otherwise.
Generally, unless the Beneficiary elects otherwise, the above requirements will
be satisfied where the death occurs prior to the Annuity Commencement Date by
paying the death benefit in a single sum, subject to proof of the Participant'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, particularly where the annuitant dies and the annuitant is not the
Participant, the IRS may disregard the election for tax purposes and tax the
Beneficiary as if a single sum payment had been made.
QUALIFIED CERTIFICATES
The Certificates may be used with several types of tax-qualified plans. The tax
rules applicable to Participants, 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 retirement program recognized under the Code on
behalf of an individual are excludable from the individual's gross income for
tax purposes during the Accumulation Period. The portion, if any, of any
purchase payment made by or on behalf of an individual under a Certificate that
is not excluded from the individual's gross income for tax purposes during the
Accumulation Period constitutes the individual's "investment in the
Certificate." Aggregate deferrals under all plans at the employee's option may
be subject to limitations.
When annuity payments begin, the individual will receive back his or her
"investment in the Certificate" if any, as a tax-free return of capital. The
dollar amount of annuity payments received in any year in excess of such return
is taxable as ordinary income. When payments are received as an annuity, the
tax-free return of capital is treated as if received ratably over the entire
period of the annuity until fully recovered (as described above with respect to
Non-Qualified Certificates).
The Certificates are available in connection with the following types of
retirement plans: Section 403(b) annuity plans for employees of certain
tax-exempt organizations and public educational institutions; Section 401 or
403(a) qualified pension, profit-sharing or annuity plans; individual retirement
annuities ("IRAs") under Section 408(b); simplified employee pension plans
("SEPs") under Section 408(k); Section 457 unfunded deferred compensation plans
of public employers and 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 Certificates are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and with
respect to certain distributions from certain types of qualified retirement
plans, unless the proceeds are transferred directly from the qualified plan to
another qualified retirement plan. Moreover, special "backup withholding" rules
may require Fortis Benefits to disregard the recipient's election if the
recipient fails to supply Fortis Benefits with a "TIN" or taxpayer
identification number (social security number for individuals), or if the
Internal Revenue Service notifies Fortis Benefits that the TIN provided by the
recipient is incorrect.
PORTFOLIO DIVERSIFICATION
The United States Treasury Department has adopted regulations under Section
817(h) of the Code which set standards of diversification for the investments
underlying the Certificates, in order for the Certificates to be treated as
annuities. Fortis Benefits believes that these diversification standards will be
satisfied. Failure to do so would result in immediate taxation to Participants
or persons receiving annuity payments of all returns credited to Certificates,
except in the case of certain Qualified Certificates. Also, current regulations
do not provide guidance as to any circumstances in which control over allocation
of values among different investment alternatives may cause Participants or
persons receiving annuity payments to be treated as the owners of Variable
Account assets for tax purposes. Fortis Benefits reserves the right to amend the
Certificates 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 such standards were considered 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 from one of these types of
products into a Certificate pursuant to the special annuity contract exchange
form we provide for this purpose is not generally a taxable event under the
Code, and your investment in the Certificate will be the same as your investment
in the product you exchanged out of.
Because of the complexity of these and other tax aspects in connection with an
exchange, you should consult a tax adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403(B) PLANS
Section 403(b)(12) 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;
18
<PAGE>
(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, income attributable to elective contributions made after
December 31, 1988 may not be distributed in the case of hardship.
FURTHER INFORMATION ABOUT FORTIS BENEFITS
GENERAL
Fortis Benefits is engaged in the offer and sale of insurance products,
including fixed and variable life insurance policies, fixed and variable annuity
contracts, and group life, accident and health insurance policies. The Company
markets its products to small business and individuals through a national
network of independent agents, brokers, and financial institutions.
SELECTED FINANCIAL DATA
The following is a summary of certain financial data of Fortis Benefits. This
summary has been derived in part from, and should be read in conjunction with,
the financial statements of Fortis Benefits included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1994** 1993** 1992** 1991** 1990
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums and policy fees.............. $ 1,022,446 $ 955,053 $ 967,111 $ 439,348 $ 269,374
Net investment income................. 162,514 153,657 156,431 89,638 66,540
Realized investment gains (losses).... (28,815) 73,623 37,928 5,234 (3,827)
Other income.......................... 35,958 27,100 26,176 6,668 1,813
----------- ----------- ----------- ----------- -----------
TOTAL REVENUES...................... $ 1,192,103 $ 1,209,433 $ 1,187,646 $ 540,888 $ 333,900
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total benefits and expenses........... $ 1,157,651 $ 1,100,199 $ 1,111,530 $ 505,650 $ 314,451
Income tax expense.................... 11,595 31,090 25,660 12,776 9,665
Income before cumulative effect of
accounting changes*.................. 22,857 78,144 50,456 22,462 9,784
Net income............................ 22,857 81,707 50,456 22,462 9,784
BALANCE SHEET DATA
Total assets***....................... $ 4,043,914 $ 3,584,139 $ 2,867,999 $ 2,409,881 $ 922,858
Total liabilities..................... 3,569,717 3,052,231 2,460,445 2,056,255 810,580
Total shareholder's equity***......... 474,197 531,908 407,554 353,626 112,278
</TABLE>
- ------------------------
* Prior-year data has not been restated for the adoption of Statements 109 and
106 in 1993 (See Note 2 of the financial statements).
** Includes the group life and health business acquired from Mutual Benefit
Life Insurance in 1991 (See Note 3 of the financial statements).
*** The years ended December 31, 1994 and 1993, reflect the impact of the
adoption of Statement 115 (See Note 1 of the financial statements).
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 1994 COMPARED TO 1993
FINANCIAL CONDITION
Total assets rose to $4.0 billion from $3.6 billion in 1993. The increase was
due in a large part to the increase in the separate account assets from $975
million in 1993 to $1,213 million in 1994. Invested assets, excluding Separate
Accounts, increased from $2.3 billion at December 31, 1993 to $2.4 billion at
December 31, 1994. Fortis Benefits invests primarily in government and other
high-quality marketable fixed income securities with the objective of providing
reasonable returns while limiting liquidity and credit risk.
During 1994, the Company's mortgage loans on real estate increased nearly $100
million to $450 million. The Company has a high quality portfolio which has
experienced delinquency rates lower than the industry average. Mortgage loans
now represent approximately 19% of the Company's invested assets.
Policy reserves and liabilities increased from $3.0 billion at December 31, 1993
to $3.6 billion at December 31, 1994. Aggregate reserves for life insurance and
annuity contracts increased $200 million from $1.1 billion at December 31, 1993
to $1.3 billion at December 31, 1994. This increase in life reserves is the
result of continued strong sales of the Company's deferred income annuities and
accumulation in value of its interest sensitive products.
Reserves and claim liabilities for accident and health policies increased by $47
million to nearly $800 million at December 31, 1994. This increase reflects
growth in the number of claims and increased liability costs for existing
disabilitants as reflected in the Company's disability reserves. Medical
reserves grew more slowly primarily due improved experience in its fully insured
line while overall reserves increased due to volume growth.
Separate Account liabilities increased from $970 million at December 31, 1993 to
$1.2 billion at December 31, 1994. This increase is the result of new sales of
the Company's variable life and annuity products during 1994.
19
<PAGE>
RESULTS OF OPERATIONS
Total revenues were $1.2 billion in 1994. Deteriorating investment market
conditions in 1994 resulting from higher interest rates increased the Company's
investment income $9 million to $163 million while generating capital losses on
securities sold of $29 million. Realized capital gains were $74 million in 1993.
Premiums and policy charges increased by $67 million to $1,022 million in 1994.
Traditional and group life insurance premiums increased by 11% during 1994 to
$208 million. The Company has experienced strong sales of life products due to
competitive pricing and marketing emphasis.
Interest sensitive and investment product policy charges, which consist
primarily of cost of insurance charges on interest sensitive insurance policies,
increased 31% to $38 million in 1994 due to continued growth in these products.
Disability insurance accounted for approximately 20% of the Company's group
insurance revenues. The Company is one of the leading writers of group
disability coverages in the United States. This market has been intensely
competitive. The Company's strategy has been to emphasize its claim management
activities and refine its pricing to better reflect the risks of various
industries and occupations.
Medical premium growth has slowed over the past several years. The Company's
response has been to heavily emphasize its managed care products and focus on
the sale of partially self-funded coverages to larger employers. Accident and
health premiums increased in 1994 to $777 million from $738 million in 1993 as a
result of more aggressive pricing aided by less uncertainty in the market place.
Benefits and expenses increased by $58 million in 1994 to $1,158 million.
Traditional life, interest sensitive and investment products' claims and
benefits increased by $20 million to $217 million in 1994 reflecting increased
inforce group coverages and inforce block of interest sensitive and investment
products.
Accident and health benefits increased to $620 million in 1994 from $598 million
in 1993. The experience on the Company's medical products has improved in 1994
due to less uncertainty in the marketplace.
Amortization of deferred policy acquisition costs decreased slightly to $35
million in 1994 from $36 million in 1993. The majority of this, $23 million in
1994 and $24 million in 1993, is amortization relating to the block of business
acquired from Mutual Benefit Life in 1991.
Insurance commissions, net of deferrals, increased to $86 million from $77
million in 1993. The Company deferred $52 million of commissions in 1994
compared to $44 million in 1993. This additional deferral resulted from an
increase in sales of interest sensitive and investment products. General and
administrative expenses increased 6% to $197 million in 1994 from $186 million
in 1993 consistent with revenue growth from insurance operations.
Net income before Federal income tax expense totaled $34 million in 1994
compared to $109 million in 1993. Income exclusive of investment income and
realized capital gains and losses improved by $19 million in 1994. Federal
income taxes were $12 million in 1994 compared to $31 million in 1993. The
decrease in taxes was due primarily to tax credits resulting from capital losses
in 1994 versus tax expense related to capital gains in 1993.
1993 COMPARED TO 1992
Total revenues increased to $1,209 million in 1993 compared with $1,188 million
in 1992.
Accident and health premiums decreased to $738 million in 1993 from $752 million
in 1992. Growth of medical premiums has slowed over the past several years,
reflecting heavy lapses and low sales due to the continuing uncertainty
surrounding national healthcare reform. The company has attempted to cope with
this situation by heavily emphasizing its managed care products and focusing on
the sale of partially self-funded coverages to larger employers.
Disability insurance accounted for approximately 20% of the company's group
insurance revenues. The company is one of the leading writers of group
disability coverages in the United States. This market has been intensely
competitive since many carriers view the disability market as an attractive
alternative to medical insurance. The profitability of the business has been
adversely impacted by the low interest environment and relatively high
unemployment. The Company's strategy has been to emphasize its claim management
activities and refine its pricing to better reflect the risks of various
industries and occupations.
Traditional life insurance premiums decreased approximately 2% during 1993 to
$188 million. Most of this decrease resulted from the termination of one large
group insurance case. This was partially offset by strong sales of group life
insurance throughout the year.
Interest sensitive and investment product policy charges, which consist
primarily of cost of insurance administrative charges on these policies, were
$28.8 million in 1993. This was a 22% increase from 1992. This increase was due
to continued growth of these products.
Also contributing to increased revenues are capital gains of $73.6 million in
1993 compared to $37.9 million in 1992. The additional capital gains are the
result of more favorable market conditions throughout 1993 as the Company
maintained a normal level of investment activity.
Accident and health benefits increased slightly to $598 million in 1993 from
$592 million in 1992. The experience on the Company's medical products has
deteriorated slightly due to the uncertainty in the marketplace, but is
consistent with management's expectations.
Traditional life insurance benefits decreased by $5 million to $146 million in
1993. This decrease reflects the terminated case mentioned above and generally
improved mortality experience.
Interest sensitive and investment products benefits and claims increased to
$50.9 million in 1993 from $46.5 million in 1992. This increase was due to a
larger inforce block of interest sensitive and investment products in 1993
compared to 1992.
20
<PAGE>
Amortization of deferred policy acquisition costs was down slightly to $36.5
million in 1993 from $37.0 million in 1992. The majority of this, $23.6 million
in 1993 and $24.4 million in 1992, is amortization relating to the block of
business acquired from Mutual Benefit Life in 1991.
Insurance commissions decreased to $76.8 million from $80.3 million in 1992 due
primarily to lower accident and health and traditional life premiums. Total
incurred commissions actually increased approximately 10% from 1992 to 1993;
however, the Company deferred $44 million of these commissions in 1993 compared
with $30 million in 1992. This additional deferral resulted from a 43% increase
in sales of interest sensitive and investment products.
General and administrative expenses decreased to $186 million in 1993 from $199
million in 1992. This 7% decrease is due to continued expense reduction programs
throughout the Company.
Net income before federal income tax expense totaled $109 million in 1993
compared with $76 million in 1992. Federal income taxes were $31.1 million in
1993 compared to $25.7 million in 1992. This increase was primarily due to
additional income from operations. However, the effective tax rate actually
decreased due to the favorable settlement of prior year's tax audit.
The Company also recognized the cumulative effect of implementing two new
financial accounting standards: FASB Statement No. 109 "Accounting for Income
Taxes" and FASB Statement No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions". The combined effect of adopting these two
statements was to increase net income $3.6 million.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the company have been met by funds provided from
operations and investment activity.
The primary uses of funds are to provide policy benefits and reserves, operating
expenses, commissions, and to purchase new investments. The company expects its
investments and operating activities to continue to generate sufficient funds
for these purposes.
The National Association of Insurance Commissioners (NAIC) 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 the Company's actual total adjusted capital. The computation
involves applying factors to various financial data to address four primary
risks: asset default, adverse insurance experience, interest rate risk and
external events. These standards provide for regulatory intervention when the
percentage of total adjusted capital to authorized control level risk-based
capital is below certain levels. Based on current calculations of the risk-based
capital standards, the Company's percentage to total adjusted capital is well in
excess of ratios which would require regulatory attention.
Fortis Benefits has no long or short term debt. Less than 2% of the Company's
assets consisted of non-investment grade bonds as of December 31, 1994 and the
Company does not expect this percentage to increase significantly in future
years. The company received additional contributed capital of $13 million in
1994 from its parent company. Total shareholder's equity was $474 million as of
December 31, 1994 compared to $532 million as of December 31, 1993.
COMPETITION
Fortis Benefits seeks to compete primarily on the basis of customer service,
product design, and, in the case of products funded through Series Fund, the
investment results achieved by Fortis Advisers, Inc. 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. Best's Insurance Reports, Life-Health Edition, 1994 assigned Fortis
Benefits one of its highest ratings, A+ (Superior), as of December 31, 1993, for
financial position and operating performance.
Fortis Benefits has a rating of AA from Standard & Poor's. As defined by
Standard & Poor's, insurers rated AA offer "excellent financial security."
These ratings represent such rating agency's independent opinion of Fortis
Benefit's financial strength and ability to meet its policyholder obligations,
but have no relevance to the performance or quality of the assets in the
Variable Account.
REGULATION AND RESERVES
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
21
<PAGE>
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, including the Certificates, if Fortis Benefits were to incur claims
or expenses at rates significantly higher than expected (due, for example, to
acquired immune deficiency syndrome or other infectious diseases or
catastrophes) or significant unexpected losses on its investments.
EMPLOYEES AND FACILITIES
Fortis Benefits has approximately 2,300 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.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth is information concerning the Company's directors and executive
officers, to the extent responsible for its variable annuity operations,
together with their business experience and principal occupations for the past
five years:
<TABLE>
<S> <C>
OFFICER-DIRECTORS
Dean C. Kopperud, 43 President--Fortis Financial Group; also officer of affiliated companies; before
Director since 1995 then Senior Vice President of Integrated Resources, Inc.
Robert Brian Pollock, 41 President and Chief Executive Officer; before then Senior Vice President--Life and
Director Since 1988 Disability.
Thomas Michael Keller, 48 Executive Vice President; before then Senior Vice President of Fortis, Inc.
Director since 1990
OTHER DIRECTORS
Allen Royal Freedman, 56 Chairman and Chief Executive Officer of Fortis, Inc.
Chairman of the Board since
1995
Henry Carroll Mackin, 54 Executive Vice President of Fortis, Inc.
Director Since 1990
Arie Aristide Fakkert, 52 Assistant General Manager of Fortis International N.V.
Director Since 1987
EXECUTIVE OFFICERS
Rhonda Schwartz, 31 Senior Vice President and General Counsel--Life and Investment Products; before
then Secretary and General Counsel of Fortis, Inc.; before then Norris, McLaughlin
& Marcus--attorneys.
Larry A. Medin, 46 Senior Vice President--Sales; before then Senior Vice President--Western
Divisional Officer, Colonial Group, Inc.
Michael John Peninger, 41 Senior Vice President and Chief Financial Officer
Jon H. Nicholson, 46 Vice President--Annuities.
Anthony J. Rotondi Senior Vice President--Life Operations.
</TABLE>
Fortis Benefits' officers serve at the pleasure of the board of directors, and
members of the board serve without compensation (except for expenses of
attending board meetings), until their successors are duly elected and
qualified.
Mr. Freedman is a director of Systems and Computer Technology Corporation. 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.
22
<PAGE>
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
--------------------------------------- ----------------------------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION PAYOUTS COMPENSATION (1)
- --------------------------------------------- --------- --------- --------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Pollock 1994 $ 200,000 $ 84,000 $ 0 $ 0 $ 14,150
President and Chief Executive Officer 1993 140,908 60,000 0 40,907 11,328
1992 139,250 46,800 0 39,243 11,057
- -------------------------------------------------------------------------------------------------------------------------------
James R. Faust 1994 200,000 37,150 0 51,236 12,346
Executive Vice President-- 1993 189,785 102,100 0 0 14,150
Marketing and Sales 1992 190,423 54,100 0 0 13,732
- -------------------------------------------------------------------------------------------------------------------------------
Anthony J. Rotondi 1994 150,000 54,375 0 0 12,866
Sr. Vice President--Life Insurance Operations 1993 142,000 43,400 0 0 11,816
1992 140,500 54,941 0 0 11,790
- -------------------------------------------------------------------------------------------------------------------------------
William D. Greiter 1994 144,000 36,750 0 0 10,834
Senior Vice President 1993 138,000 105,570 0 61,063 8,994
1992 56,057 40,400 0 53,585 5,787
- -------------------------------------------------------------------------------------------------------------------------------
Michael John Peninger 1994 135,000 39,150 0 0 10,116
Senior Vice President and 1993 125,487 33,594 0 25,708 8,994
Chief Financial Officer 1992 110,846 33,500 0 22,045 8,661
</TABLE>
- ------------------------
(1) This column includes contributions made by Fortis Benefits for the year for
the benefit for the named individual to a defined contribution retirement
plan.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
(LONG-TERM INCENTIVE PLAN (1) AWARDS IN LAST FISCAL YEAR)
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF OTHER PERIOD UNTIL NON-STOCK PRICE BASED PLANS
SHARES, UNITS OR MATURATION OR -----------------------------------
NAME OTHER RIGHTS PAYOUT THRESHOLD TARGET MAXIMUM
- ------------------------------------------------- ---------------- ------------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Robert B. Pollock................................ 252 Units 3 years 0 Units 252 Units 756 Units
James R. Faust................................... 277 Units 3 years 0 Units 277 Units 831 Units
Anthony J. Rotondi............................... 286 Units 3 years 0 Units 286 Units 858 Units
William D. Greiter............................... 247 Units 3 years 0 Units 247 Units 741 Units
Michael John Peninger............................ 133 Units 3 years 0 Units 133 Units 399 Units
</TABLE>
- ------------------------
(1) Units shown in this table represent performance units granted pursuant to an
Executive Incentive Compensation Plan in which officers and managers of
Fortis Benefits participate. Awards are made pursuant to this plan based on
the employee's position with Fortis Benefits and salary level and the extent
to which the employee and Fortis Benefits meet certain performance
objectives over 1- and 3-year periods. Employees may elect to defer awards
payable to them under this plan.
As additional compensation to its employees and executive officers, Fortis
Benefits has an Employees' Uniform Retirement Plan which generally provides 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, multiplied by the
employee's years of credited services. Estimated annual benefits upon retirement
under the Employees' Uniform Retirement Plan for those individuals named in the
tables set forth above, based on current compensation levels, are $26,226, $0,
$45,745, $16,809 and $15,422, respectively.
In addition, Fortis Benefits provides an unfunded Supplemental Executive
Retirement Plan for certain executives of Fortis Benefits. None of
23
<PAGE>
the named executives are currently covered by the Plan, but Mr. Pollock became
eligible to participate in the Plan on January 1, 1995. 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 consists of regular compensation and the annual target
incentive bonus of the participant.
The following table illustrates the COMBINED estimated life annuity benefit
payable from the Employees' Uniform Retirement Plan and the Supplemental
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>
$200,000.................................................. $ 36,548 $ 61,548 $ 86,548 $ 86,548 $ 86,548 $ 86,548
225,000.................................................. 42,798 70,923 99,048 99,048 99,048 99,048
250,000.................................................. 49,048 80,298 111,548 111,548 111,548 111,548
275,000.................................................. 55,298 89,673 124,048 124,048 124,048 124,048
300,000.................................................. 61,548 99,048 136,548 136,548 136,548 136,548
325,000.................................................. 67,798 108,423 149,048 149,048 149,048 149,048
350,000.................................................. 74,048 117,798 161,548 161,548 161,548 161,548
</TABLE>
- ------------------------
*The information above includes benefits paid under the Employees' Uniform
Retirement Plan and the Supplemental Executive Retirement Plan for executive
officers who participate in the Supplemental Retirement Plan, but excludes
social security benefits.
OWNERSHIP OF SECURITIES
All of Fortis Benefits' outstanding shares are owned by Time Insurance Company,
515 West Wells, Milwaukee, Wisc. 53201, which is itself wholly owned by Fortis,
Inc., One World Trade Center, Suite 5001, New York, N.Y. 10048. 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 AMEV and 50% owned, through certain subsidiaries, by Fortis AG,
Boulevard Emile Jacqmain 53, 1000 Brussels, Belgium.
VOTING PRIVILEGES
In accordance with its view of current applicable law, Fortis Benefits will vote
shares of each of the Portfolios which are attributable to a Certificate at
regular and special meetings of the shareholders of Series Fund in proportion to
instructions received from the persons having the voting interest in the
Certificate as of the record date for the corresponding Series Fund shareholders
meeting. Participants have the voting interest during the Accumulation Period,
persons receiving annuity payments during the Annuity Period, and Beneficiaries
after the death of the Annuitant or Participant. However, if the Investment
Company Act of 1940 or any rules thereunder should be amended or if the present
interpretation thereof should change, and as a result Fortis Benefits determines
that it is permitted to vote shares of the Portfolios in its own right, it may
elect to do so.
During the Accumulation Period, the number of shares of a Portfolio attributable
to a Certificate is determined by dividing the amount of Certificate Value in
the corresponding Subaccount pursuant to the Certificate as of the record date
for the shareholders meeting by the net asset value of one Portfolio share as of
that date. During the Annuity Period, or after the death of the Annuitant or
Participant, the number of Portfolio shares deemed attributable to the
Certificate will be computed in a comparable manner, based on the liability for
future variable annuity payments allocable to that Subaccount under the
Certificate as of the record date. Such liability for future payments will be
calculated on the basis of the mortality assumptions and the assumed interest
rate used in determining the number of Annuity Units credited to the Certificate
and the applicable Annuity Unit value on the record date. During the Annuity
Period, the number of votes attributable to a Certificate will generally
decrease since funds set aside to make the annuity payments will decrease.
Fortis Benefits will vote shares for which it has received no timely
instructions, and any shares attributable to excess amounts Fortis Benefits has
accumulated in the related Subaccount, in proportion to the voting instructions
which it receives with respect to all Certificates and other variable annuity
contracts participating in a Portfolio. To the extent that Fortis Benefits or
any affiliated company holds any shares of a Portfolio, they will be voted in
the same proportion as instructions for that Portfolio that are received from
persons holding the voting interest with respect to all Fortis Benefits separate
accounts participating in that Portfolio. Shares held by separate accounts other
than the Variable Account will in general be voted in accordance with
instructions of participants in such other separate accounts. This diminishes
the relative voting influence of the Certificates.
Each person having a voting interest in a Subaccount of the Separate Account
will receive proxy material, reports and other materials relating to the
appropriate Portfolio. Pursuant to the procedures described above, these persons
may give instructions regarding the election of the Board of Directors of Series
Fund, ratification of the selection of its independent auditors, the approval of
the investment managers of a
24
<PAGE>
Portfolio, changes in fundamental investment policies of a Portfolio and all
other matters that are put to a vote by Series Fund shareholders.
LEGAL MATTERS
The legality of the Certificates described in this Prospectus has been passed
upon by David A. Peterson, Esquire, Assistant General Counsel with the law
department of Fortis Benefits. Messrs. Freedman, Levy, Kroll & Simonds,
Washington, D.C., have advised Fortis Benefits on certain federal securities law
matters.
OTHER INFORMATION
Registration Statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Certificates discussed in this Prospectus. Not all of the information set forth
in the Registration Statement, amendments and exhibits thereto has been included
in this Prospectus. Statements contained in this Prospectus concerning the
content of the Certificates and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
A Statement of Additional Information is available upon request. Its contents
are as follows:
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Fortis Benefits and the Variable Account....... 2
Calculation of Annuity Payments................ 2
Postponement of Payments....................... 3
Services....................................... 4
- Safekeeping of Variable Account Assets..... 4
- Experts.................................... 4
- Principal Underwriter...................... 4
Limitations on Allocations..................... 4
Change of Investment Adviser or Investment
Policy........................................ 4
Taxation Under Certain Retirement Plans........ 5
Withholding.................................... 9
Terms of Exemptive Relief in Connection With
Mortality and Expense Risk Charge............. 9
Variable Account Financial Statements.......... 10
APPENDIX A--Performance Information............ A-1
</TABLE>
FORTIS BENEFITS FINANCIAL STATEMENTS
The financial statements of Fortis Benefits that are included in this Prospectus
should be considered primarily as bearing on the ability of Fortis Benefits to
meet its obligations under the Certificates. The Certificates are not entitled
to participate in earnings, dividends or surplus of Fortis Benefits.
25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheets of Fortis Benefits Insurance
Company as of December 31, 1994 and 1993, and the related statements of income,
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company at December 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
In 1993, as discussed in Note 2 to the financial statements, the Company changed
its method of accounting for income taxes, postretirement benefits other than
pensions and certain investments in debt and equity securities.
Minneapolis, Minnesota
February 16, 1995
26
<PAGE>
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Investments--(Note 4)
Fixed maturities, at fair value (amortized cost 1994--$1,749,347, 1993--$1,630,393)..... $ 1,674,782 $ 1,706,702
Equity securities, at fair value (cost 1994--$59,010 1993--$56,126)..................... 64,552 65,905
Mortgage loans on real estate, less allowance for possible losses (1994--$7,429;
1993--$6,324).......................................................................... 452,547 355,515
Policy loans............................................................................ 49,221 47,009
Short-term investments.................................................................. 117,562 73,382
Real estate and other investments....................................................... 13,441 10,976
----------- -----------
2,372,105 2,259,489
Cash...................................................................................... 10,888 6,675
Receivables:
Uncollected premiums.................................................................... 40,667 33,910
Reinsurance recoverable on unpaid and paid losses....................................... 15,181 16,554
Due from affiliates..................................................................... 2,220 4,555
Other................................................................................... 12,593 3,720
----------- -----------
70,661 58,739
Accrued investment income................................................................. 38,584 32,591
Deferred policy acquisition costs--Note 5................................................. 232,198 196,483
Property and equipment at cost, less accumulated depreciation--Note 6..................... 56,939 53,540
Deferred federal income taxes--Note 8..................................................... 48,509 --
Other assets.............................................................................. 1,120 985
Assets held in separate accounts--Note 9.................................................. 1,212,910 975,637
----------- -----------
TOTAL ASSETS........................................................................ $ 4,043,914 $ 3,584,139
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
27
<PAGE>
BALANCE SHEETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
POLICY RESERVES, LIABILITIES, AND SHAREHOLDER'S EQUITY
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance............................................................ $ 375,257 $ 353,407
Interest sensitive and investment products............................................ 912,653 690,061
Accident and health................................................................... 798,293 752,047
----------- -----------
2,086,203 1,795,515
Unearned premiums....................................................................... 16,145 18,574
Other policy claims and benefits payable................................................ 169,864 158,705
Policyholder dividends payable.......................................................... 6,793 10,561
----------- -----------
2,279,005 1,983,355
Accrued expenses........................................................................ 45,905 45,035
Current income taxes payable............................................................ 4,352 1,069
Deferred federal income taxes--Note 8................................................... -- 4,229
Other liabilities....................................................................... 32,416 48,107
Liabilities related to separate accounts................................................ 1,208,039 970,436
----------- -----------
TOTAL POLICY RESERVES AND LIABILITIES..................................................... 3,569,717 3,052,231
SHAREHOLDER'S EQUITY--Notes 1, 10 and 12
Common stock, $5 par value, 1,000,000 shares authorized, issued and outstanding......... 5,000 5,000
Additional paid-in capital.............................................................. 358,000 345,000
Retained earnings....................................................................... 153,551 130,694
Unrealized gains (losses) on investments, net--Note 4................................... (42,908) 50,144
Unrealized gains on assets held in separate accounts net of deferred taxes of $298 in
1994
and $576 in 1993....................................................................... 554 1,070
----------- -----------
TOTAL SHAREHOLDER'S EQUITY.......................................................... 474,197 531,908
----------- -----------
TOTAL RESERVES, LIABILITIES, AND SHAREHOLDER'S EQUITY............................... $ 4,043,914 $ 3,584,139
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
28
<PAGE>
STATEMENTS OF INCOME
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES
Insurance operations
Traditional life insurance premiums........................................ $ 207,824 $ 187,863 $ 191,887
Interest sensitive and investment product policy charges................... 37,823 28,778 23,690
Accident and health premiums............................................... 776,799 738,412 751,534
------------ ------------ ------------
1,022,446 955,053 967,111
Net investment income--Note 4................................................ 162,514 153,657 156,431
Realized gains (losses) on investments--Note 4............................... (28,815) 73,623 37,928
Other income................................................................. 35,958 27,100 26,176
------------ ------------ ------------
TOTAL REVENUES........................................................... 1,192,103 1,209,433 1,187,646
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance................................................. 162,168 145,958 151,291
Interest sensitive and investment products................................. 55,026 50,935 46,490
Accident and health........................................................ 620,367 598,146 591,927
------------ ------------ ------------
837,561 795,039 789,708
Policyholder dividends....................................................... 1,986 5,855 5,061
Amortization of deferred policy acquisition costs--Note 5.................... 34,566 36,503 37,005
Insurance commissions........................................................ 86,111 76,816 80,275
General and administrative expenses.......................................... 197,427 185,986 199,481
------------ ------------ ------------
TOTAL BENEFITS AND EXPENSES.............................................. 1,157,651 1,100,199 1,111,530
------------ ------------ ------------
Income before federal income taxes and cumulative effect of accounting
changes....................................................................... 34,452 109,234 76,116
Federal income taxes--Note 8................................................... 11,595 31,090 25,660
------------ ------------ ------------
Income before cumulative effect of accounting changes.......................... 22,857 78,144 50,456
Cumulative effect of change in accounting for income taxes--Note 2........... -- 4,814 --
Cumulative effect of change in accounting for postretirement benefits other
than pensions, net of tax--Note 2........................................... -- (1,251) --
------------ ------------ ------------
NET INCOME............................................................... $ 22,857 $ 81,707 $ 50,456
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
29
<PAGE>
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
UNREALIZED GAINS ON
ADDITIONAL GAINS ASSETS HELD
COMMON PAID-IN RETAINED (LOSSES) ON IN SEPARATE
STOCK CAPITAL EARNINGS INVESTMENTS ACCOUNTS TOTAL
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1992......................... $ 5,000 $ 345,000 $ 2,178 $ 860 $ 588 $ 353,626
Net income...................................... -- -- 50,456 -- -- 50,456
Change in unrealized gains on investments,
net............................................ -- -- -- 3,403 -- 3,403
Change in unrealized gains on assets held in
separate account, net of deferred tax expense
of $36......................................... -- -- -- -- 69 69
----------- ----------- ----------- ----------- ----------- ---------
Balance December 31, 1992....................... 5,000 345,000 52,634 4,263 657 407,554
----------- ----------- ----------- ----------- ----------- ---------
Net income...................................... -- -- 81,707 -- -- 81,707
Dividends to shareholder........................ -- -- (4,000) -- -- (4,000)
Other........................................... -- -- 353 -- -- 353
Change in unrealized gains on investments,
net............................................ -- -- -- 2,099 -- 2,099
Change in unrealized gains on investments, net,
resulting from initial adoption of FASB 115
(Note 1)....................................... -- -- -- 43,782 -- 43,782
Change in unrealized gain on assets held in
separate account, net of deferred tax expense
of $238........................................ -- -- -- -- 413 413
----------- ----------- ----------- ----------- ----------- ---------
Balance December 31, 1993....................... 5,000 345,000 130,694 50,144 1,070 531,908
----------- ----------- ----------- ----------- ----------- ---------
Net income...................................... -- -- 22,857 -- -- 22,857
Additional paid-in capital...................... -- 13,000 -- -- -- 13,000
Change in unrealized losses on investments,
net............................................ -- -- -- (93,052) -- (93,052)
Change in unrealized loss on assets held in
separate account, net of deferred tax benefit
of $277........................................ -- -- -- -- (516) (516)
----------- ----------- ----------- ----------- ----------- ---------
Balance December 31, 1994....................... $ 5,000 $ 358,000 $ 153,551 $ (42,908) $ 554 $ 474,197
----------- ----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ----------- ---------
</TABLE>
See notes to financial statements.
30
<PAGE>
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................................. $ 22,857 $ 81,707 $ 50,456
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of accounting changes.................................. -- (3,563) --
Increase in future policy benefit reserves for traditional, interest
sensitive and accident and health policies.............................. 79,014 58,299 44,582
Increase (decrease) in other policy claims and benefits and policyholder
dividends payable....................................................... 10,075 (15,868) (8,318)
Decrease in deferred federal income taxes................................ (2,356) (9,776) (28,923)
Increase (decrease) in income taxes payable.............................. 3,283 (12,733) (3,218)
Amortization of policy acquisition costs................................. 34,566 36,503 37,005
Policy acquisition costs deferred........................................ (54,349) (45,841) (31,232)
Provision for mortgage loan losses....................................... 1,105 1,648 1,653
Provision for depreciation............................................... 12,267 9,399 7,506
Accrual of discount, net................................................. (914) 72 3,868
Change in uncollected premiums, accrued investment income, other
receivables, unearned premiums, accrued expenses and other
liabilities............................................................. (36,650) 5,751 1,135
Net realized (gains) losses on investments............................... 28,815 (73,623) (37,928)
Other.................................................................... (135) 164 289
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............................. 97,578 32,139 36,875
INVESTING ACTIVITIES
Purchase of fixed maturity investments..................................... (1,943,697) (2,337,842) (2,459,482)
Sales or maturities of fixed maturity investments.......................... 1,798,184 2,358,288 2,431,920
(Increase) decrease in short-term investments.............................. (44,266) 28,756 (76,226)
Purchase of other investments.............................................. (211,836) (201,601) (46,054)
Sales or maturities of other investments................................... 104,399 75,539 33,414
Purchase of property and equipment......................................... (16,164) (13,155) (27,370)
Purchase of group insurance business....................................... (6,644) (5,521) (8,685)
Other...................................................................... 500 49 12,241
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES.................................. (319,524) (95,487) (140,242)
------------ ------------ ------------
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received.................................................. 200,499 68,943 99,631
Surrenders and death benefits............................................ (19,207) (37,262) (23,371)
Interest credited to policyholders....................................... 31,867 30,024 27,958
Additional paid-in capital from shareholder................................ 13,000 -- --
Dividends paid to shareholder.............................................. -- (4,000) (8,000)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............................. 226,159 57,705 96,218
------------ ------------ ------------
INCREASE (DECREASE) IN CASH............................................ 4,213 (5,643) (7,149)
Cash at beginning of year.................................................. 6,675 12,318 19,467
------------ ------------ ------------
CASH AT END OF YEAR.................................................... $ 10,888 $ 6,675 $ 12,318
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF STATEMENT PRESENTATION
Fortis Benefits Insurance Company (the Company) is incorporated in Minnesota and
is an indirect wholly-owned subsidiary of Fortis, Inc. The financial statements
are presented in conformity with generally accepted accounting principles.
Certain amounts included in the 1993 and 1992 financial statements have been
reclassified to conform to the 1994 presentation.
RECOGNITION OF REVENUES, POLICY RESERVES AND LIABILITIES AND POLICY ACQUISITION
COSTS
The Company follows generally accepted accounting principles which differ in
certain respects from statutory accounting practices prescribed or permitted by
regulatory authorities. The more significant of these principles are:
Premiums for long-duration traditional life policies are recognized as
revenues when due over the premium-paying period. Liabilities for future
policy benefits and expenses 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 universal life 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 and
certain deferred policy initiation fees that are being recognized in income
over the term of the policies. 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 credit rates for
universal life and investment products ranged from 4% to 7.80% in 1994 and
4% to 7.75% in 1993.
Premiums for long-term disability, short-term traditional life, and accident
and health are recognized as revenues ratably over the contract period in
proportion to the risk insured. Liabilities for future disability income
policy benefits are based on the 1964 Commissioners Disability Table at 6
percent interest. Calculated reserves are modified based on the Company's
actual experience. Claims and benefits payable for reported and incurred but
not reported losses and related loss 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 earnings
currently.
For traditional life, interest sensitive and investment products in force at
inception, the Company recorded the present value of future profits as
deferred policy acquisition costs. For traditional life, such costs are
amortized in proportion to premium revenue over the estimated premium paying
period of the related policies. For interest sensitive and investment
products, such costs are amortized in relation to statutory profits. For
group life, accident and health, disability, and dental insurance business
acquired on October 1, 1991 (see Note 3), the Company recorded the present
value of future profits as deferred policy acquisition costs. These costs
are amortized in proportion to premium revenue over the estimated premium
paying period of the related policies and, if required, are expensed when
such costs are deemed not to be recoverable from future policy revenues,
including the related investment income.
For insurance products issued subsequent to December 31, 1984, 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 from
future profits, and amortized against income. The period of amortization
varies depending upon the product. For traditional life products, the policy
acquisition costs are deferred and amortized over the premium paying period
of the contracts. For interest sensitive and investment products, the policy
acquisition costs are deferred and amortized in relation to the present
value of estimated future gross profits.
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.
Prior to December 31, 1993, the Company classified fixed maturity investments as
available-for-sale recorded at the lower of amortized cost or market, computed
on a portfolio basis. Equity securities were carried at fair value. At December
31, 1993, all fixed maturity securities were classified as available-for-sale
and carried at fair value. The effect of adopting Statement 115 at December 31,
1993 was to increase the carrying amount of fixed maturities by $76,309,000,
policyholder dividends payable by $2,684,000, deferred income taxes by
$23,575,000 and shareholder's equity by $43,782,000 and to reduce the carrying
amount of deferred policy acquisition costs by $6,268,000. Beginning in 1994,
the classification of fixed maturity investments between available-for-sale or
held to maturity is made at the time of each purchase and, prospectively, that
classification is reevaluated as of each balance sheet date.
Changes in market values of available-for-sale securities, after deferred income
taxes and after adjustment for the amortization of deferred policy acquisition
costs, and participating policyholders' share of earnings are reported as
unrealized gains (losses) on investments directly in shareholder's equity and,
accordingly, have no effect on net income. The offsets to the unrealized
appreciation or depreciation represent valuation
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adjustments relating to amounts of additional deferred policy acquisition costs
or amortization of deferred policy acquisition costs and the additional
liabilities established for future policyholder benefits and participating
policyholders' share of the Company's earnings that would have been required as
a charge or credit to operations 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 unpaid balances, adjusted
for amortization of premium or discount, less allowance for possible losses. The
change in the allowance for possible losses is recorded with realized gains and
losses on investments. Policy loans are reported at unpaid balance.
Realized gains and losses on sales of investments, and declines in value judged
to be other-than-temporary, are recognized on the specific identification basis.
Investment income is recorded as earned.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. The
Company provides for depreciation principally on the straight line method over
the estimated useful lives of the related property.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
Financial Accounting Standards Board ("FASB") Statement 109, "Accounting for
Income Taxes". Deferred tax assets and liabilities are determined based on the
differences between the financial reporting and the tax bases and are measured
using the enacted tax rates.
SEPARATE ACCOUNTS
Assets and liabilities associated with separate accounts relate to premium and
annuity considerations for variable life and annuity products for which the
contractholder, rather than the Company, bears the investment risk. Separate
account assets are reported at fair value.
GUARANTY FUND ASSESSMENTS
The economy and other factors have caused an increase in the number of insurance
companies that are under regulatory supervision. This circumstance may result in
an increase in assessments by state guaranty funds, or voluntary payments by
solvent insurance companies, to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments can be partially recovered
through a reduction in future premium taxes in some states. The Company is not
able to reasonably estimate the impact of future assessments on its financial
position but does not believe that the impact will be material.
2. CHANGES IN ACCOUNTING PRINCIPLES
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Company adopted FASB Statement 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The Company elected
to immediately recognize the cumulative effect of this change in accounting for
postretirement benefits of $1,895,000 ($1,251,000 net of deferred income tax
benefit), which represents the accumulated postretirement benefit obligation
existing at January 1, 1993. Prior years' financial statements have not been
restated. The impact of Statement 106 on operating results for 1993 was not
material.
ACCOUNTING FOR INCOME TAXES
Effective January 1, 1993, the Company adopted FASB Statement 109, "Accounting
for Income Taxes." Statement 109 provides for a balance sheet approach in
determining deferred income tax assets and liabilities. The cumulative effect of
adopting Statement 109 increased the Company's deferred tax asset and net income
by approximately $4,814,000 in 1993. As permitted under Statement 109, prior
years' financial statements have not been restated.
ACCOUNTING AND REPORTING FOR REINSURANCE OF SHORT-DURATION AND LONG-DURATION
CONTRACTS
In 1993, the Company adopted FASB Statement 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts." Under Statement 113,
amounts paid or deemed to have been paid for reinsurance contracts are recorded
as reinsurance recoverables. The effect of adopting Statement 113 was to
increase both assets and liabilities by $15,752,000 at December 31, 1993.
ACCOUNTING FOR CERTAIN DEBT AND EQUITY SECURITIES
The Company adopted FASB Statement 115, "Accounting for Certain Debt and Equity
Securities", as of December 31, 1993. Under Statement 115, all fixed maturities
are classified as available-for-sale and carried at fair value, while equity
securities continue to be carried at fair value. Adoption of Statement 115 had
no effect on net income in 1993.
3. ACQUIRED BUSINESS
In October, 1991, the Company purchased certain assets and assumed certain
liabilities from The Mutual Benefit Life Insurance Company in Rehabilitation
(MBL). The seller transferred to the Company, the assets and liabilities
relating to the group life, accident and health, disability and
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
3. ACQUIRED BUSINESS (CONTINUED)
dental insurance business of MBL. The acquisition was accounted for as a
purchase. The Company purchased this business for $318,000,000. Per contractual
agreement, additional payments were paid to MBL based upon the persistency of
the long term disability portion of the business. Under terms of this agreement,
the Company paid $6,644,000, $5,521,000 and $8,685,000 in 1994, 1993, and 1992,
respectively. This additional purchase price was accounted for as deferred
policy acquisition costs. No additional payments will be made.
4. 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, 1994:
Fixed Income Securities:
Governments................................ $ 829,607 $ 1,129 $ 40,642 $ 790,094
Public utilities........................... 60,885 1,132 1,389 60,628
Industrial & miscellaneous................. 847,018 3,184 38,505 811,697
Other...................................... 11,837 764 238 12,363
------------ ------------ ------------ ------------
Total.................................... 1,749,347 6,209 80,774 1,674,782
Equity Securities............................ 59,010 9,896 4,354 64,552
------------ ------------ ------------ ------------
Total.................................... $ 1,808,357 $ 16,105 $ 85,128 $ 1,739,334
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
December 31, 1993:
Fixed Income Securities:
Governments................................ $ 323,629 $ 8,684 $ 2,642 $ 329,671
Public utilities........................... 108,444 9,583 -- 118,027
Industrial & miscellaneous................. 1,010,933 58,880 3,294 1,066,519
Other...................................... 187,387 5,338 240 192,485
------------ ------------ ------------ ------------
Total.................................... 1,630,393 82,485 6,176 1,706,702
Equity Securities.......................... 56,126 12,040 2,261 65,905
------------ ------------ ------------ ------------
Total.................................... $ 1,686,519 $ 94,525 $ 8,437 $ 1,772,607
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1994, by contractual maturity, are shown below (in
thousands). 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.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
------------ ------------
<S> <C> <C>
Due in one year or less............................................... $ 54,540 $ 54,333
Due after one year through five years................................. 407,103 393,734
Due after five years through ten years................................ 650,526 629,070
Due after ten years................................................... 637,178 597,645
------------ ------------
Total........................................................... $ 1,749,347 $ 1,674,782
------------ ------------
------------ ------------
</TABLE>
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the country. Approximately 34% of outstanding principal is
concentrated in the states of California, Florida and Texas at December 31, 1994
as compared to 38% at December 31, 1993. Loan commitments outstanding at
December 31, 1994 totalled $47,375,000.
In May 1993, FASB issued Statement 114, "Accounting by Creditors for Impairment
of a Loan", which becomes effective for fiscal years beginning after December
15, 1994, and which the Company will adopt in 1995. Statement 114 requires that
impaired loans are to be valued at the present value of expected future cash
flows discounted at the loan's effective interest rate, or, as a practical
expedient, at the loan's observable market price, or the fair market value of
the collateral if the loan is collateral dependent. The Company does not expect
the impact of adoption to be material to its financial position or operating
results.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities and mortgage loans on real estate carried at
$2,635,000 and $8,132 ,000, respectively, at December 31, 1994, and $2,470,000
and $8,132,000 respectively, at December 31, 1993 on deposit with various
governmental authorities as required by law.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
4. INVESTMENTS (CONTINUED)
NET UNREALIZED GAINS (LOSSES)
The adjusted net unrealized gains (losses) recorded in shareholder's equity (See
Note 1) were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Change in unrealized gains (losses) before adjustment for the
following items (for equity securities only in 1993 and 1992).... $(155,923) $ 3,979 $ 5,705
Capitalization (amortization) of deferred policy acquisition
costs......................................................... 9,288 -- --
Effect of initial adoption of FASB 115......................... -- 43,782 --
Participating policyholders' share of earnings................. 2,684 -- --
Deferred income taxes.......................................... 50,383 (1,467) (2,233)
--------- --------- ---------
Change in net unrealized gains (losses).......................... (93,568) 46,294 3,472
Net unrealized gains, beginning of the year...................... 51,214 4,920 1,448
--------- --------- ---------
Net unrealized gains (losses), end of year..................... $ (42,354) $ 51,214 $ 4,920
--------- --------- ---------
--------- --------- ---------
</TABLE>
The increase (decrease) in unrealized gains on fixed maturity investments was
$31,079,000 in 1993 and $(5,538,000) in 1992. The deferred tax expense (benefit)
would have been $10,878,000 in 1993 and $(1,883,000) in 1992.
NET INVESTMENT INCOME AND 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>
REALIZED GAINS (LOSSES) ON
NET INVESTMENT INCOME INVESTMENTS
------------------------------- -------------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities....................... $ 119,668 $ 120,844 $ 128,532 $ (27,854) $ 70,626 $ 38,864
Equity securities...................... 1,937 1,490 654 1,352 3,955 10
Mortgage loans on real estate.......... 36,816 28,370 25,205 (2,992) (1,805) (1,700)
Policy loans........................... 2,731 3,004 2,968 -- -- --
Short-term investments................. 4,671 4,282 3,152 (60) 1 4
Real estate & other investments........ 2,138 1,171 1,132 739 846 750
--------- --------- --------- --------- --------- ---------
Total.............................. 167,961 159,161 161,643 $ (28,815) $ 73,623 $ 37,928
--------- --------- ---------
--------- --------- ---------
Expenses............................... (5,447) (5,504) (5,212)
--------- --------- ---------
$ 162,514 $ 153,657 $ 156,431
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from sales of investments in fixed maturities were $1,798,185,000,
$335,230,000, and $2,425,212,000 in 1994, 1993, and 1992, respectively. Gross
gains of $16,618,000, $75,133,000 and $55,833,000 and gross losses of
$44,472,000, $4,507,000, and $16,969,000 were realized on the sales in 1994,
1993, and 1992, respectively. Fortis Benefits Insurance Company
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
5. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows (in
thousands):
<TABLE>
<CAPTION>
INTEREST
TRADITIONAL SENSITIVE AND ACCIDENT AND
LIFE INVESTMENT HEALTH TOTAL
----------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Balance January 1, 1993..................... $ 74,325 $ 59,212 $ 54,354 $ 187,891
Acquisition costs deferred:
Acquired business......................... -- -- 5,521 5,521
Other business............................ -- 45,841 -- 45,841
Acquisition costs amortized................. (12,851) (10,839) (12,812) (36,502)
Allowance for additional amortization from
unrealized gains on available-for-sale
securities................................. -- (6,268) -- (6,268)
----------- ------------- ------------- ---------
Balance December 31, 1993................... 61,474 87,946 47,063 196,483
Acquisition costs deferred:
Acquired business......................... -- -- 6,644 6,644
Other business............................ -- 54,349 -- 54,349
Acquisition costs amortized................. (11,564) (10,274) (12,728) (34,566)
Additional deferred acquisition costs from
unrealized losses on available-for-sale
securities................................. -- 9,288 -- 9,288
----------- ------------- ------------- ---------
Balance December 31, 1994................... $ 49,910 $ 141,309 $ 40,979 $ 232,198
----------- ------------- ------------- ---------
----------- ------------- ------------- ---------
</TABLE>
Included within total deferred policy acquisition costs at December 31, 1994 is
$68,194,000 of present value of future profits (PVP) resulting from acquisitions
accounted for as a purchase. The estimated amount of PVP to be amortized during
each of the next four years is as follows: 1995-- $21,444,000;
1996--$19,210,000; 1997--$17,262,000; 1998--$10,278,000.
During 1994, 1993, and 1992, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized capital (losses) gains resulted in (reduced) additional amortization of
acquisition costs deferred of $(935,000), $5,400,000, and $5,300,000,
respectively. In addition, the Company (reduced) recorded additional
policyholder dividends payable of $(761,000) in 1994 and $2,800,000 in 1993.
6. PROPERTY AND EQUIPMENT
A summary of property and equipment for each year follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Land...................................................................... $ 1,900 $ 1,900
Building and improvements................................................. 23,084 22,382
Furniture and equipment................................................... 68,017 55,896
--------- ---------
93,001 80,178
Less accumulated depreciation............................................. (36,062) (26,638)
--------- ---------
NET PROPERTY AND EQUIPMENT.............................................. $ 56,939 $ 53,540
--------- ---------
--------- ---------
</TABLE>
7. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity for the liability for unpaid accident and health claims and claims
adjustment expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables........ $ 806,538 $ 776,194 $ 755,849
Add: Incurred losses related to:
Current year.................................................. 656,052 612,621 645,008
Prior years................................................... (58,218) (41,619) (54,869)
--------- --------- ---------
Total incurred losses........................................... 597,834 571,002 590,139
--------- --------- ---------
Deduct: Paid losses related to:
Current year.................................................. 377,595 353,124 378,879
Prior years................................................... 187,967 187,534 190,915
--------- --------- ---------
Total paid losses............................................... 565,562 540,658 569,794
--------- --------- ---------
Balance as of December 31, net of reinsurance recoverables...... $ 838,810 $ 806,538 $ 776,194
--------- --------- ---------
--------- --------- ---------
</TABLE>
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
7. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (CONTINUED)
In 1994 and 1993, the accident/health business experienced overall favorable
development on claims reserves established as of the previous year end. The
favorable development was a result of lower medical costs due to less
uncertainty in the health business, a reduction of loss reserves which
considered historically high inflation in medical costs and, in 1994, a
refinement in the claims reserve estimates.
8. FEDERAL INCOME TAXES
The Company reports its taxable income in a consolidated federal income tax
return along with other affiliated subsidiaries of Fortis, Inc. 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.
The cumulative effect of adopting Statement 109 as of January 1, 1993 was to
increase net income for 1993 by $4,814,000. An increase in the tax rate from 34%
to 35% was effective in the third quarter of 1993 and resulted in a $305,000
increase in net income from the recalculation of the deferred liability account.
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial statement purposes and
for income tax purposes.
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserves................................................................ $ 42,715 $ 46,823
Separate account assets/liabilities..................................... 27,663 19,313
Unrealized losses....................................................... 22,806 --
Accrued liabilities..................................................... 14,565 12,142
Claims and benefits payable............................................. 1,976 1,860
Other................................................................... 1,393 1,268
--------- ---------
Total deferred tax assets............................................. 111,118 81,406
Deferred tax liabilities:
Unrealized gains........................................................ -- 27,577
Deferred policy acquisition costs....................................... 55,329 43,336
Investments............................................................. 1,194 9,949
Fixed assets............................................................ 6,086 4,585
Other................................................................... -- 188
--------- ---------
Total deferred tax liabilities........................................ 62,609 85,635
--------- ---------
Net deferred tax asset (liability).................................... $ 48,509 $ (4,229)
--------- ---------
--------- ---------
</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. Fortis Benefits Insurance Company
The components of the provision for deferred income taxes for the year ended
December 31, 1992 based on APB Opinion 11 are as follows (in thousands):
<TABLE>
<CAPTION>
1992
---------
<S> <C>
Amortization of present value of future profits................................... $ (4,709)
Deferred policy acquisition costs................................................. 2,898
Increase in policy reserves....................................................... (10,568)
Accrual of discount on investments................................................ 474
Purchase accounting adjustments................................................... (24,711)
Depreciation expense.............................................................. 1,323
Discounting of post-1986 unpaid losses and adjustment expenses.................... 660
Expenses accrued not currently deductible for tax................................. (4,369)
Other............................................................................. (1,648)
---------
Deferred income tax expense (benefit)........................................... $ (40,650)
---------
---------
</TABLE>
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
8. FEDERAL INCOME TAXES (CONTINUED)
The Company's tax expense before cumulative effect of accounting changes is
shown as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Current........................................................... $ 15,046 $ 35,747 $ 66,310
Deferred.......................................................... (3,451) (4,657) (40,650)
--------- --------- ---------
$ 11,595 $ 31,090 $ 25,660
--------- --------- ---------
--------- --------- ---------
</TABLE>
Tax payments were made of $18,080,000, $53,600,000, and $64,600,000 in 1994,
1993, and 1992, respectively. Tax refunds were received of $7,729,000 and
$17,130,493 in 1994 and 1992, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory income tax rate............................................... 35.0% 35.0% 34.0%
Tax audit provision..................................................... 0.8% (4.6)% --
Other, net.............................................................. (2.1)% (1.9)% (0.3)%
--- --- ---
33.7% 28.5% 33.7%
--- --- ---
--- --- ---
</TABLE>
9. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Premium and annuity considerations for the variable annuity products and
variable universal life product for which the contractholder rather
than the Company, bears the investment risk............................ $1,208,038 $ 970,436
Assets of the separate accounts owned by the Company, at fair value..... 4,872 5,201
--------- ---------
$1,212,910 $ 975,637
--------- ---------
--------- ---------
</TABLE>
10. STATUTORY ACCOUNTING PRACTICES
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
------------------------------- --------------------
1994 1993 1992 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices.............. $ 49,759 $ 46,605 $ 26,499 $ 304,231 $ 258,574
Deferred policy acquisition costs.................... 19,783 9,338 (5,772) 232,198 196,483
Investment valuation differences..................... 370 520 (17) (85,944) 65,716
Deferred and uncollected premiums.................... (14) 1,655 763 (8,393) (8,680)
Unearned premiums.................................... 1,126 7,035 (1,253) (13,008) (14,133)
Loading and equity in unearned premiums.............. 316 (179) (248) 85 82
Property and equipment............................... (204) (63) (20) 22,027 18,424
Policy reserves...................................... (26,655) (38,558) (19,606) (72,192) (45,547)
Current income taxes payable......................... -- 4,656 (1,609) (4,786) (4,786)
Deferred income taxes................................ 2,356 9,776 40,650 48,509 (4,229)
Realized gains (losses) on investments............... (1,052) 3,651 (781) -- --
Realized gains (losses) on investments transferred to
the Interest Maintenance Reserve (IMR), net of
tax................................................. (18,456) 40,459 23,266 -- --
Amortization of IMR, net of tax...................... (5,479) (3,777) (8,649) -- --
Interest maintenance reserve......................... -- -- -- 27,364 51,299
Asset valuation reserve.............................. -- -- -- 32,011 31,233
Cumulative effect of accounting changes.............. -- 3,563 -- -- --
Other, net........................................... 1,007 (2,974) (2,767) (7,905) (12,528)
--------- --------- --------- --------- ---------
$ 22,857 $ 81,707 $ 50,456 $ 474,197 $ 531,908
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
11. REINSURANCE
The maximum amount that the Company retains on any one life is $750,000 of life
insurance including accidental death. Amounts in excess of $750,000 are
reinsured with other life insurance companies on a yearly renewable term basis.
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
11. REINSURANCE (CONTINUED)
Ceded reinsurance premiums were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Life Insurance..................................................... $ 5,571 $ 4,366 $ 5,772
Accident & Health Insurance........................................ 36,782 37,088 46,508
--------- --------- ---------
$ 42,353 $ 41,454 $ 52,280
--------- --------- ---------
--------- --------- ---------
</TABLE>
Recoveries under reinsurance contracts were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Life Insurance..................................................... $ 1,650 $ 6,963 $ 5,669
Accident & Health Insurance........................................ 19,913 15,448 47,482
--------- --------- ---------
$ 21,563 $ 22,411 $ 53,151
--------- --------- ---------
--------- --------- ---------
</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
agreements. 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.
12. DIVIDEND RESTRICTIONS
Dividend distributions to parent are restricted as to amount by state regulatory
requirements. The Company had $41,595,000 free from such restrictions at
December 31, 1994. Distributions in excess of this amount would require
regulatory approval.
13. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company receives various services from Fortis, Inc. 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 the years ended December 31, 1994, 1993, and
1992, were $8,944,000, $8,595,000, and $8,239,000 respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $57,307,000, $27,931,000, and $19,898,000 in commissions to its affiliate,
Fortis Investors, Inc. for the years ended December 31, 1994, 1993, and 1992,
respectively.
14. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS
Investments are reported in the accompanying balance sheets on the following
basis:
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. Loans with similar
characteristics are aggregated for purposes of the calculations.
The fair values for the Company's policy reserves under investment products are
determined using cash surrender value.
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
14. FAIR VALUE DISCLOSURES (CONTINUED)
The fair values under all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk, such that the Company's
exposure to changing interest rates is minimized through the matching of
investment maturities with amounts due under insurance contracts.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
1994 1993
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities........................... $ 1,674,782 $ 1,674,782 $ 1,706,702 $ 1,706,702
Equity securities.......................... 64,552 64,552 65,905 65,905
Mortgage loans on real estate................ 452,547 434,503 355,515 367,746
Policy loans................................. 49,221 49,221 47,009 47,009
Short-term investments....................... 117,562 117,562 73,382 73,382
Cash......................................... 10,888 10,888 6,675 6,675
Assets held in separate accounts............. 1,212,910 1,212,910 975,637 975,637
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal).................... 692,196 657,454 480,900 456,300
</TABLE>
15. 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.
16. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company participates in the Fortis, Inc. noncontributory defined benefit
pension plan covering substantially all of its employees. Benefits are based on
years of service and the employee's compensation during such years of service.
Fortis, Inc. is not able to segregate Company specific benefit obligations or
plan assets. On an aggregate basis, the fair value of plan assets exceeded the
accumulated benefit obligations as of December 31, 1994.
The Company has a profit sharing plan covering substantially all employees which
provides benefits payable to participants on retirement or disability and to
beneficiaries of participants in event of the participant's death. Amounts
contributed to the plan and expensed by the Company were $3,536,000 and
$3,399,000 in 1994 and 1993, respectively.
40
<PAGE>
APPENDIX A--SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
The formula which will be used to determine the Market Value Adjustment is:
( 1 + I ) n/12
---------- - 1
( 1 + J + .005 )
Sample Calculation 1: Positive Adjustment
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing
Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for
new 5-year guarantee (J) 7%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment
1 + .08 60/12
$10,000 x ------------- - 1] = $234.73
[( 1 + .07 + .005 )
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $10,234.73
Sample Calculation 2: Negative Adjustment
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing
Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for
new 5-year guarantee (J) 9%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:
1 + .08 60/12
$10,000 x ------------- - 1] = - $666.42
[( 1 + .09 + .005 )
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $9,333.58
Sample Calculation 3: Negative Adjustment
<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>
1 + .08 60/12
$10,000 x --------------- - 1] = - $114.94
[( 1 + .0775 + .005 )
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $9,885.06
- ------------------------
*Assumed for illustrative purposes only.
A-1
<PAGE>
APPENDIX B--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 Alliance Money Market Portfolio is
calculated as follows:
<TABLE>
<S> <C> <C>
Total Variable Account Annual Expenses 0.45%
+ Total Portfolio Operating Expenses 0.95%
+ Annual Administrative Charges (see below) 0.12%
= Total Expense Rate 1.52%
</TABLE>
The Annual Administrative Charge rate is calculated by dividing the annual
contract charge by our expected average policy value for 1996.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = 1000.00 x 0.0152 = $15.20
Year 2 Beginning Policy Value = $1034.80
Year 2 Expense = 1029.60 x 0.0152 = $15.73
Year 3 Beginning Policy Value = $1070.81
Year 3 Expense = 1060.08 x 0.0152 = $16.28
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to:
$15.20 + $15.73 + $16.28 = $47.21
B-1
<PAGE>
APPENDIX C--PARTICIPATING FUNDS
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
The Alliance Variable Products Series Fund, Inc. is an open-ended series
investment company. It was incorporated under Maryland law on November 17, 1987.
Alliance Capital Management L.P. serves as the Fund's manager.
ALLIANCE MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE: Seeks safety of principal, maintenance of liquidity and
maximum current income by investing in a broadly diversified portfolio or money
market securities.
ALLIANCE INTERNATIONAL PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to obtain a total return on its assets from
long-term growth of capital and from income principally through a broad
portfolio of marketable securities of established non-United States companies
(or United States companies having their principal activities and interests
outside the United States), companies participating in foreign economies with
prospects for growth, and foreign government securities.
ALLIANCE PREMIER GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based upon their
potential for capital appreciation, current income will be incidental to the
objective of capital growth.
INSURANCE MANAGEMENT SERIES (FEDERATED)
Insurance Management Series is an open-end management investment company. It was
established as a Massachusetts business trust under a Declaration of Trust dated
September 15, 1993. Federated Advisers is the investment adviser.
EQUITY GROWTH AND INCOME FUND
INVESTMENT OBJECTIVE: To achieve long-term growth of capital and to provide
income.
UTILITY FUND
INVESTMENT OBJECTIVE: To achieve high current income and moderate capital
appreciation.
CORPORATE BOND FUND
INVESTMENT OBJECTIVE: To seek high current income.
LEXINGTON NATURAL RESOURCES TRUST
The Lexington Natural Resources Trust is an open-end management investment
company. It was organized as a Massachusetts business trust on October 7, 1988.
Lexington Management Corporation is the Investment Adviser of the fund.
INVESTMENT OBJECTIVE: To seek long-term growth of capital through investment
primarily in common stocks of companies that own or develop natural resources
and other basic commodities, or supply goods and services to such companies.
LEXINGTON EMERGING MARKETS FUND, INC.
The Lexington Emerging Markets Fund, Inc. is an open-end management investment
company. It was organized as a corporation under Maryland law on December 27,
1993. Lexington Management Corporation is the fund's investment adviser.
INVESTMENT OBJECTIVE: To seek long-term growth of capital primarily through
investment in equity securities of companies domiciled in, or doing business in,
emerging countries and emerging markets.
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MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST
MFS Variable Insurance Trust is an open-end management investment company. It
was organized as a business trust under the laws of the Commonwealth of
Massachusetts by a Declaration of Trust dated February 1, 1994. Massachusetts
Financial Services Company manages each series.
MFS EMERGING GROWTH SERIES
INVESTMENT OBJECTIVE: Seeks to provide long-term growth of capital. The series'
policy is to invest primarily in common stocks of small and medium-sized
companies that are early in their life cycle but which have the potential to
become major enterprises.
MFS HIGH INCOME SERIES
INVESTMENT OBJECTIVE: Seeks high current income by investing primarily in a
professionally managed portfolio of fixed income securities, some of which may
involve equity features.
MFS WORLD GOVERNMENTS SERIES
INVESTMENT OBJECTIVE: Seeks preservation and growth of capital, together with
moderate current income. The series attempts to provide investors with an
opportunity to enhance the value and increase the protection of their investment
against inflation and otherwise by taking advantage of investment opportunities
in the U.S. as well as in other countries where opportunities may be more
rewarding.
THE MONTGOMERY FUNDS III
The Montgomery Funds III is an open-end investment company. This Delaware
business trust was organized on August 24, 1994. The trust is managed by
Montgomery Asset Management, L.P.
MONTGOMERY VARIABLE SERIES: GROWTH FUND
INVESTMENT OBJECTIVE: Seeks capital appreciation by investing primarily in
equity securities, usually common stock, of domestic companies of all sizes.
MONTGOMERY VARIABLE SERIES: EMERGING MARKETS FUND
INVESTMENT OBJECTIVE: Seeks capital appreciation by investing primarily in
equity securities of companies in countries having economies and markets
generally considered by the World Bank or the United Nations to be emerging or
developing.
STRONG VARIABLE INSURANCE FUNDS, INC.
The Strong Variable Insurance Funds, Inc. is an open-end management investment
company. It was incorporated in Wisconsin. Strong Capital Management, Inc. is
the investment adviser.
THE STRONG DISCOVERY FUND II
INVESTMENT OBJECTIVE: Seeks to identify emerging investment trends and
attractive growth opportunities.
THE STRONG GOVERNMENT SECURITIES FUND II
INVESTMENT OBJECTIVE: Seeks total return by investing for a high level of
current income with a moderate degree of share-price fluctuation.
THE STRONG ADVANTAGE FUND II
INVESTMENT OBJECTIVE: Seeks current income with a very low degree of share-price
fluctuation.
THE STRONG INTERNATIONAL STOCK FUND II
INVESTMENT OBJECTIVE: Seeks capital growth. The fund invests primarily in the
equity securities of issuers located outside of the United States.
TCI PORTFOLIOS, INC.
TCI Portfolios, Inc. is a open-end management investment company. It was
organized as a Maryland corporation on June 4, 1987. TCI Portfolios, Investors
Research Corporation serves as the investment manager of TCI Portfolios.
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TCI BALANCED FUND
INVESTMENT OBJECTIVE: Capital growth and current income seeks to achieve its
investment objective by maintaining approximately 60% of the assets in common
stocks that are considered to have better-then-average prospects for
appreciation and the remaining assets in bonds and other fixed income
securities.
TCI GROWTH FUND
INVESTMENT OBJECTIVE: Capital Growth. Seeks to achieve its investment objective
by investing primarily in common stocks that are considered to have
better-than-average prospects for appreciation.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is an open-end management investment company.
It was organized as a business trust under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Van Eck Associates Corporation serves as
investment adviser and manager to the two funds listed below.
GOLD AND NATURAL RESOURCES FUND
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation by investment in
equity and debt securities of companies engaged in the exploration, development,
production and distribution of gold and other natural resources such as
strategic and other metals, minerals, forest products, oil, natural gas and
coal.
WORLDWIDE BOND FUND
INVESTMENT OBJECTIVE: Seeks high total return through a flexible policy of
investing globally, primarily in debt securities.
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CERTIFICATES UNDER
FLEXIBLE PREMIUM DEFERRED
COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
VALUE ADVANTAGE PLUS VARIABLE ANNUITY
ISSUED BY
FORTIS BENEFITS INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY , 1996
This Statement of Additional Information is not a Prospectus. It is intended
that this Statement of Additional Information be read in conjunction with the
Prospectus for certificates under flexible premium deferred combination variable
and fixed annuity contracts ("Certificates"), dated February , 1996. A copy of
the Prospectus may be obtained without charge from Fortis Investors, Inc.
1-800-827-5877, mailing address: P.O. Box 64272, St. Paul, MN 55164. You have
the option of receiving benefits under a Certificate through Fortis Benefits'
Variable Account D or through Fortis Benefits' Guarantee Periods Fixed Account
or its General Account Fixed Account.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Fortis Benefits and the Variable Account........ 1
Calculation of Annuity Payments................. 1
Postponement of Payments........................ 2
Services........................................ 2
- Safekeeping of Variable Account Assets...... 2
- Experts..................................... 2
- Principal Underwriter....................... 3
Taxation Under Certain Retirement Plans......... 3
Withholding..................................... 5
Terms of Exemptive Relief in Connection With
Mortality and Expense Risk Charge.............. 5
Variable Account Financial Statements........... 5
Appendix A--Performance Information............. A-1
</TABLE>
In order to supplement the description in the Prospectus, the following provides
additional information about the Certificates and other matters which may be of
interest to you. Terms used in this Statement of Additional Information have the
same meanings as are defined in the Prospectus under the heading "Special Terms
Used in This Prospectus."
FORTIS BENEFITS AND THE VARIABLE ACCOUNT
Fortis Benefits Insurance Company, the issuer of the Certificates, is a
Minnesota corporation qualified to sell life insurance and annuity contracts in
the District of Columbia and in all states except New York. Fortis Benefits is a
wholly-owned subsidiary of Time Insurance Company, a stock company organized
under the laws of Wisconsin, which itself is a wholly-owned subsidiary of
Fortis, Inc. Fortis, Inc. is a corporation based in New York, which manages the
United States operations of Fortis AMEV and Fortis AG.
Fortis AMEV has been in business since 1847 and is a publicly-traded,
multi-national insurance, real estate, and financial services group
headquartered in The Netherlands. It is one of the largest holding companies in
Europe, with subsidiary companies in twelve countries on four continents. Fortis
AMEV is the third largest insurance company in the Netherlands.
Fortis AG is a multi-national insurance, real estate and financial services firm
that has been in business since 1824. It has subsidiary companies in eight
countries. Fortis AG is one of the largest life insurance companies in Belgium.
Fortis AMEV and Fortis AG have combined assets of approximately $108 billion.
The assets allocated to the Variable Account are the exclusive property of
Fortis Benefits. Registration of the Variable Account under the Investment
Company Act of 1940 does not involve supervision of the management or investment
practices or policies of the Variable Account or of Fortis Benefits by the
Securities and Exchange Commission. Fortis Benefits may accumulate in the
Variable Account proceeds from charges under the Contracts and other amounts in
excess of the Variable Account assets representing reserves and liabilities
under Certificates and other variable annuity contracts issued by Fortis
Benefits. Fortis Benefits may from time to time transfer to its General Account
any of such excess amounts. Under certain remote circumstances the assets of one
Subaccount may not be insulated from liability associated with another
Subaccount.
Bests Insurance Reports, Life-Health Edition 1995, assigned Fortis Benefits one
of its highest ratings, A+ (Superior) as of September 26, 1994, for financial
position and operating performance. Fortis Benefits has a rating of AA from
Standard & Poors. As defined by Standard & Poor's, insurers rated AA offer
"excellent financial security." These ratings represent such rating agencies'
independent opinion of Fortis Benefits' financial strength and ability to meet
policy holder obligations, but have no relevance to the performance and quality
of the assets in Subaccounts of the Variable Account.
CALCULATION OF ANNUITY PAYMENTS
FIXED ANNUITY OPTION
The amount of each annuity payment under a Fixed Annuity Option is fixed and
guaranteed by Fortis Benefits. Monthly fixed annuity payments will start as of
the end of the Valuation Period that contains the
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Annuity Commencement Date. At that time, the Certificate Value, after any Market
Value Adjustment, is computed and that portion of the Certificate Value which
will be applied to the Fixed Annuity Option selected is determined. The amount
of the first monthly payment under the Fixed Annuity Option selected will be at
least as large as would result from using the annuity tables contained in the
Certificate to apply such amount of Certificate Value to the annuity form
selected. The dollar amounts of any fixed annuity payments after the first are
specified during the entire period of annuity payments according to the
provisions of the annuity form selected.
VARIABLE ANNUITY OPTION
ANNUITY UNITS. To the extent a Variable Annuity Option has been selected, we
convert the Accumulation Units for each Subaccount of the Variable Account into
Annuity Units for each Subaccount at their values determined as of the end of
the Valuation Period which contains the Annuity Commencement Date. As of such
time, any Fixed Account Value to be applied to a Variable Annuity Option is also
converted, after any Market Value Adjustment, to Annuity Units in the
Subaccounts selected based on the then-current Annuity Unit value. The initial
number of Annuity Units in each Subaccount is determined by dividing the amount
of the initial monthly variable annuity payment (see "Variable Annuity
Option--Variable Annuity Payments," below) allocable to that Subaccount by the
value of one Annuity Unit in that Subaccount as of the time of the conversion.
The number of Annuity Units for each Subaccount will remain constant, as long as
an annuity remains in force and the allocation among the Subaccounts has not
changed.
The value of each Subaccount's Annuity Units will vary to reflect the investment
experience of the Subaccount as well as charges deducted from the Subaccount.
The value of each Subaccount's Annuity Units is equal to the prior value of the
Subaccount's Annuity Units multiplied by the net investment factor for that
Subaccount (discussed in the Prospectus under "Certificate Value") for the
Valuation Period ending on that Valuation Date, with an offset for the 4%
assumed interest rate used in the annuity tables of the Certificate.
VARIABLE ANNUITY PAYMENTS. Variable annuity payments start at the end of the
Valuation Period that contains the Annuity Commencement Date, and will vary in
amount as the related Annuity Unit values vary. The amount of the first monthly
payment is shown on the annuity tables contained in the Certificate for each
$1,000 of Certificate Value applied to the Variable Annuity Option selected as
of the end of such Valuation Period. The first variable annuity payment is, in
effect, allocated among the Subaccounts in the same proportion as the
Certificate Value is allocated among the Subaccounts upon commencement of
annuity payments.
Payments after the first will vary in amount and are determined on the first
Valuation Date of each subsequent monthly period. If the monthly payment under
the annuity form selected is based on the value of Annuity Units of a single
Subaccount, the monthly payment is found by multiplying the number of the
Certificate's Annuity Units for the Subaccount by the Annuity Unit value of such
Subaccount as of the first Valuation Date in each monthly period following the
Annuity Commencement Date. If the monthly payment under the Variable Annuity
Option selected is based upon the value of Annuity Units in more than one
Subaccount, this is repeated for each applicable Subaccount. The sum of these
payments is the variable annuity payment.
GENDER OF ANNUITANT
The amount of each annuity payment ordinarily will be higher for a male
Annuitant than for a female Annuitant with an otherwise identical Certificate.
This is because, statistically, females tend to have longer life expectancies
than males. However, there will be no differences between male and female
Annuitants in any jurisdiction, including Montana, where such differences are
not permitted. We will also make available Certificates with no such differences
in connection with certain employer-sponsored benefit plans. Employers should be
aware that, under most such plans, Certificates that make distinctions based on
gender are prohibited by law.
POSTPONEMENT OF PAYMENTS
With respect to amounts in the Subaccounts of the Variable Account, payment of
any amount due upon a total or partial surrender, death or under an annuity
option will ordinarily be made within seven days after all documents required
for such payment are received by Fortis Benefits at its Home Office. However,
Fortis Benefits may defer the determination, application or payment of any death
benefit, transfer, partial or total surrender or annuity payment, to the extent
dependent on Accumulation or Annuity Unit Values, for any period during which
the New York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted as determined
by the Securities and Exchange Commission, for any period during which any
emergency exists as a result of which it is not reasonably practicable for
Fortis Benefits to determine the investment experience for the Certificate, or
for such other periods as the Securities and Exchange Commission may by order
permit for the protection of investors.
SERVICES
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
Title to the assets of the Variable Account is held by Fortis Benefits. The
assets of the Variable Account are kept segregated and held separate and apart
from Fortis Benefits' other assets. Fortis Advisers, Inc., an affiliate of
Fortis Benefits, maintains records of all purchases and redemptions of shares of
the Portfolios held by each of the Subaccounts of the Variable Account.
EXPERTS
The financial statements of Fortis Benefits Insurance Company appearing in the
Prospectus, appearing in this Statement of Additional Information, have been
audited by Ernst & Young LLP, 1400 Pillsbury Center, Minneapolis, Minnesota
55402, independent auditors, as set forth in their reports thereon also
appearing in the Prospectus or this Statement of Additional Information,
respectively, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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PRINCIPAL UNDERWRITER
Fortis Investors, Inc. ("Fortis Investors"), the principal underwriter of the
Certificates, is a Minnesota corporation and a member of the Securities
Investors Protection Corporation. The offering of the Certificates is
continuous, and Fortis Investors does not anticipate discontinuing the offering
of the Certificates, although it reserves the right to do so. Certificates
generally will be issued for Annuitants from ages zero to ninety in all states.
TAXATION UNDER CERTAIN RETIREMENT PLANS
Federal income tax information concerning the purchase of Certificates for
specific types of retirement plans is set forth below. You should also refer to
"Federal Tax Matters" in the Prospectus. The tax information provided is not
comprehensive, and you should consult a qualified tax adviser before taking any
action in connection with a retirement plan.
SECTION 403(B) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS OR
PUBLIC EDUCATIONAL INSTITUTIONS
PURCHASE PAYMENTS. Under Section 403(b) of the Internal Revenue Code ("Code"),
payments made by certain employers (i.e., tax-exempt organizations meeting the
requirements of Section 501(c)(3) of the Code, or public educational
institutions) to purchase Certificates for their employees are excludible from
the gross income of employees to the extent that such aggregate purchase
payments do not exceed certain limitations prescribed by the Code. This is the
case whether the purchase payments are a result of voluntary salary reduction
amounts or employer contributions. Salary reduction payments are, however,
subject to FICA (social security) taxes.
TAXATION OF DISTRIBUTIONS. Distributions from a Section 403(b) tax-deferred
annuity are taxed as ordinary income to the recipient as described under
"Federal Tax Matters" in the Prospectus. Taxable distributions received before
the employee attains age 59 1/2 generally are subject to a 10% penalty tax in
addition to regular income tax. Certain distributions are excepted from this
penalty tax, including distributions following the employee's death, disability,
separation from service after age 55, separation from service at any age if the
distribution is in the form of an annuity for the life (or life expectancy) of
the employee (or the employee and Beneficiary) and distributions not in excess
of deductible medical expenses. In addition, no distributions of voluntary
salary reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.)
REQUIRED DISTRIBUTIONS. Generally, distributions from Section 403(b) annuities
must commence not later than April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2, and such distributions must be
made over a period that does not exceed the life expectancy of the employee (or
the employee and Beneficiary). A penalty tax of 50% would be imposed on any
amount by which the minimum required distribution in any year exceeded the
amount actually distributed in that year. In addition, in the event that the
employee dies before his or her entire interest in the Certificate has been
distributed, the employee's entire interest must be distributed in accordance
with rules similar to those applicable upon the death of the Participant or
Payee in the case of a Non-Qualified Certificate, as described in the
Prospectus. Certain of these and other provisions are incorporated in a special
endorsement attached to Certificates that are intended to qualify under Section
403(b), and reference should be made to that endorsement for its complete terms.
TAX-FREE EXCHANGES AND ROLLOVERS. The Code provides for the tax-free transfer of
one Section 403(b) annuity for another Section 403(b) annuity, and the IRS has
ruled (Revenue Ruling 90-24) that amounts transferred may qualify as tax-free
transfers under certain circumstances. In addition, Section 403(b)(8) of the
code permits tax-free rollovers from Section 403(b) programs to individual
retirement annuities or other Section 403(b) programs under certain
circumstances.
SECTION 401 QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY PLANS
PURCHASE PAYMENTS. Subject to certain limitations prescribed by the Code,
purchase payments made by an employer (or a self-employed individual) under a
pension, profit-sharing or annuity plan qualified under Section 401 or Section
403(a) of the Code are generally deductible by the employer and excluded from
the taxable income of the employee for federal income tax purposes, whether made
under a salary reduction agreement or directly by employer contributions. Salary
reduction payments are, however, subject to FICA (social security) taxes.
Purchase payments made directly by an employee generally are made on an
after-tax basis.
TAXATION OF DISTRIBUTIONS. Distributions from Certificates purchased under these
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions, as described under "Federal Tax
Matters--Qualified Plans," in the Prospectus. However, if an employee or other
payee receives a "lump sum" distribution, as defined in the Code, from an exempt
employees' trust, the taxable portion of the distribution may be subject to
special tax treatment. For most individuals receiving lump sum distributions
after attaining age 59 1/2, the rate of tax may be determined under a special
5-year income averaging provision. Those who attained age 50 by January 1, 1986
may instead elect to use a 10-year income averaging provision based on the
income tax rates in effect for 1986. Taxable distributions received prior to
attainment of age 59 1/2 under a Certificate purchased under a qualified plan
are subject to the same 10% penalty tax (and the same exceptions) as described
above with respect to Section 403(b) annuities.
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuities.
TAX-FREE ROLLOVERS. If, within 60 days of receipt, an employee who receives a
single sum distribution transfers all of the taxable amount received to another
plan qualified under Section 401 or 403(a), or to an individual retirement
account or annuity as provided for under the Code, the transferred amount will
not be taxed in the year of distribution. Certain "partial" distributions may
also qualify for tax-free rollover treatment, but only if transferred to an
individual retirement account or annuity. However, income tax may be withheld
from the
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distribution unless the distribution is transferred directly from the qualified
plan to the individual retirement account or individual retirement annuity.
INDIVIDUAL RETIREMENT ANNUITIES
PURCHASE PAYMENTS. Individuals may make contributions for individual retirement
annuity ("IRA") Certificates. Deductible contributions for any year may be made
up to the lesser of $2,000 or 100% of compensation for individuals who (1) are
not (and whose spouses are not) active participants in another retirement plan,
(2) are unmarried and have adjusted gross income of $25,000 or less, or (3) are
married and have adjusted gross income of $40,000 or less. Such individuals may
also establish an IRA for a spouse who makes no contribution to an IRA for the
tax year. The annual purchase payments for both spouses' Certificates cannot
exceed the lesser of $2,250 or 100% of the working spouse's earned income, and
no more than $2,000 may be contributed to either spouse's IRA for any year.
Individuals who are active participants in other retirement plans and whose
adjusted gross income (with certain special adjustment) exceed the cut-off point
($25,000 for unmarried, $40,000 for married persons filing jointly, and $0 for
married persons filing a separate return) by less than $10,000 are entitled to
make deductible IRA contributions in proportionately reduced amounts. For
example, a married individual who is an active participant in another retirement
plan and files a separate tax return is entitled to a partial IRA deduction if
the individual's adjusted gross income is less than $10,000 and no IRA deduction
if his or her adjusted gross income is equal to or greater than $10,000.
An individual may make non-deductible IRA contributions to the extent of (1) the
lesser of $2,000 ($2,250 in the case of a spousal IRA) or 100% of compensation
over (2) the IRA deductible contribution made with respect to the individual.
An individual may not make any contributions to his/her own IRA for the year in
which he/she reaches age 70 1/2 or for any year thereafter.
TAXATION OF DISTRIBUTIONS. Distributions from IRA Certificates are taxed as
ordinary income to the recipient, although special rules exist for the tax-free
return of non-deductible contributions. In addition, taxable distributions
received under an IRA Certificate prior to age 59 1/2 are subject to a 10%
penalty tax in addition to regular income tax. Certain distributions are
exempted from this penalty tax including distributions following the owner's
death, disability or separation from service if the distribution is in the form
of an annuity for the life (or life expectancy) of the owner (or the owner and
beneficiary).
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for IRAs are
generally the same as described above with respect to Section 403(b) annuities.
Certain of these and other provisions are incorporated in a special endorsement
attached to IRA Certificates, and reference should be made to that endorsement
for its complete terms.
TAX-FREE ROLLOVERS. The Code permits funds to be transferred in a tax-free
rollover from a qualified employer pension, profit-sharing, annuity, bond
purchase or tax-deferred annuity plan to an IRA Certificate if certain
conditions are met, and if the rollover of assets is completed within 60 days
after the distribution from the qualified plan is received. In addition, not
more frequently than once every twelve months, amounts may be rolled over
tax-free from one IRA to another, subject to the 60-day limitation and other
requirements. The once-per-year limitation on rollovers does not apply to direct
transfers of funds between IRA custodians or trustees.
SIMPLIFIED EMPLOYEE PENSION PLANS
PURCHASE PAYMENTS. Under Section 408(k) of the Code, employers may establish a
type of IRA plan referred to as a simplified employee pension plan (SEP).
Employer contributions to a SEP cannot exceed the lesser of $30,000 or 15% of
the employee's earned income. Employees of certain small employers may have
contributions made to the SEP on their behalf on a salary reduction basis. These
salary reduction contributions may not exceed $9,240 in 1995, which is indexed
for inflation. Employees of tax-exempt organizations and state or local
government agencies are not eligible for this type of SEP.
TAXATION OF DISTRIBUTIONS. Generally, distribution payments from SEPs are
subject to the same distribution rules described above for IRAs.
REQUIRED DISTRIBUTIONS. SEP distributions are subject to the same minimum
required distribution rules described above for IRAs.
TAX-FREE ROLLOVERS. Generally, rollovers and direct transfers may be made to and
from SEPs in the same manner as described above for IRAs, subject to the same
conditions and limitations.
SECTION 457 UNFUNDED DEFERRED COMPENSATION PLANS OF PUBLIC EMPLOYERS AND
TAX-EXEMPT ORGANIZATIONS
PURCHASE PAYMENTS. Under Section 457 of the Code, all individuals who perform
services for a state or local government or governmental agency may participate
in a deferred compensation program. Other tax-exempt employers may establish
unfunded deferred compensation plans under Section 457 for employees and/or
independent contractors.
Though not actually a qualified plan as that term is normally used, this type of
program allows individuals to defer the receipt of compensation that otherwise
would be currently payable and therefore to defer the payment of federal income
taxes on such amounts. Assuming that the program meets the requirements to be
considered an eligible deferred compensation plan (an "EDCP"), an individual may
contribute (and thereby defer from current income for tax purposes) the lesser
of $7,500 or 33 1/3% of the individual's includible compensation. (Includible
compensation means compensation from the employer which would be currently
includible in gross income for federal tax purposes.) In addition, during the
last three years before an individual attains normal retirement age, additional
"catch-up" deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Certificates offered by this Prospectus. The Certificate is owned by the
employer and is subject to the claims of the employer's creditors. The employee
has no rights or interest in the Certificate and is entitled only to payment in
accordance with the EDCP provisions.
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TAXATION OF DISTRIBUTIONS. Amounts received by an individual from an EDCP are
includible in gross income for the taxable year in which such amounts are paid
or otherwise made available.
DISTRIBUTIONS BEFORE SEPARATION FROM SERVICE. Distributions generally are not
permitted under an EDCP prior to separation from service or reaching age 70 1/2,
except in cases of severe financial hardship. Hardship distributions are
includible in the gross income of the individual in the year in which paid.
REQUIRED DISTRIBUTIONS. The distribution requirements for these qualified plans
are generally the same as described above with respect to Section 403(b)
annuities. However, if distributions do not commence before the employee's
death, the entire interest in the Certificate must be distributed within 15
years if the beneficiary is not the employee's surviving spouse.
TAX-FREE TRANSFERS. The Code permits the tax-free direct transfer of EDCP
amounts to another EDCP, subject to certain conditions.
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
PURCHASE PAYMENTS. Private taxable employers may establish unfunded,
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors. Certain
arrangements of tax-exempt employers entered into prior August 16, 1986, and not
subsequently modified, are also subject to the rules for private taxable
employer deferred compensation plans discussed below. (Unfunded deferred
compensation plans of other tax-exempt employers are generally subject to the
requirements of Section 457.)
These types of programs allow individuals to defer receipt of up to 100% of
compensation which would otherwise be includible in income and therefore to
defer the payment of federal income taxes on such amounts. Purchase payments
made by the employer, however are not immediately deductible by the employer,
and the employer is currently taxed on any increase in Certificate Value.
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Certificate is
owned by the employer and is subject to the claims of the employer's creditors.
The individual has no right or interest in the Certificate and is entitled only
to payment from the employer's general assets in accordance with plan
provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
EXCESS DISTRIBUTIONS--15% TAX.
Certain persons, particularly those who participate in more than one
tax-qualified retirement plan, may be subject to an additional tax of 15% on
certain excess aggregate distributions from those plans. In general, excess
distributions are taxable distributions for all tax qualified plans in excess of
a specified annual limit for payments made in the form of an annuity (currently
$150,000) or five times the annual limit for lump sum distributions.
WITHHOLDING
Annuity payments and other amounts received under Certificates are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and, with
respect to certain distributions from certain types of qualified retirement
plans, unless the proceeds are transferred directly to another qualified
retirement plan. Moreover, special "backup withholding" rules may require Fortis
Benefits to disregard the recipient's election if the recipient fails to supply
Fortis Benefits with a "TIN" or taxpayer identification number (social security
number for individuals), or if the Internal Revenue Service notifies Fortis
Benefits that the TIN provided by the recipient is incorrect.
TERMS OF EXEMPTIVE RELIEF IN CONNECTION WITH MORTALITY AND EXPENSE RISK CHARGE
Fortis Benefits and Fortis Investors have obtained exemptive relief from the
Securities and Exchange Commission in connection with deducting the mortality
and expense risk charge pursuant to the Certificates. In the application for the
exemption, Fortis Benefits and Fortis Investors have represented and undertaken,
among other things, that:
- The level of the mortality and expense risk charge is within the range of
industry practice for comparable annuity contracts;
- This conclusion is based upon a review that Fortis Benefits and Fortis
Investors have conducted of publicly-available information regarding
annuity contracts of other companies and that they will maintain at their
principal office, and make available on request to the Commission or its
staff, a memorandum setting forth the variable annuity products analyzed
and the methodology and results of the comparative review;
- There is a reasonable likelihood that the proposed distribution financing
arrangements with respect to the Certificates will benefit the Variable
Account and investors in the Certificates, and the basis for this
conclusion is set forth in a memorandum which will be maintained by Fortis
Benefits at its principal office and will be available to the Commission
or its staff on request.
VARIABLE ACCOUNT FINANCIAL STATEMENTS
This Statement of Additional Information contains no financial statements for
the Subaccounts Variable Account because the available Subaccounts of the
Variable Account have not yet commenced operations, have no assets or
liabilities, and have received no income nor incurred any expenses as of the
date of this Statement of Additional Information.
5
<PAGE>
APPENDIX A
Fortis Benefits may advertise its relative performance as compiled by outside
organizations. Following is a list of ratings services which may be referred to
in advertisements, along with the category in which the applicable Subaccount is
included:
<TABLE>
<CAPTION>
RATING SERVICE CATEGORY
- ------------------------------- -----------------------------
<S> <C>
ALLIANCE MONEY MARKET SUBACCOUNT
Morningstar Publications, Inc.
Lipper Analytical Services,
Inc.
ALLIANCE INTERNATIONAL SUBACCOUNT
Morningstar Publications, Inc. International
Lipper Analytical Services, International
Inc.
ALLIANCE PREMIER GROWTH SUBACCOUNT
Morningstar Publications, Inc. Growth
Lipper Analytical Services, Growth
Inc.
FEDERATED HIGH YIELD SUBACCOUNT
Morningstar Publications, Inc. High Yield Bond
Lipper Analytical Services,
Inc.
FEDERATED UTILITY SUBACCOUNT
Morningstar Publications, Inc. Specialty Fund
Lipper Analytical Services,
Inc.
FEDERATED EQUITY GROWTH AND INCOME SUBACCOUNT
Morningstar Publications, Inc. Growth & Income
Lipper Analytical Services,
Inc.
LEXINGTON NATURAL RESOURCES SUBACCOUNT
Morningstar Publications, Inc. Specialty Fund
Lipper Analytical Services,
Inc.
LEXINGTON EMERGING MARKETS SUBACCOUNT
Morningstar Publications, Inc. International Stock
Lipper Analytical Services,
Inc.
MFS EMERGING GROWTH SUBACCOUNT
Morningstar Publications, Inc. Aggressive Growth
Lipper Analytical Services, Mid Cap Funds
Inc.
MFS HIGH INCOME SUBACCOUNT
Morningstar Publications, Inc. High Yield Bonds
Lipper Analytical Services, Mid Cap Funds
Inc.
MFS WORLD GOVERNMENTS SUBACCOUNT
Morningstar Publications, Inc. International Bonds
Lipper Analytical Services,
Inc.
MONTGOMERY EMERGING MARKETS SUBACCOUNT
Morningstar Publications, Inc. Diversified Emerging Markets
Lipper Analytical Services, Emerging Markets Funds
Inc.
MONTGOMERY GROWTH SUBACCOUNT
Morningstar Publications, Inc. Growth
Lipper Analytical Services, Growth
Inc.
STRONG DISCOVERY SUBACCOUNT
Morningstar Publications, Inc. Aggressive Growth
Lipper Analytical Services, Capital Appreciation Fund
Inc.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
RATING SERVICE CATEGORY
- ------------------------------- -----------------------------
<S> <C>
STRONG GOVERNMENT SECURITIES SUBACCOUNT
Morningstar Publications, Inc. Government Bond--General
Lipper Analytical Services,
Inc.
STRONG ADVANTAGE SUBACCOUNT
Morningstar Publications, Inc. Corporate Bond--General
Lipper Analytical Services,
Inc.
STRONG INTERNATIONAL STOCK SUBACCOUNT
Morningstar Publications, Inc. Foreign Stock
Lipper Analytical Services, International Fund
Inc.
TCI BALANCED SUBACCOUNT
Morningstar Publications, Inc. Balanced
Lipper Analytical Services,
Inc.
TCI GROWTH SUBACCOUNT
Morningstar Publications, Inc. Growth
Lipper Analytical Services,
Inc.
VAN ECK WORLDWIDE BOND SUBACCOUNT
Morningstar Publications, Inc. International Bond
Lipper Analytical Services,
Inc.
VAN ECK GOLD AND NATURAL RESOURCES SUBACCOUNT
Morningstar Publications, Inc. Specialty Fund
Lipper Analytical Services, Gold Oriented Fund
Inc.
</TABLE>
A-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENT AND EXHIBITS
A. FINANCIAL STATEMENTS INCLUDED IN PART A:
With Respect to Fortis Benefits Insurance Company:
Report of Independent Auditors.
Balance Sheets for the years ended December 31, 1994 and 1993.
Statements of Income, Statements of Changes in Shareholder's Equity and
Statements of Cash Flows for the years ended December 31, 1994, 1993 and
1992.
Notes to Financial Statements.
Interim stub-period financial statement to be filed by pre-effective
amendment.
Financial Statements included in Part B:
With Respect to Variable Account D of Fortis Benefits Insurance Company:
None since available subaccounts have not commenced operation.
B. EXHIBITS:
1. Resolution of the Board of Directors of Fortis Benefits Insurance Company
effecting the establishment of Variable Account D (incorporated by reference
from Form N-4 of Fortis Benefits and its Variable Account D filed on
December 31, 1987, File No. 33-19421).
2. Not applicable.
3. (a)Form of Principal Underwriter and Servicing Agreement (incorporated by
reference from Form N-4 registration statement filed by Fortis Benefits
and its Variable Account D on January 11, 1994, File No. 33-73986);
(b)Form of Amendment to Principal Underwriting Agreement (incorporated by
reference from Form N-4 Registration Statement filed by Fortis Benefits
and its Variable Account D on January 11, 1994, File No. 33-73986);
(c)Form of Dealer Sales Agreement (incorporated by reference from Form N of
Registration Statement of Fortis Benefits filed December 22, 1994, File
No. 33-19421);
4. (a)Form of Combination Fixed and Variable Group Annuity Contract Including
Contract Application Form--filed herewith;
(b)Form of Certificate to be used in connection with Contract filed as
Exhibit 4 (a)--filed herewith;
(c)Form of Combination and Variable Individual Annuity Contract (General
Account Fixed Account)--filed herewith;
(d)Form of IRA Endorsement (included as part of Pre-effective Amendment No.
1 to this Form N-4 Registration Statement filed March 28, 1991);
(e)Form of Section 403(b) Annuity Endorsement (included as part of
Pre-effective Amendment No. 1 to this Form N-4 Registration Statement
filed March 28, 1991);
5. Form of Application--filed herewith.
6. (a)Articles of Incorporation of Fortis Benefits Insurance Company
(incorporated by reference from Form S-6 Registration Statement of Fortis
Benefits and its Variable Account C filed on March 17, 1986, File No.
33-03919);
(b)By-laws of Fortis Benefits Insurance Company (incorporated by reference
from Form S-6 Registration Statement of Fortis Benefits and its Variable
Account C filed on March 17, 1986, File No. 33-03919);
(c)Amendment to Articles of Incorporation and Bylaws dated November 21, 1991
(included as part of Post-Effective Amendment No. 1 to this Form N-4
Registration Statement filed March 2, 1992).
7. None.
8. None.
II-1
<PAGE>
9. Opinion and consent of Douglas R. Lowe, Esq., Assistant General Counsel of
Fortis Benefits Insurance Company, as to the legality of the securities
being registered (included as part of the original filing of this Form N-4
Registration Statement filed on November 1, 1990).
10. (a)Consent of Ernst & Young LLP--to be filed by amendment.
(b)Power of Attorney for Messrs. Freedman, Mackin, Keller and Pollock
(incorporated by reference from Form S-6 Registration Statement of Fortis
Benefits and its Variable Account C filed on December 17, 1993, File No.
33-73138).
11. Financial Statement Schedules--previously filed as a part of this N-4 by
Post-Effective Amendment No. 29, filed on April 29, 1995.
12. Not applicable.
13. Schedules of computation of each performance quotation provided in the
registration statement pursuant to Item 21--None.
14. Financial Data Schedule--not applicable since financials were previously
filed.
ITEM 25. DIRECTORS AND OFFICERS OF FORTIS BENEFITS
The directors, executive officers, and, to the extent responsible for
variable insurance product operations, other officers of Fortis Benefits are
listed below.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS OFFICES WITH DEPOSITOR
- -------------------------- -------------------------------------------------------------------------
<S> <C>
OFFICER-DIRECTORS
- --------------------------
Robert Brian Pollock (4) President and Chief Executive Officer
Thomas Michael Keller (5) Executive Vice President
Dean C. Kopperud (1) President--Fortis Financial Group
<CAPTION>
OTHER DIRECTORS
- --------------------------
<S> <C>
Allen Royal Freedman (2) Chairman of the Board
Henry Carroll Makin (2)
Arie Aristide Fakkert (3)
<CAPTION>
OTHER OFFICERS
- --------------------------
<S> <C>
Michael John Peninger (4) Senior Vice President and Chief Financial Officer
Larry A. Medin (1) Senior Vice President--Marketing and Sales
George E. Phillips (4) Senior Vice President--Information Service
Anthony J. Rotondi (1) Senior Vice President--Life Operations
William D. Greiter (1) Senior Vice President, General Counsel and Secretary
R. William Ogden, Jr. (5) Senior Vice President--Life Products and Marketing Management
James R. Faust (1) Senior Vice President--Marketing and Sales
Domenic P. Petrelli (4) Senior Vice President--Claims
Robert R. Zambri (4) Senior Vice President--General Counsel
Rhonda J. Schwartz (1) Senior Vice President and General Counsel--Life and Investment Products
John W. Norton (1) Senior Vice President and Deputy General Counsel--Securities
John Vincent Egan (1) Vice President--Finance, Life Products
Jon Nicholson (1) Vice President--Annuities
Thomas D. Gualdoni (1) Vice President--Marketing
</TABLE>
- ------------------------
(1) Address: Fortis Benefits Insurance Company, P.O. Box 64271, St. Paul, MN
55164.
(2) Address: Fortis, Inc., One Chase Manhattan Plaza, New York, NY 10005.
(3) Address: Fortis AMEV, Archmideslaan 10, 3584 BA Utrecht, The Netherlands.
(4) Address: 2323 Grand Avenue, Kansas City, MO 64108.
(5) Address: 515 West Wells, Milwaukee, WI 53201.
II-2
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Variable Accounts C and D of Fortis Benefits Insurance Company are separate
accounts of Fortis Benefits. These separate accounts, certain separate accounts
assumed from St. Paul Life Insurance Company, and Fortis Series Fund, Inc. may
be deemed to be controlled by Fortis Benefits, although Fortis Benefits follows
voting instructions of variable insurance contract owners with respect to voting
on certain important matters in connection with these entities. All of these
entities are created under Minnesota law and are the funding media for variable
life insurance and annuity contracts issued or assumed by Fortis Benefits.
The chart indicating the persons controlled by or under common control with
Fortis Benefits is hereby incorporated by reference from the response to Item 26
in Post-Effective Amendment No. 24 to this Form N-4 registration statement filed
on April 28, 1994. Fortis Benefits has no subsidiaries.
ITEMS 27. NUMBER OF CONTRACT OWNERS
As of October 25, 1995 there were no Certificate owners under Contracts
being registered herewith.
ITEM 28. INDEMNIFICATION
Pursuant to the Principal Underwriter and Servicing Agreement filed as
Exhibit 3(a) and (b) to this Registration Statement and incorporated herein by
this reference, Fortis Benefits has agreed to indemnify Fortis Investors (and
its agents, employees, and controlling persons) for damages and expenses arising
out of certain material misstatements and omissions in connection with the offer
and sale of the Certificates, unless the misstatement or omission was based on
information supplied by Fortis Investors; provided, however, that no such
indemnity will be made to Fortis Investors or its controlling persons for
liabilities to which they would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations under such agreement. This
indemnity could apply to certain directors, officers or controlling persons of
the Separate Account by virtue of the fact that they are also agents, employees
or controlling persons of Fortis Investors. Pursuant to the Principal
Underwriter and Servicing Agreement, Fortis Investors has agreed to indemnify
Variable Account D, Fortis Benefits, and each of its officers, directors and
controlling persons for damages and expenses (1) arising out of certain material
misstatements and omissions in connection with the offer and sale of the
Certificates, if the misstatement or omission was based on information furnished
by Fortis Investors or (2) otherwise arising out of Fortis Investors'
negligence, bad faith, willful misfeasance or reckless disregard of its
responsibilities. Pursuant to its Dealer Sales Agreements, a form of which is
filed as Exhibit 3(c) and (d) to this registration statement and is incorporated
herein by this reference, firms that sell the Certificates agree to indemnify
Fortis Benefits, Fortis Investors, the Separate Account, and their officers,
directors, employees, agents, and controlling persons from liabilities and
expenses arising out of the wrongful conduct or omissions of said selling firm
or its officers, directors, employees, controlling persons or agents.
Also, Fortis Benefit's By-Laws (see Article VI, Section 5 thereof, which is
incorporated herein by reference from Exhibit 6(b) to this Registration
Statement) provide for indemnity and payment of expenses of Fortis Benefits's
officers, directors and employees in connection with certain legal proceedings,
judgments, and settlements arising by reason of their service as such, all to
the extent and in the manner permitted by law. Applicable Minnesota law
generally permits payment of such indemnification and expenses if the person
seeking indemnification has acted in good faith and in a manner that he
reasonably believed to be in the best interests of the Company and if such
person has received no improper personal benefit, and in a criminal proceeding,
if the person seeking indemnification also has no reasonable cause to believe
his conduct was unlawful.
Insofar as indemnification for any liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of Fortis
Benefits or the Separate Account pursuant to the foregoing provisions, or
otherwise, Fortis Benefits and the Separate Account have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Fortis Benefits of expenses incurred or paid by a director,
officer or controlling person of Fortis Benefits or the Separate Account in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the precedent, submit
to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Fortis Investors, Inc. is the principal underwriter for Variable Account D.
Fortis Investors, Inc. also acts as the principal underwriter for the
following registered investment companies (in addition to Variable Account D
and Fortis Series Fund, Inc.): Variable Account C of Fortis Benefits,
Variable Account A of First Fortis Life Insurance Company, Fortis Advantage
Portfolios, Inc., Fortis Equity Portfolios, Inc., Fortis Fiduciary Fund,
Inc., Fortis Growth Fund, Inc., Fortis Money Portfolios, Inc., Fortis
Tax-Free Portfolios, Inc., Fortis Income Portfolios, Inc., and Special
Portfolios, Inc.
(b) The following table sets forth certain information regarding the officers
and directors of the principal underwriter, Fortis Investors, Inc.:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
- ---------------------- -------------------------------------------------------------------------
<S> <C>
Robert W. Beltz, Jr.* Vice President--Mutual Fund and Annuity Operations
James S. Byrd** Vice President
David G. Carroll** 2nd Vice President
Thomas E. Erickson* Assistant Secretary
Tamara L. Fagely* Fund Accounting Officer
Deborah Foss* Vice President--Human Resources
Thomas D. Gualdoni* Vice President
John E. Hite* 2nd Vice President and Assistant Secretary
Carol M. Houghtby* 2nd Vice President and Treasurer
Barbara W. Kirby* 2nd Vice President
Dean C. Kopperud* President and Director
Robert C. Lindberg** Vice President
Larry A. Medin* Senior Vice President--Sales
Jon H. Nicholson* Vice President--Product Development
John W. Norton* Senior Vice President, Deputy General Counsel--Securities, and Secretary
Michael D. O'Connor* Qualified Plan Counsel
Dennis M. Ott** Senior Vice President
Stephen M. Poling** Director and Executive Vice President
Richard P. Roche* Vice President--Sales
Anthony J. Rotondi* Senior Vice President
Rhonda J. Schwartz* Senior Vice President and General Counsel
Keith R. Thomson** Vice President
</TABLE>
- ------------------------
* Address: 500 Bielenberg Drive, Woodbury, MN 55125.
** Address: 5500 Wayzata Blvd, Suite 1150, Golden Valley, MN 55416.
*** Address: 515 West Wells Street, Milwaukee, WI 53201.
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 and 31a-3 thereunder are maintained by
Fortis Benefits, Fortis Investors, Inc. and Fortis Advisers, Inc., at 500
Bielenberg Drive, Woodbury, Minnesota 55125.
ITEM 31. MANAGEMENT SERVICES
None.
II-4
<PAGE>
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes:
(a) To file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
in the registration statement are never more than 16 months old for so long
as payments under the variable annuity contracts may be accepted;
(b) To include either (1) as part of any application to purchase a Contract
offered by the Prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a toll-free phone number,
postcard, or similar written communication affixed to or included in the
Prospectus that the applicant can call or remove to send for a Statement of
Additional Information;
(c) To deliver a Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
The Registrant intends to rely on the no-action response dated November 28, 1988
from Ms. Angela C. Goelzer of the Commission staff to the American Council of
Life Insurance concerning the redeemability of Section 403(b) annuity contracts
and the Registrant has complied with the provisions of paragraphs (1)-(4)
thereof.
II-5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this amended Registration Statement to be signed
on its behalf in the City of St. Paul, State of Minnesota on this 27th day of
October, 1995.
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
(Registrant)
By: FORTIS BENEFITS INSURANCE COMPANY
By: /s/
--------------------------------------
Robert Brian Pollock, PRESIDENT
FORTIS BENEFITS INSURANCE COMPANY
(Depositor)
By: /s/
--------------------------------------
Robert Brian Pollock, PRESIDENT
As required by the Securities Act of 1933 and the Investment Company Act of
1940, this Registration Statement has been signed by the following persons, in
the capacities indicated, on October 27, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE WITH FORTIS BENEFITS
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
*
------------------------------------------- Chairman of the Board
Allen Royal Freedman
*
------------------------------------------- Director
Henry Carrol Mackin
*
------------------------------------------- Director
Thomas Michael Keller
------------------------------------------- Director
Arie Aristide Fakkert
/s/
------------------------------------------- President and Director
Robert Brian Pollock (Chief Executive Officer)
/s/
------------------------------------------- Director
Dean C. Kopperud
/s/ Senior Vice President, Controller and Treasurer
------------------------------------------- (Principal Accounting Officer and Principal
Michael John Peninger Financial Officer)
*By: /s/
--------------------------------------
Robert Brian Pollock
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
---
<S> <C> <C>
4(a) Form of Combination Fixed and Variable Group Annuity Contract Including Contract Application Form....
4(b) Form of Certificate..................................................................................
4(c) Form of Combination and Variable Individual Annuity Contract (General Account Fixed Account).........
5 Form of Application..................................................................................
</TABLE>
Explanation of lack of need for SEC exemptive order.
<PAGE>
FORTIS BENEFITS
INSURANCE COMPANY
ST. PAUL, MINNESOTA
A STOCK COMPANY
We will pay the Annuitant the first of a series of annuity payments on the
Annuity Commencement Date by applying the adjusted value of the Participant's
Account according to the Settlement Provisions. Subsequent payments will be paid
on the same day of each month according to the provisions of this Contract.
Signed for Fortis Benefits on the Issue Date.
SENIOR VICE PRESIDENT
FLEXIBLE PREMIUM DEFERRED COMBINATION VARIABLE AND FIXED
GROUP ANNUITY CONTRACT
NON-PARTICIPATING. NO DIVIDENDS.
ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE, MAY INCREASE OR DECREASE AND
ARE NOT GUARANTEED AS TO AMOUNT. THE VARIABLE PROVISIONS OF THIS CONTRACT ARE
FOUND ON PAGES 9 AND 10.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, MAY RESULT IN UPWARD AND DOWNWARD ADJUSTMENTS IN AMOUNTS
PAYABLE, INCLUDING SURRENDERS, TRANSFERS, AMOUNTS APPLIED TO PURCHASE AN
ANNUITY, AND DISTRIBUTIONS RESULTING FROM THE DEATH OF THE PARTICIPANT OR
ANNUITANT. PAYMENTS MADE FROM FIXED ACCOUNT VALUES WHICH ARE WITHIN 15 DAYS
BEFORE OR AFTER THE END OF A GUARANTEE PERIOD ARE NOT SUBJECT TO THE MARKET
VALUE ADJUSTMENT.
<PAGE>
MASTER CONTRACT DATA PAGE
<TABLE>
<S> <C>
MASTER CONTRACT NUMBER: #############
CONTRACT ISSUE DATE: #############
OWNER: #############
</TABLE>
MAXIMUM ASSET CHARGE FACTOR: .45% Annually (or .0012329% Daily)
(For the Variable Account Only)
<TABLE>
<CAPTION>
CURRENT MAXIMUM
----------- -----------
<S> <C> <C>
TRANSFER CHARGE: $ 0.00 $ 25.00
</TABLE>
<PAGE>
DEFINITIONS
WE, US, OUR, THE COMPANY
Fortis Benefits Insurance Company.
YOU, YOUR, THE OWNER
The person, persons or entity entitled to the ownership rights stated in
this Contract and in whose name or names the Contract is issued. The Owner may
designate a trustee or custodian of a retirement plan which meets the
requirements of Section 401, Section 408(c), Section 408(k), or Section 457 of
the Internal Revenue Code to serve as legal owner of assets of a retirement
plan, but the term "Owner" has used herein, shall refer to the organization
entering into the Contract.
ACCUMULATION UNIT
A unit of measurement used to calculate the value of the Participant's
interest in the Variable Account before the annuity commencement date.
ANNUITANT
The person or persons on whose life the first annuity payment is to be made.
If more than one person is so named, all provisions of the Certificate which are
based on the death of the "Annuitant" will be based on the date of death of the
last survivor of the persons so named. By example, the death benefit will become
due only upon the death, prior to the annuity commencement date, of the last
survivor of the persons so named. Collectively, these persons are referred to in
the Certificate as "Annuitant" or "Annuitants." The Participant is not permitted
to name more than one Annuitant under a Qualified Certificate.
ANNUITY UNIT
A unit of measurement to calculate variable annuity payments.
BENEFICIARY
The person entitled to receive benefits as per the terms of the Certificate
in case of the death of the Annuitant or the Participant or the joint
Participant, as applicable.
CERTIFICATE
The document for each Participant which evidences the coverage of the
Participant under the Contract.
CONTRACT APPLICATION
The document signed by the Owner that evidences the Owner's application for
the Contract.
CONTRACT YEAR
A period of 12 consecutive months beginning on the Issue Date or any
anniversary thereafter.
DATE OF DEPOSIT
The date We receive any Purchase Payment at our Home Office.
DESIGNATED BENEFICIARY
The person designated as the beneficiary by the Participant.
FIXED ACCOUNT
The Fixed Account is a non-unitized separate account that We use to account
for amounts allocated to Guarantee Periods.
FIXED ANNUITY OPTION
An annuity option with payments which do not vary as to dollar amount.
FUND
The "Fund" or "Funds" are those investment portfolios available under the
Contract to which the Participant may allocate Purchase Payments, each of which
is, or is a series of, a management investment company registered under the
Investment Company Act of 1940.
2
<PAGE>
GUARANTEE PERIOD
The period for which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE
The rate of interest We credit on an effective annual basis during any
Guarantee Period.
ISSUE DATE
The date on which this Contract becomes effective as shown on the Contract
Data Page.
HOME OFFICE
Our office at 500 Bielenberg Drive, Woodbury, Minnesota 55125;
1-800-827-5877; Mailing Address: P.O. Box 64272, St. Paul, Minnesota 55164.
MARKET VALUE ADJUSTMENT
Positive or negative adjustment in the Fixed Account value that We make if
such value is paid out more than 15 days before or after the end of a Guarantee
Period in which it was being held.
NET ASSET VALUE PER SHARE
The net assets of a Fund portfolio divided by the number of shares in the
Fund portfolio.
NET PURCHASE PAYMENT
The gross amount of the Purchase Payment less any applicable premium taxes.
NON-QUALIFIED CONTRACT
Contracts that do not qualify for the special federal income tax treatment
applicable in connection with retirement plans.
PARTICIPANT
The person named in the Certificate who is entitled to exercise all rights
and privileges of ownership under the Certificate, except as reserved by the
Owner.
PARTICIPANT'S ACCOUNT
An account established for each Participant to which each Purchase Payment
is credited.
PARTICIPANT'S ACCOUNT VALUE
The total of the fixed account value and the variable account value under
the Certificate.
PARTICIPANT'S APPLICATION
The document signed by the Participant that serves as his or her application
for participation under the Contract.
PURCHASE PAYMENT
An amount paid to the Company as consideration for the benefits described
herein.
QUALIFIED CONTRACT
Contracts that are qualified for the special federal income tax treatment
applicable in connection with certain retirement plans.
SUBACCOUNT
The Subaccounts of the Variable Account to which a Participant's Account
Value may be allocated. Each Subaccount invests all of its assets in a portfolio
of the a Fund having the same investment policies and objectives as that
Subaccount.
VALUATION DATE
All business days except, with respect to any Subaccount, days on which the
related portfolio does not value its shares.
VALUATION PERIOD
The period that starts at the close of the New York Stock Exchange on a
Valuation Date and ends at the close of the Exchange on the next Valuation Date.
3
<PAGE>
VARIABLE ACCOUNT
A segregated investment account entitled "Variable Account D", established
by us pursuant to applicable law. That portion of the assets of the Variable
Account equal to the reserves and other Contract liabilities with respect to the
Variable Account shall not be chargeable with liabilities arising out of any
other business We may conduct. Income, gains and losses, whether or not
realized, from assets allocated to the Variable Account, are credited to or
charged against such account without regard to our other income, gains or
losses.
VARIABLE ANNUITY
An annuity option under which We promise to pay the annuitant or other
properly designated payee one or more payments which vary in amount in
accordance with the net investment experience of the applicable Subaccounts
selected to measure the value of the Contract.
WRITTEN, IN WRITING
A written request or notice in acceptable form and content, which is signed
and dated, and received at our Home Office.
GENERAL PROVISIONS
THE CONTRACT
This Contract is issued in consideration of the Contract Application and
payment of the Purchase Payment(s). Only an Officer of the Company can agree to
change or waive any provision of the Contract or any Certificate.
INCONTESTABILITY
The Contract and the Certificate are incontestable.
MISSTATEMENT OF AGE OR SEX
If any date of birth or sex, or both, has been misstated in the
Participant's Application, or elsewhere, the amounts payable under this Contract
will be the amounts which would have been provided using the correct age or sex,
or both. Any deficiency in the payments already made by Us will be paid
immediately and any excess in the payments already made by Us will be charged
against the benefits falling due after adjustment. The amount of any adjustment
will be credited or charged interest at the effective annual rate of 3% per
year.
DISCONTINUANCE OF ACCEPTANCE OF NEW PARTICIPANTS
By giving 30 days prior Written Notice to the Owner, We may limit or
discontinue the acceptance of new Participant's Applications and the issuance of
new Certificates under this Contract. Such limitation or discontinuance shall
have no effect on rights or benefits with respect to any Participant's
Certificate issued prior to the effective date of such limitation or
discontinuance.
GOVERNING LAW
This Contract and all Certificates issued with it will be governed by the
laws of the jurisdiction where the Contract Application is signed.
GUARANTEES
Subject to the Net Investment Factor provision, We guarantee that the dollar
amount of Variable Annuity payments made during the lifetime of the payee(s)
will not be adversely affected by Our actual mortality experience or by the
actual expenses incurred by Us in excess of the expense deductions provided for
in the Contract.
SETTLEMENT
All benefits under this Contract are payable from Our Home Office.
NON-PARTICIPATING
This Contract is non-participating and does not share in Our surplus
earnings.
BENEFICIARY
Subject to the rights of an irrevocably Designated Beneficiary, the
Participant may change or revoke the designation of a Beneficiary at any time
while a Participant and the Annuitant are living. The Participant must send Us a
Written
4
<PAGE>
Beneficiary designation or revocation. The change or revocation will not be
binding upon Us until it is received by Us at Our Home Office. When it is so
received, the change or revocation will be effective as of the date on which the
Beneficiary designation or revocation was signed, but the change or revocation
will be without prejudice to The Company on account of any payment made or any
action taken by The Company prior to receiving the change or revocation.
In the event of the death of a Participant or the Annuitant prior to the Annuity
Commencement Date, the Beneficiary will be as follows: The Beneficiary shall be
the surviving Participant, if any, notwithstanding that the Designated
Beneficiary may be different. Otherwise, the Beneficiary will be the Designated
Beneficiary. If there is no such Designated Beneficiary in effect or if such
Designated Beneficiary is no longer living, the estate of the last surviving
Participant will be the Beneficiary.
RIGHTS RESERVED BY US
Upon notice to You and the Participant, the Contract, the Certificate may be
modified by Us, but only if such modification is necessary to:
(1) Operate the Variable Account in any form permitted under the
Investment Company Act of 1940 or in any other form permitted by law.
(2) Transfer any assets in any Subaccount to another Subaccount, or to
one or more separate accounts, or to the fixed account.
(3) Add, combine or remove Subaccounts in the Variable Account.
(4) Substitute for the shares held in any Subaccount, the shares of
another Fund.
(5) Make any changes as required by the Internal Revenue Code or by any
other applicable law in order to continue treatment of the Contract
as an annuity.
When required by law, we will obtain Your approval of changes and We will gain
approval from any appropriate regulatory authority.
TERMINATION
This Certificate remains in force until surrendered for its full value, or
all annuity payments have been made, or the death benefit has been paid.
If the Participant's Account Value is less than $1,000, We may cancel the
Certificate on any Valuation Date. We will notify the Participant at least 90
days in advance of Our intention to cancel the Certificate. Such cancellation
would be considered a full surrender of the Certificate.
PURCHASE PAYMENTS
PAYMENTS
The initial Purchase Payment must be at least $5,000 ($2,000 for
Certificates under Qualified Contracts). Additional Purchase Payments must be at
least $500. We reserve the right to refuse a Purchase Payment for any reason.
ALLOCATION OF PURCHASE PAYMENTS
Except as hereafter provided, the initial allocation for Net Purchase
Payments is shown on the Certificate Data Page and will remain in effect until
changed by Written notice. If a Certificate is issued in a state that requires a
refund of premiums paid upon exercise of the "free look" privilege, the Net
Purchase Payments made at the time of purchase of such Certificate will be
allocated to a money market Fund available under the Contract. In such case, the
Net Purchase Payments will remain so allocated until the sum of the following
number of days after We mail the Certificate for delivery to the Participant:
(1) the number of days provided in the free look period specified on the
coverage page of the Certificate; plus (2) five days. Thereafter, the allocation
of all Net Purchase Payments will be as shown on the Certificate Data Page and
will remain in effect until changed by Written notice. The percentage allocation
for future Net Purchase Payments may
5
<PAGE>
be changed at any time by Written notice. Changes in the allocation will be
effective on the date We receive the Participant's notice. The allocation may be
100% to any available Subaccount or Guarantee Period, or may be divided among
the accounts in whole percentage points totaling 100%.
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
The Contract belongs to the Owner. All Contract rights and privileges may be
expressly reserved by the Owner, failing which, the Participant will be entitled
to exercise all rights and privileges in connection with such Participant's
Certificate. In any case, such rights and privileges can be exercised without
the consent of the Beneficiary (other than an irrevocably designated
beneficiary) or any other person. Such rights and privileges may be exercised
only during the lifetime of the Annuitant and prior to the Annuity Commencement
Date, except as otherwise provided in this Contract.
Unless the Participant specifies otherwise, the Annuitant becomes the Payee on
the annuity commencement date. The Beneficiary becomes the Payee on the death of
the Participant or the Annuitant. Such Payees may thereafter exercise such
rights and privileges, if any, of ownership which continue.
CHANGE OF OWNERSHIP
Ownership of a Qualified Contract may not be transferred except to: (1) the
Annuitant; (2) a trustee or successor trustee of a pension or profit sharing
trust which is qualified under Section 401 of the Internal Revenue Code; (3) the
employer of the Annuitant provided that the Qualified Contract after transfer is
maintained under the terms of a retirement plan qualified under Section 403(a)
of the Internal Revenue Code for the benefit of the Annuitant; (4) the trustee
of an individual retirement account plan qualified under Section 408 of the
Internal Revenue Code; or (5) as otherwise permitted from time to time by laws
and regulations governing the retirement or deferred compensation plans for
which a Qualified Contract may be issued. In no other case may a Qualified
Contract be sold, assigned, transferred, discounted or pledged as collateral.
The Owner of a Non-Qualified Contract may change the ownership of the Contract.
During the lifetime of the Annuitant and prior to the Annuity Commencement Date,
the Participant may change the ownership interest in the Non-Qualified Contract
as evidenced by the Certificate.
A change of ownership will not be binding upon Us until We receive Written
notification at Our Home Office. When such notification is so received, the
change will be effective as of the date of the signed request for change, but
the change will be without prejudice to Us on account of any payment made or any
action taken by Us prior to receiving the change.
DISTRIBUTION OF PROCEEDS AT DEATH OF PARTICIPANT
If a Participant under a Non-Qualified Contract dies prior to the Annuitant
and before the annuity commencement date, the death benefit must be distributed
to the Beneficiary, if then alive, either (1) within five years after the date
of death of the Participant, or (2) over some period not greater than the life,
or expected life, of the Beneficiary, with annuity payments beginning within one
year after the date of death of the Participant. Any such Beneficiary will not
be entitled to exercise any rights prohibited by applicable federal income tax
law.
These mandatory distribution requirements will not apply when the Beneficiary is
the spouse of the deceased Participant, if the spouse elects to continue the
Certificate in the spouse's own name, as Participant. When the deceased
Participant was also the Annuitant, the surviving spouse (if the Beneficiary)
may elect to be named as both Participant and Annuitant and continue the
Certificate.
If the payee dies after the annuity commencement date and before all of the
payments under the form of annuity then in effect have been distributed, the
remaining amount payable, if any, must be distributed at least as rapidly as the
method of distribution then in effect.
6
<PAGE>
PERIODIC REPORTS
Prior to the annuity commencement date, We will send the Participant, at
least once during each Contract year, a statement showing the Participant's
Account Value as of a date not more than two months previous to the date of
mailing. We will also send such statements as may be required by applicable
laws, rules and regulations.
PARTICIPANT'S ACCOUNT
We will establish a Participant's Account for each Participant under this
Contract and will maintain the Participant's Account during the Accumulation
Period. The Participant's Account Value for any Valuation Period is equal to the
Variable Account Value, if any, plus the Fixed Account Value, if any, of the
Participant's Account for that Valuation Period.
FIXED ACCOUNT
FIXED ACCOUNT
The Fixed Account is a non-unitized separate account that We use to account
for amounts allocated to Guarantee Periods under the Contract. All amounts
allocated to a Guarantee Period, whether Net Purchase Payments or transfers,
become part of the Fixed Account.
FIXED ACCOUNT VALUE
When We receive a Purchase Payment, all or that portion, if any, of the Net
Purchase Payment which is allocated to the Fixed Account will be credited to the
Participant's Account and allocated to the Guarantee Period(s) selected by the
Participant. The Fixed Account Value of a Participant's Account, if any, for any
Valuation Period is equal to the sum of the values in each of the Guarantee
Periods credited to the Participant's Account for such Valuation Period.
The value in any one Guarantee Period on a Valuation Date is the accumulated
value of the Net Purchase Payment (or transfer) at the Guaranteed Interest Rate
minus the accumulated value of surrenders and transfers out of that Guarantee
Period at the Guaranteed Interest Rate.
GUARANTEE PERIODS
The Participant may select one or more Guarantee Period(s) from those We
make available. The period(s) selected will determine the Guaranteed Interest
Rate(s). The Net Purchase Payment or the portion thereof (or amount transferred
in accordance with the transfer privilege described below) allocated to a
particular Guarantee Period will earn interest at the Guaranteed Interest Rate
during the Guarantee Period. Guarantee Periods begin on the Date of Deposit or,
in the case of a transfer, on the effective date of the transfer. The Guarantee
Period is the number of years We credit the Guaranteed Interest Rate. The
expiration date of any Guarantee Period is the last day of the Guarantee Period.
Subsequent Guarantee
Periods begin on the first day following the expiration date. As a result of
Guarantee Period renewals, additional purchase payments and transfers of
portions of the Participant's Account Value, Guarantee Periods of the same
duration may have different expiration dates and Guaranteed Interest Rates.
We will notify the Participant In Writing at least 45 and no more than 75 days
prior to the expiration date for any Guarantee Period. A new Guarantee Period of
the same duration as the previous Guarantee Period will begin automatically at
the end of the previous Guarantee Period unless We receive Written notice to the
contrary from the Participant at least 3 business days prior to the end of such
Guarantee Period. The Participant may elect a different Guarantee Period or
Subaccount from those We offer at such time.
GUARANTEED INTEREST RATES
We will periodically establish an applicable Guaranteed Interest Rate for
each Guarantee Period We offer. These rates will be guaranteed for the duration
of the respective Guarantee Periods.
No Guaranteed Interest Rate shall be less than an effective annual rate of 3%
per year.
7
<PAGE>
MARKET VALUE ADJUSTMENT
Any withdrawal (which for purposes of this section includes transfers,
surrenders, distributions on the death of the Participant or the Annuitant, or
amounts applied to purchase an annuity) from the Fixed Account, other than a
withdrawal effective within 15 days before or after the Expiration Date of a
Guarantee Period, will be subject to a Market Value Adjustment ("MVA").
The Market Value Adjustment may increase or decrease the amount of Fixed Account
Value being withdrawn or transferred. The comparison of two Guaranteed Interest
Rates determines whether the Market Value Adjustment produces an increase or a
decrease. The first rate to compare is the Guaranteed Interest Rate for the
amount being transferred or withdrawn. The second rate is the Guaranteed
Interest Rate then being offered for new Guarantee Periods of the same duration
as that remaining in the Guarantee Period from which the funds are being
withdrawn or transferred. If the first rate exceeds the second by more than
1/2%, the Market Value Adjustment produces an increase. If the first rate does
not exceed the second by at least 1/2%, the Market Value Adjustment produces a
decrease.
The MVA will be determined by multiplying the amount being withdrawn, from the
Guarantee Period by the following factor:
( 1 + I ) n / 12
---------- - 1
( 1 + J + .005 )
where: I is the Guaranteed Interest Rate being credited to the amount being
withdrawn from the existing Guarantee Period, J is the Guaranteed Interest Rate
then being offered for new Guarantee Periods with durations equal to the number
of years remaining in the existing Guarantee Period (rounded up to the next
higher number of years), and N is the number of months remaining in the current
Guarantee Period (rounded up to the next higher number of months).
VARIABLE ACCOUNT
SUBACCOUNTS
The Variable Account has several Subaccounts, each investing in one of the
corresponding Funds Net Purchase Payments for a particular Participant are
initially allocated (after the time period specified under the paragraph
entitled "Allocation of Purchase Payments" under the section entitled "PURCHASE
PAYMENTS" herein) to the Subaccounts and the Fixed Account as shown on the
Certificate Date Page.
We will use the Net Purchase Payments and any transferred amounts to purchase
Fund shares applicable to the Subaccounts at their net asset value. We will be
the owner of all Fund shares purchased with the Net Purchase Payment or
transferred amount.
SUBACCOUNT ACCUMULATION UNITS
Net Purchase Payments and transferred amounts allocated to the Variable
Account will be credited to the Participant's Account in the form of Subaccount
Accumulation Units. The number of Subaccount Accumulation Units is found by
dividing the amount of the Net Purchase Payment or transferred amount allocated
to the Subaccount by the Subaccount Accumulation Unit value at the end of the
Valuation Period in which the Purchase Payment or transfer request was received
at the Home Office. The value of each Subaccount Accumulation Unit with respect
to the Contract was arbitrarily set as of the date the Subaccount first
purchased the Fund shares with respect to the Contract. Subsequent values on any
Valuation Date are equal to the previous Subaccount Accumulation Unit value
times the Net Investment Factor for the Valuation Period ending on that
Valuation Date.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Subaccount from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one; therefore, the
value of an Accumulation Unit may increase, decrease or remain the same.
8
<PAGE>
The Net Investment Factor for a Subaccount is determined by dividing (1) by (2),
and then subtracting (3) from the result, where:
(1) is the net result of:
(a) the Net Asset Value Per Share of the Fund shares held in the
Subaccount, determined at the end of the current Valuation
Period;
(b) plus the per share amount of any dividend or capital gain
distributions made on the Fund shares held in the Subaccount
during the current Valuation Period;
(c) minus a per share charge for the increase plus a per share credit
for the decrease, in any income taxes reserved for which we
determine to have resulted from the investment operations of the
Subaccount or any other taxes which are applicable to this Contract.
(2) is the Net Asset Value Per Share of the Fund shares held in the
Subaccount, determined at the beginning of the current Valuation
Period; and
(3) is a factor representing the mortality risk, expense risk, and
administrative expense charge. We will determine the daily asset
charge factor annually, but in no event may it exceed the Maximum Asset
Charge Factor as specified on the Certificate Data Page.
VARIABLE ACCOUNT VALUE
The Variable Account value of the Participant's Account, if any, for any
Valuation Period is the total of the values in each Subaccount credited to the
Participant's Account for such Valuation Period. The value for each Subaccount
is equal to:
(1) the number of Subaccount Accumulation Units,
(2) times the Subaccount Accumulation Unit value for the Valuation
Period.
The Variable Account value will vary from Valuation Date to Valuation Date
reflecting the total value in the Subaccounts.
ANNUAL ADMINISTRATIVE CHARGE AND PREMIUM TAXES
We will deduct an annual administrative charge of $30 at the following
times:
(1) On each Certificate anniversary.
(2) On the surrender of the Certificate for its full value if not
surrendered on a Certificate anniversary.
Premium taxes, if any, levied by any unit of government will be deducted from
the Certificate Value.
These deductions will be made from the Fixed Account and Variable Account on a
pro rata basis. The amount deducted from the Variable Account value will be
deducted by an automatic surrender of Subaccount Accumulation Units on a pro
rata basis.
TRANSFERS
We will make transfers at the end of the Valuation Period in which We
receive the Participant's request for the transfer, subject to the following
restrictions. The current and maximum transfer charges are shown on the
Certificate Data Page. We reserve the right to restrict the frequency of, or
otherwise condition or terminate, transfers. In addition, the Funds may impose
charges.
Before the annuity commencement date, the Participant may transfer part or all
of the Participant's Account Value subject to the following:
(1) All transfers from the Fixed Account will be subject to a Market
Value Adjustment.
(2) Each transfer must be at least $1,000 or the total value of any
account, if less.
9
<PAGE>
After the annuity commencement date, the Participant may make up to four
transfers per year. The Participant may not make transfers from the Fixed
Account.
SURRENDERS
GENERAL SURRENDER PROVISIONS
The amount surrendered will normally be paid to the Participant within 7
days of:
(1) Our receipt of the Participant's Written request; and
(2) Our receipt of the Certificate, if required.
We reserve the right to defer payment of surrenders from the Fixed Account for
up to 6 months from the date We receive the request.
FULL SURRENDER
At any time prior to the annuity commencement date and during the lifetime
of the Annuitant, the Participant may surrender the Certificate by sending Us a
Written request. The amount payable on surrender is:
(1) the Participant's Account Value at the end of the Valuation Period in
which We receive the Participant's request;
(2) plus or minus any applicable Market Value Adjustment.
The amount payable upon surrender will not be less than the amount required by
state law.
Upon payment of the above surrender amount, the Certificate is terminated and We
have no further obligation under the Certificate.
All collateral assignees must consent to any surrender. We may require that the
Certificate be returned to Our Home Office prior to making payment.
PARTIAL SURRENDER
At any time prior to the annuity commencement date and during the lifetime
of the Annuitant, the Participant may surrender a portion of the Participant's
Account Value. The Participant must send Us a Written request specifying the
accounts from which the surrender is to be made. Surrenders will be made
effective at the end of the Valuation Period in which We receive the Written
request.
The Participant must surrender an amount equal to at least $1,000. If the
remaining Participant's Account Value would be less than $1,000, We may treat
the request as a full surrender.
We will surrender Subaccount Accumulation Units from the Variable Account,
and/or dollar amounts from the Fixed Account, so that the total amount
surrendered equals the sum of the following:
(1) the amount payable to the Participant;
(2) plus or minus any applicable Market Value Adjustment.
DEATH BENEFIT
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
If the Participant or the Annuitant dies prior to the annuity commencement
date, We will pay the death benefit to the Beneficiary.
10
<PAGE>
The amount of the death benefit is the greater of:
(1) The sum of Net Purchase Payments made less any prior surrenders and
any prior negative Market Value Adjustments;
(2) Participant's Account Value adjusted by the Market Value Adjustment
as of the date We receive proof of the Participant's or Annuitant's
death and a Written request from the Beneficiary as to the manner of
payment.
The death benefit will not be less than the amount payable on a full surrender
at the date used to value the death benefit. The death benefit will be paid when
we receive:
(1) Proof of the Participant's or Annuitant's death; and
(2) A Written request from the Beneficiary for either a single sum or
payment under an annuity form.
We will pay a single sum to the Beneficiary unless an annuity option is chosen.
DEATH BENEFIT ON OR AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies on or after the annuity commencement date, the
beneficiary will receive the death benefit, if any, as provided by the annuity
form in effect.
PROOF OF DEATH
We accept any of the following as proof of the Annuitant's or Participant's
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.
(3) A Written statement by a medical doctor who attended the deceased at
the time of death.
(4) Any other proof satisfactory to Us.
PAYMENT OF BENEFITS
GENERAL
On the annuity commencement date, the Contract Value, adjusted by the Market
Value Admustment, will be applied, as specified by the Participant, to provide
payments to the Annuitant under one or more of the annuity options provided in
the Contract or under other settlement options as may be agreed to by the
Company. If more than one person is named as Annuitant due to the designation of
multiple Annuitants, the Participant may elect to name one of such persons to be
the sole Annuitant as of the annuity commencement date.
APPLICATION OF CONTRACT VALUE
Unless directed otherwise, We will apply the Fixed Account value to provide
a Fixed Annuity, and the Variable Account value to provide a Variable Annuity.
The Participant must tell Us In Writing at least 30 days prior to the annuity
commencement date if they want Us to apply Fixed and Variable Account Values in
different proportions.
ANNUITY COMMENCEMENT DATE
The annuity commencement date is selected by the Participant and stated in
the Application. The date must be before the Annuitant's 75th birthday unless we
agree to it. The Participant may change the annuity commencement date at any
time if We receive Written notice at least 30 days before both the current
annuity commencement date and the new annuity commencement date.
If the annuity commencement date does not occur on a Valuation Date that is at
least 2 years after the Issue Date, We reserve the right to change the annuity
commencement date to the first Valuation Date that is at least 2 years after the
Issue Date.
On the annuity commencement date of a Certificate, the particular Participant's
Account will be canceled.
11
<PAGE>
FREQUENCY AND AMOUNT OF PAYMENTS
Annuity payments will be made monthly unless We agree to a different payment
schedule. We reserve the right to change the frequency of either a Fixed Annuity
payment or a Variable Annuity payment so that each payment will be at least $50
($20 in Texas).
FIXED ANNUITY PAYMENTS
Fixed Annuity payments start on the end of the Valuation Period that
contains the annuity commencement date. The amount of the first monthly payment
for the annuity form selected will be at least as favorable as that produced by
the annuity tables of the Certificate for each $1,000 of Participant's Account
Value applied as of the end of such Valuation Period.
The dollar amount of any payments after the first payment are specified during
the entire period of annuity payments, according to the provisions of the
annuity form selected.
VARIABLE ANNUITY PAYMENTS
We convert the Subaccount Accumulation Units into Subaccount Annuity Units
at the values determined at the end of the Valuation Period which contains the
annuity commencement date. The number of Subaccount Accumulation Units remains
constant as long as an annuity remains in force and allocation among the
Subaccounts has not changed.
Each Subaccount Annuity Unit Value was arbitrarily set when the Subaccount first
converted Subaccount Accumulation Units into Annuity Units. Subsequent values on
any Valuation Date are equal to the previous Subaccount Annuity Unit Value times
the Net Investment Factor for that Subaccount for the Valuation Period ending on
that Valuation Date, with an offset for the 3% assumed interest rate used in the
annuity tables of the Certificate.
Variable Annuity payments start on the end of the Valuation Period that contains
the annuity commencement date. The amount of the first monthly payment for the
annuity form selected, is shown on the annuity tables of this Certificate for
each $1,000 applied as of the end of such Valuation Period.
Payments after the first payment will vary in amount and are determined on the
first Valuation Date of each subsequent monthly period. If the monthly payment
under the annuity form selected is based on the variable annuity unit value of a
single Subaccount, the monthly payment is found by multiplying the Subaccount
unit value on the payment date by the number of Subaccount Annuity Units.
If the monthly payment under the annuity form selected is based upon Annuity
Unit values of more than one Subaccount, the above procedure is repeated for
each applicable Subaccount. The sum of these payments is the variable annuity
payment.
We guarantee that the amount of each payment after the first payment will not be
affected by variations in expense or mortality experience.
OPTIONAL ANNUITY FORMS
The Participant may select an annuity form or change a previous selection.
The selection or change must be In Writing and received by Us at least 30 days
before the annuity commencement date. If no annuity form selection is in effect
on the annuity commencement date, we automatically apply Option B, with payments
guaranteed for 10 years.
The following options are available for the Fixed Annuity payments and the
Variable Annuity payments:
OPTION A.--LIFE ANNUITY
Payments are made as of the first valuation date of each monthly period
during the Annuitant's life, starting with the annuity commencement date. No
payments will be made after the Annuitant dies.
12
<PAGE>
OPTION B.--LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS OR 20 YEARS
Payments are made as of the first Valuation Date of each monthly period
starting on the annuity commencement date. Payments will continue as long as
the Annuitant lives. If the Annuitant dies before all of the guaranteed
payments have been made, We will continue installments of the guaranteed
payments to the beneficiary.
OPTION C.--JOINT AND FULL SURVIVOR ANNUITY
Payments are made as of the first Valuation Date of each monthly period
starting with the annuity commencement date. Payments will continue as long
as either the Annuitant or the Joint Annuitant are alive. Payments will stop
when both the Annuitant and the Joint Annuitant have died.
We also have other annuity forms available and information about them can be
obtained by Writing to Us.
13
<PAGE>
OPTION TABLES
Installments shown are for an initial monthly payment for each $1,000 of
Contract Value applied under an option. Age, as used in these tables, is age as
of nearest birthday on the annuity commencement date. Rates for monthly payments
for ages and periods certain not shown, if allowed by us, will be computed on an
actuarially equivalent basis.
ACTUARIAL BASIS
Installments shown in these tables are based on the 1983 Table a and with
<TABLE>
<CAPTION>
compound interest at the effective rate of 3% per year.
<S> <C> <C> <C> <C> <C> <C> <C>
OPTIONS A AND B
<CAPTION>
MALE FEMALE
10 YEAR PERIOD 20 YEAR PERIOD 10 YEAR PERIOD 20 YEAR PERIOD
AGE LIFE ONLY CERTAIN AND LIFE CERTAIN AND LIFE AGE LIFE ONLY CERTAIN AND LIFE CERTAIN AND LIFE
<S> <C> <C> <C> <C> <C> <C> <C>
50 4.27 4.22 4.08 50 3.90 3.89 3.82
51 4.34 4.29 4.14 51 3.97 3.95 3.88
52 4.43 4.37 4.20 52 4.03 4.01 3.93
53 4.51 4.45 4.26 53 4.10 4.08 3.99
54 4.60 4.54 4.32 54 4.18 4.15 4.04
55 4.70 4.62 4.39 55 4.25 4.22 4.11
56 4.80 4.72 4.45 56 4.34 4.30 4.17
57 4.91 4.82 4.51 57 4.42 4.38 4.23
58 5.03 4.92 4.58 58 4.52 4.47 4.30
59 5.15 5.03 4.64 59 4.61 4.56 4.37
60 5.28 5.14 4.71 60 4.72 4.66 4.44
61 5.42 5.26 4.78 61 4.83 4.76 4.51
62 5.57 5.39 4.84 62 4.95 4.86 4.58
63 5.74 5.52 4.90 63 5.07 4.98 4.65
64 5.91 5.66 4.96 64 5.21 5.10 4.72
65 6.10 5.81 5.02 65 5.35 5.22 4.79
66 6.29 5.96 5.08 66 5.51 5.36 4.86
67 6.50 6.11 5.13 67 5.67 5.50 4.93
68 6.73 6.28 5.18 68 5.85 5.65 5.00
69 6.97 6.44 5.23 69 6.04 5.80 5.06
70 7.23 6.61 5.27 70 6.25 5.96 5.12
71 7.51 6.78 5.31 71 6.47 6.14 5.18
72 7.80 6.96 5.34 72 6.71 6.31 5.23
73 8.12 7.14 5.37 73 6.97 6.50 5.28
74 8.45 7.32 5.40 74 7.26 6.69 5.32
75 8.82 7.49 5.42 75 7.56 6.89 5.35
</TABLE>
<TABLE>
<CAPTION>
OPTION C
FEMALE AGE
<S> <C> <C> <C> <C> <C> <C>
50 55 60 65 70
50 3.60 3.75 3.88 3.99 4.08
55 3.69 3.88 4.06 4.24 4.38
MALE
AGE 60 3.76 3.99 4.23 4.49 4.72
65 3.81 4.07 4.38 4.72 5.07
70 3.84 4.14 4.50 4.93 5.40
</TABLE>
14
<PAGE>
FORTIS BENEFITS
INSURANCE COMPANY
ST. PAUL, MINNESOTA
A STOCK COMPANY
The master contract is the legal contract and is separate from this Certificate.
This Certificate is merely a summary of the rights, duties, and benefits of that
master contract. We will pay the Annuitant the first of a series of annuity
payments on the Annuity Commencement Date. Subsequent payments will be paid on
the same day of each month according to the provisions of the Contract. A copy
of the Contract may be obtained by requesting it in writing from us at our Home
Office. If there is any conflict, the Contract is the controlling document.
This Certificate is issued in consideration of the attached application and the
payment of the Purchase Payment shown on the Certificate Data Page.
Signed for Fortis Benefits on the Certificate Issue Date.
To present inquiries or obtain information about your coverage, or for
assistance in resolving complaints, our toll-free number is 1-800-800-2638.
RIGHT TO RETURN CERTIFICATE
You may cancel this Certificate by delivering or mailing a written notice or
sending a telegram to the Company and returning the Certificate before midnight
of the tenth day after the date you receive it. Notice given by mail and return
of the Certificate by mail are effective on being postmarked, properly
addressed, and postage prepaid. The Company must return the sum of (a) the
difference between the premiums paid including any contract fees or other
charges and the amounts allocated to any separate accounts including the Fixed
Account under the contract and (b) the cash value of the Certificate, or if the
Certificate does not have a cash value, the reserve for the Certificate, on the
date the returned Certificate is received by the Company or its agent. The
Company must return the payment within 10 days after it receives notice of
cancellation and the returned Certificate.
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
CERTIFICATE FOR
FLEXIBLE PREMIUM DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING. NO DIVIDENDS.
ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE, MAY INCREASE OR DECREASE AND
ARE NOT GUARANTEED AS TO AMOUNT. THE VARIABLE PROVISIONS OF THIS CERTIFICATE ARE
FOUND ON PAGES 9 AND 10.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, WHICH MAY RESULT IN UPWARD AND DOWNWARD ADJUSTMENTS IN
AMOUNTS PAYABLE, INCLUDING SURRENDERS, TRANSFERS, AMOUNTS APPLIED TO PURCHASE AN
ANNUITY, AND DISTRIBUTIONS RESULTING FROM THE DEATH OF THE PARTICIPANT OR
ANNUITANT. PAYMENTS MADE FROM FIXED ACCOUNT VALUES WHICH ARE WITHIN 15 DAYS
BEFORE OR AFTER THE END OF A GUARANTEED PERIOD ARE NOT SUBJECT TO THE MARKET
VALUE ADJUSTMENT.
<PAGE>
READ YOUR CERTIFICATE CAREFULLY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE #
---------
<S> <C>
Annuitant........................................................ 2
Beneficiary...................................................... 5
Death Benefit.................................................... 11, 12
Definitions...................................................... 2, 3, 4
Fixed Account.................................................... 7, 8
Fixed Annuity Payments........................................... 12
General Provisions............................................... 4, 5, 6
Guarantees....................................................... 8
Market Value Adjustment.......................................... 8, 9
Ownership........................................................ 6, 7
Purchase Payments................................................ 6
Surrenders....................................................... 10, 11
Termination...................................................... 6
Transfers........................................................ 10
Variable Account................................................. 9, 10
Variable Annuity Payments........................................ 13
</TABLE>
Any Certificate amendments or endorsements follow the Certificate Data Page.
Additional benefits added by rider follow the Optional Annuity Forms Tables.
<PAGE>
CERTIFICATE DATA PAGE
<TABLE>
<S> <C>
ANNUITANT:
CONTRACT NUMBER:
CONTRACT ISSUE DATE:
OWNER:
ANNUITY COMMENCEMENT DATE:
INITIAL PURCHASE PAYMENT:
MAXIMUM ASSET CHARGE FACTOR: 0.45% Annually (or .0012329% Daily)
(For the Variable Account Only)
</TABLE>
<TABLE>
<CAPTION>
CURRENT MAXIMUM
----------- -----------
<S> <C> <C> <C>
TRANSFER CHARGE: $ 0.00 $ 25.00
THE ANNUAL ADMINISTRATIVE CHARGE IS $30.
SURRENDER CHARGE: None.
INITIAL ALLOCATION OF NET PURCHASE PAYMENTS:
</TABLE>
<TABLE>
<CAPTION>
INITIAL NET PURCHASE
INVESTMENT CHOICE PERCENTAGE PAYMENT DOLLAR AMOUNT
- ------------------------------------------------------------------------ ----------- --------------- ---------------
<S> <C> <C> <C>
VARIABLE ACCOUNT
Alliance Money Market Subaccount........................................ $
Alliance International Subaccount....................................... $
Alliance Premier Growth Subaccount...................................... $
Dreyfus Growth and Income Subaccount.................................... $
Dreyfus Stock Index Subaccount.......................................... $
Dreyfus Quality Bond Subaccount......................................... $
Dreyfus Managed Assets Subaccount....................................... $
Federated High Yield Subaccount......................................... $
Federated Utility Subaccount............................................ $
Federated Equity Growth and Income Subaccount........................... $
Lexington Natural Resources Subaccount.................................. $
Lexington Emerging Markets Subaccount................................... $
MFS Emerging Growth Subaccount.......................................... $
MFS High Income Subaccount.............................................. $
MFS World Governments Subaccount........................................ $
Montgomery Emerging Markets Subaccount.................................. $
Montgomery Growth Subaccount............................................ $
Strong Discovery Subaccount............................................. $
Strong Government Securities Subaccount................................. $
Strong Advantage Subaccount............................................. $
Strong International Stock Subaccount................................... $
TCI Balanced Subaccount................................................. $
TCI Growth Subaccount................................................... $
Van Eck Worldwide Bond Subaccount....................................... $
Van Eck Gold and Natural Resources Subaccount........................... $
FIXED ACCOUNT
1 year guarantee period................................................. $
2 year guarantee period................................................. $
3 year guarantee period................................................. $
4 year guarantee period................................................. $
5 year guarantee period................................................. $
6 year guarantee period................................................. $
7 year guarantee period................................................. $
8 year guarantee period................................................. $
9 year guarantee period................................................. $
10 year guarantee period................................................ $
</TABLE>
<PAGE>
DEFINITIONS
WE, US, OUR, THE COMPANY
Fortis Benefits Insurance Company.
YOU, YOUR, THE PARTICIPANT
The person named in this Certificate who is entitled to exercise all rights
and privileges of ownership under this Certificate except as reserved by the
Owner.
ACCUMULATION UNIT
A unit of measurement used to calculate the value of your interest in the
Variable Account before the annuity commencement date.
ANNUITANT
The person or persons on whose life the first annuity payment is to be made.
If more than one person is so named, all provisions of the Certificate which are
based on the death of the "Annuitant" will be based on the date of death of the
last survivor of the persons so named. By example, the death benefit will become
due only upon the death, prior to the annuity commencement date, of the last
survivor of the persons so named. Collectively, these persons are referred to in
the Certificate as "Annuitant" or "Annuitants." The Participant is not permitted
to name more than one Annuitant under a Qualified Certificate.
ANNUITY UNIT
A unit of measurement to calculate variable annuity payments.
APPLICATION
The document You signed for participation under the master contract.
BENEFICIARY
The person entitled to receive benefits as per the terms of the Certificate
in case of the death of the Annuitant or the Participant or the joint
Participant, as applicable.
CERTIFICATE ISSUE DATE
The date on which this Certificate becomes effective as shown on the
Certificate Data Page.
CERTIFICATE VALUE
The total of the Fixed Account value and the Variable Account value.
CERTIFICATE YEAR
A period of 12 consecutive months beginning on the Certificate Issue Date or
any anniversary thereafter.
DATE OF DEPOSIT
The date We receive any Purchase Payment at our Home Office.
DESIGNATED BENEFICIARY
The person designated as the beneficiary by the Participant.
FIXED ACCOUNT
The Fixed Account is a non-unitized separate account that We use to account
for amounts allocated to Guarantee Periods.
FIXED ANNUITY OPTION
An annuity option with payments which do not vary as to dollar amount.
FUND
The "Fund" or "Funds" are those investment portfolios available under the
master contract to which the Participant may allocate Purchase Payments, each of
which is, or is a series of, a management investment company registered under
the Investment Company Act of 1940.
2
<PAGE>
GUARANTEE PERIOD
The period for which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE
The rate of interest We credit on an effective annual basis during any
Guarantee Period.
HOME OFFICE
Our office at 500 Bielenberg Drive, Woodbury, Minnesota 55125;
1-800-827-5877; Mailing Address: P.O. Box 64272, St. Paul, Minnesota 55164.
MARKET VALUE ADJUSTMENT
Positive or negative adjustment in the Fixed Account value that We make if
such value is paid out more than 15 days before or after the end of a Guarantee
Period in which it was being held.
NET ASSET VALUE PER SHARE
The net assets of a Fund portfolio divided by the number of shares in a Fund
portfolio.
NET PURCHASE PAYMENT
The gross amount of the Purchase Payment less any applicable premium taxes.
NON-QUALIFIED CERTIFICATES
Certificates that do not qualify for the special federal income tax
treatment applicable in connection with retirement plans.
OWNER
The person, persons or entity entitled to the ownership rights stated in the
master contract and in whose name or names the master contract is issued. The
Owner may designate a trustee or custodian of a retirement plan which meets the
requirements of Section 401, Section 408(c), Section 408(k), or Section 457 of
the Internal Revenue Code to serve as legal owner of assets of a retirement
plan, but the term "Owner" as used herein, shall refer to the organization
entering into the master contract.
PARTICIPANT'S ACCOUNT
Your account to which each Purchase Payment is credited.
PURCHASE PAYMENT
An amount paid to the Company under this Certificate as consideration for
the benefits described herein.
QUALIFIED CERTIFICATES
Certificates that are qualified for the special federal income tax treatment
applicable in connection with certain retirement plans.
SUBACCOUNT
The Subaccounts of the Variable Account to which Certificate Value may be
allocated. Each Subaccount invests all of its assets in a portfolio of a Fund
having the same investment policies and objectives as that Subaccount.
VALUATION DATE
All business days except, with respect to any Subaccount, days on which the
related portfolio does not value its shares.
VALUATION PERIOD
The period that starts at the close of the New York Stock Exchange on a
Valuation Date and ends at the close of the Exchange on the next succeeding
Valuation Date.
VARIABLE ACCOUNT
A segregated investment account entitled "Variable Account D," established
by us pursuant to applicable law. That portion of the assets of the Variable
Account equal to the reserves and other Contract liabilities with respect to the
3
<PAGE>
Variable Account shall not be chargeable with liabilities arising out of any
other business We may conduct. Income, gains and losses, whether or not
realized, from assets allocated to the Variable Account, are credited to or
charged against such account without regard to our other income, gains or
losses.
VARIABLE ANNUITY
An annuity option under which We promise to pay the annuitant or other
properly designated payee one or more payments which vary in amount in
accordance with the net investment experience of the applicable Subaccounts
selected to measure the value of the payments.
WRITTEN, IN WRITING
A written request or notice in acceptable form and content, which is signed,
dated, and received at our Home Office.
GENERAL PROVISIONS
THE CERTIFICATE
This Certificate is issued in consideration of the payment of the initial
Purchase Payment. Only an Officer of The Company can agree to change or waive
any provisions of this Certificate.
INCONTESTABILITY
The Contract and this Certificate are incontestable.
MISSTATEMENT OF AGE OR SEX
If any date of birth or sex, or both, has been misstated in the Application,
or elsewhere, the amounts payable under this Certificate will be the amounts
which would have been provided using the correct age or sex, or both. Any
deficiency in the payments already made by Us will be paid immediately and any
excess in the payments already made by Us will be charged against the benefits
falling due after adjustment. The amount of any adjustment will be credited or
charged interest at the effective annual rate of 3% per year.
GUARANTEES
Subject to the Net Investment Factor provision, We guarantee that the dollar
amount of Variable Annuity payments made during the lifetime of the payee(s)
will not be adversely affected by Our actual mortality experience or by the
actual expenses incurred by Us in excess of the expense deductions provided for
in the Contract.
SETTLEMENT
All benefits under this Certificate are payable from Our Home Office.
NON-PARTICIPATING
This Certificate is non-participating and does not share in Our surplus
earnings.
BENEFICIARY
Subject to the rights of an irrevocably designated beneficiary, you may
change or revoke the designation of a beneficiary at any time while a
Participant and the Annuitant are living. You must send Us a Written beneficiary
designation or revocation. The change or revocation will not be binding upon Us
until it is received by Us at Our Home Office. When it is so received, the
change or revocation will be effective as of the date on which the beneficiary
designation or revocation was signed, but the change or revocation will be
without prejudice to The Company on account of any payment made or any action
taken by The Company prior to receiving the change or revocation.
In the event of the death of a Participant or the Annuitant prior to the Annuity
Commencement Date, the Beneficiary will be as follows: The Beneficiary shall be
the surviving Participant, if any, notwithstanding that the Designated
Beneficiary may be different. Otherwise, the Beneficiary will be the Designated
Beneficiary. If there is no such Designated Beneficiary in effect or if such
Designated Beneficiary is no longer living, the estate of the last surviving
Participant will be the Beneficiary.
4
<PAGE>
RIGHTS RESERVED BY US
Upon notice to You and the Owner of the Contract, this Certificate may be
modified by Us, but only if such modification is necessary to:
(1) Operate the Variable Account in any form permitted under the
Investment Company Act of 1940 or in any other form permitted by law.
(2) Transfer any assets in any Subaccount to another Subaccount, or to
one or more separate accounts, or to the fixed account.
(3) Add, combine or remove Subaccounts in the Variable Account.
(4) Substitute for the shares held in any Subaccount, the shares of
another Fund.
(5) Make any changes as required by the Internal Revenue Code or by any
other applicable law in order to continue treatment of the Contract as an
annuity.
When required by law, we will obtain Your approval of changes and We will gain
approval from any appropriate regulatory authority.
TERMINATION
This Certificate remains in force until surrendered for its full value, or
all annuity payments have been made, or the death benefit has been paid.
If the Certificate Value is less than $1,000, We may cancel this Certificate on
any Valuation Date. We will notify You at least 90 days in advance of Our
intention to cancel this Certificate. Such cancellation would be considered a
full surrender of this Certificate.
PURCHASE PAYMENTS
PAYMENTS
The initial Purchase Payment is shown on the Certificate Date Page. The
initial Purchase Payment must be at least $5,000 ($2,000 for Qualified
Contracts). Additional Purchase Payments must be at least $500. We reserve the
right to refuse a Purchase Payment for any reason.
ALLOCATION OF PURCHASE PAYMENTS
The initial allocation for all Net Purchase Payments is shown on the
Certificate Data Page and will remain in effect until changed by Written notice.
The percentage allocation for future Net Purchase Payments may be changed at any
time by Written notice. Changes in the allocation will be effective on the date
We receive Your notice. The allocation may be 100% to any available Subaccount
or Guarantee Period, or may be divided among the accounts in whole percentage
points totaling 100%.
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
The Contract belongs to the Owner. Unless any rights and privileges have
been expressly reserved by the Owner, You will be entitled to exercise all
rights and privileges in connection with this Certificate. In any case, such
rights and privileges can be exercised without the consent of the Beneficiary
(other than an irrevocably designated beneficiary) or any other person. Such
rights and privileges may be exercised only during the lifetime of the Annuitant
and prior to the Annuity Commencement Date, except as otherwise provided in this
Certificate.
Unless You specify otherwise, the Annuitant becomes the Payee on the annuity
commencement date. The Beneficiary becomes the Payee on the death of You or the
Annuitant. Such Payees may thereafter exercise such rights and privileges, if
any, of ownership which continue.
CHANGE OF OWNERSHIP
Ownership of a Qualified Certificate may not be transferred except to: (1)
the Annuitant; (2) a trustee or successor trustee of a pension or profit sharing
trust which is qualified under Section 401 of the Internal Revenue Code; (3) the
5
<PAGE>
employer of the Annuitant provided that the Qualified Contract after transfer is
maintained under the terms of a retirement plan qualified under Section 403(a)
of the Internal Revenue Code for the benefit of the Annuitant; (4) the trustee
of an individual retirement account plan qualified under Section 408 of the
Internal Revenue Code; or (5) as otherwise permitted from time to time by laws
and regulations governing the retirement or deferred compensation plans for
which a Qualified Certificate may be issued. In no other case may a Qualified
Certificate be sold, assigned, transferred, discounted or pledged as collateral.
The owner of a Non-Qualified Certificate may change the ownership of the
Certificate. During the lifetime of the Annuitant and prior to the Annuity
Commencement Date, You may change the ownership interest in the Non-Qualified
Certificate.
A change of ownership will not be binding upon Us until We receive Written
notification at Our Home Office. When such notification is so received, the
change will be effective as of the date You signed the request for change, but
the change will be without prejudice to Us on account of any payment made or any
action taken by Us prior to receiving the change.
DISTRIBUTION OF PROCEEDS AT DEATH OF PARTICIPANT
If a Participant under a Non-Qualified Certificate dies prior to the
Annuitant and before the annuity commencement date, the death benefit must be
distributed to the Beneficiary, if then alive, either (1) within five years
after the date of death of the Participant, or (2) over some period not greater
than the life, or expected life, of the Beneficiary, with annuity payments
beginning within one year after the date of death of the Participant. Any such
Beneficiary will not be entitled to exercise any rights prohibited by applicable
federal income tax law.
These mandatory distribution requirements will not apply when the Beneficiary is
the spouse of the deceased Participant, if the spouse elects to continue the
Certificate in the spouse's own name, as Participant. When the deceased
Participant was also the Annuitant, the surviving spouse (if the Beneficiary)
may elect to be named as both Participant and Annuitant and continue the
Certificate.
If the payee dies after the annuity commencement date and before all of the
payments under the form of annuity then in effect have been distributed, the
remaining amount payable, if any, must be distributed at least as rapidly as the
method of distribution then in effect.
PERIODIC REPORTS
Prior to the annuity commencement date, We will send You, at least once
during each Certificate Year, a statement showing the Certificate Value as of a
date not more than two months previous to the date of mailing. We will also send
such statements as may be required by applicable laws, rules and regulations.
FIXED ACCOUNT
FIXED ACCOUNT
The Fixed Account is a non-unitized separate account that We use to account
for amounts allocated to Guarantee Periods. All amounts allocated to a Guarantee
Period, whether Net Purchase Payments or transfers, become part of the Fixed
Account.
FIXED ACCOUNT VALUE
When We receive a Purchase Payment, all or that portion, if any, of the Net
Purchase Payment which is allocated to the Fixed Account will be allocated to
the Guarantee Period(s) You select. Your Fixed Account Value, if any, for any
Valuation Period is equal to the sum of the values in each of the Guarantee
Periods.
The value in any one Guarantee Period on a Valuation Date is the accumulated
value of the Net Purchase Payment (or transfer) at the Guaranteed Interest Rate
minus the accumulated value of surrenders and transfers out of that Guarantee
Period at the Guaranteed Interest Rate.
GUARANTEE PERIODS
You may select one or more Guarantee Period(s) from those We make available.
The period(s) selected will determine the Guaranteed Interest Rates(s). The Net
Purchase Payment or the portion thereof (or amount transferred in accordance
with the transfer privilege described below) allocated to a particular Guarantee
Period will earn interest at the Guaranteed
6
<PAGE>
Interest Rate during the Guarantee Period. Guarantee Periods begin on the Date
of Deposit or, in the case of a transfer, on the effective date of the transfer.
The Guarantee Period is the number of years We credit the Guaranteed Interest
Rate. The expiration date of any Guarantee Period is the last day of the
Guarantee Period. Subsequent Guarantee Periods begin on the first day following
the expiration date. As a result of Guarantee Period renewals, additional
purchase payments and transfers of portions of the Certificate Value, Guarantee
Periods of the same duration may have different expiration dates and Guaranteed
Interest Rates.
We will notify You In Writing at least 45 and no more than 75 days prior to the
expiration date for any Guarantee Period. A new Guarantee Period of the same
duration as the previous Guarantee Period will begin automatically at the end of
the previous Guarantee Period unless We receive Written notice to the contrary
at least 3 business days prior to the end of such Guarantee Period. You may
elect a different Guarantee Period or Subaccount from those We offer at such
time.
GUARANTEED INTEREST RATES
We will periodically establish an applicable Guaranteed Interest Rate for
each Guarantee Period We offer. These rates will be guaranteed for the duration
of the respective Guarantee Periods.
No Guaranteed Interest Rate shall be less than an effective annual rate of 3%
per year.
MARKET VALUE ADJUSTMENT
Any withdrawal (which for purposes of this section includes transfers,
surrenders, distributions on the death of You or the Annuitant, or amounts
applied to purchase an annuity) from the Fixed Account, other than a withdrawal
effective within 15 days of the Expiration Date of a Guarantee Period, will be
subject to a Market Value Adjustment ("MVA").
The Market Value Adjustment may increase or decrease the amount of Fixed Account
Value being withdrawn or transferred. The comparison of two Guaranteed Interest
Rates determines whether the Market Value Adjustment produces an increase or a
decrease. The first rate to compare is the Guaranteed Interest Rate for the
amount being transferred or withdrawn. The second rate is the Guaranteed
Interest Rate then being offered for new Guarantee Periods of the same duration
as that remaining in the Guarantee Period from which the funds are being
withdrawn or transferred. If the first rate exceeds the second by more than
1/2%, the Market Value Adjustment produces an increase. If the first rate does
not exceed the second by at least 1/2%, the Market Value Adjustment produces a
decrease.
The MVA will be determined by multiplying the amount being withdrawn, from the
Guarantee Period by the following factor:
( 1 + I ) n / 12
---------- - 1
( 1 + J + .005 )
where:
-I is the Guaranteed Interest Rate being credited to the amount being
withdrawn from the existing Guarantee Period,
-J is the Guaranteed Interest Rate then being offered for new Guarantee
Periods with durations equal to the number of years remaining in the
existing Guarantee Period (rounded up to the next higher number of years),
and
-N is the number of months remaining in the current Guarantee Period
(rounded up to the next higher number of months).
VARIABLE ACCOUNT
SUBACCOUNTS
The Variable Account has several Subaccounts, each investing in one of the
corresponding Funds. Net Purchase Payments are initially allocated to the
Subaccounts and the Fixed Account as shown on the Certificate Date Page.
We will use the Net Purchase Payments and any transferred amounts to purchase
Fund shares applicable to the Subaccounts at their net asset value. We will be
the owner of all Fund shares purchased with the Net Purchase Payment or
transferred amount.
7
<PAGE>
SUBACCOUNT ACCUMULATION UNITS
Net Purchase Payments received under this Certificate and transferred
amounts allocated to the Variable Account will be credited in the form of
Subaccount Accumulation Units. The number of Subaccount Accumulation Units is
found by dividing the amount of the Net Purchase Payment or transferred amount
allocated to the Subaccount by the Subaccount Accumulation Unit value at the end
of the Valuation Period in which the Purchase Payment or transfer request was
received at the Home Office. The value of each Subaccount Accumulation Unit with
respect to the Contracts was arbitrarily set as of the date the Subaccount first
purchased the Fund shares with respect to the Contract. Subsequent values on any
Valuation Date are equal to the previous Subaccount Accumulation Unit value
times the Net Investment Factor for the Valuation Period ending on that
Valuation Date.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Subaccount from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one; therefore, the
value of an Accumulation Unit may increase, decrease or remain the same.
The Net Investment Factor for a Subaccount is determined by dividing (1) by (2)
and then subtracting (3) from the result, where:
(1) is the net result of:
(a) the Net Asset Value Per Share of the Fund shares held in the
Subaccount, determined at the end of the current Valuation Period;
(b) plus the per share amount of any dividend or capital gain
distributions made on the Fund shares held in the Subaccount during the
current Valuation Period;
(c) minus a per share charge for the increase plus a per share credit
for the decrease, in any income taxes reserved for which we determine to
have resulted from the investment operations of the Subaccount or any
other taxes which are applicable to the Certificate.
(2) is the Net Asset Value Per Share of the Fund shares held in the
Subaccount, determined at the beginning of the current Valuation Period; and
(3) is a factor representing the mortality risk, expense risk, and
administrative expense charge. We will determine the daily asset charge
factor annually, but in no event may it exceed the Maximum Asset Charge
Factor as specified on the Certificate Data Page.
VARIABLE ACCOUNT VALUE
Your Variable Account value for any Valuation Period is the total of Your
values in each Subaccount. Your value for each Subaccount is equal to:
(1) Your number of Subaccount Accumulation Units,
(2) times the Subaccount Accumulation Unit value for the Valuation
Period.
Your Variable Account value will vary from Valuation Date to Valuation Date
reflecting Your total value in the Subaccounts.
ANNUAL ADMINISTRATIVE CHARGE AND PREMIUM TAXES
We will deduct an annual administrative charge of $30 at the following
times:
(1) On each Certificate anniversary.
(2) On the surrender of this Certificate for its full value if not
surrendered on a Certificate anniversary.
Premium taxes, if any, levied by any unit of government will be deducted from
the Certificate Value.
These deductions will be made from the Fixed Account and Variable Account on a
pro rata basis. The amount deducted from the Variable Account value will be
deducted by an automatic surrender of Subaccount Accumulation Units on a pro
rata basis.
8
<PAGE>
TRANSFERS
We will make transfers among the Fixed Account and Subaccounts at the end of
the Valuation Period in which We receive Your request for the transfer, subject
to the following restrictions. The current and maximum transfer charges are
shown on the Certificate Data Page. In addition, the Funds may impose charges.
We reserve the right to restrict the frequency of, or otherwise condition or
terminate, transfers.
Before the annuity commencement date, You may transfer part or all of Your
Certificate Value subject to the following:
(1) All transfers from the Fixed Account will be subject to a Market
Value Adjustment.
(2) Each transfer must be at least $1,000 or the total value of any
account, if less.
After the annuity commencement date, You may make up to four transfers per year.
You may not make transfers from the Fixed Account.
SURRENDERS
GENERAL SURRENDER PROVISIONS
The amount surrendered will normally be paid to You within 7 days of:
(1) Our receipt of Your Written request; and
(2) Our receipt of this Certificate, if required.
We reserve the right to defer payment of surrenders from the Fixed Account for
up to 6 months from the date We receive Your request.
FULL SURRENDER
At any time prior to the annuity commencement date and during the lifetime
of the Annuitant, You may surrender this Certificate by sending Us a Written
request. The amount payable on surrender is:
(1) Certificate Value at the end of the Valuation Period in which We
receive Your request;
(2) Plus or minus any applicable Market Value Adjustment.
The amount payable upon surrender will not be less than the amount required by
state law.
Upon payment of the above surrender amount, this Certificate is terminated and
We have no further obligation under this Certificate.
All collateral assignees must consent to any surrender. We may require that this
Certificate be returned to Our Home Office prior to making payment.
PARTIAL SURRENDER
At any time prior to the annuity commencement date and during the lifetime
of the Annuitant, You may surrender a portion of the Fixed Account value and/or
the Variable Account value. You must send Us a Written request specifying the
accounts from which the surrender is to be made. Surrenders will be made
effective at the end of the Valuation Period in which We receive Your Written
request.
You must surrender an amount equal to at least $1,000. If the Certificate Value
remaining would be less than $1,000, We may treat the request as a full
surrender.
We will surrender Subaccount Accumulation Units from the Variable Account,
and/or dollar amounts from the Fixed Account, so that the total amount
surrendered equals the sum of the following:
(1) the amount payable to You;
(2) plus or minus any applicable Market Value Adjustment.
9
<PAGE>
DEATH BENEFIT
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
If You or the Annuitant die prior to the annuity commencement date, We will
pay the death benefit to the Beneficiary.
The amount of the death benefit is the greater of:
(1) The sum of Net Purchase Payments made less any prior surrenders and
any prior negative Market Value Adjustments; or
(2) Certificate Value adjusted by the Market Value Adjustment as of the
date We receive proof of the Annuitant's or Your death and a Written request
from the Beneficiary for either a single sum payment or payment under an
annuity form.
The death benefit will not be less than the amount payable on a full surrender
at the date used to value the death benefit. The death benefit will be paid when
we receive:
(1) Proof of the Annuitant's or Your death; and
(2) A Written request from the Beneficiary for either a single sum or
payment under an annuity form.
We will pay a single sum to the Beneficiary unless an annuity option bs chosen.
DEATH BENEFIT ON OR AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies on or after the annuity commencement date, the
beneficiary will receive the death benefit, if any, as provided by the annuity
form in effect.
PROOF OF DEATH
We accept any of the following as proof of the Annuitant's or Participant's
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.
(3) A Written statement by a medical doctor who attended the deceased at
the time of death.
(4) Any other proof satisfactory to Us.
PAYMENT OF BENEFITS
GENERAL
On the annuity commencement date, the Contract Value, adjusted by the Market
Value Adjustment, will be applied, as specified by the Participant, to provide
payments to the Annuitant under one or more of the annuity options provided in
the Contract or under such other settlement options as may be agreed to by the
Company. If more than one person is named as Annuitant due to the designation of
multiple Annuitants, the Participant may elect to name one of such persons to be
the sole Annuitant as of the annuity commencement date.
APPLICATION OF CERTIFICATE VALUE
Unless directed otherwise, We will apply the Fixed Account value to provide
a Fixed Annuity, and the Variable Account value to provide a Variable Annuity.
You must tell Us In Writing at least 30 days prior to the annuity commencement
date if You want Us to apply Fixed and Variable Account Values in different
proportions.
ANNUITY COMMENCEMENT DATE
The annuity commencement date is selected by You and stated in the
Application. The date must be before the Annuitant's 75th birthday unless We
agree to it. You may change the annuity commencement date at any time if We
receive Written notice at least 30 days before both the current annuity
commencement date and the new annuity commencement date.
10
<PAGE>
If the annuity commencement date does not occur on a Valuation Date that is at
least 2 years after the Certificate Issue Date, We reserve the right to change
the annuity commencement date to the first Valuation Date that is at least 2
years after the Certificate Issue Date.
FREQUENCY AND AMOUNT OF PAYMENTS
Annuity payments will be made monthly unless We agree to a different payment
schedule. We reserve the right to change the frequency of either a Fixed Annuity
payment or a Variable Annuity payment so that each payment will be at least $50
($20 in Texas).
FIXED ANNUITY PAYMENTS
Fixed Annuity payments start on the end of the Valuation Period that
contains the annuity commencement date. The amount of the first monthly payment
for the annuity form selected will be at least as favorable as that produced by
the annuity tables of this Certificate for each $1,000 of Certificate Value
applied as of the end of such Valuation Period.
The dollar amount of any payments after the first payment are specified during
the entire period of annuity payments, according to the provisions of the
annuity form selected.
VARIABLE ANNUITY PAYMENTS
We convert the Subaccount Accumulation Units into Subaccount Annuity Units
at the values determined at the end of the Valuation Period which contains the
annuity commencement date. The number of Subaccount Accumulation Units remains
constant as long as an annuity remains in force and allocation among the
Subaccounts has not changed.
Each Subaccount Annuity Unit Value was arbitrarily set when the Subaccount first
converted Subaccount Accumulation Units into Annuity Units. Subsequent values on
any Valuation Date are equal to the previous Subaccount Annuity Unit Value times
the Net Investment Factor for that Subaccount for the Valuation Period ending on
that Valuation Date, with an offset for the 3% assumed interest rate used in the
annuity tables of this Certificate.
Variable Annuity payments start on the end of the Valuation Period that contains
the annuity commencement date. The amount of the first monthly payment for the
annuity form selected, is shown on the annuity tables of this Certificate for
each $1,000 of Certificate Value applied as of the end of such Valuation Period.
Payments after the first payment will vary in amount and are determined on the
first Valuation Date of each subsequent monthly period. If the monthly payment
under the annuity form selected is based on the variable annuity unit value of a
single Subaccount, the monthly payment is found by multiplying the Subaccount
unit value on the payment date by the number of Subaccount Annuity Units.
If the monthly payment under the annuity form selected is based upon Annuity
Unit values of more than one Subaccount, the above procedure is repeated for
each applicable Subaccount. The sum of these payments is the variable annuity
payment.
We guarantee that the amount of each payment after the first payment will not be
affected by variations in expense or mortality experience.
OPTIONAL ANNUITY FORMS
You may select an annuity form or change a previous selection. The selection
or change must be In Writing and received by Us at least 30 days before the
annuity commencement date. If no annuity form selection is in effect on the
annuity commencement date, We automatically apply Option B, with payments
guaranteed for 10 years.
The following options are available for the Fixed Annuity payments and the
Variable Annuity payments:
OPTION A.--LIFE ANNUITY
Payments are made as of the first valuation date of each monthly period
during the Annuitant's life, starting with the annuity commencement date. No
payments will be made after the Annuitant dies.
11
<PAGE>
OPTION B.--LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS OR 20 YEARS
Payments are made as of the first Valuation Date of each monthly period
starting on the annuity commencement date. Payments will continue as long as
the Annuitant lives. If the Annuitant dies before all of the guaranteed
payments have been made, We will continue installments of the guaranteed
payments to the beneficiary.
OPTION C.--JOINT AND FULL SURVIVOR ANNUITY
Payments are made as of the first Valuation Date of each monthly period
starting with the annuity commencement date. Payments will continue as long
as either the Annuitant or the Joint Annuitant is alive. Payments will stop
when both the Annuitant and the Joint Annuitant have died.
We also have other annuity forms available and information about them can be
obtained by Writing to Us.
The annuity tables show the amount of the first annuity payment, for each $1,000
of Certificate Value applied under Options A, B, and C.
12
<PAGE>
OPTION TABLES
Installments shown are for an initial monthly payment for each $1,000 of
Contract Value applied under an option. Age, as used in these tables, is age as
of nearest birthday on the annuity commencement date. Rates for monthly payments
for ages and periods certain not shown, if allowed by us, will be computed on an
actuarially equivalent basis.
ACTUARIAL BASIS
Installments shown in these tables are based on the 1983 Table a and with
<TABLE>
<CAPTION>
compound interest at the effective rate of 3% per year.
<S> <C> <C> <C> <C> <C> <C> <C>
OPTIONS A AND B
<CAPTION>
MALE FEMALE
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
10 YEAR PERIOD 20 YEAR PERIOD 10 YEAR PERIOD 20 YEAR PERIOD
CERTAIN AND CERTAIN AND CERTAIN AND CERTAIN AND
AGE LIFE ONLY LIFE LIFE AGE LIFE ONLY LIFE LIFE
<S> <C> <C> <C> <C> <C> <C> <C>
50 4.27 4.22 4.08 50 3.90 3.89 3.82
51 4.34 4.29 4.14 51 3.97 3.95 3.88
52 4.43 4.37 4.20 52 4.03 4.01 3.93
53 4.51 4.45 4.26 53 4.10 4.08 3.99
54 4.60 4.54 4.32 54 4.18 4.15 4.04
55 4.70 4.62 4.39 55 4.25 4.22 4.11
56 4.80 4.72 4.45 56 4.34 4.30 4.17
57 4.91 4.82 4.51 57 4.42 4.38 4.23
58 5.03 4.92 4.58 58 4.52 4.47 4.30
59 5.15 5.03 4.64 59 4.61 4.56 4.37
60 5.28 5.14 4.71 60 4.72 4.66 4.44
61 5.42 5.26 4.78 61 4.83 4.76 4.51
62 5.57 5.39 4.84 62 4.95 4.86 4.58
63 5.74 5.52 4.90 63 5.07 4.98 4.65
64 5.91 5.66 4.96 64 5.21 5.10 4.72
65 6.10 5.81 5.02 65 5.35 5.22 4.79
66 6.29 5.96 5.08 66 5.51 5.36 4.86
67 6.50 6.11 5.13 67 5.67 5.50 4.93
68 6.73 6.28 5.18 68 5.85 5.65 5.00
69 6.97 6.44 5.23 69 6.04 5.80 5.06
70 7.23 6.61 5.27 70 6.25 5.96 5.12
71 7.51 6.78 5.31 71 6.47 6.14 5.18
72 7.80 6.96 5.34 72 6.71 6.31 5.23
73 8.12 7.14 5.37 73 6.97 6.50 5.28
74 8.45 7.32 5.40 74 7.26 6.69 5.32
75 8.82 7.49 5.42 75 7.56 6.89 5.35
</TABLE>
<TABLE>
<CAPTION>
OPTION C
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
FEMALE AGE
<S> <C> <C> <C> <C> <C> <C>
50 55 60 65 70
50 3.60 3.75 3.88 3.99 4.08
55 3.69 3.88 4.06 4.24 4.38
MALE
AGE 60 3.76 3.99 4.23 4.49 4.72
65 3.81 4.07 4.38 4.72 5.07
70 3.84 4.14 4.50 4.93 5.40
</TABLE>
13
<PAGE>
Certificate for
Flexible Premium Deferred Combination Variable and Fixed Annuity
Non-participating. No Dividends.
Fortis Benefits
Insurance Company
P.O. Box 64272, St. Paul, Minnesota 55164
1-800-800-2638
<PAGE>
FORTIS BENEFITS
INSURANCE COMPANY
ST. PAUL, MINNESOTA
A STOCK COMPANY
We will pay the Annuitant the first of a series of annuity payments on the
Annuity Commencement Date. Subsequent payments will be paid on the same day of
each month according to the provisions of the Contract.
This Contract is issued in consideration of the payment of the Purchase Payment
shown on the Contract Date Page.
Signed for Fortis Benefits Insurance Company on the Issue Date.
10 DAY RIGHT TO CANCEL CONTRACT
You may cancel this contract by delivering or mailing a written notice or
sending a telegram to the company and returning the contract before midnight of
the tenth day after the date you received it. Notice given by mail and return of
the contract by mail are effective on being postmarked, properly addressed, and
postage prepaid. The company must return the sum of (a) the difference between
the premiums paid including any contract fees or other charges and the amounts
allocated to any separate accounts including the fixed account under the
contract and (b) the cash value of the contract, or if the contract does not
have a cash value, the reserve for the contract, on the date the returned
contract is received by the company or its agent. The company must return the
payment within 10 days after it receives notice of cancellation and the returned
contract.
<TABLE>
<S> <C>
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
</TABLE>
FLEXIBLE PREMIUM DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING. NO DIVIDENDS.
ALL PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE, MAY INCREASE OR DECREASE AND
ARE NOT GUARANTEED AS TO AMOUNT. THE VARIABLE PROVISIONS OF THIS CONTRACT ARE
FOUND ON PAGES 6, 7 AND 8.
<PAGE>
READ YOUR CONTRACT CAREFULLY
This contract is a legal contract between the contract owner and Fortis Benefits
Insurance Company.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE #
<S> <C>
Annuitant....................................................... 2
Beneficiary..................................................... 4
Death Benefit................................................... 8
Definitions..................................................... 2, 3
Fixed Account................................................... 6
Fixed Annuity Payments.......................................... 10
General Provisions.............................................. 4, 5
Guarantees...................................................... 4
Purchase Payments............................................... 5
Surrenders...................................................... 8
Termination..................................................... 5
Transfers....................................................... 8
Variable Account................................................ 6, 7
Variable Annuity Payments....................................... 10
</TABLE>
Any Contract amendments or endorsements follow the Contract Data Page.
Additional benefits added by rider follow the Optional Annuity Forms Tables.
<PAGE>
CONTRACT DATA PAGE
<TABLE>
<S> <C>
ANNUITANT:
CONTRACT NUMBER:
CONTRACT ISSUE DATE:
OWNER:
ANNUITY COMMENCEMENT DATE:
INITIAL PURCHASE PAYMENT:
MAXIMUM ASSET CHARGE FACTOR: 0.45% Annually (or .0012329% Daily)
(For the Variable Account Only)
</TABLE>
<TABLE>
<CAPTION>
CURRENT MAXIMUM
----------- -----------
<S> <C> <C> <C>
TRANSFER CHARGE: $ 0.00 $ 25.00
</TABLE>
THE ANNUAL ADMINISTRATIVE CHARGE IS $30.
SURRENDER CHARGE: None.
INITIAL ALLOCATION OF NET PURCHASE PAYMENTS:
<TABLE>
<CAPTION>
INITIAL NET PURCHASE
INVESTMENT CHOICE PERCENTAGE PAYMENT DOLLAR AMOUNT
- ----------------------------------------------------------------------------- --------- --------- -------------
<S> <C> <C> <C>
VARIABLE ACCOUNT
Alliance Money Market Subaccount
Alliance International Subaccount
Alliance Premier Growth Subaccount
Dreyfus Growth and Income Subaccount
Dreyfus Stock Index Subaccount
Dreyfus Quality Bond Subaccount
Dreyfus Managed Assets Subaccount
Federated High Yield Subaccount
Federated Utility Subaccount
Federated Equity Growth and Income Subaccount
Lexington Natural Resources Subaccount
Lexington Emerging Markets Subaccount
MFS Emerging Growth Subaccount
MFS High Income Subaccount
MFS World Governments Subaccount
Montgomery Emerging Markets Subaccount
Montgomery Growth Subaccount
Strong Discovery Subaccount
Strong Government Securities Subaccount
Strong Advantage Subaccount
Strong International Stock Subaccount
TCI Balanced Subaccount
TCI Growth Subaccount
Van Eck Worldwide Bond Subaccount
Van Eck Gold and Natural Resources Subaccount
FIXED ACCOUNT
</TABLE>
<PAGE>
DEFINITIONS
WE, US, OUR, THE COMPANY
Fortis Benefits Insurance Company.
YOU, YOUR
The owner of this Contract, or after the annuity commencement date, the
Annuitant.
ACCUMULATION UNIT
A unit of measurement used to calculate the value of your interest in the
Variable Account before the annuity commencement date.
ANNUITANT
The person or persons on whose life the first annuity payment is to be made.
If more than one person is so named, all provisions of the Contract which are
based on the death of the "Annuitant" will be based on the date of death of the
last survivor of the persons so named. By example, the death benefit will become
due only upon the death, prior to the Annuity Commencement Date, of the last
survivor of the persons so named. Collectively, these persons are referred to in
the Contract as "Annuitant" or "Annuitants." The Contract owner is not permitted
to name more than one Annuitant under a Contract used in connection with a
retirement plan that receives favorable tax treatment under the Internal Revenue
Code.
ANNUITY UNIT
A unit of measurement to calculate variable annuity payments.
APPLICATION
The document you signed, if any, to apply for this Contract.
BENEFICIARY
The person entitled to receive benefits as per the terms of the Contract in
case of the death of the Annuitant or the Contract owner or the joint owner, as
applicable.
CONTRACT VALUE
The total of the Fixed Account value and the Variable Account value.
CONTRACT YEAR
A period of 12 consecutive months beginning on the Issue Date or any
anniversary thereafter.
DATE OF DEPOSIT
The date We receive any Purchase Payment at our Home Office.
DESIGNATED BENEFICIARY
The person designated as the Beneficiary by the Contract owner.
FIXED ACCOUNT
The Fixed Account consists of all of the assets of the Company other than
those allocated to a separate account of the Company.
FIXED ANNUITY OPTION
An annuity option with payments which do not vary as to dollar amount.
FUND
The "Fund" or "Funds" are those investment portfolios available under the
Contract to which the Owner may allocate Purchase Payments, each of which is, or
is a series of, a management investment company registered under the Investment
Company Act of 1940.
HOME OFFICE
Our office at 500 Bielenberg Drive, Woodbury, Minnesota 55125;
1-800-827-5877; Mailing Address: P.O. Box 64272, St. Paul, Minnesota 55164.
2
<PAGE>
ISSUE DATE
The date on which this Contract becomes effective as shown on the Contract
Data Page.
NET ASSET VALUE PER SHARE
The net assets of a Fund portfolio divided by the number of shares in a Fund
portfolio.
NET PURCHASE PAYMENT
The gross amount of the Purchase Payment less any applicable premium taxes.
NON-QUALIFIED CONTRACT
A Contract that does not qualify for the special federal income tax
treatment applicable in connection with retirement plans.
PURCHASE PAYMENT
An amount paid to the Company under this Contract as consideration for the
benefits described herein.
QUALIFIED CONTRACT
A Contract that is qualified for the special federal income tax treatment
applicable in connection with certain retirement plans.
SUBACCOUNT
The Subaccounts of the Variable Account to which Contract Value may be
allocated. Each Subaccount invests all of its assets in a portfolio of a Fund
having the same investment policies and objectives as that Subaccount.
VALUATION DATE
All business days except, with respect to any Subaccount, days on which the
related portfolio does not value its shares.
VALUATION PERIOD
The period that starts at the close of the New York Stock Exchange on a
Valuation Date and ends at the close of the Exchange on the next succeeding
Valuation Date.
VARIABLE ACCOUNT
A segregated investment account entitled "Variable Account D", established
by us pursuant to applicable law. That portion of the assets of the Variable
Account equal to the reserves and other Contract liabilities with respect to the
Variable Account shall not be chargeable with liabilities arising out of any
other business We may conduct. Income, gains and losses, whether or not
realized, from assets allocated to the Variable Account, are credited to or
charged against such account without regard to our other income, gains or
losses.
VARIABLE ANNUITY OPTION
An annuity option under which We promise to pay the annuitant or other
properly designated payee one or more payments which vary in amount in
accordance with the net investment experience of the applicable Subaccounts
selected to measure the value of the payments.
WRITTEN, IN WRITING
A written request or notice in acceptable form and content, which is signed,
dated, and received at our Home Office.
3
<PAGE>
GENERAL PROVISIONS
THE CONTRACT
This Contract is issued in consideration of the payment of the initial
Purchase Payment. Only an Officer of the Company can agree to change or waive
any provisions of this Contract.
INCONTESTABILITY
The Contract is incontestable.
MISSTATEMENT OF AGE OR SEX
If any date of birth or sex, or both, has been misstated in the Application,
or elsewhere, the amounts payable under this Contract will be the amounts which
would have been provided using the correct age or sex, or both. Any deficiency
in the payments already made by Us will be paid immediately and any excess in
the payments already made by Us will be charged against the benefits falling due
after adjustment. The amount of any adjustment will be credited or charged
interest at the effective annual rate of 3% per year.
GUARANTEES
Subject to the Net Investment Factor provision, We guarantee that the dollar
amount of Variable Annuity payments made during the lifetime of the payee(s)
will not be adversely affected by Our actual mortality experience or by the
actual expenses incurred by Us in excess of the expense deductions provided for
in the Contract.
SETTLEMENT
All benefits under this Contract are payable from Our Home Office.
NON-PARTICIPATING
This Contract is non-participating and does not share in Our surplus
earnings.
BENEFICIARY
Subject to the rights of an irrevocably designated Beneficiary, You may
change or revoke the designation of a Beneficiary at any time while a Contract
owner and the Annuitant are living. You must send Us a Written beneficiary
designation or revocation. The change or revocation will not be binding upon Us
until it is received by Us at Our Home Office. When it is so received, the
change or revocation will be effective as of the date on which the beneficiary
designation or revocation was signed, but the change or revocation will be
without prejudice to Us on account of any payment made or any action taken by Us
prior to receiving the change or revocation.
In the event of the death of a Contract owner or the Annuitant prior to the
Annuity Commencement Date, the Beneficiary will be as follows: The Beneficiary
shall be the surviving Contract owner, if any, notwithstanding that the
Designated Beneficiary may be different. Otherwise, the Beneficiary will be the
Designated Beneficiary. If there is no such Designated Beneficiary in effect or
if such Designated Beneficiary is no longer living, the estate of the last
surviving Contract owner will be the Beneficiary.
RIGHTS RESERVED BY US
Upon notice to You, the Contract may be modified by Us, but only if such
modification is necessary to:
(1) Operate the Variable Account in any form permitted under the
Investment Company Act of 1940 or in any other form permitted by law.
(2) Transfer any assets in any Subaccount to another Subaccount, or to
one or more separate accounts, or to the fixed account.
(3) Add, combine or remove Subaccounts in the Variable Account.
(4) Substitute for the shares held in any Subaccount, the shares of
another Fund.
(5) Make any changes as required by the Internal Revenue Code or by any
other applicable law in order to continue treatment of the Contract as an
annuity.
When required by law, we will obtain your approval of changes and we will gain
approval from any appropriate regulatory authority.
4
<PAGE>
TERMINATION
This Contract remains in force until surrendered for its full value, or all
annuity payments have been made, or the death benefit has been paid.
If the Contract Value is less than $1,000, We may cancel this Contract on any
Valuation Date. We will notify You at least 90 days in advance of Our intention
to cancel this Contract. Such cancellation would be considered a full surrender
of this Contract.
PURCHASE PAYMENTS
PAYMENTS
The initial Purchase Payment is shown on the Contract Data Page. The initial
Purchase Payment must be at least $5,000 ($2,000 for Qualified Contracts).
Additional Purchase Payments must be at least $500. We reserve the right to
refuse a Purchase Payment for any reason.
ALLOCATION OF PURCHASE PAYMENTS
The initial allocation for all Net Purchase Payments is shown on the
Contract Data Page and will remain in effect until changed by Written notice.
The percentage allocation for future Net Purchase Payments may be changed at any
time by Written notice. Changes in the allocation will be effective on the date
We receive Your notice. The allocation may be 100% to any available Subaccount
or the Fixed Account, or may be divided among the accounts in whole percentage
points totaling 100%.
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
The Contract belongs to the Owner. As Owner, You will be entitled to
exercise all rights and privileges in connection with this Contract. In any
case, such rights and privileges can be exercised without the consent of the
Beneficiary (other than an irrevocably designated beneficiary) or any other
person. Such rights and privileges may be exercised only during the lifetime of
the Annuitant and prior to the Annuity Commencement Date, except as otherwise
provided in this Contract.
Unless You specify otherwise, the Annuitant becomes the Payee on the Annuity
Commencement Date. The Beneficiary becomes the Payee on the death of You or the
Annuitant. Such Payees may thereafter exercise such rights and privileges, if
any, of ownership which continue.
CHANGE OF OWNERSHIP
Ownership of a Qualified Contract may not be transferred except to: (1) the
Annuitant; (2) a trustee or successor trustee of a pension or profit sharing
trust which is qualified under Section 401 of the Internal Revenue Code; (3) the
employer of the Annuitant provided that the Qualified Contract after transfer is
maintained under the terms of a retirement plan qualified under Section 403(a)
of the Internal Revenue Code for the benefit of the Annuitant; (4) the trustee
of an individual retirement account plan qualified under Section 408 of the
Internal Revenue Code; or (5) as otherwise permitted from time to time by laws
and regulations governing the retirement or deferred compensation plans for
which a Qualified Contract may be issued. In no other case may a Qualified
Contract be sold, assigned, transferred, discounted or pledged as collateral.
The Owner of a Non-Qualified Contract may change the ownership of the Contract.
During the lifetime of the Annuitant and prior to the Annuity Commencement Date,
You may change the ownership interest in Your Non-Qualified Contract.
A change of ownership will not be binding upon Us until We receive Written
notification at Our Home Office. When such notification is so received, the
change will be effective as of the date You signed the request for change, but
the change will be without prejudice to Us on account of any payment made or any
action taken by Us prior to receiving the change.
DISTRIBUTION OF PROCEEDS AT DEATH OF OWNER
If the Owner under a Non-Qualified Contract dies prior to the Annuitant and
before the Annuity Commencement Date, the death benefit must be distributed to
the Beneficiary, if then alive, either (1) within five years after the date of
5
<PAGE>
Your death, or (2) over some period not greater than the life or expected life
of the Beneficiary, with annuity payments beginning within one year after the
date of Your death. Any such Beneficiary will not be entitled to exercise any
rights prohibited by applicable federal income tax law.
These mandatory distribution requirements will not apply when the Beneficiary is
the spouse of the deceased Owner, if the spouse elects to continue the Contract
in the spouse's own name, as Owner. When the deceased Owner was also the
Annuitant, the surviving spouse (if the Beneficiary) may elect to be named as
both Owner and Annuitant and continue the Contract.
If the payee dies after the Annuity Commencement Date and before all of the
payments under the Annuity Form have been distributed, the remaining amount
payable, if any, must be distributed at least as rapidly as the method of
distribution then in effect.
PERIODIC REPORTS
Prior to the Annuity Commencement Date, We will send You, at least once
during each Contract Year, a statement showing the Contract Value as of a date
not more than two months previous to the date of mailing. We will also send such
statements as may be required by applicable laws, rules and regulations.
FIXED ACCOUNT
FIXED ACCOUNT
Purchase Payments will be allocated to the Fixed Account in the percentage
You specified. Interest will be credited to Your interest in the Fixed Account
at rates We determine. We will not change interest rates with respect to any
amount more than once each calendar year. The interest credited will not be less
than 3% per year.
FIXED ACCOUNT VALUE
The Fixed Account Value on any Valuation Date is:
(1) The sum of your Net Purchase Payments allocated to the Fixed
Account.
(2) Plus any transfers from the Variable Account.
(3) Plus interest credited as specified above.
(4) Minus any surrenders and annual administrative charges allocated to
the Fixed Account.
(5) Minus any transfers to the Variable Account.
VARIABLE ACCOUNT
SUBACCOUNTS
The Variable Account has several Subaccounts, each investing in one of the
corresponding Funds. Net Purchase Payments are initially allocated to the
Subaccounts and the Fixed Account as shown on the Contract Date Page.
We will use the Net Purchase Payments and any transferred amounts to purchase
Fund shares applicable to the Subaccounts at their net asset value. We will be
the owner of all Fund shares purchased with the Net Purchase Payment or
transferred amount.
6
<PAGE>
SUBACCOUNT ACCUMULATION UNITS
Net Purchase Payments received under this Contract and transferred amounts
allocated to the Variable Account will be credited in the form of Subaccount
Accumulation Units. The number of Subaccount Accumulation Units is found by
dividing the amount of the Net Purchase Payment or transferred amount allocated
to the Subaccount by the Subaccount Accumulation Unit value at the end of the
Valuation Period in which the Purchase Payment or transfer request was received
at the Home Office. The value of each Subaccount Accumulation Unit with respect
to the Contracts was arbitrarily set as of the date the Subaccount first
purchased the Fund shares with respect to the Contract. Subsequent values on any
Valuation Date are equal to the previous Subaccount Accumulation Unit value
times the Net Investment Factor for the Valuation Period ending on that
Valuation Date.
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Subaccount from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or equal to one; therefore, the
value of an Accumulation Unit may increase, decrease or remain the same.
The Net Investment Factor for a Subaccount is determined by dividing (1) by (2),
and then subtracting (3) from the result, where:
(1) is the net result of:
(a) the Net Asset Value Per Share of the Fund shares held in the
Subaccount, determined at the end of the current Valuation Period;
(b) plus the per share amount of any dividend or capital gain
distributions made on the Fund shares held in the Subaccount during the
current Valuation Period;
(c) minus a per share charge for the increase plus a per share credit
for the decrease, in any income taxes reserved for which we determine to
have resulted from the investment operations of the Subaccount or any
other taxes which are applicable to the Contract.
(2) is the Net Asset Value Per Share of the Fund shares held in the
Subaccount, determined at the beginning of the current Valuation Period; and
(3) is a factor representing the mortality risk, expense risk, and
administrative expense charge. We will determine the daily asset charge
factor annually, but in no event may it exceed the Maximum Asset Charge
Factor as specified on the Contract Data Page.
VARIABLE ACCOUNT VALUE
Your Variable Account value for any Valuation Period is the total of Your
values in each Subaccount. Your value for each Subaccount is equal to:
(1) Your number of Subaccount Accumulation Units,
(2) times the Subaccount Accumulation Unit value for the Valuation
Period.
Your Variable Account value will vary from Valuation Date to Valuation Date
reflecting Your total value in the Subaccounts.
ANNUAL ADMINISTRATIVE CHARGE AND PREMIUM TAXES
We will deduct an annual administrative charge of $30 at the following
times:
(1) On each Contract anniversary.
(2) On the surrender of this Contract for its full value if not
surrendered on a Contract anniversary.
Premium taxes, if any, levied by any unit of government will be deducted from
the Contract Value.
These deductions will be made from the Fixed Account and Variable Account on a
pro rata basis. The amount deducted from the Variable Account value will be
deducted by an automatic surrender of Subaccount Accumulation Units on a pro
rata basis.
7
<PAGE>
TRANSFERS
We will make transfers among the Fixed Account and the Subaccounts at the
end of the Valuation Period in which We receive Your request for the transfer,
subject to the following restrictions. The current and maximum transfer charges
are shown on the Contract Data Page. We reserve the right to restrict the
frequency of or terminate transfers. In addition, the Funds may impose charges.
Before the annuity commencement date, You may transfer part or all of Your
Contract Value subject to the following:
(1) Each transfer must be at least $1,000 or the total value of any
account, if less.
(2) You may only make one transfer each Contract Year from the Fixed
Account. No more than 50% of the Fixed Account Value may be transferred
unless the balance after the transfer would be less than $1,000. If the
value is less than $1,000, You may transfer the entire balance.
After the annuity commencement date, You may make up to four transfers per year
among the Subaccounts. You may not make transfers from the Fixed Account.
SURRENDERS
GENERAL SURRENDER PROVISIONS
The amount surrendered will normally be paid to You within 7 days of:
(1) Our receipt of Your Written request; and
(2) Our receipt of this Contract, if required.
We reserve the right to defer payment of surrenders from the Fixed Account for
up to 6 months from the date We receive Your request.
FULL SURRENDER
At any time prior to the annuity commencement date and during the lifetime
of the Annuitant, You may surrender this Contract by sending Us a Written
request. The amount payable on surrender is the Contract Value at the end of the
Valuation Period in which We receive Your request.
The amount payable upon surrender will not be less than the amount required by
state law.
Upon payment of the above surrender amount, this Contract is terminated and We
have no further obligation under this Contract.
All collateral assignees must consent to any surrender. We may require that this
Contract be returned to Our Home Office prior to making payment.
PARTIAL SURRENDER
At any time prior to the annuity commencement date and during the lifetime
of the Annuitant, You may surrender a portion of the Fixed Account value and/or
the Variable Account value. You must send Us a Written request specifying the
accounts from which the surrender is to be made. Surrenders will be made
effective at the end of the Valuation Period in which We receive Your Written
request.
You must surrender an amount equal to at least $1,000. If the Contract Value
remaining would be less than $1,000, We may treat Your request as a full
surrender.
We will surrender Subaccount Accumulation Units from the Variable Account,
and/or dollar amounts from the Fixed Account, so that the total amount
surrendered equals the amount payable to You.
8
<PAGE>
DEATH BENEFIT
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
If You or the Annuitant die prior to the annuity commencement date, We will
pay the death benefit to the Beneficiary. The amount of the death benefit is the
greater of:
(1) The sum of Net Purchase Payments made less any prior surrenders; or
(2) Contract Value as of the date We receive proof of the Annuitant's or
Your death and a Written Request from the Beneficiary for either a single
sum payment or payment under an annuity form.
The death benefit will not be less than the amount payable on a full surrender
at the date used to value the death benefit. The death benefit will be paid when
We receive:
(1) Proof of the Annuitant's or Your death; and
(2) A Written request from the Beneficiary for either a single sum or
payment under an annuity form.
We will pay a single sum to the Beneficiary unless an annuity option is chosen.
DEATH BENEFIT ON OR AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies on or after the annuity commencement date, the
Beneficiary will receive the death benefit, if any, as provided by the annuity
form in effect.
PROOF OF DEATH
We accept any of the following as proof of the Annuitant's or Your 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.
(3) A Written statement by a medical doctor who attended the deceased at
the time of death.
(4) Any other proof satisfactory to Us.
PAYMENT OF BENEFITS
GENERAL
On the annuity commencement date, the Contract Value, adjusted by the Market
Value Adjustment, will be applied, as specified by the Contract owner, to
provide payments to the Annuitant under one or more of the annuity options
provided in the Contract or under such other settlement options as may be agreed
to by the Company. If more than one person is named as Annuitant, due to the
designation of multiple Annuitants, the Contract owner may elect to name one of
such persons to be the sole Annuitant as of the annuity commencement date.
APPLICATION OF CONTRACT VALUE
Unless directed otherwise, We will apply the Fixed Account value to provide
a Fixed Annuity, and the Variable Account value to provide a Variable Annuity.
You must tell Us In Writing at least 30 days prior to the annuity commencement
date if You want Us to apply Fixed and Variable Account values in different
proportions.
ANNUITY COMMENCEMENT DATE
The annuity commencement date is selected by You and stated in the
Application. The date must be before the Annuitant's 75th birthday unless We
agree to it. You may change the annuity commencement date at any time if We
receive Written notice at least 30 days before both the current annuity
commencement date and the new annuity commencement date.
If the annuity commencement date does not occur on a Valuation Date that is at
least 2 years after the Issue Date, We reserve the right to change the annuity
commencement date to the first Valuation Date that is at least 2 years after the
Issue Date.
9
<PAGE>
FREQUENCY AND AMOUNT OF PAYMENTS
Annuity payments will be made monthly unless We agree to a different payment
schedule. We reserve the right to change the frequency of either a Fixed Annuity
payment or a Variable Annuity payment so that each payment will be at least $50
($20 in Texas).
FIXED ANNUITY PAYMENTS
Fixed Annuity payments start on the end of the Valuation Period that
contains the annuity commencement date. The amount of the first monthly payment
for the annuity form selected will be at least as favorable as that produced by
the annuity tables of this Contract for each $1,000 of Contract Value applied as
of the end of such Valuation Period.
The dollar amount of any payments after the first payment are specified during
the entire period of annuity payments, according to the provisions of the
annuity form selected.
VARIBLE ANNUITY PAYMENTS
We convert the Subaccount Accumulation Units into Subaccount Annuity Units
at the values determined at the end of the Valuation Period which contains the
annuity commencement date. The number of Subaccount Accumulation Units remains
constant as long as an annuity remains in force and allocation among the
Subaccounts has not changed.
Each Subaccount Annuity Unit Value was arbitrarily set when the Subaccount first
converted Subaccount Accumulation Units into Annuity Units. Subsequent values on
any Valuation Date are equal to the previous Subaccount Annuity Unit Value times
the Net Investment Factor for that Subaccount for the Valuation Period ending on
that Valuation Date, with an offset for the 3% assumed interest rate used in the
annuity tables of this Contract.
Variable Annuity payments start on the end of the Valuation Period that contains
the annuity commencement date. The amount of the first monthly payment for the
annuity form selected, is shown on the annuity tables of this Contract for each
$1,000 of Contract Value applied as of the end of such Valuation Period.
Payments after the first payment will vary in amount and are determined on the
first Valuation Date of each subsequent monthly period. If the monthly payment
under the annuity form selected is based on the variable annuity unit value of a
single Subaccount, the monthly payment is found by multiplying the Subaccount
unit value on the payment date by the number of Subaccount Annuity Units.
If the monthly payment under the annuity form selected is based upon Annuity
Unit values of more than one Subaccount, the above procedure is repeated for
each applicable Subaccount. The sum of these payments is the variable annuity
payment.
We guarantee that the amount of each payment after the first payment will not be
affected by variations in expense or mortality experience.
OPTIONAL ANNUITY FORMS
You may select an annuity form or change a previous selection. The selection
or change must be In Writing and received by Us at least 30 days before the
annuity commencement date. If no annuity form selection is in effect on the
annuity commencement date, We automatically apply Option B, with payments
guaranteed for 10 years.
The following options are available for the Fixed Annuity payments and the
Variable Annuity payments:
OPTION A.--LIFE ANNUITY
Payments are made as of the first valuation date of each monthly period
during the Annuitant's life, starting with the annuity commencement date. No
payments will be made after the Annuitant dies.
OPTION B.--LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS OR 20 YEARS
Payments are made as of the first Valuation Date of each monthly period
starting on the annuity commencement date. Payments will continue as long as
the Annuitant lives. If the Annuitant dies before all of the guaranteed
payments have been made, We will continue installments of the guaranteed
payments to the beneficiary.
10
<PAGE>
OPTION C.--JOINT AND FULL SURVIVOR ANNUITY
Payments are made as of the first Valuation Date of each monthly period
starting with the annuity commencement date. Payments will continue as long
as either the Annuitant or the Joint Annuitant are alive. Payments will stop
when both the Annuitant and the Joint Annuitant have died.
We also have other annuity forms available and information about them can be
obtained by Writing to Us.
The annuity tables show the amount of the first annuity payment, for each $1,000
of Contract Value applied under Options A, B, and C.
11
<PAGE>
OPTION TABLES
Installments shown are for an initial monthly payment for each $1,000 of
Contract Value applied under an option. Age, as used in these tables, is age as
of nearest birthday on the annuity commencement date. Rates for monthly payments
for ages and periods certain not shown, if allowed by us, will be computed on an
actuarially equivalent basis.
ACTUARIAL BASIS
Installments shown in these tables are based on the 1983 Table a and with
compound interest at the effective rate of 3% per year.
<TABLE>
<CAPTION>
OPTIONS A AND B
MALE FEMALE
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
10 YEAR PERIOD 20 YEAR PERIOD 10 YEAR PERIOD 20 YEAR PERIOD
CERTAIN AND CERTAIN AND CERTAIN AND CERTAIN AND
AGE LIFE ONLY LIFE LIFE AGE LIFE ONLY LIFE LIFE
<S> <C> <C> <C> <C> <C> <C> <C>
50 4.27 4.22 4.08 50 3.90 3.89 3.82
51 4.34 4.29 4.14 51 3.97 3.95 3.88
52 4.43 4.37 4.20 52 4.03 4.01 3.93
53 4.51 4.45 4.26 53 4.10 4.08 3.99
54 4.60 4.54 4.32 54 4.18 4.15 4.04
55 4.70 4.62 4.39 55 4.25 4.22 4.11
56 4.80 4.72 4.45 56 4.34 4.30 4.17
57 4.91 4.82 4.51 57 4.42 4.38 4.23
58 5.03 4.92 4.58 58 4.52 4.47 4.30
59 5.15 5.03 4.64 59 4.61 4.56 4.37
60 5.28 5.14 4.71 60 4.72 4.66 4.44
61 5.42 5.26 4.78 61 4.83 4.76 4.51
62 5.57 5.39 4.84 62 4.95 4.86 4.58
63 5.74 5.52 4.90 63 5.07 4.98 4.65
64 5.91 5.66 4.96 64 5.21 5.10 4.72
65 6.10 5.81 5.02 65 5.35 5.22 4.79
66 6.29 5.96 5.08 66 5.51 5.36 4.86
67 6.50 6.11 5.13 67 5.67 5.50 4.93
68 6.73 6.28 5.18 68 5.85 5.65 5.00
69 6.97 6.44 5.23 69 6.04 5.80 5.06
70 7.23 6.61 5.27 70 6.25 5.96 5.12
71 7.51 6.78 5.31 71 6.47 6.14 5.18
72 7.80 6.96 5.34 72 6.71 6.31 5.23
73 8.12 7.14 5.37 73 6.97 6.50 5.28
74 8.45 7.32 5.40 74 7.26 6.69 5.32
75 8.82 7.49 5.42 75 7.56 6.89 5.35
</TABLE>
<TABLE>
<CAPTION>
OPTION C
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
FEMALE AGE
<S> <C> <C> <C> <C> <C> <C>
50 55 60 65 70
50 3.60 3.75 3.88 3.99 4.08
55 3.69 3.88 4.06 4.24 4.38
MALE
AGE 60 3.76 3.99 4.23 4.49 4.72
65 3.81 4.07 4.38 4.72 5.07
70 3.84 4.14 4.50 4.93 5.40
</TABLE>
12
<PAGE>
[LOGO] VALUE ADVANTAGE GROUP VARIABLE ANNUITY APPLICATION
PLUS FORTIS BENEFITS INSURANCE COMPANY -
P.O. BOX 64272, ST. PAUL, MN 55164
- -------------------------------------------------------------------------------
1. PARTICIPANT
- -------------------------------------------------------------------------------
Name DOE JOHN A
----------------------------------------------------------------------
Last First Middle
Address 100 LAKE ST
----------------------------------------------------------------------
Street
ST. PAUL MN 50000
----------------------------------------------------------------------
City State Zip
Phone (123) 456-7890
----------------------------------------------------------------------
SOC. SEC. # /1/2/3/ /4/5/ /6/7/8/9/ /X/ Citizen of U.S.
/ / Resident Alien of U.S.
DATE OF BIRTH /01/ /02/ /60/ / / Other
(Month Day Year) ------------------------------
------------------------------
Sex: /X/ Male / / Female
- -------------------------------------------------------------------------------
2. CO-PARTICIPANT (optional)
- -------------------------------------------------------------------------------
Name
----------------------------------------------------------------------
Last First Middle
Address
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
Phone ( )
----------------------------------------------------------------------
SOC. SEC. # / / / / / / / / / / / / / / Citizen of U.S.
/ / Resident Alien of U.S.
DATE OF BIRTH / / / / / / / / Other
(Month Day Year) ------------------------------
------------------------------
Sex: / / Male / / Female
- -------------------------------------------------------------------------------
3. ANNUITANT (if other than participant)
- -------------------------------------------------------------------------------
Name
----------------------------------------------------------------------
Last First Middle
Address
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
Phone ( )
----------------------------------------------------------------------
SOC. SEC. # / / / / / / / / / / / / / / Citizen of U.S.
/ / Resident Alien of U.S.
DATE OF BIRTH / / / / / / / / Other
(Month Day Year) ------------------------------
------------------------------
Sex: / / Male / / Female
- -------------------------------------------------------------------------------
4. ADDITIONAL ANNUITANT (optional)
- -------------------------------------------------------------------------------
Name
----------------------------------------------------------------------
Last First Middle
Address
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
Phone ( )
----------------------------------------------------------------------
SOC. SEC. # / / / / / / / / / / / / / / Citizen of U.S.
/ / Resident Alien of U.S.
DATE OF BIRTH / / / / / / / / Other
(Month Day Year) ------------------------------
------------------------------
Sex: / / Male / / Female
- -------------------------------------------------------------------------------
5. BENEFICIARY
- -------------------------------------------------------------------------------
PRIMARY
Name DOE MARY U
----------------------------------------------------------------------
Last First Middle
Address SAME AS #1
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
WIFE /2/3/4/ /5/6/ /7/8/9/0/
----------------------
Relationship Social Security # (Optional)
CONTINGENT
Name DOE JANE M
----------------------------------------------------------------------
Last First Middle
Address 120 1st. AVE
----------------------------------------------------------------------
Street
ST. PAUL MN 50000
----------------------------------------------------------------------
City State Zip
DAUGHTER /3/4/5/ /6/7/ /8/9/0/2/
----------------------
Relationship Social Security # (Optional)
/ / ADDITIONAL BENEFICIARY INFORMATION ATTACHED.
- -------------------------------------------------------------------------------
6. TYPE OF PLAN REQUESTED
- -------------------------------------------------------------------------------
/X/ NON-QUALIFIED
/ / QUALIFIED (check appropriate box)
/ / Standard IRA
/ / IRA Transfer from IRA
/ / IRA Rollover from IRA
/ / Direct Rollover
/ / (IRA Rollover from Employer Plan)
/ / SEP-IRA (including SARSEP)
/ / 403(b) (TDA, TSA)
/ / KEY Plan (circle):
/ / Profit Sharing Money Purchase
/ / Other Employer Qualified Plan
(Employer's name)
-----------------------------------------------------
/ / Other
(Employer's name)
-----------------------------------------------------
- ------------------------------------------------------------------------------
7. ANNUITIZATION
- ------------------------------------------------------------------------------
The age lifetime income payments begin
---------------------------------------
If no age is selected, a maximum of age 110 will be used.
- -------------------------------------------------------------------------------
8. TELEPHONE TRANSFER AUTHORIZATION
- -------------------------------------------------------------------------------
/X/ I have read the telephone transfer authorization terms in
the prospectus and elect telephone transfers.
(If this box is checked it is not necessary to complete the telephone
transfer section of the Variable Annuity Service Request Form.)
APPLICATION CONTINUES
<PAGE>
Name SAME AS #1
----------------------------------------------------------------------
Last First Middle
Address
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
/X/ Send Bill / / Pre-Authorized Check-form attached
Will this be added to an existing retirement plan?
/ / Yes /X/ No If yes, please list:
- -------------------------------------------------------------------------------
Employer name
- -------------------------------------------------------------------------------
Employer address
- -------------------------------------------------------------------------------
10. PURCHASE PAYMENT/PAYMENT ALLOCATION
- -------------------------------------------------------------------------------
/X/ Single Purchase Payment $ 30,000
-------------------------------------------------
/ / Additional Purchase Payments of $ per
-------------- ----------------------
PAYMENT ALLOCATION: USE WHOLE %. MUST TOTAL 100%.
SUBACCOUNTS: HIGH YIELD BOND
AGGRESSIVE GROWTH ___% Federated High Yield
___% MFS Emerging Growth ___% MFS High Income
___% Strong Discovery BALANCED
GROWTH ___% TCI Balanced
100% Alliance Premier Growth INDEX
___% Montgomery Growth ___% Dreyfus Stock Index
___% TCI Growth CORPORATE BOND
INTERNATIONAL STOCK ___% Dreyfus Quality Bond
___% Alliance International ___% Strong Advantage
___% Lexington Emerging Markets GOVERNMENT BOND
___% Montgomery Emerging Markets ___% Strong Government Bond
___% Strong International MONEY MARKET
SPECIALTY ___% Alliance
___% Dreyfus Managed Assets ___% Other
___% Federated Utility ___% {xxxxxxxxxx}
___% Lexington Natural Resources ___% {xxxxxxxxxx}
___% Van Eck Gold and Natural Resources VA FIXED ACCOUNT GUARANTEE PERIODS:
INTERNATIONAL BOND ___% 1 Year
___% MFS World Government ___% 2 Year
___% Van Eck Worldwide Bond ___% 3 Year
GROWTH & INCOME ___% 4 Year
___% Dreyfus Growth & Income ___% 5 Year
___% Federated Equity Growth & Income ___% 6 Year
___% 7 Year
___% 8 Year
___% 9 Year
___% 10 Year
100% TOTAL INCLUDES BOTH COLUMNS
(If no allocations are indicated,
the total purchase payment will
be allocated to the Money
Market Subaccount.)
Will this annuity replace or change any existing life insurance or annuity in
this or any other company?
/ / Yes /X/ No If yes, list insurance company.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12. SPECIAL REQUESTS
- -------------------------------------------------------------------------------
/ / Check if additional forms are attached.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
13. SUITABILITY
- -------------------------------------------------------------------------------
(NOTE: Must be completed with each application unless you provide suitability
information to your broker/dealer on a different form.)
SMITH & DOE
- -------------------------------------------------------------------------------
Employer
20 STATE ST.
- -------------------------------------------------------------------------------
Business address
ST. PAUL MN 50001
- -------------------------------------------------------------------------------
City State Zip
ATTORNEY
- -------------------------------------------------------------------------------
Occupation Age (optional)
Are you associated with or employed by an NASD member?
/ / Yes /X/ No
Estimated Annual Income $ 80,000 / / Declined
(all sources) ---------------
Estimated Net Worth $120,000 / / Declined
(exclusive of family residence) ---------------
Estimated Tax Bracket 30% / / Declined
--------------
INVESTMENT OBJECTIVES:
/ / Safety of Principal
/ / Income (cash generating)
/X/ Growth (long term capital appreciation)
/ / Diversification
/ / Other (please specify)
---------------------------------------------------
Jack White & Company Account Number ------------------------------------------
(if applicable)
APPLICATION CONTINUES
<PAGE>
I hereby represent my answers to the previous questions to be true to the
best of my knowledge. Under penalties of perjury, I certify that the Social
Security number or taxpayer identification number set forth above is correct.
I UNDERSTAND THAT ANNUITY PAYMENTS AND CONTRACT VALUES, WHEN BASED UPON THE
INVESTMENT EXPERIENCE OF A VARIABLE ACCOUNT, ARE NOT GUARANTEED. Receipt of a
prospectus for the annuity product hereby applied for is acknowledged.
All payments and values based on the fixed account are subject to a market
value adjustment formula, which may result in upward and downward adjustments
in amounts payable.
If I live in a community property state, I may need my spouse's written
consent whenever I name a person other than my spouse as my beneficiary. I am
responsible to know if that consent is needed and to obtain that consent if
it is required.
Any person who, with intent to defraud or knowing that he is facilitating a
fraud against an insurer, submits an application or files a claim containing
a false or deceptive statement is guilty of insurance fraud.
- -------------------------------------------------------------------------------
14. REGISTERED REPRESENTATIVE STATEMENTS
- -------------------------------------------------------------------------------
Will this annuity replace or change any existing life insurance or annuity in
this or any other company?
/ / Yes /X/ No
If yes, please explain and attach the necessary transfer paperwork and
replacement form.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
15. SIGNATURES
- -------------------------------------------------------------------------------
JOHN DOE
- -------------------------------------------------------------------------------
Owner(s)
- -------------------------------------------------------------------------------
Owner(s)
- -------------------------------------------------------------------------------
Annuitant(s)
- -------------------------------------------------------------------------------
Annuitant(s)
10-6-95
- -------------------------------------------------------------------------------
Date
ANYSTATE
- -------------------------------------------------------------------------------
State in which application is signed
- ------------------------------------------------------------------------------
16. DEALER/REPRESENTATIVE INFORMATION
- -------------------------------------------------------------------------------
JAMES SMITH
- -------------------------------------------------------------------------------
Representative's name (please print)
Jack White & Company
- -------------------------------------------------------------------------------
Name of Broker/Dealer
9191 Towne Centre Drive, San Diego, CA 92122
- -------------------------------------------------------------------------------
Branch Office address
James Smith
- -------------------------------------------------------------------------------
Representative's signature
- -------------------------------------------------------------------------------
Representative's number
(800) 622-3699
- -------------------------------------------------------------------------------
Representative's phone number
- -------------------------------------------------------------------------------
(In Florida, also present a Florida license I.D. #)
- -------------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF BROKER/DEALER
- -------------------------------------------------------------------------------
17. MAIL APPLICATION TO:
- -------------------------------------------------------------------------------
Jack White & Company
Insurance Department
9191 Towne Centre Drive, Second Floor
San Diego, CA 92122
(800) 622-3699
Make check payable to: Fortis Benefits Insurance Company
<PAGE>
NOVEMBER 1995
EXEMPTIVE RELIEF RELIED UPON
Fortis Benefits Insurance Company (the "Company"), Variable Account D of
Fortis Benefits Insurance Company (the "Account") and Fortis Investors, Inc.
("Investors") have been granted exemptive relief by the Securities and Exchange
Commission (the "Commission") to deduct mortality and expense risk ("M&E")
charges from the assets of the Account pursuant to the terms of certain variable
annuity contracts. Rel. No IC-20197(April 6, 1994)(order) and Rel. No.
IC-20125(March 9, 1994)(notice), File No. 812-8766. The Company, the Account and
Investors rely on that relief, to the extent necessary, with respect to
deduction of the M&E charge pursuant to the variable annuity contracts that are
the subject of this Form N-4 Registration Statement (the "Revised Contracts").
The exemptive relief referred to above specifically covers both (1) those
variable annuity contracts that were described in detail in the related
exemptive application (the "Original Contracts") and (2) any other variable
annuity contracts offered through the Account "on a basis that is similar in all
material respects to the basis on which the [Original] Contracts ... are
offered." The Revised Contracts reflect changes from the Original Contracts,
which do not materially affect the appropriateness of the exemptive relief
previously obtained. The principal differences between the Revised Contracts, as
described in the exemptive application, and the Original Contracts are itemized
below.
1. The Account subaccounts funding the Revised Contracts will invest in
different underlying mutual fund portfolios from those funding the
Original Contracts. The right to make such changes, however, is specifically
reserved by the Company in the exemptive application.
2. The minimum purchase payment after the initial premium will generally
be $500 under the Revised Contracts, as compared with $1,000 under
the Original Contracts. This change tends to increase the expense risks to
which the Company is subject.
3. The minimum partial withdrawal amount will be $1,000 under the
Revised Contracts, as compared with $500 under the Original
Contracts. The change tends to decrease the expense risks to which the
Company is subject.
4. The Revised Contracts will not impose the daily asset charge for
administrative expenses that the Original Contracts impose at an
effective rate of .15% per annum. Nor will the Revised Contracts impose the
contingent deferred sales charge ("CDSC") that the Original Contracts impose
at a rate of up to 5% of purchase payments. Although the exemptive
application represents that the Company will not raise these charges, the
application imposes no restrictions on the reduction or deletion of these
charges. Indeed, the exemptive application specifically permits waiver of
the CDSC under circumstances permitted by the Investment Company Act of 1940
("1940 Act"), rules thereunder, or applicable Commission exemptive orders or
staff interpretations or no-action positions. The Company believes that the
elimination of the .15% administrative charge and the CDSC as to the Revised
Contracts are permitted by the 1940 Act and rules thereunder.
5. Although the Revised Contracts will not impose any administrative
expense charge computed as a percentage of assets, they will (like
the Original Contracts) impose a $30 ($35 for the Original Contract) annual
administrative charge. Although the Original Contracts imposed this charge
only on contracts having account values of less than $25,000, this charge
will be imposed on all Revised Contracts, regardless of account value. The
effect of the revisions in the asset-based and annual administrative charges
is to impose lower overall administrative charges under the Revised
Contracts than under the Original Contracts.
6. The Original Contracts provided a death benefit equal to the greater
of (a) the sum of all premium payments made (subject to certain
adjustments) (b) the Contract's account value, or (c) the Contract's account
value as of the Contract's 5-year anniversary immediately preceding the date
the annuitant or contract owner dies or reaches age 75 (subject to certain
adjustments). The death benefit under the Revised Contracts imposes a
smaller degree of mortality risk on the Company than does the death benefit
under the Original Contracts.
7. The M&E charge under the Revised Contracts will be at an aggregate
nominal rate of .45% per annum, as compared with 1.25% per annum for
the Original Contracts. Although the exemptive application states that this
charge will not be raised, the application imposes no restrictions on the
reduction of this charge.
8. The general account option under the Revised Contracts offered in
some or all states will be so-called "market value adjustment"
account, interests in which will be registered on Form S-1, whereas the
general account option under the Original Contracts is offered and sold in
reliance on the exemption provided in Section 3(a)(8) of
<PAGE>
the Securities Act of 1933 ("1933 Act"). The nature of the general account
option has no relevance to the M&E relief previously obtained. The exemptive
application does not state whether interests under the general account
option pursuant to the Original Contracts would be registered under the 1933
Act, and nothing in the application would preclude such registration.
The exemptive application requested exemptive relief based on the representation
set forth therein that the level of the M&E charge under the Original Contracts
was "within the range of industry practice for comparable annuity contracts." As
noted above, under the Revised Contracts, the rate of the M&E charge will be
substantially reduced, the CDSC will be eliminated, and the administrative
charges will be substantially reduced. The effect of these changes is that the
Revised Contracts will be among the lowest cost variable annuity contracts
available. In particular, the Revised Contracts will have the lowest M&E charge
rate of any comparable contracts of which the Company is aware. Accordingly,
although some of the changes reflected in the Revised Contracts reduce the
Company's mortality and expense risks, the representation quoted above from the
Original Application will remain fully accurate with respect to the Revised
Contracts.
Each other representation in the Original Application will also remain fully
accurate as to the Revised Contracts. Specifically (and without limitation), in
concluding that the level of the M&E charge under the Revised Contracts is
within the range of industry practice for comparable annuity contracts, the
Company and Investors (the "Companies") have reviewed publicly available
information regarding products of other companies, taking into consideration
such factors as guaranteed minimum death benefits, guaranteed annuity purchase
rates, minimum initial and subsequent purchase payments, other contract charges,
the manner in which charges are imposed, market sector, investment options under
contracts, and availability to individual qualified and non-tax-qualified plans.
The Companies will maintain at their respective principal offices, and make
available on request to the Commission or its staff, a memorandum setting forth
in detail, with respect to the Revised Contracts, the variable annuity products
analyzed and the methodology, and result of, the Companies' comparative review.
Moreover, the Companies have concluded that there is a reasonable likelihood
that the proposed distribution financing arrangements made with respect to the
Revised Contracts will benefit the Account and investors in the Revised
Contracts. The basis for such conclusion as to the Revised Contracts will be set
forth in a memorandum which will be maintained by the Companies at their
principal offices and will be available to the Commission or its staff on
request.
Based on the foregoing analysis, the Companies believe that the Revised
Contracts are offered on a basis that is similar to that on which the Original
Contracts are offered, in all respects material to the exemptive relief
previously obtained.
DAP471
