<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1996.
Registration Nos. 33-19421
811-5439
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 14
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 34
__________________________________
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:
612-738-4000
_________________________________
RHONDA J. SCHWARTZ, ESQ.
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Name and Address of Agent for Service)
<PAGE>
It is proposed that this filing will be come effective (check appropriate
box):
immediately upon filing pursuant to paragraph (b) of Rule 485.
- -----
X on May 1, 1996 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.
______________________________________
Pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940, the
Registrant has elected to register an indefinite number or amount of its
securities under the Securities Act of 1933. The securities being registered
are units of interest under variable annuity contracts. The registrant filed
its Rule 24f-2 notice for the year ended December 31, 1995 on February 26, 1996.
<PAGE>
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
Cross Reference Sheet Showing Location
of Information in Prospectus or
Statement of Additional Information
--------------------------------------
Form N-4 Prospectus Caption
-------- ------------------
1. Cover Page Cover Page
2. Definitions Special Terms Used in This
Prospectus
3. Synopsis of Highlights Summary; Information concerning
fees and charges
4. Condensed Financial Summary -- Financial information
Information
5. General Description of Summary--Separate Account Invest-
Registrant, Depositor and ment Options; Fortis Benefits and
Portfolio Companies the Separate Account; Fixed
Account
6. Deductions Summary--Charges and Deductions;
Charges and Deductions
7. General Description of Variable Accumulation Period; General
Annuity Contracts Provisions
8. Annuity Period The Annuity Period
9. Death Benefit Summary--Death Benefit; Accumula-
tion Period --
- Benefit Payable on Death of
Annuitant or Contract Owner
10. Purchases and Contract Value Accumulation Period --
- Issuance of a Contract and
Purchase Payments
- Contract Value
11. Redemptions Summary--Total and Partial
Surrenders; Accumulation Period
-- Total and Partial Surrenders
12. Taxes Summary--Tax Implications; Federal
Tax Matters
<PAGE>
PROSPECTUS OR
STATEMENT OF ADDITIONAL
FORM N-4 INFORMATION CAPTION
-------- ------------------------
(cont'd.)
13. Legal Proceedings None
14. Table of Contents of the Contents of the Statement of
Statement of Additional Additional Information
Information
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and Fortis Benefits
History
18. Services Services
19. Purchases of Securities Being Reduction of Charges
Offered
20. Underwriters Services
21. Calculation of Performance Appendix A
Data
22. Annuity Payments Calculation of Annuity Payments
23. Financial Statements Financial Statements
<PAGE>
<TABLE>
<S> <C> <C>
FORTIS BENEFITS INSURANCE COMPANYFORTIS
MAILING STREET PHONE:
ADDRESS: ADDRESS:
</TABLE>
OPPORTUNITY
<TABLE>
<S> <C> <C>
P.O. BOX 500 1-800-800-2638
64272 BIELENBERG (EXTENSION
ST. PAUL, DRIVE 3057)
MN 55164 WOODBURY,
MN 55125
</TABLE>
VARIABLE
This Prospectus describes an individual flexible premium
deferred variable annuity contract ("Contract") ANNUITY
issued by Fortis Benefits Insurance Company ("Fortis
Benefits"). The minimum initial or subsequent purchase
payment is generally $50.
Individual Flexible
Premium Deferred
The Contract allows you to accumulate funds on a
tax-deferred basis. Contract Owners may elect a Variable
Annuity Contract
guaranteed interest accumulation option through Fortis
Benefits' Fixed Account or a variable return
accumulation option through Variable Account D (the
"Separate Account") of Fortis Benefits Insurance
Company, or a combination of these two options. Under
the variable rate accumulation option, Contract Owners
can choose among the separate Portfolios of Fortis
Series Fund, Inc. ("Fortis Series"): Money Market
Series, U.S. Government Securities Series, Diversified
Income Series, Global Bond Series, High Yield Series,
Asset Allocation Series, Global Asset Allocation Series,
Value Series, Growth & Income Series, S&P 500 Index
Series, Blue Chip Stock Series, Global Growth Series,
Growth Stock Series, International Stock Series, and
Aggressive Growth Series. The accompanying Prospectus
for Fortis Series describes the investment objectives,
policies and risks of each of the Portfolios.
The Contract provides several different types of
retirement and death benefits to Contract Owners,
Annuitants or their Beneficiaries, including fixed and
variable annuity income options. Contract Owners may,
under certain circumstances, make partial surrenders of
the Contract Value or may totally surrender the Contract
for its Cash Surrender Value.
You have the right to examine a Contract for ten days
from the time you receive the Contract and return it for
a refund of the Contract Value. However, if applicable
state law so requires, the full amount of the purchase
payments received by Fortis Benefits will be refunded.
This Prospectus gives prospective investors information
about the Contract that they should know before
investing. This Prospectus must be accompanied by a
current Prospectus of Fortis Series Fund, Inc. Both
Prospectuses should be read carefully and kept for
future reference.
PROSPECTUS DATED
A Statement of Additional Information, dated May 1,
1996, about the Contracts has been filed with the May 1,
1996
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
19 of this Prospectus.
THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, CREDIT UNION, BROKER-DEALER OR
OTHER FINANCIAL INSTITUTION. THEY ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; 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
UVW-REGISTERED TRADEMARK-
OFFENSE.
95530 (5/96)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SPECIAL TERMS USED IN THIS PROSPECTUS................................................................... 3
INFORMATION CONCERNING FEES AND CHARGES................................................................. 4
SUMMARY................................................................................................. 6
FORTIS BENEFITS AND THE SEPARATE ACCOUNT................................................................ 9
- Fortis Benefits/Fortis Financial Group Member..................................................... 9
- The Separate Account.............................................................................. 9
- Fortis Series Fund, Inc........................................................................... 9
ACCUMULATION PERIOD..................................................................................... 10
- Issuance of a Contract and Purchase Payments...................................................... 10
- Contract Value.................................................................................... 10
- Allocation of Purchase Payments and Contract Value................................................ 11
- Total and Partial Surrenders...................................................................... 11
- Benefit Payable on Death of Annuitant or Contract Owner........................................... 12
- Contract Loans (Section 401 and 403(b) Contracts Only)............................................ 12
THE ANNUITY PERIOD...................................................................................... 13
- Annuity Commencement Date......................................................................... 13
- Commencement of Annuity Payments.................................................................. 13
- Relationship Between Subaccount Investment Performance and Amount of Variable Annuity Payments.... 13
- Annuity Forms..................................................................................... 13
- Death of Annuitant or Other Payee................................................................. 14
CHARGES AND DEDUCTIONS.................................................................................. 14
- Premium Taxes..................................................................................... 14
- Annual Administrative Charge...................................................................... 14
- Charges Against the Separate Account.............................................................. 14
- Surrender Charge.................................................................................. 15
- Miscellaneous..................................................................................... 15
- Reduction of Charges.............................................................................. 15
FIXED ACCOUNT........................................................................................... 16
- General Description............................................................................... 16
- Fixed Account Value............................................................................... 16
- Fixed Account Transfers, Total and Partial Surrenders............................................. 16
GENERAL PROVISIONS...................................................................................... 16
- The Contract...................................................................................... 16
- Postponement of Payments.......................................................................... 16
- Misstatement of Age or Sex and Other Errors....................................................... 17
- Assignment and Ownership Rights................................................................... 17
- Beneficiary....................................................................................... 17
- Reports........................................................................................... 17
RIGHTS RESERVED BY FORTIS BENEFITS...................................................................... 17
DISTRIBUTION............................................................................................ 17
FEDERAL TAX MATTERS..................................................................................... 18
VOTING PRIVILEGES....................................................................................... 19
STATE REGULATION........................................................................................ 20
LEGAL MATTERS........................................................................................... 20
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION......................................................... 20
APPENDIX A--Sample Death Benefit Calculations........................................................... A-1
APPENDIX B--Explanation of Expense Calculations......................................................... B-1
</TABLE>
THE CONTRACTS ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. FORTIS BENEFITS DOES NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS WHICH IS NOT
INCLUDED IN THIS PROSPECTUS, THE RELATED STATEMENT OF ADDITIONAL INFORMATION, OR
ANY SUPPLEMENTS THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY
FORTIS BENEFITS.
<PAGE>
SPECIAL TERMS USED IN THIS PROSPECTUS
<TABLE>
<S> <C>
ACCUMULATION PERIOD The time period under a Contract between the Contract Date and the Annuity Period.
ACCUMULATION UNIT A unit of measure used to calculate the interest of the Contract Owner in the Separate
Account during the Accumulation Period.
ANNUITANT A person during whose life annuity payments are to be made by Fortis Benefits under
the Contract.
ANNUITY COMMENCEMENT The date on which the Annuity Period commences.
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 Contract.
CASH SURRENDER VALUE The amount payable to the Contract Owner on surrender of the Contract after deduction
of all applicable charges.
CONTRACT OWNER The person named in the application as the Contract Owner, or any successor Contract
Owner. Unless otherwise named, the Annuitant is the Contract Owner.
CONTRACT DATE The date on which the Contract was issued. Contract years are measured from the
Contract Date.
CONTRACT VALUE The sum of the Fixed Account Value and the Separate Account Value.
FIVE YEAR ANNIVERSARY The fifth anniversary of a Contract Date, and each subsequent fifth anniversary of
that date.
FIXED ACCOUNT The name of the alternative under which purchase payments are allocated to Fortis
Benefits' General Account.
FIXED ACCOUNT VALUE The amount of your Contract Value which is in the Fixed Account.
FIXED ANNUITY OPTION An annuity option under which Fortis Benefits promises to pay the Annuitant or any
other properly designated payee one or more fixed payments.
FORTIS GROUP FUNDS All publicly-available mutual funds advised by Fortis Advisers, Inc. (other than
Fortis Money Portfolios, Inc.). Currently, these mutual funds are: Fortis Worldwide
Portfolios, Inc., Fortis Equity Portfolios, Inc., Fortis Growth Fund, Inc., Fortis
Fiduciary Fund, Inc., Fortis Tax-Free Portfolios, Inc., Fortis Income Portfolios,
Inc., and Fortis Advantage Portfolios, Inc.
FORTIS SERIES The Fortis Series Fund, Inc., a diversified, open-end management investment company in
which the Separate Account invests.
GENERAL ACCOUNT All assets of Fortis Benefits other than those in the Separate Account, or in any
other legally segregated separate account established by Fortis Benefits.
HOME OFFICE Our office at 500 Bielenberg Drive, Woodbury, Minnesota 55125; 1-800-800-2638 (Ext.
3057); Mailing address: P.O. Box 64272, St. Paul, Minnesota 55164.
NET PURCHASE PAYMENT The gross amount of a purchase payment less any applicable premium taxes or similar
governmental assessments.
NON-QUALIFIED CONTRACTS Contracts that do not qualify for the special federal income tax treatment applicable
in connection with certain retirement plans.
PORTFOLIO Each separate investment portfolio of Fortis Series eligible for investment by the
Separate Account.
QUALIFIED CONTRACTS Contracts that are qualified for the special federal income tax treatment applicable
in connection with certain retirement plans.
SEPARATE ACCOUNT The segregated asset account referred to as Variable Account D of Fortis Benefits
Insurance Company established to receive and invest purchase payments made under
Contracts.
SEPARATE ACCOUNT VALUE The amount of your Contract Value in the Subaccounts of the Separate Account.
SUBACCOUNTS The several Subaccounts of the Separate Account, each of which invests its assets in a
different Portfolio.
VALUATION DATE Each business day of Fortis Benefits except, with respect to any Subaccount, days on
which the related Portfolio does not value its shares. Generally, the Portfolios value
their shares on each day the New York Stock Exchange is open.
VALUATION PERIOD The period that starts at the close of regular trading on the New York Stock Exchange
on a Valuation Date and ends at the close of regular trading on the exchange on the
next succeeding Valuation Date.
VARIABLE ANNUITY OPTION An annuity option under which Fortis Benefits promises to pay the Annuitant or any
other properly designated payee 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
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Front End Sales Charge Imposed on Purchases................................................... 0%
Maximum Surrender Charge for Sales Expenses (as a percentage of purchase payments)............ 5%(1)
</TABLE>
<TABLE>
<CAPTION>
YEARS SINCE
DATE OF AMOUNT OF
PAYMENT CHARGE
- -------------- ---------------
<S> <C>
Less than 5 5%
5 or more 0%
</TABLE>
<TABLE>
<S> <C>
Other Surrender Fees.......................................................................... 0%
Exchange Fee.................................................................................. 0%
Charge for Each 403(b) Contract Loan.......................................................... $ 100
ANNUAL CONTRACT ADMINISTRATION CHARGE............................................................... $ 35 (2)
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge............................................................. 1.25 %
Separate Account Administrative Charge........................................................ .10 %
---
Total Separate Account Annual Expenses...................................................... 1.35 %
</TABLE>
--------------------------------
(1) This charge does not apply in certain cases such as partial surrenders
each year of up to 10% of "new purchase payments" as defined under the
heading "surrender charge" or, payment of a death benefit.
(2) This charge, which is otherwise applied at each Contract anniversary and
total surrender of the Contract, will not be charged during the
Accumulation Period if the Contract Value as of such anniversary or
surrender is $25,000 or more. Currently, Fortis Benefits waives this
charge during the Annuity Period. This charge is also subject to any
applicable limitations under the law of any state.
FORTIS SERIES ANNUAL EXPENSES (A)
<TABLE>
<CAPTION>
Money U.S. Government Asset Global Asset
Market Securities Diversified Global Bond High Yield Allocation Allocation
Series Series Income Series Series Series Series Series
------ --------------- -------------- ----- ----- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee.......... .30% .46% .47% .75% .50% .49% .90%
Other Expenses........... .10% .07% .08% .53% .13% .06% .37%
Total Fortis Series
Operating Expenses...... .40% .53% .55% 1.28% .63% .55% 1.27%
<CAPTION>
Global
Value Growth & S&P 500 Blue Chip Growth Growth Stock International
Series Income Series Index Series Stock Series Series Series Stock Series
----- -------------- ------------ ------------ ------ ------ --------------
<S> <C>
Investment Advisory and
Management Fee.......... .70% .70% .40% .85% .70% .62% .85%
Other Expenses........... .16% .11% .16% .16% .10% .05% .29%
Total Fortis Series
Operating Expenses...... .86% .81% .56% 1.01% .80% .67% 1.14%
<CAPTION>
Aggressive
Growth Series
--------------
Investment Advisory and
Management Fee.......... .70%
Other Expenses........... .11%
Total Fortis Series
Operating Expenses...... .81%
</TABLE>
--------------------------------
(a) As a percentage of Series average net assets based on 1995 historical data
except that the expenses of Value Series, S&P 500 Index Series and Blue
Chip Stock Series are based upon an estimate of 1996 expenses.
4
<PAGE>
EXAMPLES*
If you SURRENDER your Contract in full at the end of any of the time periods
shown below, you would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market Series......................................... $ 64 $ 104 $ 147 $ 220
U.S. Government Securities Series........................... 65 108 153 233
Diversified Income Series................................... 66 109 154 236
Global Bond Series.......................................... 73 131 191 308
High Yield Series........................................... 66 111 158 244
Asset Allocation Series..................................... 66 109 154 236
Global Asset Allocation Series.............................. 73 130 190 307
Growth & Income Series...................................... 68 116 167 262
Growth Stock Series......................................... 67 112 160 248
Global Growth Series........................................ 68 116 167 261
Aggressive Growth Series.................................... 68 116 167 262
International Stock Series.................................. 72 126 184 295
S&P 500 Index Series........................................ 66 109 155 237
Blue Chip Stock Series...................................... 70 122 177 282
Value Series................................................ 69 118 170 267
</TABLE>
If you COMMENCE AN ANNUITY payment option, or do NOT surrender your Contract
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>
Money Market Series......................................... $ 19 $ 59 $ 102 $ 220
U.S. Government Securities Series........................... 20 63 108 233
Diversified Income Series................................... 21 64 109 236
Global Bond Series.......................................... 28 86 146 308
High Yield Series........................................... 21 66 113 244
Asset Allocation Series..................................... 21 64 109 236
Global Asset Allocation Series.............................. 28 85 145 307
Growth & Income Series...................................... 23 71 122 262
Growth Stock Series......................................... 22 67 115 248
Global Growth Series........................................ 23 71 122 261
Aggressive Growth Series.................................... 23 71 122 262
International Stock Series.................................. 27 81 139 295
S&P 500 Index Series........................................ 21 64 110 237
Blue Chip Stock Series...................................... 25 77 132 282
Value Series................................................ 24 73 125 267
</TABLE>
--------------------------
* For purposes of these examples, the effect of the annual Contract
administration charge has been computed based on the average total
Contract Value of all outstanding Contracts during the year ended
December 31, 1995 and the total actual amount of annual Contract
administration charges collected during the year.
--------------------------------
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, prescribed by the SEC, are included to
assist Contract Owners in understanding the transaction and operating expenses
imposed directly or indirectly under the Contracts and Fortis Series. Amounts
for state premium taxes or similar assessments will also be deducted, where
applicable.
See Appendix B for an explanation of the calculation set forth above.
5
<PAGE>
SUMMARY
The following summary should be read in conjunction with the detailed
information in this Prospectus. This Prospectus generally describes only the
portion of the Contract involving the Separate Account. For a brief description
of Fortis Benefits' Fixed Account, please refer to the heading "Fixed Account"
in this Prospectus. Variations from the information appearing in this Prospectus
due to requirements particular to your state are described in supplements which
are attached to this Prospectus, or in endorsements to the Contract, as
appropriate.
The Contract is 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 Contract.
PURCHASE PAYMENTS
For individual Contracts, each initial or subsequent purchase payment must be at
least $50. For contracts issued in connection with a benefit plan covering
employees, the initial and subsequent purchase payments under each Contract must
at all times average at least $50 and in no case be less than $25. No additional
purchase payments are required, if the Contract Value is at least $500 by the
end of the first Contract year and at least $1,000 by the end of second Contract
year and at all times thereafter. See "Issuance of a Contract and Purchase
Payments."
On the Contract Date, the initial purchase payment is allocated, as specified by
the Contract Owner in the Contract application, among one or more of the
Subaccounts of the Separate Account, or to the Fixed Account, or to both.
Subsequent purchase payments are allocated in the same way, or pursuant to
different allocation percentages that the Contract Owner may subsequently
request.
SEPARATE ACCOUNT INVESTMENT OPTIONS
Each of the Subaccounts of the Separate Account invests in shares of a
corresponding Portfolio of Fortis Series. The investment objective of each of
the Subaccounts of the Separate Account and that of the corresponding Portfolio
of Fortis Series is the same.
Contract Value in each of the Subaccounts of the Separate Account will vary to
reflect the investment experience of each of the corresponding Series, as well
as deductions for certain charges.
Each Portfolio has a separate and distinct investment objective and is managed
by Fortis Advisers, Inc. or a subadviser of Fortis Advisers, Inc. For providing
investment management services to the Portfolios, Fortis Advisers, Inc. receives
fees from Fortis Series based on the average daily net assets of each Portfolio.
The Portfolios also bear most of their other expenses. A full description of the
Portfolios and their investment objectives, policies and risks can be found in
the current Prospectus for Fortis Series, which accompanies this Prospectus, and
Fortis Series' Statement of Additional Information, which is available upon
request.
TRANSFERS
During the Accumulation Period, you can transfer all or part of your Contract
Value from one Subaccount to another or into the Fixed Account. Additionally,
during the accumulation period we may, in our discretion, permit a continuing
request for transfers of specified amounts automatically on a periodic basis.
There is currently no charge for any of these transfers. We reserve the right to
restrict the frequency of or otherwise condition, terminate, or impose charges
upon, transfers from a Subaccount during the Accumulation Period. During the
Annuity Period the person receiving annuity payments may make up to four
transfers (but not from a Fixed Annuity Option) during each year of the Annuity
Period. For a description of certain limitations on transfer rights, see
"Allocations of Purchase Payments and Contract Values--Transfers."
TOTAL OR PARTIAL SURRENDERS
All or part of the Contract Value of a Contract may be surrendered by the
Contract Owner before the earlier of the Annuitant's death or the Annuity
Commencement Date. Amounts surrendered may be subject to a surrender charge and
total surrenders may not be made without application of the annual
administrative charge if the Contract Value is less than $25,000. See "Total and
Partial Surrenders," "Surrender Charge" and "Annual Administrative Charge."
Particular attention should be paid to the tax implications of any surrender,
including possible penalties for premature distributions. See "Federal Tax
Matters."
LOANS UNDER CERTAIN QUALIFIED CONTRACTS
If a Contract is qualified under Section 403(b) of the Internal Revenue Code,
Contract Owners may take out loans from Fortis Benefits during the Accumulation
Period. There are limits on the amount of such loans, and the loan will be
secured by the Contract. Principal and interest on a loan must in most cases be
paid over a five year period, and failure to make these payments may have
adverse tax consequences. For a more detailed discussion of these and other
terms and conditions of Contract loans, see "Accumulation Period--Contract Loans
(Section 403(b) Qualified Contracts Only)."
CHARGES AND DEDUCTIONS
Fortis Benefits deducts daily charges at a rate of 1.25% per annum of the value
of the average net assets in the Separate Account for the mortality and expense
risks it assumes and .10% per annum of the value of the average net assets in
the Separate Account to cover certain administrative expenses. See "Mortality
and Expense Risk Charge" and "Administrative Expense Charge" under the heading
"Charges Against the Separate Account."
In order to permit investment of the entire Net Purchase Payment, Fortis
Benefits does not deduct sales charges at the time of investment. However, a
surrender charge is imposed on certain total or partial surrenders of the
Contract to help defray expenses relating to the sale of the Contract, including
commissions to registered representatives and other promotional expenses.
Certain amounts may be surrendered without the imposition of any surrender
charge. The amount of such charge-free surrender depends on how recently the
purchase payments to which the surrender relates were made. The aggregate
surrender charges will never exceed 5% of the purchase payments made to date.
There is also an annual administrative charge each year for Contract
administration and maintenance. This charge is $35 per year (subject to any
applicable state law limitations) and is deducted on each anniversary of the
Contract Date and upon total surrender of the Contract. Currently, this charge
is not deducted during the Annuity Period. This charge will be waived during the
Accumulation Period if the Contract Value at the end of the Contract year (or
upon total surrender) is $25,000 or more.
Certain states and other jurisdictions impose premium taxes or similar
assessments upon Fortis Benefits, either at the time purchase payments are made
or when Contract Value is applied to an annuity option. Where such taxes or
assessments are imposed by your state or other jurisdiction upon receipt of
purchase payments, we will deduct a charge for these amounts from the Contract
Value upon surrender, death of the Annuitant or Contract Owner, or annuitization
of the
6
<PAGE>
Contract. In jurisdictions where such taxes or assessments are imposed at the
time of annuitization, we will deduct a charge for such amounts at that time.
ANNUITY PAYMENTS
The Contract provides several types of annuity benefits to Annuitants or their
Beneficiaries, including Fixed and Variable Annuity Options. The Contract Owner
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 Contract Owner dies prior to the Annuity
Commencement Date, a death benefit is payable to the Beneficiary of the
Contract. See "Benefit Payable on Death of Annuitant or Contract Owner."
RIGHT TO EXAMINE THE CONTRACT
The Contract Owner has a right to examine the Contract. The Contract Owner can
cancel the Contract by delivering or mailing it, together with a Written
Request, to Fortis Benefits' Home Office or to the sales representative through
whom it was purchased, before the close of business on the tenth day after
receipt of the Contract. If these items are sent by mail, properly addressed and
postage prepaid, they will be deemed to be received by Fortis Benefits on the
date postmarked. Fortis Benefits will pay you the then current Contract Value.
However, if applicable state law so requires the full amount of the purchase
payments received by Fortis Benefits will be refunded.
LIMITATIONS IMPOSED BY RETIREMENT PLANS
Certain rights a Contract Owner would otherwise have under a Contract may be
limited by the terms of any employee benefit plan in connection with which the
Contract is issued. These limitations may restrict such things as total and
partial surrenders, the amount or timing of purchase payments that may be made,
when annuity payments must start and the type of annuity options that may be
selected. Accordingly, you should familiarize yourself with these and all other
aspects of any retirement plan in connection with which a Contract is issued.
TAX IMPLICATIONS
The tax implications for Contract Owners, Annuitants and Beneficiaries, and
those of any related employee benefit plan can be quite important. A brief
discussion of some of these is set out under "Federal Tax Matters" in this
Prospectus and "Taxation Under Certain Retirement Plans" in the Statement of
Additional Information, but such discussion is not comprehensive. Therefore, you
should consider these matters carefully and consult a qualified tax adviser
before making purchase payments or taking any other action in connection with a
Contract or any related employee benefit plan. Failure to do so could result in
serious adverse tax consequences which might otherwise have been avoided.
QUESTIONS AND OTHER COMMUNICATIONS
Any question about procedures or the Contract should be directed to your sales
representative, or Fortis Benefits' Home Office: P.O. Box 64272, St. Paul,
Minnesota 55164; 1-800-800-2638 (Ext. 3057). For certain current information
relating to Contract Values such as Subaccount unit values, interest rates in
the Fixed Account, and your Contract Value, call 1-800-800-2638 (ext. 5448).
Purchase payments and Written Requests should be mailed or delivered to the same
Home Office address. All communications should include the Contract number, the
Contract Owner's name and, if different, the Annuitant's name. The number for
telephone transfers is 1-800-800-2638 (Ext. 3057).
Any purchase payment or other communication, except a 10-day cancellation
notice, is deemed received at Fortis Benefits' Home Office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on the New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.
- --------------------------------------------------------------------------------
7
<PAGE>
FINANCIAL AND PERFORMANCE INFORMATION
The information presented below reflects the Accumulation Unit information for
subaccounts of the Separate Account through December 31, 1995. Accumulation
units have been rounded to the nearest whole unit.
<TABLE>
<CAPTION>
U.S. GLOBAL
MONEY GOV'T DIVERSIFIED GLOBAL HIGH ASSET ASSET GROWTH GLOBAL
MARKET SECURITIES INCOME BOND YIELD ALLOCATION ALLOCATION & INCOME GROWTH
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995
Accumulation Units in
Force.................... 26,915,976 10,989,914 59,213,865 574,142 2,321,419 148,700,081 1,117,596 4,204,163 10,769,830
Accumulation Unit
Values................... $1.367592 $15.805335 $1.753817 $11.743159 $10.941082 $2.134216 $11.590086 $12.904129 $15.754217
January 1, 1995*
Accumulation Unit
Values................... -- -- -- $10.000000 -- -- $10.000000 -- --
December 31, 1994
Accumulation Units in
Force.................... 30,697,764 12,271,738 62,744,615 -- 1,216,957 137,642,102 -- 1,489,517 10,055,959
Accumulation Unit Value... $1.311084 $13.483809 $1.515603 -- $9.834134 $1.773397 -- $10.083309 $12.236773
May 1, 1994*
Accumulation Unit Value... 10.00 10.00
December 31, 1993
Accumulation Units in
Force.................... 21,315,022 15,601,818 56,005,709 -- -- 106,834,367 -- -- 5,108,957
Accumulation Unit Value... $1.2789 $14.6095 $1.6211 -- -- $1.7970 -- -- $12.7842
December 31, 1992
Accumulation Units in
Force.................... 20,674,556 9,505,984 19,353,521 -- -- 49,688,937 -- -- 698,720
Accumulation Unit Value... $1.261 $13.529 $1.457 -- -- $1.665 -- -- $10.989
May 1, 1992*
Accumulation Unit Value... -- -- -- -- -- -- -- -- 10.00
December 31, 1991
Accumulation Units in
Force.................... 7,235,168 3,595,759 6,056,976 -- -- 17,772,323 -- -- --
Accumulation Unit Value... $1.237 $12.922 $1.379 -- -- $1.578 -- -- --
December 31, 1990
Accumulation Units in
Force.................... 5,632,146 747,992 2,352,517 -- -- 8,249,373 -- -- --
Accumulation Unit Value... $1.184 $11.450 $1.220 -- -- $1.253 -- -- --
December 31, 1989
Accumulation Units in
Force.................... 754,306 70,701 1,306,717 -- -- 2,760,936 -- -- --
Accumulation Unit Value... $1.112 $10.756 $1.140 -- -- $1.245 -- -- --
May 1, 1989*
Accumulation Unit Value... -- $10.000 -- -- -- -- -- -- --
December 31, 1988
Accumulation Units in
Force.................... 92,261 -- 493,007 -- -- 703,763 -- -- --
Accumulation Unit Value... $1.030 -- $1.025 -- -- $1.020 -- -- --
May 2, 1988*
Accumulation Unit Value... $1.000 -- $1.000 -- -- $10.000 -- -- --
<CAPTION>
INTERNATIONAL GROWTH AGGRESSIVE
STOCK STOCK GROWTH
----------- --------- ---------
<S> <C> <C> <C>
December 31, 1995
Accumulation Units in
Force.................... 1,157,063 160,247,280 3,033,587
Accumulation Unit
Values................... $11.271900 $2.587482 $12.461083
January 1, 1995*
Accumulation Unit
Values................... $10.000000 -- --
December 31, 1994
Accumulation Units in
Force.................... -- 148,657,108 1,155,647
Accumulation Unit Value... -- $2.054211 $9.723523
May 1, 1994*
Accumulation Unit Value... 10.00
December 31, 1993
Accumulation Units in
Force.................... -- 118,720,649 --
Accumulation Unit Value... -- $2.1425 --
December 31, 1992
Accumulation Units in
Force.................... -- 79,582,321 --
Accumulation Unit Value... -- $1.996 --
May 1, 1992*
Accumulation Unit Value... -- -- --
December 31, 1991
Accumulation Units in
Force.................... -- 42,946,178 --
Accumulation Unit Value... -- $1.966 --
December 31, 1990
Accumulation Units in
Force.................... -- 14,690,313 --
Accumulation Unit Value... -- $1.298 --
December 31, 1989
Accumulation Units in
Force.................... -- 3,507,971 --
Accumulation Unit Value... -- $1.358 --
May 1, 1989*
Accumulation Unit Value... -- -- --
December 31, 1988
Accumulation Units in
Force.................... -- 684,667 --
Accumulation Unit Value... -- $1.008 --
May 2, 1988*
Accumulation Unit Value... -- $1.000 --
</TABLE>
- ------------------------------
*Accumulation Unit Value at Date of initial registration effectiveness.
8
<PAGE>
Audited financial statements of the Separate Account and Fortis Benefits are
included in the Statement of Additional Information.
Advertising and other sales materials may include yield and total return figures
for the Subaccounts of the Separate 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 period of time
specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield figures
do not reflect the surrender charge and yield and total return figures do not
reflect premium tax charges. This makes the performance shown more favorable.
FORTIS BENEFITS AND THE SEPARATE
ACCOUNT
FORTIS BENEFITS/FORTIS FINANCIAL GROUP MEMBER
Fortis Benefits Insurance Company, the issuer of the Policies, was founded in
1910. At the end of 1995, Fortis Benefits had approximately $86 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 Time
Insurance Company, offering financial products through the management, marketing
and servicing of mutual funds, annuities, 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
$140 billion in assets as of year-end 1995.
All of the guarantees and commitments under the Contracts are general
obligations of Fortis Benefits, regardless of whether the Contract Value has
been allocated to the Separate Account or to the Fixed Account. None of Fortis
Benefits' affiliated companies has any legal obligation to back Fortis Benefits'
obligations under the Contracts.
THE SEPARATE ACCOUNT
The Separate 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. The assets allocated to
the Separate Account are the exclusive property of Fortis Benefits. Although the
Separate Account is an integral part of Fortis Benefits, the Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940. Registration does not involve
supervision of the management or investment practices or policies of the
Separate Account or of Fortis Benefits by the Securities and Exchange
Commission.
All income, gains and losses, whether or not realized, from assets allocated to
the Separate Account are credited to or charged against the Separate Account
without regard to other income, gains or losses of Fortis Benefits. Assets in
the Separate Account representing reserves and liabilities will not be
chargeable with liabilities arising out of any other business of Fortis
Benefits. Fortis Benefits may accumulate in the Separate Account proceeds from
charges under variable annuity contracts and other amounts in excess of the
Separate Account assets representing reserves and liabilities. Fortis Benefits
may from time to time transfer to its General Account any of such excess
amounts.
There are Subaccounts in the Separate Account. The assets in each Subaccount are
invested exclusively in a distinct class (or series) of stock issued by Fortis
Series, each of which represents a separate investment Portfolio within Fortis
Series. Income and both realized and unrealized gains or losses from the assets
of each Subaccount of the Separate Account are credited to or charged against
that Subaccount without regard to income, gains or losses from any other
Subaccount of the Separate Account or arising out of any other business we may
conduct. Under certain remote circumstances, the assets of one Subaccount may
not be insulated from liability associated with another Subaccount. New
Subaccounts may be added as new Portfolios are added to Fortis Series and made
available to Contract Owners. Correspondingly, if any Portfolios are eliminated
from Fortis Series, Subaccounts may be eliminated from the Separate Account.
FORTIS SERIES FUND, INC.
Fortis Series is a "series" type of mutual fund which is registered with the
Securities and Exchange Commission as a diversified open-end management
investment company under the Investment Company Act of 1940. Fortis Series has
served as the investment medium for the Separate Account since the Separate
Account commenced operations. Fortis Series is also the investment medium for
Variable Account C of Fortis Benefits, through which variable life insurance
policies are issued. Although we do not foresee any conflict between the
interests of Contract Owners and life insurance policy owners, Fortis Series'
Board of Directors will monitor to identify any material irreconcilable
conflicts that may develop and to determine what action, if any, should be taken
in response. If it becomes necessary for any separate account to replace shares
of any Portfolio with another investment, the Portfolio may have to liquidate
securities on a disadvantageous basis.
Fortis Benefits purchases and redeems Fortis Series' shares for the Separate
Account at their net asset value without the imposition of any sales or
redemption charges. Such shares represent interests in the Portfolios of Fortis
Series available for investment by the Separate Account. Each Portfolio
corresponds to one of the Subaccounts of the Separate Account. The assets of
each Portfolio are separate from the others and each Series operates as a
separate investment portfolio whose performance has no effect on the investment
performance of any other Portfolio.
Any dividend or capital gain distributions attributable to Contracts are
automatically reinvested in shares of the Portfolio from which they are received
at that 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 that Portfolio. However, the value of the
interests of Contract Owners, Annuitants and Beneficiaries in the corresponding
Subaccount will not change as a result of any such dividends and distributions.
The Portfolios of Fortis Series available for investment by the Separate Account
are Money Market Series, U.S. Government Securities Series, Diversified Income
Series, Global Bond Series, High Yield Series, Asset Allocation Series, Global
Asset Allocation Series, Value Series,
9
<PAGE>
Growth & Income Series, S&P 500 Index Series, Blue Chip Stock Series, Growth
Stock Series, Global Growth Series, International Stock Series and Aggressive
Growth Series. A full description of the Portfolios, their investment policies
and restrictions, their charges, the risks attendant to investing in them, and
other aspects of their operations is contained in the Prospectus for Fortis
Series accompanying this Prospectus and in the Statement of Additional
Information for Fortis Series referred to therein. Additional copies of these
documents may be obtained from your sales representative or from our Home
Office. The complete Risk Disclosure in the Prospectus for Diversified Income
Series and Asset Allocation Series should be read before selection of them for
Contract Investment.
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
Fortis Benefits reserves the right to reject any application for a Contract or
any purchase payment for any reason. If 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
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 $50.
The date that the initial purchase payment is applied to the purchase of the
Contract is the Contract Date. The Contract Date is the date used to determine
Contract years, regardless of when the Contract is delivered. The crediting of
investment experience in the Separate Account, or a fixed rate of return in the
Fixed Account, begins as of the Contract Date, even if that date is delayed due
to underwriting or administrative requirements.
We will accept additional purchase payments at any time after the Contract 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
Contracts and accounts to be credited with purchase payments) must be
transmitted to our Home Office. Additional purchase payments are credited to the
Contract and added to the Contract Value as of the end of the Valuation Period
in which they are received.
Each additional purchase payment must be at least $50; except that, under
Contracts issued in connection with a benefit plan covering employees, it is
sufficient that all purchase payments under each Contract at all times average
$50. In no case, however, will a purchase payment be accepted if it is less than
$25, and we reserve the right to raise this minimum to not more than $100. The
total of all purchase payments for all Contracts having the same owner,
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 Contract Owner that 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.
We may cancel a Contract if its Contract Value falls below $1,000. (Under our
current administrative procedures, however, we will not cancel a Contract during
the first two Contract years, if the Contract Value is at least $500 by the end
of the first Contract year.) We will provide the Contract Owner with 90 days'
written notice so that additional purchase payments may be made in order to
raise the Contract Value above the applicable minimum. Otherwise, we may cancel
the Contract as of the end of the Valuation Period which includes the next
anniversary of the Contract Date. We will consider this a surrender of the
Contract and impose the same charges we would impose upon a surrender. See
"Total and Partial Surrenders." So long as the Contract Value remains above
$1,000, no additional purchase payments under a Contract are ever required.
CONTRACT VALUE
Contract Value is the total of any Separate Account Value in all the Subaccounts
of the Separate Account pursuant to a Contract, plus any Fixed Account Value
under the Contract. For a discussion of how Fixed Account Value is calculated,
see "The Fixed Account."
There is no guaranteed minimum Separate Account Value. The Separate Account
Value will reflect the investment experience of the chosen Subaccounts of the
Separate Account, all purchase payments made, any partial surrenders, and all
charges assessed in connection with the Contract. Therefore, the Separate
Account Value changes from Valuation Period to Valuation Period. To the extent
Contract Value is allocated to the Separate Account, the Contract Owner bears
the entire investment risk.
DETERMINATION OF SEPARATE ACCOUNT VALUE. A Contract's Separate 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. Net purchase payments applied to
a given Subaccount will be used to purchase Accumulation Units at the unit value
of that Subaccount next determined after receipt of a purchase payment. See
"Allocation of Purchase Payments and Contract Value--Allocation of Purchase
Payments."
At the end of any Valuation Period, a Contract's Separate 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:
- The initial Accumulation Units purchased on the
Contract Date; plus
- Accumulation Units purchased at the time that
additional Net Purchase Payments are allocated to the Subaccount; plus
- Accumulation Units purchased through transfers from
another Subaccount or from the Fixed Account; less
- Accumulation Units redeemed to pay for the portion of
any partial surrenders allocated to the Subaccount; less
- Accumulation Units redeemed as part of a transfer to
another Subaccount or to the Fixed Account; less
- Accumulation Units redeemed to pay charges under the
Contract.
NET INVESTMENT FACTOR. A Subaccount's net investment factor for a Valuation
Period is an index number that reflects certain charges to a Contract and the
investment performance of the Subaccount during the Valuation Period. If the 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
10
<PAGE>
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 operations of the Subaccount or any other taxes
which are attributable to the Contract, by (2) the net asset value per share of
the Portfolio shares held in the Subaccount as determined at the end of the
previous Valuation Period, and subtracting from that result a factor
representing the mortality risk, expense risk and administrative expense charge.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
ALLOCATION OF PURCHASE PAYMENTS. In the application for a Contract, the Contract
Owner can allocate Net Purchase Payments, or portions thereof, to the available
Subaccounts of the Separate Account or to the Fixed Account, or both.
Percentages must be in 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 Contract Owner's Written Request.
TRANSFERS. Transfers of Contract Value from one available Subaccount to another
or into the Fixed Account can be made by the Contract Owner by Written Request
to Fortis Benefits' Home Office, or by telephone transfer as described below.
There is currently no charge for any transfer. All or part of the Contract Value
in one or more Subaccounts of the Separate Account may be transferred at one
time. We may in our discretion permit a continuing request for transfers
automatically and 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 out of a Subaccount during the
Accumulation Period. The only current restriction on the frequency of transfers
is a prohibition of making transfers INTO the Fixed Account within six months of
a transfer out of the Fixed Account. Transfers of Contract Value FROM the Fixed
Account are restricted in both amount and timing. See "Fixed Account--Fixed
Account Transfers, Total and Partial Surrenders." We will count all transfers
between and among the Subaccounts of the Separate 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.
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 geniune, 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 1-800-800-2638 (Ext. 3057).
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 Contract Owner 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 Contract be returned to us prior to making
payment, although this will not affect our determination of the amount of the
Cash Surrender Value. Cash Surrender Value is the Contract Value at the end of
the Valuation Period during which the Written Request for the total surrender is
received by Fortis Benefits at its Home Office, less any applicable surrender
charge and less any applicable administrative charge. For a discussion of these
charges and the circumstances under which they apply, see "Annual Administrative
Charge" and "Surrender Charge."
The written consent of all collateral assignees and irrevocable beneficiaries
must be obtained prior to any total surrender. Surrenders from the Separate
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."
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, and because certain surrenders are subject to
a surrender charge, 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 Contract Value is zero all rights of the
Contract Owner, Annuitant, and any Beneficiary, will terminate.
PARTIAL SURRENDERS. 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 Separate Account Value by sending to Fortis Benefits'
Home Office a Written Request. The minimum partial surrender amount is $500,
including any surrender charge. If the total Contract Value in both the Separate
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
Contract. (Under our current administrative procedures, however, we will honor a
surrender request during the first two Contract years without regard to the
remaining Contract Value.)
In order for a request to be processed, the Contract Owner MUST specify from
which Subaccounts of the Separate Account or the Fixed Account a partial
surrender should be made and charges deducted.
We will surrender Accumulation Units from the Separate 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 plus any applicable
surrender charge. 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."
11
<PAGE>
The Internal Revenue Code provides that a penalty tax will be imposed on certain
premature surrenders. For a discussion of this and other tax implications of
total and partial surrenders, including withholding requirements, see "Federal
Tax Matters." Also, under tax deferred annuity Contracts pursuant to Section
403(b) of the Internal Revenue Code, no distributions of voluntary salary
reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.) This restriction does not apply
to amounts transferred to another investment alternative permitted under a
Section 403(b) retirement arrangement or to amounts attributable to premium
payments received prior to January 1, 1989.
BENEFIT PAYABLE ON DEATH OF ANNUITANT OR CONTRACT OWNER
If the Annuitant or Contract Owner 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 (other than any automatic surrenders made to pay the annual
administrative charge) and previously-imposed surrender charges,
(2)
the Contract Value as of the date used for valuing the death
benefit, or
the Contract Value(3) (less the amount of any subsequent
surrenders and surrender charges) as of the Contract's Five Year Anniversary
immediately preceding the earlier of (a) the date of death of either the
Contract Owner or the Annuitant, or (b) the date either first reaches his or
her 75th birthday. (See Appendix A for sample death benefit calculations.)
The death benefit may be reduced by premium taxes where such taxes were imposed
upon receipt of purchase payments and were paid by Fortis Benefits in behalf of
the Contract Owner. For further information, see "Charges and
Deductions--Premium Taxes."
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
Contract, or (b) select an annuity option. If the Beneficiary selects an annuity
option, he or she will have all the rights and privileges of an Annuitant under
the Contract. If the Beneficiary desires an annuity option, the election should
be made within 60 days of the date the death benefit becomes payable. Failure to
make a timely election can result in unfavorable tax consequences. For further
information, see "Federal Tax Matters."
We accept any of the following as proof of death: 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; a written statement by a medical doctor who attended
the deceased at the time of death.
If the Contract Owner dies before the Annuitant and before the Annuity
Commencement Date with respect to a Non-Qualified Contract, certain additional
requirements are mandated by the Internal Revenue Code, which are discussed
below under "Federal Tax Matters-- Required Distributions for Non-Qualified
Contracts." It is imperative that Written Notice of the death of the Contract
Owner be promptly transmitted to Fortis Benefits at its Home Office, so that
arrangements can be made for distribution of the entire interest in the Contract
to the Beneficiary in a manner that satisfies the Internal Revenue Code
requirements. Failure to satisfy these requirements may result in the Contract
not being treated as an annuity contract for federal income tax purposes, which
could have adverse tax consequences.
CONTRACT LOANS (SECTION 403(B) QUALIFIED CONTRACTS ONLY)
During the Accumulation Period, a Contract Owner may request a loan from the
Contract Value. If the loan meets the amount and repayment requirements
described below, it will not be reported to the Internal Revenue Service as a
taxable distribution. Forms provided by us must be used to apply for a Contract
Loan. You can obtain these forms from our Home Office.
Any loan will be secured by a security interest in the Contract. An amount equal
to the loan will be held in the Fixed Account, where it will be credited with
the otherwise applicable Fixed Account interest rates, until the loan is repaid.
If necessary, this amount will be transferred from the Subaccounts to the Fixed
Account. In this case, the Contract Owner must specify the Subaccounts from
which such amount will be transferred or the loan will not be processed. The
loan and any related transfers will be effective at the end of the Valuation
Period in which Fortis Benefits receives at its Home Office all necessary
documentation in connection with the loan request. Loan proceeds will be
forwarded within seven days thereafter.
There is a loan administrative fee of $100 for each loan. The fee will be
deducted from the loan proceeds unless it is submitted along with the loan
application. It is not expected that the revenues from these fees will exceed
the costs of establishing and administering the Contract loan feature.
Only one outstanding loan at a time is permitted. The loan amount must be at
least $1,000.00. The loan amount may not, at the date of the loan, exceed the
lesser of: (a) 50% of the Contract Value or (b) $50,000 reduced by the highest
outstanding loan balance in the previous 12 months. The 50% limitation above
described is further modified, if its application results in a calculated limit
of less than $10,000, for a Contract which is a part of a plan of a governmental
employer, a plan of a church, or a salary reduction contribution-only Section
403(b) plan satisfying the diversification requirements of the Employee
Retirement Income Securities Act of 1974. If in the application of the 50%
limitation above described for such a Contract a loan limitation of less than
$10,000 results, the following limitation is applicable in lieu of the above
described 50% limitation (in addition to the loan limitation designated as (b)
above): the lesser of (1) $10,000 or (2) the Contract Value less one year's
interest on the loan. Loans issued to the Contract Owner under other plans of
the same employer may, under Internal Revenue Service rules, reduce the loan
available under this Contract.
The loan will have an adjustable interest rate that may be increased or
decreased during the loan period. The loan interest rate will be set annually by
Fortis Benefits on July 1. The rate set will not exceed the greater of (a) the
published monthly average of Moody's Corporate Bond Yield Average--Monthly
Average Corporates for the preceding April or (b) the weighted average Fixed
Account interest rate being credited to the Contracts as of the preceding April
30 plus 1%.
Repayment of principal and interest must be amortized in no more than five
years. However, loans taken for the acquisition of the Annuitant's principal
residence may be repaid over a period of 1 to 30 years. Whether or not the loan
has been used to acquire a principal residence, interest paid on this loan is
"personal interest" as defined in the Internal Revenue Code.
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The loan must be repaid in quarterly installments of principal and interest and
may be prepaid at any time. The repayment due dates and installment amounts will
be provided in a repayment schedule sent to you at least 30 days prior to the
installment due date.
If any loan amount is outstanding on the Annuity Commencement Date, we have the
right to treat that amount as a partial surrender in the manner discussed above.
If the Annuitant or Contract Owner dies before the Annuity Commencement Date, we
reserve the right to deduct any amount owed to us from the death benefit.
Any unpaid loan and accrued interest are deemed to reduce the Fixed Account
Value, and, to this extent, withdrawals and transfers from the Fixed Account are
restricted while a Contract loan is outstanding. When the loan is fully repaid,
amounts held in the Fixed Account can be transferred or withdrawn, subject to
the otherwise generally applicable terms and conditions for such transfers or
withdrawals.
Contract loans are subject to conditions and requirements under the Internal
Revenue Code and, where applicable, ERISA, as well as the terms of any
retirement plan in connection with which the Contract has been acquired. For
example, if loan payments are not made when due, or if we otherwise find it
necessary to exercise our rights to use all or part of the value under a
Contract to repay a Contract loan, serious adverse tax consequences may result.
The tax and ERISA rules relating to Contract loans are complex and in many cases
unclear. For these reasons, and because the rules vary depending on the
individual circumstances of each Contract, Fortis Benefits cautions that
employers and Contract Owners should take particular care to consult with
qualified advisers before taking action with respect to Contract loans.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
The Contract Owner may specify an Annuity Commencement Date in the application.
The Annuity Commencement Date marks the beginning of the period during which an
Annuitant receives annuity payments under the Contract. We may not permit an
Annuity Commencement Date which is on or after the Annuitant's 75th birthday,
and you should consult your sales representative in this regard. Except for
contracts issued in connection with life insurance policies issued by Fortis
Benefits, the Annuity Commencement Date must be at least two years after the
Contract Date.
Depending on the type of retirement arrangement in connection with which a
Contract is issued, 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 for the Contract Owner to advance or defer the Annuity Commencement
Date, the Contract Owner 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 Contract Value at the end of the Valuation Period which contains the
Annuity Commencement Date is less than $5,000, we may pay the entire Contract
Value, without the imposition of any charges other than premium taxes, if
applicable, in a single sum payment to the Annuitant or other properly
designated payee and cancel the Contract.
Otherwise, Fortis Benefits will apply (1) the Fixed Account Value to provide a
Fixed Annuity Option and (2) the Separate Account Value in any Subaccount to
provide a Variable Annuity Option using the same Subaccount, unless the Contract
Owner has notified us by Written Request to apply the Fixed Account Value and
Separate 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 Contract Owner 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. 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 Contract 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 benefit plans, is set forth under "Calculation of Annuity
Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity 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 4% 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 4% 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 1.35%.
We guarantee that the amount of each variable annuity payment after the first
payment will not be affected by variations in our mortality experience or our
expenses, except to the extent that we reserve the right to impose the $35
annual administrative expense charge during the Annuity Period just as we do
during the Accumulation Period.
TRANSFERS. During the Annuity Period, the person receiving annuity payments may
make up to four transfers a year among Subaccounts or from Subaccounts to the
Fixed Account. The current procedures for these transfers are the same as
described above under "Allocation of Purchase Payments and Contract
Value--Transfers." Transfers out of the Fixed Account are not permitted during
the Annuity Period.
ANNUITY FORMS
The Contract Owner 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. Only 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
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below), with payments guaranteed for 10 years. If the Contract 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 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. 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 cases, the person entitled to receive
payments also receives any rights and privileges under the annuity form in
effect.
Additional rules applicable to such distributions under Non-Qualified Contracts
are described under "Federal Tax Matters--Required Distributions for
Non-qualified Contracts". Though the rules there described do not apply to
Contracts issued in connection with qualified plans, similar rules apply to the
plans themselves.
CHARGES AND DEDUCTIONS
The charges that we assess in connection with the Contracts are described below.
PREMIUM TAXES
The states of South Dakota and Wyoming impose a premium tax upon the receipt of
a purchase payment. In those states, and in any other state or jurisdiction
where premium taxes or similar assessments are imposed upon the receipt of
purchase payments, Fortis Benefits pays such taxes on behalf of the Contract
Owner and then will deduct a charge for these amounts from the Contract Value
upon the surrender, death of the Annuitant or Contract Owner, or annuitization
of the Contract. In jurisdictions where premium taxes or similar assessments are
imposed at the time annuity payments begin, Fortis Benefits will deduct a charge
for such amounts from the Contract 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
Separate Account Value in each Subaccount. Similarly, Fortis Benefits may deduct
premium taxes from the Contract Value when no deduction was made from purchase
payments, but is subsequently determined to be due. Conversely, Fortis Benefits
will credit to Contract 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 Contract Owner's then-current place
of residence. Currently, premium taxes and similar assessments range from 0% to
3.5% of purchase payments or the amount annuitized. Applicable rates are subject
to change by legislation, administrative interpretations or judicial acts.
ANNUAL ADMINISTRATIVE CHARGE
A $35 annual administrative charge is deducted each Contract year from the
Contract Value on each anniversary of the Contract 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 Contracts,
establishing and maintaining the records relating to Contracts, making
regulatory filings and furnishing confirmation notices, voting materials and
other communications, providing computer, actuarial and accounting services, and
processing Contract transactions. 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. This charge
will be waived during the Accumulation Period if the Contract Value at the end
of the Contract Year (or upon total surrender) is $25,000 or more.
The annual administrative charge will be deducted by redemption of Accumulation
Units from each Subaccount of the Separate Account and from the Fixed Account in
the same proportion as the then-current Contract Value is then allocated among
those alternatives pursuant to the Contract. If the Contract is totally
surrendered, the full annual administrative charge will be deducted at the time
of surrender if the Contract Value is less than $25,000 at such time.
CHARGES AGAINST THE SEPARATE ACCOUNT
Certain charges will be assessed as a percentage of the value of the net assets
of the Separate Account to compensate Fortis Benefits for risks assumed in
connection with the Contract, and administrative expenses which may apply to the
Separate Account.
MORTALITY AND EXPENSE RISK CHARGE. We will assess each Subaccount of the
Separate Account with a daily charge for mortality and expense risk at a nominal
annual rate of 1.25% of the average daily net assets of the Separate Account
(consisting of approximately .8% for mortality risk and approximately .45% 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 Contract. This charge is assessed daily when determining the value of an
Accumulation Unit.
The mortality risk borne by Fortis Benefits arises from its obligation to make
annuity payments (determined in accordance with the annuity tables and other
provisions contained in the Contract) for the full life of all Annuitants
regardless of how long all Annuitants or any individual Annuitant might live.
This undertaking assures that neither an
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Annuitant's own longevity, nor an improvement in life expectancy generally, will
have any adverse effect on the annuity payments the Annuitant will receive under
the Contract. This, therefore, relieves the Annuitant from the risk that he or
she will outlive the funds accumulated for retirement.
In addition, Fortis Benefits bears a mortality risk in that it guarantees to pay
a death benefit in a single sum (which may also be taken in the form of an
annuity option) upon the death of an Annuitant or Contract Owner prior to the
Annuity Commencement Date. No surrender charge is imposed upon the payment of a
death benefit, which places a further mortality risk on the Company.
The expense risk assumed is that actual expenses incurred in connection with
issuing and administering the Contracts will exceed the limits on administrative
charges set in the Contracts.
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.
ADMINISTRATIVE EXPENSE CHARGE. We will assess each Subaccount of the Separate
Account with a daily charge at a nominal annual rate of .10% of the average
daily net assets of the Subaccount. This charge is imposed during both the
Accumulation Period and the Annuity Period. The daily administrative expense
charge is assessed to help cover administrative expenses such as those described
above under "Annual Administrative Charge." The daily administrative expense
charge, like the annual administrative charge, is designed to defray expenses
actually incurred, without profit. That is, the total anticipated revenues from
both charges, on average, are not expected to exceed the actual administrative
costs incurred by Fortis Benefits and its affiliates. There is no necessary
relationship between the amount of administrative charges imposed on a given
Contract and the amount of expenses actually attributable to that Contract.
TAX CHARGE. We currently impose no charge for taxes payable by us in connection
with this Contract, 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 Contracts or the
Separate Account.
SURRENDER CHARGE
No sales charge is collected or deducted at the time Net Purchase Payments are
applied under a Contract. A surrender charge will be assessed on certain total
or partial surrenders. The amounts obtained from the surrender charge will be
used to partially defray expenses incurred in the sale of the Contracts,
including commissions and other promotional or distribution expenses associated
with the marketing of the Contracts, and costs associated with the printing and
distribution of prospectuses and sales material.
FREE SURRENDERS. The following amounts can be withdrawn from the Contract
without a surrender charge:
- Any purchase payments received by us more than five
years prior to the surrender date and that have not been previously
surrendered;
- In any Contract year, up to 10% of the purchase payments
received by us less than five years prior to the surrender date
(whether or not the purchase payments have been previously
surrendered).
Purchase payments not subject to a surrender charge are deemed to be withdrawn
first. If all purchase payments have been withdrawn, the remaining earnings can
be withdrawn without a surrender charge. That is, surrender charges do not apply
to Contract earnings. For this purpose, it is assumed that all purchase payments
are withdrawn before earnings are withdrawn. (For federal income tax purposes,
however, certain partial surrenders will be deemed to come first from earnings.
See "Federal Tax Matters.")
No surrender charge is imposed on annuitization (or payment of a single sum
because the Contract Value is less than the minimum required to provide an
annuity on the Annuity Commencement Date). Nor is the surrender charge deducted
from the payment of any benefit upon the death of an Annuitant or Contract
Owner.
In addition, we have an administrative policy to waive surrender charges for
full surrenders of Contracts that have been in force for at least ten years
provided that the amount then subject to the surrender charge is less than 25%
of the Contract Value. Since the Contracts have been offered only since 1988, no
such waivers have yet been made. We reserve the right to change or terminate
this practice at any time, both for new and for previously issued Contracts.
AMOUNT OF SURRENDER CHARGE. Surrender charges apply only if the amount being
withdrawn exceeds the sum of the amounts listed above under Free Surrenders. The
surrender charge is 5% of the purchase payments withdrawn which were received by
us less than five years prior to the surrender date.
We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent that the surrender charge is insufficient
to cover the actual costs of distribution, such costs will be paid from Fortis
Benefits' General Account assets, which will include profit, if any, derived
from the mortality and expense risk charge.
NURSING CARE/HOSPITALIZATION WAIVER OF SURRENDER CHARGES. Surrender charges will
not be assessed when a total or partial withdrawal is requested: (1) after a
covered person has been confined in a hospital or skilled health care facility
for at least 60 consecutive days and the covered person continues to be confined
in the hospital or skilled care facility when the request is made; or (2) within
60 days following a covered person's discharge from a hospital or skilled health
care facility after confinement of at least 60 consecutive days. Confinement
must begin after the effective date of this provision.
Covered persons are the Contract Owner or Owners and the spouse of any Contract
Owner if such spouse is the Annuitant. Surrender Charges will not be waived when
a confinement is due to substance abuse, mental or personality disorders without
a demonstrable organic disease. A degenerative brain disease such as Alzheimer's
Disease is considered an organic disease.
This nursing care/hospitalization waiver of surrender charges is provided by
means of a rider to the Contract, which has not been approved in all states.
Individuals applying for a Contract should check with their Fortis Benefits
representative to determine if this rider is available in their state.
MISCELLANEOUS
Because the Separate Account invests in shares of the Portfolios of Fortis'
Series, the net assets of the Separate Account will reflect the investment
advisory fees and certain other expenses incurred by the Portfolios that are
described in the prospectus for Fortis' Series.
REDUCTION OF CHARGES
No surrender charge will be imposed under any Contract owned by (A) Fortis, Inc.
or its subsidiaries, and the following persons associated with such companies,
if at the Contract Issue date they are: (1) officers and directors; (2)
employees; or (3) spouses of any such persons or any of such persons' children,
grandchildren, parents, grandparents, or siblings--or spouses of any of these
persons; (B) Series Fund directors, officers, or their spouses (or such persons'
children, grandchildren, parents or grandparents--or spouses of any such
persons); and (C) representatives or employees (or their
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spouses) of Fortis Investors (including agencies) or of other
broker-dealers having a sales agreement with Fortis Investors (or such persons'
children, grandchildren, parents, or grandparents--or spouses of any such
persons).
The annual administrative charge may be reduced or waived when sales of the
contract are made to individuals or groups of individuals in such a manner that
results in savings or reduction of administrative expense. In no event will
reduction or elimination of the annual administrative charge be permitted where
such reduction or elimination will be unfairly discriminating to any person.
FIXED ACCOUNT
Contract Owners may allocate Net Purchase Payments and transfer Contract Value
to the Fixed Account, in which case such amounts are held in the General Account
of Fortis Benefits. Because of exemptive and exclusionary provisions, interests
in the Fixed Account have not been registered under the Securities Act of 1933
and the Fixed Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the 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 this Prospectus relating to the 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. This Prospectus is
generally intended to serve as a disclosure document only for the aspects of the
Contract involving the Separate Account and contains only selected information
regarding the Fixed Account. More information regarding the Fixed Account may be
obtained from Fortis Benefits' Home Office or from your sales representative.
GENERAL DESCRIPTION
Our obligations with respect to the Fixed Account are supported by our General
Account. Subject to applicable law, we have sole discretion over the investment
of the assets in our General Account.
Fortis Benefits guarantees that Contract Value in the Fixed Account will accrue
interest at an effective annual rate of at least 4%, 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 4% per year. Any interest rate in
excess of 4% per year with respect to any amount in the Fixed Account pursuant
to a Contract 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 Fixed
Account. Once credited, such interest will be guaranteed and will become part of
Contract Value in the Fixed Account from which deductions for fees and charges
may be made.
Charges under the Contract are the same as when the Separate Account is being
used, except that the 1.35% per annum charged for mortality and expense risk and
administrative expenses is not imposed on amounts of Contract Value in the Fixed
Account.
FIXED ACCOUNT VALUE
The Contract'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
Separate Account, plus interest credited to the Fixed Account, less any
surrenders, surrender charges or annual administrative charges allocated to the
Fixed Account or transfers to the Separate Account.
FIXED ACCOUNT TRANSFERS, TOTAL AND PARTIAL SURRENDERS
Amounts in the Fixed Account are generally subject to the same rights and
limitations and will be subject to the same charges as are amounts allocated to
the Subaccounts of the Separate Account with respect to total and partial
surrenders. See "Total and Partial Surrenders."
Transfers out of the Fixed Account have special limitations. Prior to the
Annuity Commencement Date, Contract Owners may transfer part or all of the
Contract Value from the Fixed Account to the Separate Account, provided that (1)
no more than one such transfer is made each Contract year, (2) no more than 50%
of the Fixed Account Value is transferred at any time (unless the balance in the
Fixed Account after the transfer would be less than $1,000, in which case up to
the entire balance may be transferred) and (3) at least $500 is transferred at
any one time (or, if less, the entire amount in the Fixed 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 Fixed Account may be made after the Annuity Commencement
Date.
GENERAL PROVISIONS
THE CONTRACT
The Contract, copies of any applications, amendments, riders, or endorsements
attached to the Contract, and copies of any supplemental applications,
amendments, endorsements, or revised Contract pages which are mailed to you are
the entire Contract. Only the President, Secretary and Registrar of Fortis
Benefits can agree to change or waive any provisions of a Contract. Any change
or waiver must be in writing and signed by one of these representatives of
Fortis Benefits.
The Contracts are non-participating and do not share in dividends or earnings of
Fortis Benefits.
POSTPONEMENT OF PAYMENTS
With respect to amounts in the Subaccounts of the Separate 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, partial or total surrender or annuity payment, to the extent
dependent on Accumulation or Annuity Unit Values, or any transfer, 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 Contract, or for such other periods as the Securities and
Exchange Commission may by order permit for the protection of Contract Owners.
Fortis Benefits may also defer for up to 15 days the payment of any amount
attributable to a purchase payment made by check to allow the check reasonable
time to clear. Fortis Benefits may also defer payment of surrender proceeds
payable out of the Fixed Account for a period of up to 6 months.
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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 error or 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 rate of 4% per year.
ASSIGNMENT AND OWNERSHIP RIGHTS
Rights and interests under a Qualified Contract may be assigned only in certain
narrow circumstances referred to in the Contract. Contract Owners and other
payees may assign their rights and interests under Non-Qualified Contracts,
including their ownership rights.
We take no responsibility for the validity of any assignment. An ownership
change 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. Contract Owner, Annuitant and
Beneficiary rights are subject to any assignment of record at the Home Office of
Fortis Benefits. An assignment or pledge of a Contract may have adverse tax
consequences. See below under "Federal Tax Matters."
BENEFICIARY
Before the Annuity Commencement Date and while the Annuitant is living, the
Contract Owner 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 Contract Owner or Annuitant prior to the Annuity
Commencement date the Beneficiary will be determined as follows:
- If there is any surviving Contract Owner, the surviving
Contract Owner will be the Beneficiary (this overrides any other
beneficiary designation).
- If there is no surviving Contract Owner, the Beneficiary
will be the beneficiary designated by the Contract Owner.
- If there is no surviving Contract Owner and no surviving
beneficiary who has been designated by the Contract Owner, then the
estate of the last surviving Contract Owner will be the Beneficiary.
REPORTS
We will mail to the Contract Owner, at the last known address of record, any
reports required by any applicable law or regulation. You should therefore give
us prompt written notice of any address change. Each Contract Owner will also be
sent an annual and a semi-annual report for Fortis Series and a list of the
portfolio securities held in each Portfolio of Fortis Series. All reports will
be mailed to the person receiving payments during the Annuity Period, rather
than to the Contract Owner.
RIGHTS RESERVED BY FORTIS BENEFITS
Fortis Benefits reserves the right to make certain changes if, in its judgement,
they would best serve the interests of Contract Owners and Annuitants or would
be appropriate in carrying out the purposes of the Contract. 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 Separate 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 Separate
Account.
- To substitute, for the Portfolio shares held in any
Subaccount, the shares of another Portfolio of Fortis Series or the shares
of another investment company or any other investment permitted by
law.
- To make any changes required by the Internal Revenue
Code or by any other applicable law in order to continue treatment of
the Contract as an annuity.
- To change the time or times of day at which a Valuation
Date is deemed to have ended.
- To make any other necessary technical changes in the
Contract in order to conform with any action the above provisions
permit Fortis Benefits to take, including to change the way Fortis
Benefits assesses charges, but without increasing as to any then
outstanding Contract the aggregate amount of the types of charges
which Fortis Benefits has guaranteed.
DISTRIBUTION
The Contracts will be sold by individuals who, in addition to being licensed by
state insurance authorities to sell the Contracts of Fortis Benefits, are also
registered representatives of Fortis Investors, Inc. ("Fortis Investors"), the
principal underwriter of the Contracts or registered representatives of other
broker-dealer firms, or representatives of other firms that are exempt from
broker-dealer regulation. Fortis Investors and any such other broker-dealer
firms 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 Contracts, Fortis Benefits pays Fortis
Investors a maximum of 6.10% of all purchase payments plus .17% annually of
Contract Values in the Fixed Account and .02% annually of Contract Values in the
Variable Account. Fortis Investors pays a selling allowance not in excess of
6.10% of purchase payments to other broker-dealer firms or exempt firms who sell
the Contracts. Fortis Investors also pays servicing fees to broker-dealers and
exempt firms in the amount of 1/4 of 1% annually, based on the amount of
Contract Value above a certain minimum attributable to that broker-dealer.
Fortis Benefits may, under certain flexible compensation arrangements, pay
Fortis Investors a lesser or a greater selling allowance and a larger or a
smaller service fee than as set forth above, and Fortis Investors may in turn
pay lesser or greater selling allowances and larger or smaller service fees to
its registered representatives and other broker dealer firms than as set forth
above. However, in such case, such flexible compensation arrangements will have
actuarially equivalent present values to the amounts of the selling allowances
and service fees set forth above. Additionally, registered representatives,
broker-dealer firms, and exempt firms may be eligible for additional
17
<PAGE>
compensation based upon meeting certain production standards. Fortis Investors
may "chargeback" commissions paid to others if the contract upon which the
commission was paid is surrendered or canceled within certain specified time
periods.
Fortis or Fortis Investors may also provide additional compensation to
broker-dealers in connection with sales of Contracts. Compensation may include
financial assistance to broker-dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns regarding Contracts, and other broker-dealer sponsored programs
or events. Compensation may include payment for travel expenses incurred in
connection with trips taken by invited sales representatives and members of
their families to locations within or outside of the United States for meetings
or seminars of a business nature.
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.
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 Contract or related retirement plan.
NON-QUALIFIED CONTRACTS
Section 72 of the Internal Revenue Code ("Code") governs the taxation of
annuities in general. Purchase payments made under Non-Qualified Contracts are
not excludible or deductible from the gross income of the Contract Owner or any
other person. However, any increase in the accumulated value of a Non-Qualified
Contract resulting from the investment performance of the Separate Account or
interest credited to the Fixed Account is generally not taxable to the Contract
Owner 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,
Contract Owners who are not natural persons ARE taxed annually for any increase
in the Contract 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 Contracts owned by natural
persons.
In general, surrenders or partial withdrawals under Contracts are taxed as
ordinary income to the extent of the accumulated income or gain under the
Contract. If a Contract Owner assigns or pledges any part of the value of a
Contract, the value so pledged or assigned is taxed to the Contract Owner 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 Contract, until the investment in the
Contract is recovered, generally only the portion of the annuity payment that
represents the amount by which the Contract Value exceeds the "investment in the
contract" will be taxed. In general, an Annuitant's or other payee's "investment
in the contract" is the aggregate amount of purchase payments made by him or
her. After the "investment in the contract" 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 contract") 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 contract" by the total
number of expected annuity payments. For fixed annuity payments in general,
prior to recovery of the "investment in the contract," there is no tax on the
amount of each payment which bears the same ratio to such payment that the
"investment in the contract" bears to the total expected return under the
Contract. The remainder of each annuity payment is taxable. The taxable portion
of a distribution (in the form of an annuity or a single sum payment) is taxed
as ordinary income.
For purposes of determining the amount of taxable income resulting from
distributions, all Contracts and other annuity contracts issued by us or our
affiliates to the same Contract Owner within the same calendar year will be
treated as if they were a single contract.
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 Contract Owner or other payee reaches
age 59 1/2, (2) made to a Beneficiary on or after death of the Contract Owner,
(3) made upon the disability of the Contract Owner or other payee, or (4) part
of a series of substantially equal annuity payments for the life or life
expectancy of the Contract Owner or the Contract Owner and Beneficiary.
Premature distributions may result, for example, from an early Annuity
Commencement Date, any early surrender, partial surrender or assignment of a
Contract or the early death of an Annuitant who is not the Contract Owner.
A transfer of ownership of a Contract, or designation of an Annuitant or other
payee who is not also the Contract Owner, may result in certain income or gift
tax consequences to the Contract Owner that are beyond the scope of this
discussion. A Contract Owner contemplating any transfer or assignment of a
Contract should contact a competent tax adviser with respect to the potential
tax effects of such transaction.
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
In order that a Non-Qualified Contract be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires (a) if the
person receiving payments dies on or after the Annuity Commencement Date but
prior to the time the entire interest in the Contract has been distributed, the
remaining portion of such interest will be distributed at least as rapidly as
under the method of distribution being used as of the date of that person's
death; and (b) if any Contract Owner dies prior to the Annuity Commencement
Date, the entire interest in the Contract will be distributed (1) within five
years after the date of that Contract Owner's death or (2) as annuity payments
which will begin within one year of that Contract Owner's death and which will
be made over the life of the Contract Owner's designated beneficiary or over a
period not extending beyond the life expectancy of that beneficiary. However, if
the Contract Owner's designated beneficiary is the surviving spouse of the
Contract Owner, the Contract may be continued with the surviving spouse deemed
to be the new Contract Owner for purposes of Section 72(s). Where the Contract
Owner or other person receiving payments is not a natural person, the required
distributions provided for in Section 72(s) apply upon the death of the primary
Annuitant.
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 endorsement if necessary to ensure that the Contracts comply 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,
18
<PAGE>
subject to proof of the Contract Owner's death. The Beneficiary, however, may
elect by Written Request to receive an annuity option instead of a lump sum
payment. However, if the election is not made within 60 days of the date the
single sum death benefit otherwise becomes payable, particularly where the
annuitant dies and the annuitant is not the Contract Owner, the IRS may
disregard the election for tax purposes and tax the Beneficiary as if a single
sum payment had been made.
QUALIFIED CONTRACTS
The Contract may be used with several types of tax-qualified plans. The tax
rules applicable to Contract Owners, Annuitants and other payees vary according
to the type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a retirement program recognized under the Code on
behalf of an individual are excludible 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 Contract that is
not excluded from the individual's gross income for tax purposes during the
Accumulation Period constitutes the individual's "investment in the contract."
Aggregate deferrals under all plans at the employee's option may be subject to
limitations.
The Contracts are available in connection with the following types of retirement
plans: Section 403(b) annuity plans for employees of certain tax-exempt
organizations and public educational institutions; Section 401 or 403(a)
qualified pension, profit-sharing or annuity plans; individual retirement
annuities ("IRAs") under Section 408(b); simplified employee pension plans
("SEPs") under Section 408(k); 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."
When annuity payments begin, the individual will receive back his or her
"investment in the contract" 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 Contracts).
WITHHOLDING
Annuity payments and other amounts received under Contracts are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and with
respect to certain distributions from certain types of qualified retirement
plans unless the proceeds are transferred directly from the qualified retirement
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 Contracts, in order for the Contracts 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 Contract Owners or
Annuitants of all returns credited to Contracts, except in the case of certain
Qualified Contracts. Also, current regulations do not provide guidance as to any
circumstances in which control over allocation of values among different
investment alternatives may cause Contract Owners or Annuitants to be treated as
the owners of Separate Account assets for tax purposes. Fortis Benefits reserves
the right to amend the Contracts in any way necessary to avoid any such result.
The Treasury Department may establish standards in this regard through
regulations or rulings. Such standards may apply only prospectively, although
retroactive application is possible if 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 upon the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange from an Old Contract, a
Fortis Benefits variable life insurance policy, or another life insurance policy
or annuity contract into a Contract 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 Contract will be the same as your
investment in the contract or policy exchanged. However, an exchange from a
Fortis Group Fund or other investment that is not a life insurance or annuity
contract may be a taxable event.
Certain existing annuity contracts may be "grandfathered" under various
provisions of the tax laws, i.e., subject to more favorable tax treatment than
generally offered under current law. For example, certain annuity contracts
issued before January 19, 1985 may not be subject to the distribution rules of
Code Section 72(s). Also, certain distributions from contracts issued before the
same date may not be subject to the 10% penalty tax for premature distributions.
Also, if a contract contained principal on August 13, 1982, that principal may
generally be withdrawn in a partial distribution before the withdrawal of any
taxable gain in the contract. These "grandfather" provisions may be lost if such
contract is exchanged for a Contract. In connection with contracts issued
pursuant to Section 1035 exchanges, if the data is provided to us, we can
separately track amounts attributable to purchase payments made to the original
contract before or after the effective date of the Tax Equity and Fiscal
Responsibility Act of 1982. That separate tracking can preserve certain of the
above grandfathered provisions.
Because of the complexity of these matters, you should consult a qualified 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;
(2)
earnings on those contributions; and
(3)
earnings on amounts held as of December 31, 1988.
Distribution of those 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 which
accrues after December 31, 1988 may not be distributed in the case of hardship.
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 Contract at regular
and special meetings of the shareholders of Fortis Series in proportion to
instructions received from the persons having
19
<PAGE>
the voting interest in the Contract as of the record date for the corresponding
Fortis Series shareholders meeting. Contract Owners 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 Contract
Owner. However, if the Investment Company Act of 1940 or any rules thereunder
should be amended or if the present interpretation thereof should change, and as
a result 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 Contract is determined by dividing the amount of Contract Value in the
corresponding Subaccount pursuant to the Contract 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 Contract Owner or
Annuitant, the number of Portfolio shares deemed attributable to the Contract
will be computed in a comparable manner, based on the liability for future
variable annuity payments allocable to that Subaccount under the Contract 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 Contract and the
applicable Annuity Unit value on the record date. During the Annuity Period, the
number of votes attributable to a Contract will generally decrease since funds
set aside to make the annuity payments will decrease.
Where Contract Owners are permitted to instruct us as to how to vote Portfolio
shares, our policy is to permit an Annuitant or payee who is not the Contract
Owner to direct the Contract Owner with respect to the voting of certain
Portfolio shares attributable to his or her Contract. An Annuitant or other
payee may direct the Contract Owner with respect to that number of Portfolio
shares that is attributable to purchase payments, if any, contributed by such
Annuitant or payee and any additional shares, to the extent authorized by an
employee benefit plan. (For these purposes, the number of shares attributable to
the Annuitant or payee is computed on a basis consistent with that for
attributing Portfolio shares to Contract Owners, as described above.)
Contract Owners are to instruct Fortis Benefits to vote in accordance with such
directions from Annuitants and payees. Furthermore, Contract Owners are to
instruct Fortis Benefits to vote shares of any Portfolio for which directions
could have been but were not received from Annuitants and other payees in the
same proportion as other shares in that Portfolio attributable to the Contract
Owner which are to be voted in accordance with directions received from
Annuitants and other payees. The Contract Owner may instruct us as to the voting
of any other shares attributable to Contracts as the Contract Owner may
determine. The Separate Account, Fortis Series and Fortis Benefits do not have
any obligation to determine whether or not voting directions are requested or
received by a Contract Owner or whether or not a Contract Owner has instructed
Fortis Benefits in accordance with directions given by Annuitants and other
payees.
Fortis Benefits will vote shares as to 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 Contracts 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 Separate Account will in general be voted in accordance with
instructions of participants in such other separate accounts. This diminishes
the relative voting influence of the Contracts.
Each person having a voting interest in a Subaccount of the 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 Fortis
Series, ratification of the selection of its independent auditors, the approval
of the investment manager of a Portfolio, changes in fundamental investment
policies of a Portfolio and all other matters that are put to a vote by Fortis
Series shareholders.
STATE REGULATION
Fortis Benefits is subject to regulation and supervision by the Commerce
Department of the State of Minnesota, which periodically examines its affairs.
It is also subject to the insurance laws and regulations of all jurisdictions
where it is authorized to do business. Fortis Benefits intends to satisfy the
necessary requirements to sell the Contracts in the District of Columbia and in
all states other than New York as soon as possible.
LEGAL MATTERS
The legality of the Contracts described in this Prospectus has been passed upon
by David A. Peterson, Esquire, Vice President and Assistant General Counsel of
Fortis Benefits. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have
advised Fortis Benefits on certain federal securities law matters.
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Fortis Benefits................................ 2
Calculation of Annuity Payments................ 2
Services....................................... 3
- Safekeeping of Separate Account Assets... 3
- Experts.................................. 3
- Principal Underwriter.................... 3
Limitation On Allocations...................... 4
Change of Investment Adviser or Investment
Policy........................................ 4
Taxation Under Certain Retirement Plans........ 4
Terms of Exemptive Relief in Connection with
Mortality and Expense Risk Charge............. 8
Other Information.............................. 8
Financial Statements........................... 8
APPENDIX A--Performance Information............ A-1
</TABLE>
20
<PAGE>
PROSPECTUS
MAY 1, 1996
FORTIS
SERIES FUND, INC.
FORTIS OPPORTUNITY
VARIABLE ANNUITY
<TABLE>
<S> <C>
BULK RATE
U.S. POSTAGE
</TABLE>
UVW-REGISTERED TRADEMARK-
<TABLE>
<S> <C>
PAID
</TABLE>
FORTIS FINANCIAL GROUP
<TABLE>
<S> <C>
MINNEAPOLIS, MN
PERMIT NO. 3794
</TABLE>
P.O. BOX 64284
ST. PAUL, MN 55164
<PAGE>
APPENDIX A
SAMPLE DEATH BENEFIT CALCULATIONS
DATE OF DEATH IS THE 3RD CONTRACT ANNIVERSARY:
<TABLE>
<CAPTION>
<S> <C>
a. Net Purchase Payments Made Prior to Date of Death..............................................................
b. Contract Value on Date of Death................................................................................
Death Benefit is larger of a, and b.......................................................................................
<CAPTION>
EXAMPLE 1 EXAMPLE 2
----------- -----------
<S> <C> <C>
a. $ 20,000 $ 20,000
b. $ 17,000 $ 25,000
Death Ben $ 20,000 $ 25,000
</TABLE>
DATE OF DEATH IS THE 8TH CONTRACT ANNIVERSARY:
<TABLE>
<CAPTION>
EXAMPLE 3
-----------
<S> <C> <C>
a. Net Purchase Payments Made Prior to Date of Death................................................... $ 20,000
b. Contract Value on 5th Contract Anniversary.......................................................... $ 15,000
c. Contract Value on Date of Death..................................................................... $ 17,000
Death Benefit is larger of a, b, and c......................................................................... $ 20,000
<CAPTION>
EXAMPLE 4 EXAMPLE 5
----------- -----------
<S> <C> <C>
a. $ 20,000 $ 20,000
b. $ 30,000 $ 30,000
c. $ 25,000 $ 35,000
Death Ben $ 30,000 $ 35,000
</TABLE>
DATE OF DEATH IS THE 13TH CONTRACT ANNIVERSARY:
<TABLE>
<CAPTION>
EXAMPLE 6
-----------
<S> <C> <C>
a. Net Purchase Payments Made Prior to Date of Death................................................... $ 20,000
b. Contract Value on 10th Contract Anniversary......................................................... $ 15,000
c. Contract Value on Date of Death..................................................................... $ 17,000
Death Benefit is larger of a, b, and c......................................................................... $ 20,000
<CAPTION>
EXAMPLE 7 EXAMPLE 8
----------- -----------
<S> <C> <C>
a. $ 20,000 $ 20,000
b. $ 40,000 $ 40,000
c. $ 30,000 $ 50,000
Death Ben $ 40,000 $ 50,000
</TABLE>
A-1
<PAGE>
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A-2
<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 Series Fund
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Growth Stock Series is calculated as
follows:
<TABLE>
<C> <S> <C> <C>
--------------------------------------------------------------------------------------------------------------
Total Variable Account Annual Expenses 1.35%
--------------------------------------------------------------------------------------------------------------
+ Total Series Fund Operating Expenses 0.67%
--------------------------------------------------------------------------------------------------------------
+ Annual Administrative Charge Rate (See Below) 0.16%
--------------------------------------------------------------------------------------------------------------
= Total Expense Rate 2.18%
--------------------------------------------------------------------------------------------------------------
</TABLE>
The Annual Administrative Charge Rate is calculated by dividing the total Annual
Contract Charges we collected in 1995 by the average policy value in force in
1995.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = 1000.00 X 0.0218 = $21.80
Year 2 Beginning Policy Value = $1028.20
Year 2 Expense = 1028.20 X 0.0218 = $22.41
Year 3 Beginning Policy Value = $1057.20
Year 3 Expense = 1057.20 X 0.0218 = $23.05
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to 21.80 + 22.41 + 23.05 = $67.26
If the contract is surrendered, the surrender charge is the surrender charge
percentage times the purchase payment minus the 10% free withdrawal amount:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Surrender Charge (Initial 10% Free Surrender
Percentage X Premium - Withdrawal) = Charge
0.05 X ( 1000.00 - 100.00 ) = 45.00
</TABLE>
So the total expense if surrendered is 67.26 + 45.00 = $112.26
B-1
<PAGE>
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B-2
<PAGE>
Individual Flexible Premium Deferred Variable Annuity Contracts (Opportunity)
Issued by
FORTIS BENEFITS INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
May 1, 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 a flexible premium deferred variable annuity contract
("Contract"), dated May 1, 1996. A copy of the Prospectus may be obtained
without charge from Fortis Investors, Inc. 1-800-800-2638, ext. 3057; mailing
address: P.O. Box 64272, St. Paul, MN 55164. The Contracts are issued by
Fortis Benefits through its Variable Account D (the "Separate Account").
TABLE OF CONTENTS
Page
Fortis Benefits. . . . . . . . . . . . . . . . . . . . . . . . . .2
Calculation of Annuity Payments. . . . . . . . . . . . . . . . . .2
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
- Safekeeping of Separate Account Assets . . . . . . . . . . . .3
- Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
- Principal Underwriter . . . . . . . . . . . . . . . . . . . .3
Limitation on Allocations. . . . . . . . . . . . . . . . . . . . .4
Change of Investment Adviser or Investment Policy. . . . . . . . .4
Taxation Under Certain Retirement Plans. . . . . . . . . . . . . .4
Terms of Exemptive Relief in Connection With Mortality and
Expense Risk Charge. . . . . . . . . . . . . . . . . . .8
Other Information. . . . . . . . . . . . . . . . . . . . . . . . .8
Financial Statements . . . . . . . . . . . . . . . . . . . . . . .8
Appendix A - Performance Information . . . . . . . . . . . . . .A-1
In order to supplement the description in the Prospectus, the following
provides additional information about the Contract and other matters which
may be of interest to Contract Owners, Annuitants and Beneficiaries. 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."
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FORTIS BENEFITS
Fortis Benefits Insurance Company, the issuer of the Contracts, is a
Minnesota corporation qualified to sell life insurance and annuity contracts
in the District of Columbia and in all states except New York. Fortis
Benefits is a wholly-owned subsidiary of Time Insurance Company, a stock
company originated 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, Inc. is wholly-owned by Fortis International, Inc., which
is in turn wholly-owned by Sycamore Insurance Holding N.V. The latter is 50%
owned by Fortis AMEV and 50% owned, through certain subsidiaries, by Fortis
AG.
Fortis AMEV is a publicly-traded, multi-national insurance and financial
services group headquartered in The Netherlands. Fortis AMEV is an
international financial services firm that has been in business since 1847.
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 $140 billion.
Best's Insurance Reports has assigned Fortis Benefits a rating of
A (Excellent) for financial position and operating performance.
Fortis Benefits has a rating of AA from Standard & Poor's. As defined by
Standard & Poor's, insurers rated AA offer "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 Annuity Commencement
Date. At that time, the Contract Value of the Contract is computed and that
portion of the Contract Value which will be applied to the Fixed Annuity
Option selected is determined. The amount of the first monthly payment under
the Fixed Annuity Option selected will be at least as large as would result
from using the annuity tables contained in the Contract to apply such amount
of Contract Value to the annuity form selected. The dollar amounts of any
fixed annuity payments after the first are specified during the entire period
of annuity payments according to the provisions of the annuity form selected.
VARIABLE ANNUITY OPTION
ANNUITY UNITS. To the extent a Variable Annuity Option has been selected, we
convert the Accumulation Units for each Subaccount of the Separate 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 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 that 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
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<PAGE>
(discussed in the Prospectus under "Contract 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 Contract.
VARIABLE ANNUITY PAYMENTS. Variable annuity payments start at the end of the
Valuation Period that contains the Annuity Commencement Date, and will vary
in amount as the related Annuity Unit values vary. The amount of the first
monthly payment is shown on the annuity tables contained in the Contract for
each $1,000 of Contract Value applied to the Variable Annuity Option selected
as of the end of such Valuation Period. The first variable annuity payment
is, in effect, allocated among the Subaccounts in the same proportion as the
Contract Value is allocated among the Subaccounts upon commencement of
annuity payments.
Payments after the first will vary in amount and are determined on the first
Valuation Date of each subsequent monthly period. If the monthly payment
under the annuity form selected is based on the value of Annuity Units of a
single Subaccount, the monthly payment is found by multiplying the number of
the Contract's Annuity Units for that 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 of the same age with an otherwise
identical Contract. This is because, statistically, females tend to have
longer life expectancies than males. However, there will be no differences
between male and female Annuitants in any jurisdiction, including Montana and
Massachusetts, where such differences are not permitted. We will also make
available Contracts with no such differences in connection with certain
employer-sponsored benefit plans. Employers should be aware that, under most
such plans, Contracts that make distinctions based on gender are prohibited
by law.
SERVICES
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
Title to the assets of the Separate Account is held by Fortis Benefits. The
assets of the Separate Account are kept segregated and held separate and
apart from Fortis Benefit's other assets. Fortis Advisers, Inc., an affiliate
of Fortis Benefits, maintains records of all purchases and redemptions of
shares of Fortis Series Fund, Inc. held by each of the Subaccounts of the
Separate Account.
EXPERTS
The financial statements of Fortis Benefits Insurance Company and Fortis
Benefits Insurance Company Variable Account D, 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 appearing elsewhere herein, and are included
in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
PRINCIPAL UNDERWRITER
Fortis Investors, Inc. ("Fortis Investors"), the principal underwriter of the
Contracts, is a Minnesota corporation and a member of the Securities Investors
Protection Corporation. The offering of the Contracts is continuous, and Fortis
Investors does not anticipate discontinuing the offering of the Contracts,
although it reserves the right to do so. Fortis Benefits paid a total of
$27,930,970, $31,643,856 and $29,918,620 to Fortis Investors for annuity
contract distribution services during 1993, 1994 and 1995 respectively. Of
these totals, the sums of $3,165,812, $4,065,075 and $3,925,959 for the years
1993, 1994 and 1995 respectively, was not reallowed to other
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<PAGE>
broker-dealers. Contracts will be issued for Annuitants from ages zero to
ninety in all states, except that the maximum age is 74 1/2 in Washington state.
Contracts are not currently available in New Jersey and New York.
LIMITATION ON ALLOCATIONS
Under the Contract, Fortis Benefits reserves the right to control the amount of
any assets in any investment alternative. Pursuant to this authority, Fortis
Benefits has established the following administrative procedures for the
protection of the interests of ail investors participating in Fortis Series'
Portfolios: a Contract Owner may not invest, allocate, transfer or exchange
Contract Value into any Subaccount if the value allocated to that Subaccount
under the Contract (and under any other insurance or annuity contracts directly
or indirectly controlled by the same person, jointly or individually) would
immediately thereafter equal 25% or more of the related Fortis Series
Portfolio's net assets. Fortis Benefits reserves the right to modify these
procedures at any time.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise required by law or regulation, and subject to Fortis Advisers,
Inc.'s right to terminate its investment advisory arrangements with Fortis
Series, neither the investment adviser nor any investment policy may be changed
without the consent of Fortis Benefits. No investment policy will be changed
unless a statement of change is filed with and approved by the Commerce
Commissioner of the State of Minnesota. If required, approval of or change of
any investment objective will be filed with the Insurance Department of each
state where Contracts have been delivered. The Contract Owner (or, after
annuity payments start, the Annuitant) will be notified of any material
investment policy change which has been approved. Notification of an investment
policy change will be provided to Contract Owners prior to its implementation by
the Separate Account if Contract Owner comment or vote is required for such
change.
TAXATION UNDER CERTAIN RETIREMENT PLANS
Federal income tax information concerning the purchase of Contracts for
specific types of retirement plans is set forth below. You should also refer
to "Federal Tax Matters" in the Prospectus. The tax information provided is
not comprehensive, and you should consult a qualified tax adviser before
taking any action in connection with a retirement plan.
SECTION 403(b) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS OR
PUBLIC EDUCATIONAL INSTITUTIONS
PURCHASE PAYMENTS. Under Section 403(b) of the Internal Revenue Code
("Code"), payments made by certain employers (i.e., tax-exempt organizations
meeting the requirements of Section 501(c)(3) of the Code, or public
educational institutions) to purchase Contracts for their employees are
excludible from the gross income of employees to the extent that such
aggregate purchase payments do not exceed certain limitations prescribed by
the Code. This is the case whether the purchase payments are a result of
voluntary salary reduction amounts or employer contributions. Salary
reduction payments are, however, subject to FICA (social security) taxes.
TAXATION OF DISTRIBUTIONS. Distributions from a Section 403(b) tax-deferred
annuity contract 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 made for years after
December 31, 1988 (plus earnings thereon and earnings on Contract values as
of December 31, 1988) 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.)
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<PAGE>
REQUIRED DISTRIBUTIONS. Generally, distributions from Section 403(b) annuities
must commence not later than April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2, and such distributions must be
made over a period that does not exceed the life expectancy of the employee (or
the employee and Beneficiary). A penalty tax of 50% would be imposed on any
amount by which the minimum required distribution in any year exceeded the
amount actually distributed in that year. In addition, in the event that the
employee dies before his or her entire interest in the Contract has been
distributed, the employee's entire interest must be distributed in accordance
with rules similar to those applicable upon the death of the Contract Owner in
the case of a Non-Qualified Contract, as described in the Prospectus. Certain
of these and other provisions are incorporated in a special endorsement attached
to Contracts that are intended to qualify under Section 403(b), and reference
should be made to that endorsement for its complete terms.
TAX FREE EXCHANGES AND ROLLOVERS. The Code provides for the tax-free exchange
of one Section 403(b) annuity contract for another Section 403(b) annuity
contract, 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 Contracts purchased under these
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions, as described under "Federal Tax
Matters--Qualified Plans," in the Prospectus. However, if an employee or other
payee receives a "lump sum" distribution, as defined in the Code, from an exempt
employees' trust, the taxable portion of the distribution may be subject to
special tax treatment. For most individuals receiving lump sum distributions
after attaining age 59 1/2, the rate of tax may be determined under a special
5-year income averaging provision. Those who attained age 50 by January 1, 1986
may instead elect to use a 10-year income averaging provision based on the
income tax rates in effect for 1986. Taxable distributions received prior to
attainment of age 59 1/2 under a Contract purchased under a qualified plan are
subject to the same 10% penalty tax (and the same exceptions) as described above
with respect to Section 403(b) annuity contracts.
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuity contracts.
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 required
to be withheld from the distribution unless the distribution is transferred
directly from the qualified plan to an individual retirement account or annuity.
INDIVIDUAL RETIREMENT ANNUITIES
PURCHASE PAYMENTS. Individuals may make contributions for individual retirement
annuity ("IRA") Contracts. Deductible contributions for any year may be made up
to the lesser of $2,000 or 100% of compensation for individuals who (1) are not
(and whose spouses are not) active participants in another retirement plan, (2)
are
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<PAGE>
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' Contracts 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 adjustments) exceeds 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 the
excess 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 contributions made with respect to
the individual.
An individual may not make any contribution 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 Contracts are taxed as
ordinary income to the recipient, although special rules exist for the tax-free
return of non-deductible contributions. In addition, taxable distributions
received under an IRA Contract prior to age 59 1/2% are subject to a 10% penalty
tax in addition to regular income tax. Certain distributions are exempted from
this penalty tax, including distributions following the owner's death,
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) annuity
contracts. Certain of these and other provisions are incorporated in a special
endorsement attached to IRA Contracts, and reference should be made to that
endorsement for its complete terms.
TAX-FREE ROLLOVERS. The Code permits funds to be transferred in a tax-free
rollover from a qualified employer pension, profit-sharing, annuity, bond
purchase or tax-deferred annuity plan to an IRA Contract if certain conditions
ARE met, and if the rollover of assets is completed within 60 days after the
distribution from the qualified plan is received. In addition, not more
frequently than once every twelve months, amounts may be rolled over tax-free
from one IRA to another, subject to the 60-day limitation and other
requirements. The once-per-year limitation on rollovers does not apply to
direct transfers of funds between IRA custodians or trustees.
SIMPLIFIED EMPLOYEE PENSION PLANS
PURCHASE PAYMENTS. Under Section 408(k) of the Code, employers may establish a
type of IRA plan referred to as a simplified employee pension plan (SEP).
Employer contributions to a SEP cannot exceed the lesser of $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 $9,500 in 1996, which is
indexed for inflation. Employees of tax-exempt organizations and state and
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.
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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
Contracts offered by this Prospectus. The Contract is owned by the employer and
is subject to the claims of the employer's creditors. The employee has no
rights or interest in the Contract and is entitled only to payment in accordance
with the EDCP provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from an EDCP are
includible in gross income for the taxable year in which such amounts are paid
or otherwise made available.
DISTRIBUTIONS BEFORE SEPARATION FROM SERVICE. Distributions generally are not
permitted under an EDCP prior to separation from service or reaching age 70 1/2,
except in cases of severe financial hardship. Hardship distributions are
includible in the gross income of the individual in the year in which paid.
REQUIRED DISTRIBUTIONS. The distribution requirements for these qualified plans
are generally the same as described above with respect to Section 403(b) annuity
contracts. However, if distributions do not commence before the employee's
death, the entire interest in the Contract must be distributed within 15 years
if the beneficiary is not the employee's surviving spouse.
TAX-FREE TRANSFERS. The Code permits the tax-free direct transfer of EDCP
amounts to another EDCP, subject to certain conditions.
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 to 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 Contract Value.
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<PAGE>
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Contract is owned
by the employer and is subject to the claims of the employer's creditors. The
individual has no right or interest in the Contract and is entitled only to
payment from the employer's general assets in accordance with plan provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
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 from 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.
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 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 reasonable likelihood that the proposed distribution financing
arrangements with respect to the Certificates will benefit the Variable
Account and investors in the Certificate, 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.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts 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.
FINANCIAL STATEMENTS
The financial statements of Fortis Benefits that are included in this Statement
of Additional Information should be considered only as bearing on the ability of
Fortis Benefits to meet its obligations under the Contracts.
8
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[ERNST & YOUNG LLP LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying statement of net assets of Fortis Benefits
Insurance Company Variable Account D (comprising, respectively, the Fortis
Series Fund, Inc.'s Growth Stock, U.S. Government Securities, Money Market,
Asset Allocation, Diversified Income, Global Growth, Aggressive Growth, Growth &
Income, High Yield, Global Asset Allocation, Global Bond, and International
Stock Subaccounts, the Norwest Select Fund's ValuGrowth Stock, Intermediate
Bond, and Small Company Stock Subaccounts, and the Scudder Variable Life
Investment Fund's International Subaccount) as of December 31, 1995, and the
related statements of changes in net assets for each of the three years then
ended, except for the Fortis Series Fund, Inc.'s Aggressive Growth, Growth &
Income, and High Yield Subaccounts, the Norwest Select Fund's ValuGrowth Stock,
Intermediate Bond, and Adjustable U.S. Government Reserve Subaccounts, and the
Scudder Variable Life Investment Fund's International Subaccount which are for
the years ended December 31, 1995 and 1994, and the Fortis Series Fund, Inc.'s
Global Asset Allocation, Global Bond, and International Stock Subaccounts and
the Norwest Select Fund's Small Company Stock Subaccount which are for the year
ended December 31, 1995. These financial statements are the responsibility of
the management of Fortis Benefits Insurance Company. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company Variable Account D at December 31, 1995, and the changes in the net
assets for the periods described in the first paragraph, in conformity with
generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
March 22, 1996
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Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets
December 31, 1995
<TABLE>
<CAPTION>
NET ASSET
ACCUMULATION VALUE PER
UNITS ACCUMULATION
NET ASSETS OUTSTANDING UNIT
--------------------------------------------------
<S> <C> <C> <C>
Investments in Fortis Series Fund, Inc., at
market value (NOTE 2):
Growth Stock Series (14,845,125 shares;
cost--$312,969,727) $417,045,586 160,429,092 $ 2.60
U.S. Government Securities Series
(15,566,296 shares; cost--$168,961,190) 173,752,550 10,989,914 15.81
Money Market Series (3,440,404 shares;
cost--$36,328,781) 37,247,531 26,960,304 1.38
Asset Allocation Series (19,965,281 shares;
cost--$273,138,256) 317,435,993 148,700,081 2.13
Diversified Income Series (8,518,817 shares;
cost--$100,549,138) 103,901,462 59,213,866 1.75
Global Growth Series (10,685,328 shares;
cost--$134,191,540) 170,655,381 10,846,823 15.73
Aggressive Growth Series (2,987,612 shares;
cost--$32,792,764) 37,867,984 3,033,587 12.46
Growth & Income Series (4,233,867 shares;
cost--$46,752,798) 54,335,341 4,204,163 12.91
High Yield Series (2,610,426 shares;
cost--$26,235,138) 25,420,072 2,321,419 10.94
Global Asset Allocation Series
(1,137,683 shares; cost--$12,644,676) 12,996,659 1,117,596 11.59
Global Bond Series (595,305 shares;
cost--$6,733,321) 6,719,020 574,142 11.74
International Stock Series (1,161,691 shares;
cost--$12,447,863) 13,094,466 1,157,064 11.27
Investments in Norwest Select Fund, at market
value (NOTE 2):
ValuGrowth Stock Fund (395,143 shares;
cost--$4,271,419) 4,757,525 399,783 11.90
Intermediate Bond Fund (279,422 shares;
cost--$2,969,624) 3,068,061 268,586 11.42
Small Company Stock Fund (77,795 shares;
cost--$884,425) 872,082 75,968 11.48
Investment in Scudder Variable Life Investment
Fund, at market value (NOTE 2):
International Portfolio (153,253 shares;
cost--$1,698,125) 1,811,453 155,817 11.63
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------------------------------------
<S> <C> <C> <C>
GROWTH STOCK SUBACCOUNT
Investment income:
Dividend income $ 1,840,330 $ 2,224,886 $ 948,153
Policy administration charge (NOTE 3) (124,562) (233,448) (169,101)
Mortality, expense risk and
administrative charges (NOTE 3) (4,926,616) (3,753,659) (2,782,891)
-------------------------------------------------------
Net investment loss (3,210,848) (1,762,221) (2,003,839)
Net realized gain on redemption of Fortis Series
Fund, Inc. portfolio shares 2,244,343 1,017,245 3,047,257
Net change in unrealized appreciation
(depreciation) on investments 81,868,441 (10,439,005) 13,901,070
-------------------------------------------------------
Net increase (decrease) in net assets from
operations 80,901,936 (11,183,981) 14,944,488
Capital transactions:
Purchase of Variable Account D units 43,219,723 76,066,936 122,265,710
Redemption of Variable Account D units (13,094,690 (13,597,387) (41,874,769)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 124,562 233,448 169,101
-------------------------------------------------------
Net increase in net assets from capital
transactions 30,249,595 62,702,997 80,560,042
-------------------------------------------------------
Total increase in net assets 111,151,531 51,519,016 95,504,530
Net assets, beginning of year 305,894,055 254,375,039 158,870,509
-------------------------------------------------------
Net assets, end of year $417,045,586 $305,894,055 $254,375,039
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
3
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES SUBACCOUNT
Investment income:
Dividend income $ 8,296 $ 13,644,959 $ 15,640,218
Policy administration charge (NOTE 3) (33,442) (66,864) (45,857)
Mortality, expense risk and administrative
charges (NOTE 3) (2,226,178) (2,648,040) (2,455,600)
------------------------------------------------------
Net investment (loss) income (2,251,324) 10,930,055 13,138,761
Net realized (loss) gain on redemption of Fortis
Series Fund, Inc. portfolio shares (2,199,244) (3,898,323) 188,360
Net change in unrealized appreciation
(depreciation) on investments 30,648,947 (24,335,222) (1,343,077)
------------------------------------------------------
Net increase (decrease) in net assets from
operations 26,198,379 (17,303,488) 11,984,044
Capital transactions:
Purchase of Variable Account D units 10,579,162 15,189,139 92,154,284
Redemption of Variable Account D units (28,554,947) (60,391,902) (4,858,838)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 33,442 66,864 45,857
------------------------------------------------------
Net (decrease) increase in net assets from capital
transactions (17,942,343) (45,135,899) 87,341,303
------------------------------------------------------
Total increase (decrease) in net assets 8,256,036 (62,439,387) 99,325,347
Net assets, beginning of year 165,496,514 227,935,901 128,610,554
------------------------------------------------------
Net assets, end of year $173,752,550 $165,496,514 $227,935,901
------------------------------------------------------
------------------------------------------------------
</TABLE>
4
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
MONEY MARKET SUBACCOUNT
Investment income:
Dividend income $ 1,390,716 $ - $ 662,017
Policy administration charge (NOTE 3) (5,400) (9,884) (8,434)
Mortality, expense risk and administrative
charges (NOTE 3) (485,370) (491,242) (324,912)
------------------------------------------------------
Net investment income (loss) 899,946 (501,126) 328,671
Net realized gain (loss) on redemption of
Fortis Series Fund, Inc. portfolio shares 624,600 194,135 (124,353)
Net change in unrealized appreciation on
investments 29,966 1,255,055 115,924
------------------------------------------------------
Net increase in net assets from operations 1,554,512 948,064 320,242
Capital transactions:
Purchase of Variable Account D units 32,857,484 52,961,094 67,273,648
Redemption of Variable Account D units (37,771,314) (40,583,910) (66,414,029)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 5,400 9,884 8,434
------------------------------------------------------
Net (decrease) increase in net assets from
capital transactions (4,908,430) 12,387,068 868,053
------------------------------------------------------
Total (decrease) increase in net assets (3,353,918) 13,335,132 1,188,295
Net assets, beginning of year 40,601,449 27,266,367 26,078,072
------------------------------------------------------
Net assets, end of year $37,247,531 $40,601,499 $27,266,367
------------------------------------------------------
------------------------------------------------------
</TABLE>
5
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
ASSET ALLOCATION SUBACCOUNT
Investment income:
Dividend income $ 12,053,233 $ 9,186,739 $ 5,851,029
Policy administration charge (NOTE 3) (57,743) (102,783) (61,440)
Mortality, expense risk and administrative
charges (NOTE 3) (3,776,116) (3,050,115) (1,873,117)
------------------------------------------------------
Net investment income 8,219,374 6,033,841 3,916,472
Net realized gain on redemption of Fortis
Series Fund, Inc. portfolio shares 657,519 283,379 31,953
Net change in unrealized appreciation
(depreciation) on investments 41,467,924 (9,690,299) 7,446,592
------------------------------------------------------
Net increase (decrease) in net assets from
operations 50,344,817 (3,373,079) 11,395,017
Capital transactions:
Purchase of Variable Account D units 30,488,918 61,560,040 98,673,481
Redemption of Variable Account D units (7,551,884) (6,821,686) (214,170)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 57,743 102,783 61,440
------------------------------------------------------
Net increase in net assets from capital
transactions 22,994,777 54,841,137 98,520,751
------------------------------------------------------
Total increase in net assets 73,339,594 51,468,058 109,915,768
Net assets, beginning of year 244,096,399 192,628,341 82,712,573
------------------------------------------------------
Net assets, end of year $317,435,993 $244,096,399 $192,628,341
------------------------------------------------------
------------------------------------------------------
</TABLE>
6
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
DIVERSIFIED INCOME SUBACCOUNT
Investment income:
Dividend income $ 4,826 $ 7,607,329 $ 6,042,059
Policy administration charge (NOTE 3) (18,101) (29,237) (12,517)
Mortality, expense risk and administrative
charges (NOTE 3) (1,319,921) (1,344,477) (761,387)
------------------------------------------------------
Net investment (loss) income (1,333,196) 6,233,615 5,268,155
Net realized (loss) gain on redemption of
Fortis Series Fund, Inc. Portfolio shares (722,251) (767,738) 89,595
Net change in unrealized appreciation
(depreciation) on investments 16,334,785 (12,476,808) (341,431)
------------------------------------------------------
Net increase (decrease) in net assets from
operations 14,279,338 (7,010,931) 5,016,319
Capital transactions:
Purchase of Variable Account D units 6,335,373 25,554,696 59,086,577
Redemption of Variable Account D units (11,835,588) (14,240,935) (1,544,834)
Policy administration charged redeemed
from Fortis Series Fund, Inc. 18,101 29,237 12,517
------------------------------------------------------
Net (decrease) increase in net assets from
capital transactions (5,482,114) 11,342,998 57,554,260
------------------------------------------------------
Total increase in net assets 8,797,224 4,332,067 62,570,579
Net assets, beginning of year 95,104,238 90,772,171 28,201,592
------------------------------------------------------
Net assets, end of year $103,901,462 $95,104,238 $90,772,171
------------------------------------------------------
------------------------------------------------------
</TABLE>
7
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------------------
<S> <C> <C> <C>
GLOBAL GROWTH SUBACCOUNT
Investment income:
Dividend income $ 889,918 $ 829,695 $ 155,024
Policy administration charge (NOTE 3) (45,368) (53,708) (8,113)
Mortality, expense risk and
administrative charges (NOTE 3) (1,926,551) (1,383,450) (349,296)
------------------------------------------------------
Net investment loss (1,082,001) (607,463) (202,385)
Net realized gain on redemption of Fortis
Series Fund, Inc. portfolio shares 489,178 37,068 209,274
Net change in unrealized appreciation
(depreciation) on investments 35,553,129 (3,836,491) 4,261,435
------------------------------------------------------
Net increase (decrease) in net assets from
operations 34,960,306 (4,406,886) 4,268,324
Capital transactions:
Purchase of Variable Account D units 20,455,245 64,953,591 56,621,267
Redemption of Variable Account D units (8,118,814) (2,600,492) (3,262,479)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 45,368 53,708 8,113
------------------------------------------------------
Net increase in net assets from capital
transactions 12,381,799 62,406,807 53,366,901
------------------------------------------------------
Total increase in net assets 47,342,105 57,999,921 57,635,225
Net assets, beginning of year 123,313,276 65,313,355 7,678,130
------------------------------------------------------
Net assets, end of year $170,655,381 $123,313,276 $65,313,355
------------------------------------------------------
------------------------------------------------------
</TABLE>
8
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
AGGRESSIVE GROWTH SUBACCOUNT
Investment income:
Dividend income $ 131,332 $ 45,402
Policy administration charge (NOTE 3) (1,793) (770)
Mortality, expense risk and administrative charges
(NOTE 3) (304,716) (48,160)
-----------------------------------
Net investment loss (175,177) (3,528)
Net realized gain (loss) on redemption of Fortis
Series Fund, Inc. portfolio shares 534,513 (14,814)
Net change in unrealized appreciation on investments 4,721,034 354,186
-----------------------------------
Net increase in net assets from operations 5,080,370 335,844
Capital transactions:
Purchase of Variable Account D units 25,278,245 11,875,955
Redemption of Variable Account D units (3,729,001) (975,992)
Policy administration charge redeemed from
Fortis Series Fund, Inc. 1,793 770
-----------------------------------
Net increase in net assets from capital transactions 21,551,037 10,900,733
-----------------------------------
Total increase in net assets 26,631,407 11,236,577
Net assets, beginning of year 11,236,577 -
-----------------------------------
Net assets, end of year $37,867,984 $11,236,577
-----------------------------------
-----------------------------------
</TABLE>
9
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
GROWTH & INCOME SUBACCOUNT
Investment income:
Dividend income $ 909,272 $ 154,775
Policy administration charge (NOTE 3) (1,503) (602)
Mortality, expense risk and administrative charges
(NOTE 3) (437,914) (66,282)
-----------------------------------
Net investment income 469,855 87,891
Net realized gain (loss) on redemption of Fortis
Series Fund, Inc. portfolio shares 35,576 (5,003)
Net change in unrealized appreciation (depreciation)
on investments 7,722,201 (139,658)
-----------------------------------
Net increase (decrease) in net assets from operations 8,227,632 (56,770)
Capital transactions:
Purchase of Variable Account D units 31,904,014 15,287,620
Redemption of Variable Account D units (816,805) (212,455)
Policy administration charge redeemed from Fortis
Series Fund, Inc. 1,503 602
-----------------------------------
Net increase in net assets from capital transactions 31,088,712 15,075,767
-----------------------------------
Total increase in net assets 39,316,344 15,018,997
Net assets, beginning of year 15,018,997 -
-----------------------------------
Net assets, end of year $54,335,341 $15,018,997
-----------------------------------
-----------------------------------
</TABLE>
10
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
HIGH YIELD SUBACCOUNT
Investment income:
Dividend income $ 2,182,916 $ 546,340
Policy administration charge (NOTE 3) (720) (314)
Mortality, expense risk and administrative charges
(NOTE 3) (251,064) (67,430)
-----------------------------------
Net investment income 1,931,132 478,596
Net realized gain (loss) on redemption of Fortis
Series Fund, Inc. portfolio shares 47,908 (2,813)
Net change in unrealized depreciation on investments (221,078) (596,104)
-----------------------------------
Net increase (decrease) in net assets from operations 1,757,962 (120,321)
Capital transactions:
Purchase of Variable Account D units 14,434,829 13,838,144
Redemption of Variable Account D units (2,740,528) (1,751,048)
Policy administration charge redeemed from Fortis
Series Fund, Inc. 720 314
-----------------------------------
Net increase in net assets from capital transactions 11,695,021 12,087,410
-----------------------------------
Total increase in net assets 13,452,983 11,967,089
Net assets, beginning of year 11,967,089 -
-----------------------------------
Net assets, end of year $25,420,072 $11,967,089
-----------------------------------
-----------------------------------
</TABLE>
11
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
GLOBAL ASSET ALLOCATION SUBACCOUNT
Investment income:
Dividend income $ 345,923
Policy administration charge (NOTE 3) (154)
Mortality, expense risk and administrative charges
(NOTE 3) (77,959)
-------------
Net investment income 267,810
Net realized loss on redemption of Fortis Series Fund, Inc.
portfolio shares (27,354)
Net change in unrealized appreciation on investments 351,983
-------------
Net increase in net assets from operations 592,439
Capital transactions:
Purchase of Variable Account D units 12,634,681
Redemption of Variable Account D units (230,615)
Policy administration charge redeemed from Fortis
Series Fund, Inc. 154
-------------
Net increase in net assets from capital transactions 12,404,220
Total increase in net assets 12,996,659
Net assets, beginning of year -
-------------
Net assets, end of year $12,996,659
-------------
-------------
</TABLE>
12
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
GLOBAL BOND SUBACCOUNT
Investment income:
Dividend income $ 336,887
Policy administration charge (NOTE 3) (174)
Mortality, expense risk and administrative charges (NOTE 3) (49,301)
-------------
Net investment income 287,412
Net realized gain on redemption of Fortis Series Fund, Inc.
portfolio shares 52,221
Net change in unrealized depreciation on investments (14,301)
-------------
Net increase in net assets from operations 325,332
Capital transactions:
Purchase of Variable Account D units 8,616,566
Redemptions of Variable Account D units (2,223,052)
Policy administration charge redeemed from Fortis
Series Fund, Inc. 174
-------------
Net increase in net assets from capital transactions 6,393,688
-------------
Total increase in net assets 6,719,020
Net assets, beginning of year -
-------------
Net assets, end of year $6,719,020
-------------
-------------
</TABLE>
13
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
INTERNATIONAL STOCK SUBACCOUNT
Investment income:
Dividend income $ 180,007
Policy administration charge (NOTE 3) (217)
Mortality, expense risk and administrative charges (NOTE 3) (74,571)
-------------
Net investment income 105,219
Net realized gain on redemption of Fortis Series Fund, Inc.
portfolio shares 1,557
Net change in unrealized appreciation on investments 646,603
-------------
Net increase in net assets from operations 753,379
Capital transactions:
Purchase of Variable Account D units 12,487,255
Redemption of Variable Account D units (146,385)
Policy administration charge redeemed from Fortis
Series Fund, Inc. 217
-------------
Net increase in net assets from capital transactions 12,341,087
-------------
Total increase in net assets 13,094,466
Net assets, beginning of year -
-------------
Net assets, end of year $13,094,466
-------------
-------------
</TABLE>
14
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
VALUGROWTH STOCK SUBACCOUNT
Investment income:
Dividend income $ 50,547 $ -
Policy administration charge (NOTE 3) (58) -
Mortality, expense risk and administrative charges
(NOTE 3) (39,979) (4,796)
-----------------------------------
Net investment income (loss) 10,510 (4,796)
Net realized gain on redemption of Norwest Select
Fund portfolio shares 12,413 499
Net change in unrealized appreciation (depreciation)
on investments 510,859 (24,752)
-----------------------------------
Net increase (decrease) in net assets from operations 533,782 (29,049)
Capital transactions:
Purchase of Variable Account D units 3,099,798 1,400,545
Redemption of Variable Account D units (225,312) (22,297)
Policy administration charge redeemed from Norwest
Select Fund 58 -
-----------------------------------
Net increase in net assets from capital transactions 2,874,544 1,378,248
-----------------------------------
Total increase in net assets 3,408,326 1,349,199
Net assets, beginning of year 1,349,199 -
-----------------------------------
Net assets, end of year $4,757,525 $1,349,199
-----------------------------------
-----------------------------------
</TABLE>
15
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
INTERMEDIATE BOND SUBACCOUNT
Investment income:
Dividend income $ 172,247 $ -
Policy administration charge (NOTE 3) (8) -
Mortality, expense risk and administrative charges
(NOTE 3) (27,041) (2,966)
-----------------------------------
Net investment income (loss) 145,198 (2,966)
Net realized gain (loss) on redemption of Norwest
Select Fund portfolio shares 24,440 (113)
Net change in unrealized appreciation on investments 98,386 51
-----------------------------------
Net increase (decrease) in net assets from operations 268,024 (3,028)
Capital transactions:
Purchase of Variable Account D units 2,635,557 701,952
Redemption of Variable Account D units (521,303) (13,149)
Policy administration charge redeemed from Norwest
Select Fund 8 -
-----------------------------------
Net increase in net assets from capital transactions 2,114,262 688,803
-----------------------------------
Total increase in net assets 2,382,286 685,775
Net assets, beginning of year 685,775 -
-----------------------------------
Net assets, end of year $3,068,061 $685,775
-----------------------------------
-----------------------------------
</TABLE>
16
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
ADJUSTABLE U.S. GOVERNMENT RESERVE SUBACCOUNT
Investment income:
Dividend income $ 1,035 $ -
Policy administration charge (NOTE 3) - -
Mortality, expense risk and administrative charges
(NOTE 3) (2,147) (2,873)
-----------------------------------
Net investment loss (1,112) (2,873)
Net realized gain on redemption of Norwest Select
Fund portfolio shares 5,426 1,784
Net change in unrealized (depreciation) appreciation
on investments (4,872) 4,872
-----------------------------------
Net (decrease) increase in net assets from operations (558) 3,783
CAPITAL TRANSACTIONS:
Purchase of Variable Account D units 394,984 801,713
Redemptions of Variable Account D Units (968,236) (231,686)
Policy administration charge redeemed from Norwest
Select Fund - -
-----------------------------------
Net (decrease) increase in net assets from capital
transactions (573,252) 570,027
-----------------------------------
Total (decrease) increase in net assets (573,810) 573,810
Net assets, beginning of year 573,810 -
-----------------------------------
Net assets, end of year $ - $573,810
-----------------------------------
-----------------------------------
</TABLE>
17
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
-------------
<S> <C>
SMALL COMPANY STOCK SUBACCOUNT
Investment income:
Dividend income $ 28,697
Policy administration charge (NOTE 3) -
Mortality, expense risk and administrative charges (NOTE 3) (2,828)
-------------
Net investment income 25,869
Net realized loss on redemption of Norwest Select Fund
portfolio shares (329)
Net change in unrealized depreciation on investments (12,343)
-------------
Net increase in net assets from operations 13,197
Capital transactions:
Purchase of Variable Account D units 862,524
Redemption of Variable Account D units (3,639)
Policy administration charge redeemed from Norwest
Select Fund -
-------------
Net increase in net assets from capital transactions 858,885
-------------
Total increase in net assets 872,082
Net assets, beginning of year -
-------------
Net assets, end of year $872,082
-------------
-------------
</TABLE>
18
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
-----------------------------------
<S> <C> <C>
INTERNATIONAL PORTFOLIO SUBACCOUNT
Investment income:
Dividend income $ 5,274 $ -
Policy administration charge (NOTE 3) (7) -
Mortality, expense risk and administrative charges
(NOTE 3) (19,707) (3,751)
-----------------------------------
Net investment loss (14,440) (3,751)
Net realized loss on redemption of Scudder Variable
Life Investment Fund portfolio shares (4,479) (2,393)
Net change in unrealized appreciation (depreciation)
on investments 150,241 (36,913)
-----------------------------------
Net increase (decrease) in net assets from operations 131,322 (43,057)
Capital transactions:
Purchase of Variable Account D units 1,133,126 1,037,359
Redemption of Variable Account D units (431,126) (16,178)
Policy administration charge redeemed from Scudder
Variable Life Investment Fund 7 -
-----------------------------------
Net increase in net assets from capital transactions 702,007 1,021,181
-----------------------------------
Total increase in net assets 833,329 978,124
Net assets, beginning of year 978,124 -
-----------------------------------
Net assets, end of year $1,811,453 $ 978,124
-----------------------------------
-----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements
December 31, 1995
1. GENERAL
Fortis Benefits Insurance Company Variable Account D (the Account) was
established as a segregated asset account of Fortis Benefits Insurance Company
(Fortis Benefits) on October 14, 1987 under Minnesota Law. The Account is
registered under the Investment Company Act of 1940 as a unit investment trust.
Fortis Benefits was founded in 1910. At the end of 1995, Fortis Benefits had
approximately $86 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 N.V. AMEV and 50% by Compagnie Financiere et de
Reassurance du Group AG ("Group AG"). Fortis, Inc. manages the United States
operations for these two companies.
N.V. AMEV is a diversified financial services company headquartered in Utrecht,
The Netherlands, where its insurance operations began in 1847. Group AG is a
diversified financial services company headquartered in Brussels, Belgium, where
its insurance operations began in 1824. N.V. AMEV and Group 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 over $140 billion
in assets at the end of 1995.
Fortis Advisers, Inc. (a wholly-owned subsidiary of Fortis, Inc.) provides
investment management services to the portfolios in exchange for investment
advisory and management fees. Investment advisory and management fees are based
on each portfolio's daily net assets and decrease in reduced percentages as
average daily net assets increase. The fees represent an investment expense to
Fortis Series Fund, Inc. which reduces the portfolios' net assets. The fees
charged by Fortis Advisers, Inc. are not available on an individual variable
account basis. Fees for all variable accounts to which Fortis Advisers, Inc.
provided investment management services amounted to $7,819,224, $5,839,044 and
$3,748,274 in 1995, 1994 and 1993, respectively.
20
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
There are sixteen subaccounts within the Account. The investment objectives and
policies of each of the Account's subaccounts are as follows:
- GROWTH STOCK SUBACCOUNT--seeks growth of capital through short-term
and long-term appreciation.
- U.S. GOVERNMENT SECURITIES SUBACCOUNT--seeks to earn a high level of
current income consistent with prudent investment risk.
- MONEY MARKET SUBACCOUNT--seeks high levels of capital stability and
liquidity and, to the extent consistent with these objectives, a high
level of current income.
- ASSET ALLOCATION SUBACCOUNT--seeks favorable overall rates of return
on capital primarily through increased ownership of equity securities
during periods when stock market conditions appear favorable and
short-term and long-term debt instruments during periods when stock
market conditions are less favorable.
- DIVERSIFIED INCOME SUBACCOUNT--seeks high levels of current income by
investing primarily in a diversified portfolio of government
securities and investment-grade corporate bonds.
- GLOBAL GROWTH SUBACCOUNT--seeks long-term capital appreciation in
equity securities that are allocated among diverse international
markets.
- AGGRESSIVE GROWTH SUBACCOUNT--seeks long-term capital appreciation in
equity securities.
- GROWTH & INCOME SUBACCOUNT--seeks growth of capital and current income
through ownership of equity securities that provide an income
component and the potential for growth.
- HIGH YIELD SUBACCOUNT--seeks maximum total return through current
income from, and capital appreciation of, a diversified portfolio of
high-yielding fixed-income securities.
21
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
- GLOBAL ASSET ALLOCATION SUBACCOUNT--seeks favorable overall rates of
return through ownership of foreign and domestic equity securities
when stock market conditions appear favorable and short-term and
long-term foreign and domestic debt instruments when stock market
conditions are less favorable.
- GLOBAL BOND SUBACCOUNT--seeks total return from current income and
capital appreciation by investing in a global portfolio of
high-quality fixed-income securities.
- INTERNATIONAL STOCK SUBACCOUNT--seeks capital appreciation by
investing primarily in equity securities of non-United States
companies.
- VALUGROWTH STOCK SUBACCOUNT--seeks growth of capital by investing
principally in medium and large capitalization companies that possess
above-average growth characteristics and attractive valuations.
- INTERMEDIATE BOND SUBACCOUNT--seeks income through investing primarily
in a diversified portfolio of government and corporate bonds in an
evenly balanced maturity structure.
- SMALL COMPANY STOCK SUBACCOUNT--seeks growth of capital by investing
primarily in the common stock of small and medium-size domestic
companies that are either in the early stages of development or that
produce goods and services having a favorable prospect for growth.
- INTERNATIONAL PORTFOLIO SUBACCOUNT--seeks long-term growth of capital
primarily through diversified holdings of marketable foreign equity
securities.
22
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. INVESTMENTS
Investments in shares of Fortis Series Fund, Inc., the Norwest Select Fund and
the Scuddder Variable Life Investment Fund (the Funds) are stated at market
value, which is based on the percentage owned by the Account of the net asset
value of the respective portfolios of the Funds. The Funds' net asset value is
based on market quotations of the securities held in the portfolios. The cost of
investments sold and redeemed is determined using the average cost method.
Unrealized appreciation or depreciation of investments represents the Account's
share of the mutual fund's undistributed net investment income, undistributed
realized gains and losses and unrealized appreciation or depreciation in the
Funds' investments.
Purchases and sales of shares of the Funds are recorded on the trade date. The
number of shares and aggregate cost of purchases and proceeds from sales of
shares were as follows:
Year ended December 31, 1995:
<TABLE>
<CAPTION>
SHARES
--------------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 1,474,490 534,461 $38,219,083 $13,219,252
U.S. Government Securities Series 774,095 2,822,335 8,256,814 28,588,389
Money Market Series 3,006,701 3,520,068 32,427,432 37,776,714
Asset Allocation Series 1,708,881 515,324 26,748,824 7,609,627
Diversified Income Series 436,611 1,063,223 5,016,172 11,853,689
Global Growth Series 1,232,021 624,923 18,345,602 8,164,182
Aggressive Growth Series 2,130,122 300,532 24,945,836 3,730,794
Growth & Income Series 2,741,398 71,626 31,425 ,809 818,308
High Yield Series 1,387,101 266,413 14,170,291 2,741,248
Global Asset Allocation Series 1,130,399 23,288 12,516,549 230,769
Global Bond Series 759,105 193,919 8,564,998 2,223,226
International Stock Series 1,159,824 14,425 12,411,656 146,602
Norwest Select Fund:
ValuGrowth Stock Fund 273,933 20,542 3,057,527 225,370
Intermediate Bond Fund 242,873 48,103 2,608,128 521,311
Adjustable U.S. Government Reserve Fund 38,761 94,688 392,834 968,236
Small Company Stock Fund 75,540 314 859,233 3,639
Scudder Variable Life Investment Fund:
International Portfolio 101,034 39,728 1,113,265 431,133
</TABLE>
23
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Year ended December 31, 1994:
<TABLE>
Caption>
SHARES
------------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 3,266,440 631,035 $72,583,504 $13,830,835
U.S. Government Securities Series 1,186,119 5,847,237 12,608,370 60,458,766
Money Market Series 5,458,066 3,903,494 52,479,135 40,593,794
Asset Allocation Series 4,191,226 496,813 58,622,192 6,924,469
Diversified Income Series 2,065,335 1,262,643 24,259,910 14,270,172
Global Growth Series 5,023,325 214,984 63,626,783 2,654,200
Aggressive Growth Series 1,246,139 103,726 11,828,451 976,762
Growth & Income Series 1,497,281 21,061 15,217,894 213,057
High Yield Series 1,381,673 175,340 13,771,173 1,751,362
Norwest Select Fund:
ValuGrowth Stock Fund 139,803 2,270 1,396,722 22,296
Intermediate Bond Fund 70,247 1,326 698,920 13,149
Adjustable U.S. Government Reserve Fund 78,556 22,627 798,991 231,685
Scudder Variable Life Investment Fund:
International Portfolio 93,016 1,517 1,031,994 16,179
</TABLE>
Year ended December 31, 1993:
<TABLE>
<CAPTION>
SHARES
------------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 5,569,173 2,023,801 $119,659,211 $42,043,870
U.S. Government Securities Series 7,847,700 430,131 89,739,057 4,904,695
Money Market Series 6,363,355 6,434,104 66,955,179 66,422,463
Asset Allocation Series 7,003,489 20,087 96,874,500 275,610
Diversified Income Series 4,741,780 124,081 58,340,524 1,557,351
Global Growth Series 4,674,292 29,735 56,287,883 3,270,592
</TABLE>
24
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The number of shares and cost of shares issued from reinvestment of dividends
with the Funds were as follows:
Year ended December 31, 1995:
<TABLE>
<CAPTION>
COST OF
SHARES SHARES
--------------------------
<S> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 67,820 $ 1,840,330
U.S. Government Securities Series 834 8,296
Money Market Series 134,020 1,390,716
Asset Allocation Series 771,842 12,053,233
Diversified Income Series 439 4,826
Global Growth Series 57,730 889,918
Aggressive Growth Series 10,929 131,332
Growth & Income Series 72,502 909,272
High Yield Series 225,440 2,182,916
Global Asset Allocation Series 30,572 345,923
Global Bond Series 30,119 336,887
International Stock Series 16,292 180,007
Norwest Select Fund:
ValuGrowth Stock Fund 4,219 50,547
Intermediate Bond Fund 15,730 172,247
Small Company Stock Fund 2,569 28,697
Scudder Variable Life Investment Fund:
International Portfolio 448 5,274
Year ended December 31, 1994:
<CAPTION>
COST OF
SHARES SHARES
--------------------------
<S> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 101,668 $ 2,224,886
U.S. Government Securities Series 1,448,879 13,644,959
Money Market Series - -
Asset Allocation Series 679,533 9,186,739
Diversified Income Series 731,228 7,607,329
Global Growth Series 68,077 829,695
Aggressive Growth Series 4 ,680 45,402
Growth & Income Series 15,373 154,775
High Yield Series 57,965 546,340
</TABLE>
25
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
COST OF
SHARES SHARES
---------------------------
<S> <C> <C>
Norwest Select Fund:
ValuGrowth Stock Fund - $ -
Intermediate Bond Fund - -
Adjustable U.S. Government Reserve Fund - -
Scudder Variable Life Investment Fund:
International Portfolio - -
Year ended December 31, 1993:
<CAPTION>
COST OF
SHARES SHARES
---------------------------
<S> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock Series 41,732 $ 948,153
U.S. Government Securities Series 1,425,752 15,640,218
Money Market Series 64,733 662,017
Asset Allocation Series 415,385 5,851,029
Diversified Income Series 505,980 6,042,059
Global Growth Series 12,263 155,024
</TABLE>
3. ORGANIZATIONAL EXPENSES AND OTHER CHARGES
ORGANIZATIONAL EXPENSES
Fortis Benefits assumes all organizational expenses of the Account.
PREMIUM TAXES
Where premium taxes or similar assessments are imposed by states or other
jurisdictions upon receipt of purchase payments, Fortis Benefits pays such taxes
on behalf of the contract owner and then will deduct a charge for these amounts
from the contract value upon surrender, death of the annuitant or contract
owner, or annuitization of the contract. In jurisdictions where premium taxes or
similar assessments are imposed at the time annuity payments begin, Fortis
Benefits will deduct a charge on a pro rata basis from the contract value at
that time.
26
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. ORGANIZATIONAL EXPENSES AND OTHER CHARGES (CONTINUED)
POLICY ADMINISTRATION CHARGE
A $35 annual policy administrative charge is deducted each contract year from
the value of each Opportunity Variable and Masters Variable Annuity contract or
$30 for each Norwest Passage Variable Annuity contract on each anniversary of
the contract date or upon total surrender of the contract. This charge will be
waived during the accumulation period if the contract value at the end of the
contract year (or upon total surrender) is $25,000 or more.
MORTALITY AND EXPENSE RISK CHARGE
Fortis Benefits assesses each subaccount of the Account a daily charge for
mortality and expense risk at an annual rate of 1.25% of the net assets
representing equity of contract owners held in each subaccount.
ADMINISTRATIVE CHARGE
Fortis Benefits assesses each Fortis Series Fund, Inc. subaccount a daily charge
for administrative expenses at an annual rate of .10% of the net assets
representing equity of contract owners. For the Norwest Select Fund and Scudder
Variable Life Investment Fund subaccounts, the administrative charge is assessed
at an annual rate of .15%.
SURRENDER CHARGE
FREE SURRENDERS--The following amounts can be withdrawn from the contract
without a surrender charge:
- Any purchase payments received more than five years prior to the surrender
date for Opportunity and Norwest Passage Variable Annuity contracts and
seven years for Masters Variable Annuity contracts.
27
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. ORGANIZATIONAL EXPENSES AND OTHER CHARGES (CONTINUED)
- In any contract year, up to 10% of the purchase payments received less
than five years prior to the surrender date for Opportunity and Norwest
Passage Variable Annuity contracts and seven years prior to the surrender
date for Masters Variable Annuity contracts.
- For Norwest Passage and Masters Variable Annuity contracts, any earnings
that have not been previously surrendered.
AMOUNT OF SURRENDER CHARGE--Surrender charges apply only if the amount being
withdrawn exceeds the sum of the amounts listed above under Free Surrenders. The
surrender charge is based on a percentage of the amount of purchase payments
surrendered. The percentage of payments is set at 5% during the first year on
the Opportunity and Norwest Passage Variable Annuity contracts with a sliding
scale down to zero by the end of the fifth year, and is set at 7% during the
first year of the Masters Variable Annuity contracts with a sliding scale down
to zero by the end of the seventh year. Surrender charges collected by Fortis
Benefits were $2,205,945, $1,988,863 and $857,644 in 1995, 1994 and 1993,
respectively.
4. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, the operations
of Fortis Benefits, which is taxed as a life insurance company under the
Internal Revenue Code. As a result, the net asset values of the subaccounts are
not affected by federal income taxes on income distributions received by the
subaccounts.
28
<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, 1995 and 1994, and the related statements of income,
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. 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, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, 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.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
February 14, 1996
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-----------------------
<S> <C> <C>
ASSETS
Investments--Note 4
Fixed maturities, at fair value (amortized cost
1995--$1,951,204; 1994--$1,749,347) $2,075,624 $1,674,782
Equity securities, at fair value
(cost 1995--$60,935;1994--$59,010) 78,852 64,552
Mortgage loans on real estate, less allowance for
possible losses (1995--$8,353; 1994--$7,429) 562,697 452,547
Policy loans 53,863 49,221
Short-term investments 153,499 117,562
Real estate and other investments 11,918 13,441
---------- ----------
2,936,453 2,372,105
Cash 1 10,888
Receivables:
Uncollected premiums 55,992 40,667
Reinsurance recoverable on unpaid and paid losses 11,812 15,181
Due from affiliates 388 2,220
Other 14,581 12,593
---------- ----------
82,773 70,661
Accrued investment income 41,209 38,584
Deferred policy acquisition costs--Note 5 237,509 232,198
Property and equipment at cost, less
accumulated depreciation--Note 6 60,031 56,939
Deferred federal income taxes--Note 8 - 48,509
Other assets 3,551 1,120
Assets held in separate accounts--Note 9 1,781,485 1,212,910
---------- ----------
Total Assets $5,143,012 $4,043,914
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------------------------
<S> <C> <C>
POLICY RESERVES,LIABILITIES, AND
SHAREHOLDER'S EQUITY
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance $ 407,706 $ 375,257
Interest sensitive and investment products 1,101,931 912,653
Accident and health 832,925 798,293
---------- ----------
2,342,562 2,086,203
Unearned premiums 13,04 6,145
Other policy claims and benefits payable 196,40 16,864
Policyholder dividends payable 7,930 6793
---------- ----------
2,559,939 2,279,05
Accrued expenses 68,441 45,905
Current income taxes payable 5,375 4,352
Deferred federal income taxes--Note 8 9,538 -
Other liabilities 31,145 32,416
Liabilities related to separate accounts 1,757,476 1,208,039
---------- ----------
Total Policy Reserves and Liabilities 4,431,914 3,569,717
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 408,000 358,000
Retained earnings 207,421 153,551
Unrealized gains (losses) on investments,
net --Note 4 88,131 (42,908)
Unrealized gains on assets held in separate accounts
net of deferred taxes of $1,371 in 1995 and $298 in 1994 2,546 554
---------- ----------
Total Shareholder's Equity 711,098 474,197
---------- ----------
Total Reserves, Liabilities, and Shareholder's Equity $5,143,012 $4,043,914
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
REVENUES
Insurance operations
Traditional life insurance premiums $ 251,353 $ 207,824 $ 187,863
Interest sensitive and investment product policy charges 46,076 37,823 28,778
Accident and health premiums 934,900 776,799 738,412
---------- ---------- ----------
232,329 1,022,446 955,053
Net investment income--Note 4 203,537 162,514 153,657
Realized gains (losses) on investments--Note 4 55,080 (28,815) 73,623
Other income 33,085 35,958 27,100
---------- ---------- ----------
Total Revenues 1,524,031 1,192,103 1,209,433
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance 202,911 162,168 145,958
Interest sensitive and investment products 73,676 55,026 50,935
Accident and health 769,588 620,367 598,146
---------- ---------- ----------
1,046,175 837,561 795,039
Policyholder dividends 4,305 1,986 5,855
Amortization of deferred policy acquisition costs--Note 5 41,291 34,566 36,503
Insurance commissions 95,559 86,111 76,816
General and administrative expenses 254,940 197,427 185,986
---------- ---------- ----------
TOTAL BENEFITS AND EXPENSES 1,442,270 1,157,651 1,100,199
---------- ---------- ----------
INCOME BEFORE FEDERAL INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES 81,761 34,452 109,234
Federal income taxes--Note 8 27,891 11,595 31,090
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 53,870 22,857 78,144
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 $ 53,870 $ 22,857 $ 81,707
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
UNREALIZED GAINS ON
GAINS ASSETS
ADDITIONAL (LOSSES) HELD IN
COMMON PAID-IN RETAINED ON SEPARATE
STOCK CAPITAL EARNINGS INVESTMENTS ACCOUNTS TOTAL
----- ------- -------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance January 1,1993 $ 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 gain 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
Net income - - 53,870 - - 53,870
Additional paid-in capital - 50,000 - - - 50,000
Change in unrealized gains on
investments, net - - - 131,039 - 131,039
Change in unrealized gain on assets held in
separate account net of deferred tax
expense of $1,073 - - - - 1,992 1,992
---------- --------- ---------- --------- ---------- ----------
Balance December 31, 1995 $5,000 $408,000 $207,421 $88,131 $2,546 $711,098
---------- --------- ---------- --------- ---------- ----------
---------- --------- ---------- --------- ---------- ----------
</TABLE>
5
<PAGE>
This Page Left Blank Intentionally
6
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 53,870 $ 22,857 $ 81,707
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 80,478 79,014 58,299
Increase (decrease) in other policy claims and
benefits and policyholder dividends payable 27,676 10,075 (15,868)
Decrease in deferred federal income taxes (13,584) (2,356) (9,776)
Increase (decrease) in income taxes payable 1,023 3,283 (12,733)
Amortization of policy acquisition costs 41,291 34,566 36,503
Policy acquisition costs deferred (56,391) (54,349) (45,841)
Provision for mortgage loan losses 924 1,105 1,648
Provision for depreciation 15,654 12,267 9,399
Accrual of discount, net (239) (914) 72
Change in receivables, accrued investment
income, unearned premiums, accrued expenses
and other liabilities 3,427 (36,650) 5,751
Net realized (gains) losses on investments (55,080) 28,815 (73,623)
Other (2,431) (135) 164
------------- ------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 96,618 97,578 32,139
NVESTING ACTIVITIES
Purchase of fixed maturity investments (2,151,133) (1,943,697) (2,337,842)
Sales or maturities of fixed maturity investments 2,000,068 1,798,184 2,358,288
(Increase) decrease in short-term investments (35,908) (44,266) 28,756
Purchase of other investments (240,264) (211,836) (201,601)
Sales or maturities of other investments 112,598 104,399 75,539
Purchase of property and equipment (19,975) (16,164) (13,155)
Purchase of group insurance business - (6,644) (5,521)
Other 1,229 500 49
------------- ------------ -------------
NET CASH USED BY INVESTING ACTIVITIES (333,385) (319,524) (95,487)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received 187,484 200,499 68,943
Surrenders and death benefits (60,522) (19,207) (37,262)
Interest credited to policyholders 48,918 31,867 30,024
Additional paid-in capital from shareholder 50,000 13,000 -
Dividends paid to shareholder - - (4,000)
------------- ------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 225,880 226,159 57,705
------------- ------------ -------------
INCREASE (DECREASE) IN CASH (10,887) 4,213 (5,643)
Cash at beginning of year 10,888 6,675 12,318
------------- ------------ -------------
CASH AT END OF YEAR $ 1 $ 10,888 $ 6,675
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
Note to Financial Statements
Fortis Benefits Insurance Company
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Fortis Benefits Insurance Company (the Company) is an affiliate of the
worldwide Fortis group of companies owned by Fortis AMEV of the Netherlands and
Fortis AG of Belgium. The Company is incorporated in Minnesota and distributes
its products in all states except New York. To date, the majority of the
Company's revenues have been derived from group employee benefits products and
the remainder from individual life and annuity products.
BASIS OF STATEMENT PRESENTATION
The financial statements are presented in conformity with generally accepted
accounting principles. Certain amounts included in the 1993 and 1994 financial
statements have been reclassified to conform to the 1995 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 1995 and 1994.
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 interest sensitive and investment products, deferred policy acquisition
costs are amortized in relation to 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.
8
<PAGE>
Fortis Benefits Insurance Company
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
RECOGNITION OF REVENUES, POLICY RESERVES AND LIABILITIES AND POLICY ACQUISITION
COSTS - CONTINUED
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 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.
9
<PAGE>
Fortis Benefits Insurance Company
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. The
Company provides for depreciation principally on the straight line method over
the estimated useful lives of the related property.
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
contract holder, 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.
USE OF ESTIMATES
The preparation of financial statements in conformity of generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
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. 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.
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.
10
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHANGES IN ACCOUNTING PRINCIPLES -- CONTINUED
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 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, 1995:
Fixed Income Securities:
Governments $453,406 $36,938 $142 $490,202
Public utilities 55,793 4,617 - 60,410
Industrial & miscellaneous 1,420,374 2,705 1,282 1,501,797
Other 21,631 1,586 2 23,215
---------------------------------------------------------
Total 1,951,204 125,846 1,426 2,075,624
Equity Securities 60,935 20,321 2,404 78,852
---------------------------------------------------------
Total $2,012,139 $146,167 $3,830 $2,154,476
---------------------------------------------------------
---------------------------------------------------------
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
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
11
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENTS -- CONTINUED
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1995, 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
Cost Fair Value
---------------------------
<S> <C> <C>
Due in one year or less $ 80,474 $ 80,960
Due after one year through five years 472,741 487,764
Due after five years through ten years 687,374 727,723
Due after ten years 710,615 779,177
---------------------------
Total $1,951,204 $2,075,624
---------------------------
---------------------------
</TABLE>
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the country. Approximately 35% of outstanding principal is
concentrated in the states of California, Florida and New York at December 31,
1995 as compared to concentrated interests in California, Florida, and Texas of
34% at December 31, 1994. Loan commitments outstanding totaled $10,030,000 at
December 31, 1995.
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 adopted 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 impact of adoption was
not material to the Company's financial position or operating results.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities and mortgage loans on real estate carried at
$2,385,000 and $8,132 ,000, respectively, at December 31, 1995, and $2,635,000
and $8,132,000 respectively, at December 31, 1994 on deposit with various
governmental authorities as required by law.
12
<PAGE>
Fortis Benefits Insurance Company
Notes to Financial Statements
4. INVESTMENTS -- CONTINUED
NET UNREALIZED GAINS (LOSSES)
The adjusted net unrealized gains (losses) recorded in shareholder's equity were
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Change in unrealized gains (losses) before adjustment for the
following items: 214,452 $(155,923) $80,288
Capitalization (amortization) of deferred policy acquisition costs (9,789) 9,288 (6,268)
Participating policyholders' share of earnings - 2,684 (2,684)
Deferred income taxes (71,632) 50,383 (25,042)
----------------------------------------
Change in net unrealized gains (losses) 133,031 (93,568) 46,294
Net unrealized gains, beginning of the year (42,354) 51,214 4,920
----------------------------------------
Net unrealized gains (losses), end of year 90,677 $(42,354) $51,214
----------------------------------------
----------------------------------------
</TABLE>
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)
Net Investment Income on Investments
---------------------------------------- ----------------------------------------
1995 1994 1993 1995 1994 1993
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities $139,062 $119,668 $120,844 $50,393 $(27,854) $70,626
Equity securities 2,026 1,937 1,490 2,830 1,352 3,955
Mortgage loans on real estate 49,227 36,816 28,370 (242) (2,992) (1,805)
Policy loans 2,797 2,731 3,004 - - -
Short-term investments 11,863 4,671 4,282 (3) (60) 1
Real estate & other investments 4,750 2,138 1,171 2,102 739 846
---------------------------------------- ----------------------------------------
Total 209,725 167,961 159,161 $55,080 $(28,815) $73,623
----------------------------------------
----------------------------------------
Expenses (6,188) (5,447) (5,504)
----------------------------------------
$203,537 $162,514 $153,657
----------------------------------------
----------------------------------------
</TABLE>
Proceeds from sales of investments in fixed maturities were $2,000,068,000,
$1,798,185,000, and $2,335,230,000 in 1995, 1994 and 1993, respectively. Gross
gains of $61,070,000, $16,618,000, and $75,133,000 and gross losses of
$10,677,000, $44,472,000, and $4,507,000 were realized on the sales in 1995,
1994, and 1993, respectively.
13
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
5. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows (in
thousands):
<TABLE>
<CAPTION>
Interest
Sensitive and
Traditional Investment Accident and
Life Products Health Total
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 1, 1994 $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)
Allowance for additional
amortization from unrealized
gains on available-for-sale
securities - 9,288 - 9,288
------------------------------------------------------------
Balance December 31, 1994 $49,910 $141,309 $40,979 $232,198
Acquisition costs deferred:
Other business - 56,391 - 56,391
Acquisition costs amortized (11,378) (17,071) (12,842) (41,291)
Additional amortization of
deferred acquisition costs from
unrealized losses on available-
for-sale securities - (9,789) - (9,789)
------------------------------------------------------------
Balance December 31, 1995 $38,532 $170,840 $28,137 $237,509
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
Included within total deferred policy acquisition costs at December 31, 1995 is
$46,750,000 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 three years is as follows: 1996 - $19,210,000; 1997 -
$17,262,000; 1998 - $10,278,000.
During 1995, 1994, and 1993, 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 $4,825,000, $(935,000), and $5,400,000 ,
respectively. In addition, the Company (reduced) recorded policyholder
dividends payable of $1,095,000 in 1995 , $(761,000) in 1994 and $2,800,000 in
1993.
14
<PAGE>
Fortis Benefits Insurance Company
Notes to Financial Statements
6. PROPERTY AND EQUIPMENT
A summary of property and equipment for each year follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------------
<S> <C> <C>
Land $ 1,900 $ 1,900
Building and improvements 23,319 23,084
Furniture and equipment 85,592 68,017
------------------------
110,811 93,001
Less accumulated depreciation (50,780) (36,062)
------------------------
Net property and equipment $60,031 $56,939
------------------------
------------------------
</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
------------------------------------------
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance
Recoverables $838,810 $806,538 $776,194
Add: Incurred losses related to:
Current year 827,261 656,052 612,621
Prior years (28,520) (58,218) (41,619)
------------------------------------------
Total incurred losses 798,741 597,834 571,002
Deduct: Paid losses related to:
Current year 492,460 377,595 353,124
Prior years 216,259 187,967 187,534
------------------------------------------
Total paid losses 708,719 565,562 540,658
------------------------------------------
Balance as of December 31, net of reinsurance
recoverables $928,832 $838,810 $806,538
------------------------------------------
------------------------------------------
</TABLE>
In 1995, The accident/health business experienced overall unfavorable claims
experience. The unfavorable experience was the result of medical cost trends
and the negative impact of medical premium rate restrictions in certain states.
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.
15
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
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, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------------------------
<S> <C> <C>
Deferred tax assets:
Reserves $ 54,346 $ 42,715
Separate account assets/liabilities 34,386 27,663
Unrealized losses - 22,806
Accrued liabilities 13,781 14,565
Claims and benefits payable 2,626 1,976
Other 123 1,393
--------------------------
Total deferred tax assets 105,262 111,118
Deferred tax liabilities:
Unrealized gains 48,826 -
Deferred policy acquisition costs 60,930 55,329
Investments - 1,194
Fixed assets 5,044 6,086
--------------------------
Total deferred tax liabilities 114,800 62,609
--------------------------
Net deferred tax asset (liability) $ (9,538) $ 48,509
--------------------------
--------------------------
</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.
16
<PAGE>
Fortis Benefits Insurance Company
Notes to Financial Statements
8. FEDERAL INCOME TAXES -- CONTINUED
The Company's tax expense before cumulative effect of accounting changes is
shown as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Current $39,660 $15,046 $35,747
Deferred (11,769) (3,451) (4,657)
-----------------------------------------
$27,891 $11,595 $31,090
-----------------------------------------
-----------------------------------------
</TABLE>
Tax payments were made of $47,711,000, $18,080,000 and $53,600,000 in 1995,
1994, and 1993, respectively. Tax refunds were received of $7,258,000 and
$7,729,000 in 1995 and 1994, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
1995 1994 1993
---------------------------------------
Statutory income tax rate 35.0 % 35.0 % 35.0 %
Tax audit provision 0.0 % 0.8 % (4.6)%
Other, net (0.9)% (2.1)% (1.9)%
---------------------------------------
34.1 % 33.7 % 28.5 %
---------------------------------------
---------------------------------------
17
<PAGE>
Fortis Benefits Insurance Company
Notes to Financial Statements
9. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Premium and annuity considerations for the
variable annuity products and variable universal
life product for which the contract holder, rather
than the Company, bears the investment risk $1,757,476 $1,208,038
Assets of the separate accounts owned by the
Company, at fair value 24,009 4,872
---------------------------
$1,781,485 $1,212,910
---------------------------
---------------------------
</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>
Net Income Shareholder's Equity
1995 1994 1993 1995 1994
----------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices $ 30,576 $ 49,759 $ 46,605 $ 377,040 $ 304,231
Deferred policy acquisition costs 15,100 19,783 9,338 237,509 232,198
Investment valuation differences 330 370 520 114,413 (85,944)
Deferred and uncollected premiums 303 (14) 1,655 (7,372) (8,393)
Unearned premiums 1,829 1,126 7,035 (11,179) (13,008)
Loading and equity in unearned premiums (56) 316 (179) 94 85
Property and equipment (178) (204) (63) 27,172 22,027
Policy reserves (31,011) (26,655) (38,558) (103,174) (72,192)
Current income taxes payable (1,294) - 4,656 (7,895) (4,786)
Deferred income taxes 11,769 2,356 9,776 (9,538) 48,509
Realized gains (losses) on investments 1,938 (1,052) 3,651 - -
Realized gains (losses) transferred to the
Interest Maintenance Reserve (IMR), net
of tax 31,711 (18,456) 40,459 - -
Amortization of IMR, net of tax (5,261) (5,479) (3,777) - -
Interest maintenance reserve - - - 53,814 27,364
Asset valuation reserve - - - 48,507 32,011
Cumulative effect of accounting changes - - 3,563 - -
Other, net (1,886) 1,007 (2,974) (8,293) (7,905)
----------------------------------------- ---------------------------
$ 53,870 $ 22,857 $ 81,707 $ 711,098 $ 474,197
----------------------------------------- ---------------------------
----------------------------------------- ---------------------------
</TABLE>
18
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
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.
Ceded reinsurance premiums were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Life Insurance $4,661 $ 5,571 $ 4,366
Accident & Health Insurance 3,410 36,782 37,088
-----------------------------------
$8,071 $42,353 $41,454
-----------------------------------
-----------------------------------
</TABLE>
Recoveries under reinsurance contracts were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
Life Insurance $ 2,489 $ 1,650 $ 6,963
Accident & Health Insurance 8,807 19,913 15,448
-------------------------------------
$ 11,296 $21,563 $22,411
-------------------------------------
-------------------------------------
</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. STATUTORY INFORMATION
Dividend distributions to parent are restricted as to amount by state regulatory
requirements. The Company had $37,204,000 free from such restrictions at
December 31, 1995. Distributions in excess of this amount would require
regulatory approval.
Statutory-basis financial statements are prepared in accordance with accounting
practices prescribed or permitted by Minnesota Insurance regulatory authorities.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners ("NAIC"), as well as state
laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed; such
practices may differ from state to state, may differ form company to company
within a state, and may change in the future. The NAIC is currently in the
process of codifying statutory accounting practices. This project, which is
expected to be completed in 1996, may result in changes to the accounting
practices that insurance enterprises use to prepare their statutory-basis
financial statements.
Insurance enterprises are required by State Insurance Departments to adhere to
minimum risk-based capital ("RBC") requirements developed by the NAIC. All of
the Company's insurance subsidiaries exceed minimum RBC requirements.
19
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
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, 1995, 1994, and
1993, were $10,074,000 , $8,944,000, and $8,595,000 respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $59,308,000, $57,307,000, and $27,931,000, in commissions to its affiliate,
Fortis Investors, Inc. for the years ended December 31, 1995, 1994, and 1993,
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.
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
----------------------------------------------------------
1995 1994
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities $2,075,624 $2,075,624 $1,674,782 $1,674,782
Equity securities 78,852 78,852 64,552 64,552
Mortgage loans on real estate 562,697 605,501 452,547 434,503
Policy loans 53,863 53,863 49,221 49,221
Short-term investments 153,499 153,499 117,562 117,562
Cash 1 1 10,888 10,888
Assets held in separate accounts 1,781,485 1,781,485 1,212,910 1,212,910
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal) 865,623 834,621 692,196 657,454
</TABLE>
20
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
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, 1995.
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 $ 3,765,000, $3,536,000
and $3,399,000 in 1995, 1994, and 1993, respectively.
21
<PAGE>
APPENDIX A
PERFORMANCE INFORMATION
In advertising and other sales material for the Contracts, yield and total
return information for the Subaccounts of the Separate Account may be included.
The information below provides investment results for the indicated Subaccounts
of the Separate Account. The results shown in this section are not an estimate
or guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
YIELD CALCULATIONS
Yield information for the Money Market Subaccount will be based on the seven
days ended on a specified date. It will be computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical pre-
existing account (after the deduction of all asset based charges) having a
balance of one Accumulation Unit at the beginning of the period, subtracting a
proportionate amount of the annual administrative charge (based on average
Contract size), and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by (365/7), with the resulting yield figure carried to
the nearest hundredth of one percent. The seven day yield for the Money Market
Subaccount as of December 31, 1995 was 5.59%.
An effective yield may also be quoted for the Money Market Subaccount.
Effective yield is calculated by compounding the current yield as follows:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
The seven day effective yield for the Money Market Subaccount as of December 31,
1995 was 5.79%.
Yield information for the other Subaccounts will be based on the thirty days
ended on a specified date and carried to the nearest hundredth of a percent,
according to the following formula:
a-b
YIELD = 2 [(---- + 1)(6) - 1]
cd
Where: a = net investment income earned during the period by the Portfolio whose
shares are owned by the Subaccount.
b = expenses accrued for the period, including a proportionate amount of
the annual administrative charge (based on average Contract size),
c = the average daily number of Accumulation Units outstanding during the
period, and
d = the offering price per Accumulation Unit at the end of the last day of
the period.
The following table sets forth yield figures for the thirty days ended December
31, 1995:
SUBACCOUNT YIELD
---------- -----
U.S. Government Securities . . . . . . . . . . .9.83%
Diversified Income . . . . . . . . . . . . . . .7.76%
High Yield . . . . . . . . . . . . . . . . . . .4.37%
Global Bond. . . . . . . . . . . . . . . . . . .2.83%
A-1
<PAGE>
TOTAL RETURN CALCULATIONS
Total return information will be given for the one-year and five-year periods
ended on a specified date, provided that, if the registration statement has been
effective for a Subaccount only during a shorter period, then such shorter
period will be used.
AVERAGE ANNUAL TOTAL RETURN
Total average annual compounded rates of return for each period will be computed
to the nearest one hundredth of a percent, according to the following formula:
P(1 + T)(n) = CSV
Where: P = a hypothetical initial purchase payment of $1,000,
T = average annual total return,
n = number of years, and
CSV = end of period Cash Surrender Value of hypothetical $1,000 purchase
payment made at the beginning of the period, assuming deduction of a
proportionate amount of the annual administrative charge (based on
average Contract size).
The following table shows total average annual rates of return for the periods
indicated:
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR COMMENCEMENT OF
PERIOD ENDED PERIOD ENDED SUBACCOUNT (1) TO
SUBACCOUNT DEC. 31, 1995 DEC. 31, 1995(1) DEC. 31, 1995
- ---------- ------------- ----------------- --------------
<S> <C> <C> <C>
Growth Stock 22.45% 12.70% 11.52%
U.S. Government
Securities 13.71% 3.80% 4.43%
Diversified Income 12.19% 4.80% 5.19%
Asset Allocation 16.86% 8.85% 8.38%
Global Growth 25.24% N/A 10.35%
High Yield 12.25% N/A 1.44%
Growth & Income 24.76% N/A 12.67%
Aggressive Growth 23.70% N/A 10.50%
Global Bond 17.43% N/A 17.43%
Global Asset Allocation 12.42% N/A 12.42%
International Stock 9.22% N/A 9.22%
</TABLE>
- ---------------------------------
(1) Commencing with effective date of registration statement for Global Growth
Subaccount on May 1, 1992, U.S. Government Securities Subaccount on May 1,
1989, High Yield Subaccount, Growth & Income Subaccount and Aggressive
Growth Subaccount on May 1, 1994, Global Bond Subaccount, Global Asset
Allocation Subaccount, and International Stock Subaccount on January 2,
1995, and for all other Subaccounts on May 2, 1988.
CUMULATIVE TOTAL RETURN
Total cumulative rates of return for each period will be computed to the nearest
one hundredth of a percent, according to the following formula:
CTR = ( CSV - P ) 100
-------
P
Where: P = a hypothetical initial purchase payment of $1,000,
A-2
<PAGE>
CTR = cumulative total return, and
CSV = end of period Cash Surrender Value of hypothetical $1,000
purchase payment made at the beginning of the period, assuming
deduction of a proportionate amount of the annual administrative
charge (based on average Contract size).
The following table shows cumulative total rates of return for the periods
indicated:
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR COMMENCEMENT OF
PERIOD ENDED PERIOD ENDED SUBACCOUNT (1) TO
SUBACCOUNT DEC. 31, 1995 DEC. 31, 1995(1) DEC. 31, 1995
- ---------- --------------- ---------------- -----------------
<S> <C> <C> <C>
Growth Stock 22.45% 81.81% 130.70%
U.S. Government
Securities 13.71% 20.49% 33.55%
Diversified Income 12.19% 26.39% 47.40%
Asset Allocation 16.86% 52.81% 85.40%
Global Growth 25.24% N/A 43.54%
High Yield 12.25% N/A 2.41%
Growth & Income 24.76% N/A 22.04%
Aggressive Growth 23.70% N/A 17.61%
Global Bond 17.43% N/A 17.43%
Global Asset Allocation 12.42% N/A 12.42%
International Stock 9.22% N/A 9.22%
</TABLE>
- -----------------------------
(1) Commencing with effective date of registration statement for Global Growth
Subaccount on May 1, 1992, U.S. Government Securities Subaccount on May 1,
1989, High Yield Subaccount, Growth & Income Subaccount and Aggressive
Growth Subaccount on May 1, 1994, Global Bond Subaccount, Global Asset
Allocation Subaccount, and International Stock Subaccount on January 2,
1995, and for all other Subaccounts on May 2, 1988.
Yield figures do not reflect any surrender charge, and yield and total return
figures do not reflect any premium tax charge. Yield and total return figures
do reflect the reimbursement of certain Fortis Series expenses. Current Fixed
Account effective annual rates of interest may also be quoted in advertising and
other sales materials, and these rates do not reflect any deductions or charges.
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:
Global Growth Subaccount
Rating Service Category
-------------- --------
Morningstar Publications, Inc. international stock
Lipper Analytical Services, Inc. global
Growth Stock Subaccount
Morningstar Publications, Inc. growth
Lipper Analytical Services, Inc. capital appreciation
Asset Allocation Subaccount
Morningstar Publications, Inc. balanced
Lipper Analytical Services, Inc. flexible portfolios
A-3
<PAGE>
Diversified Income Account
Rating Service Category
-------------- --------
Morningstar Publications, Inc. corporate bond
Lipper Analytical Services, Inc. general bond
U.S. Government Subaccount
Morningstar Publications, Inc. U.S. government bond
Lipper Analytical Services, Inc. U.S. government
Money Market Subaccount
Morningstar Publications, Inc. money market
Lipper Analytical Services, Inc. money market
International Stock Subaccount
Morningstar Publications, Inc. international stock
Lipper Analytical Services, Inc. international equity
Global Asset Allocation Subaccount
Morningstar Publications, Inc. balanced
Lipper Analytical Services, Inc. global flexible
Global Bond Subaccount
Morningstar Publications, Inc. international bond
Lipper Analytical Services, Inc. world income
Aggressive Growth Subaccount
Morningstar Publications, Inc. aggressive growth
Lipper Analytical Services, Inc. small company growth
Growth and Income Subaccount
Morningstar Publications, Inc. growth and income
Lipper Analytical Services, Inc. growth and income
High Yield Subaccount
Morningstar Publications, Inc. high yield
Lipper Analytical Services, Inc. high current yield
A-4
<PAGE>
Blue Chip Stock Subaccount
Morningstar Publications, Inc. growth
Lipper Analytical Services, Inc. growth
Value Subaccount
Morningstar Publications, Inc. growth
Lipper Analytical Services, Inc. growth
S & P 500 Index Subaccount
Morningstar Publications, Inc. growth & income
Lipper Analytical Services, Inc. S & P 500 Index
ADDITIONAL PERFORMANCE INFORMATION
Additionally, from time-to-time, the Company may include in advertising the net
effective annual yield of an investment in a Contract as compared with the
current before-tax and after-tax yield of CD's (insured fixed rate certificates
of deposit issued by financial institutions). While the yield may be compared
to that of CD's, the yield of a variable Subaccount is not fixed and an
investment in a Contract is not FDIC insured.
A-5
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENT AND EXHIBITS
a. Financial Statements included in Part B:
The following financial statements of Variable Account D:
Report of Ernst & Young LLP, independent auditors for Variable
Account D.
Statement of Net Assets as of December 31, 1995.
Statements of Changes in Net Assets for the years ended December
31, 1995, 1994 and 1993.
The following financial statements of Fortis Benefits Insurance
Company:
Report of Ernst & Young LLP, independent auditors for Fortis
Benefits Insurance Company.
Balance Sheets of Fortis Benefits Insurance Company as of
December 31, 1995 and 1994.
Statements of Income, Statements of Changes in Shareholder's
Equity and Statements of Cash Flows of Fortis Benefits Insurance
Company for the years ended December 31, 1995, 1994 and 1993.
Notes to Financial Statements for Fortis Benefits Insurance
Company.
There are no financial statements included in Part A.
b. Exhibits:
1. Resolution of the Board of Directors of Fortis Benefits Insurance
Company effecting the establishment of Variable Account D (filed
as part of the initial filing of this Form N-4 registration
statement filed on December 31, 1987).
2. Not applicable
3. (a) Form of Principal Underwriter and Administrative Servicing
Agreement (incorporated by reference from Form N-4
registration statement, File No. 33-73986, filed on January
11, 1994).
<PAGE>
(b) Form of Amendment to Principal Underwriter and
Administrative Servicing Agreement (incorporated by
reference from Form N-4 registration statement,
File No. 33-73986, filed on January 11, 1994).
(c) Form of Dealer Sales Agreement (filed as a part of Post-
Effective Amendment No. 12 to this Form N-4 registration
statement filed on December 22, 1994).
4. (a) Form of Variable Annuity Contract - (filed as a part of
Post-Effective Amendment No. 13 to this Form N-4
registration statement filed April 27, 1995).
(b) Form of IRA Endorsement (filed as part of 1933 Act Pre-
Effective Amendment No. 1 to this Form N-4 registration
statement filed on April 18, 1988).
(c) Tax Deferred Annuity Loan Agreement Form (filed as a part of
1933 Act Post Effective Amendment No. 9 to this Form N-4
registration statement filed April 29, 1993).
(d) Form of Section 403(b) Annuity Endorsement (filed as part of
1933 Act Post-Effective Amendment No. 3 to this Form N-4
registration statement filed on March 1, 1990).
(e) Nursing Care/Hospitalization Waiver of Surrender Charge
Rider - (filed as a part of Post-Effective Amendment No. 13
to this Form N-1 registration statement filed April 27,
1995).
5. (a) Form of Application for Variable Annuity Contract (including
telephone authorization form)(filed as a part of 1933 Act
Post-Effective Amendment No. 6 to this Form N-4 registration
statement filed on March 2, 1992).
(b) Annuity Contract Exchange Form (filed as part of 1933 Act
Pre-Effective Amendment No. 1 to this Form N-4 registration
statement filed on April 18, 1988).
6. (a) Articles of Incorporation of depositor (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 depositor (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) Certificate of Amendment to Articles of Incorporation and
By-laws of depositor dated November 21, 1991 (filed as a
part of 1933 Act Post-Effective Amendment No 6 to this Form
N-4 registration statement filed on March 2, 1992).
<PAGE>
7. None.
8. None.
9. Opinion and consent of John W. Norton, Esq, as to the legality of
the securities being registered (filed as part of 1933 Act Post-
Effective Amendment No. 2 to this Form N-4 registration statement
filed on April 28, 1989).
10. (a) Consent of Ernst & Young LLP.
(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.
12. Not applicable.
13. Schedules of computation of each performance quotation provided
in the registration statement pursuant to Item 21.
14. Financial Data Schedule -- not applicable as to financials
included for Fortis Benefits Insurance Company since those
financials were previously filed but filed herewith as to
financials for Separate Account D.
Item 25. DIRECTORS AND OFFICERS OF FORTIS BENEFITS
The directors, executive officers, and, to the extent responsible for
variable annuity operations, other officers of Fortis Benefits are listed below.
Name and Principal
Business Address Offices with Depositor
------------------ ----------------------
Officer-Director
----------------
Robert Brian Pollock (4) President and Chief
Executive Officer
Thomas Michael Keller (5) President--Fortis
Healthcare
Dean C. Kopperud (1) President--Fortis
Financial Group
Other Directors
---------------
Allen Royal Freedman (2) Chairman of the Board
Henry Carroll Mackin (2)
Arie Aristide Fakkert (3)
<PAGE>
Other Officers
--------------
Michael John Peninger (4) Senior Vice President-
Chief Financial Officer
Larry A. Medin (1) Senior Vice President-
Marketing and Sales
Anthony J. Rotondi (1) Senior Vice President-
Life Operations
Rhonda J. Schwartz (1) Vice President and
General Counsel -- Life
and Investment Products
Jon H. Nicholson (1) Senior Vice President -
Annuities
___________________________
(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.
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 the Form N-4 registration
statement of Fortis Benefits and its Variable Account D filed on April 28, 1994,
File No. 33-37577. Fortis Benefits has no subsidiaries.
<PAGE>
Item 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1996 there were 41,677 Contract owners.
Item 28. INDEMNIFICATION
Pursuant to the Principal Underwriter and Administrative Servicing
Agreement filed as Exhibit 3(a) and (b) to this Registration Statement and
incorporated 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 Contracts, 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 Contracts, if the misstatement or omission was based on information
furnished by Fortis Investors or (2) otherwise arising out of Fortis Investors'
negligence, bad faith, willful misfeasance or reckless disregard of its
responsibilities. Pursuant to its Dealer Sales Agreements, a form of which is
filed as Exhibit 3 (c) and (d) to this registration statement and is
incorporated herein by this reference, firms that sell the Contracts agree to
indemnify Fortis Benefits, Fortis Investors, the Separate Account, and their
officers, directors, employees, agents, and controlling persons from liabilities
and expenses arising out of the wrongful conduct or omissions of said selling
firm or its officers, directors, employees, controlling persons or agents.
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 Benefit'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 in a civil
proceeding if it appears that the person seeking
indemnification has acted in good faith and in a manner that he reasonably
believed to be in, or not opposed to, the best interests of Fortis Benefits and
if such person has received no improper personal benefit, or in a
criminal proceeding if the person seeking indemnification also has no reasonable
cause of 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 may
be against public policy as
<PAGE>
expressed in the Act and may be, 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 securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, Fortis Benefits will 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.
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 Growth Fund, Inc., Fortis
Fiduciary Fund, Inc., Fortis Tax-Free Portfolios, Inc., Fortis Money
Portfolios, Inc., Fortis Income Portfolios, Inc., Fortis Worldwide
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.:
<PAGE>
Name and Principal Positions and Offices
Business Address with Underwriter
------------------ ---------------------
Robert W. Beltz, Jr.* Vice President
James S. Byrd** Vice President
David G. Carroll** 2nd Vice President
Tamara L. Fagely* Fund Accounting Officer
Thomas D. Gualdoni* Vice President
Joanne M. Herron* Assistant Treasurer
John E. Hite* Assistant Secretary and
2nd Vice President
Carol M. Houghtby* 2nd Vice President and
Treasurer
Sharon R. Jibben** Assistant Secretary
Barbara W. Kirby* 2nd Vice President
Dean C. Kopperud* President and Director
Robert C. Lindberg* Vice President
Larry A. Medin* Senior Vice President-
Sales
Chris J. Neuharth** 2nd Vice President
Jon H. Nicholson* Senior Vice President,
and Director
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
Anthony J. Rotondi* Senior Vice President
Rhonda J. Schwartz* Senior Vice President,
General Counsel and
Secretary
Keith R. Thomson** Vice President
________________________
* Address: 500 Bielenberg Drive, Woodbury, Mn 55125.
** Address: 5500 Wayzata Blvd, Suite 1150, Golden Valley, MN 55416.
<PAGE>
*** 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 Insurance Company, Fortis Investors, Inc. and Fortis Advisers,
Inc., at 500 Bielenberg Drive, Woodbury, Minnesota 55125.
Item 31. MANAGEMENT SERVICES
None.
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 any 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.
<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 26th day of
April, 1996.
Fortis Benefits Insurance Company hereby makes the representation required by
Rule 485(b)(3) under that Act, and further represents that the amended
Registration Statement contains no information that would render Rule 485(b)
unavailable.
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
(Registrant)
By: FORTIS BENEFITS INSURANCE COMPANY
By: ______/s/_____________________________
Robert Brian Pollock, President
FORTIS BENEFITS INSURANCE COMPANY
By: ______/s/_____________________________
Robert Brian Pollock, President
As required by the Securities Act of 1933 and the Investment Company Act of
1940, this Registration Statement has been signed by the following persons, in
the capacities indicated, on April 26, 1996.
Signature Title With Fortis Benefits
- --------- --------------------------
*________________________ Chairman of the Board
Allen R. Freedman
*________________________ Director
Henry Carrol Mackin
*________________________ Director
Thomas Michael Keller
_________________________ Director
Arie Aristide Fakkert
___/s/___________________ Director
Dean C. Kopperud
___/s/___________________ President and Director
Robert Brian Pollock (Chief Executive Officer)
___/s/___________________ Senior Vice President, Controller
Michael John Peninger and Treasurer (Principal
Accounting Officer and
Principal Financial Officer)
*By: _/s/___________________
Robert Brian Pollock
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
10 Consent of Ernst & Young LLP
11 Financial Statement Schedules
13 Performance Computation Schedules
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 14, 1996 on the financial statements of Fortis
Benefits Insurance Company and our report dated March 22, 1996 on the financial
statements of Fortis Benefits Insurance Company Variable Account D in the
Registration Statement (Form N-4 No. 33-19421) and related Prospectus being
filed under the Securities Act of 1933 and the Investment Company Act of 1940
for the registration of flexible premium deferred combination variable and fixed
annuity contracts.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 25, 1996
<PAGE>
Report of Independent Auditors
The Board of Directors
Fortis Benefits Insurance Company
We have audited the financial statements of Fortis Benefits Insurance Company as
of December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995 and have issued our report thereon dated February 14,
1996 (included elsewhere in this Registration Statement).
Our audits also included the financial statement schedules I, IV and V included
elsewhere in this Registration Statement. These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 14, 1996
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES ($ THOUSANDS)
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
AMOUNT AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- ------------------ ---------- ---------- -------------
<S> <S> <C> <C>
Fixed maturities:
Bonds:
United States Government
and government agencies
and authorities . . . . . . . . . . $ 460,143 $ 497,917 $ 497,917
All other coprorate bonds. . . . . . . 1,491,061 1,577,707 1,577,707
---------- ---------- ----------
Total fixed maturities . . . . . . . . . . . 1,951,204 $2,075,624 2,075,624
----------
----------
Equity securities. . . . . . . . . . . . . . 60,935 $ 78,852 78,852
----------
----------
Mortgage loans on real estate. . . . . . . . 571,050 562,697*
Policy loans . . . . . . . . . . . . . . . . 53,863 53,863
Short Term Investments . . . . . . . . . . . 153,481 153,499
Real Estate and Other investments. . . . . . 11,918 11,918
---------- ----------
Total investments. . . . . . . . . . . . . . $2,802,451 $2,936,453
---------- ----------
---------- ----------
</TABLE>
- -------------------------------
* Differences between cost and carrying values result from certain valuation
allowances and declines in value that are other than temporary.
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
SCHEDULE IV - REINSURANCE ($ THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
ASSUMED
GROSS DIVIDED
AMOUNT CEDED ASSUMED NET BY NET
----------- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
For the year ended 12/31/95
Life Insurance in Force. . . . . . . . . . . $87,069,238 $1,446,218 $492,018 $86,115,038 0.57%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
REVENUES:
Life and Annuity. . . . . . . . . . . . . $ 253,785 $ 2,492 $ 60 $ 251,353 0.02%
Interest Sensitive and Investment . . . . 48,245 2,169 - 46,076 0.00%
A & H . . . . . . . . . . . . . . . . . . 934,838 3,410 3,472 934,900 0.37%
----------- ---------- -------- -----------
TOTAL . . . . . . . . . . . . . . . . . . $ 1,236,868 $ 8,071 $ 3,532 $ 1,232,329 0.29%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
For the year ended 12/31/94
Life Insurance in Force. . . . . . . . . . . $62,187,163 $1,719,637 $448,854 $60,916,380 0.74%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
REVENUES:
Life and Annuity. . . . . . . . . . . . . $ 212,623 $ 4,035 $ (764) $ 207,824 -0.37%
Interest Sensitive and Investment . . . . 38,782 959 - 37,823 0.00%
A & H . . . . . . . . . . . . . . . . . . 811,733 37,224 2,290 776,799 0.29%
----------- ---------- -------- -----------
TOTAL . . . . . . . . . . . . . . . . . . $ 1,063,138 $ 42,218 $ 1,526 $ 1,022,446 0.15%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
For the year ended 12/31/93
Life Insurance in Force. . . . . . . . . . . $54,426,139 $1,849,797 $370,422 $52,946,764 0.70%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
REVENUES:
Life and Annuity. . . . . . . . . . . . . $ 189,420 $ 2,450 $ 893 $ 187,863 0.48%
Interest Sensitive and Investment . . . . 29,756 978 - 28,778 0.00%
A & H . . . . . . . . . . . . . . . . . . 775,509 37,097 - 738,412 0.00%
----------- ---------- -------- -----------
TOTAL . . . . . . . . . . . . . . . . . . $ 994,685 $ 40,525 $ 893 $ 955,053 0.09%
----------- ---------- -------- -----------
----------- ---------- -------- -----------
</TABLE>
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS ($ THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
ADDITIONS
BALANCE ---------------------------
AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS & OTHER ACCTS DEDUCTION- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ----------- --------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
For the year ended 12/31/95
Reserve for Mortgage Loans. . . . . . . . $7,429 $924 $0 $0 $8,353
For the year ended 12/31/94
Reserve for Mortgage Loans. . . . . . . . 6,324 1,105 0 0 7,429
For the year ended 12/31/93
Reserve for Mortgage Loans. . . . . . . . 4,676 1,648 0 0 6,324
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
U.S. GOVERNMENT SECURITIES SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended December
31, 1995 was computed by dividing the net investment income per accumulation
unit earned during the period by the maximum offering price per unit on the last
day of the period in accordance with the formula prescribed by the Securities
and Exchange Commission:
[(($2,736,375)) 6
2 * { ------------------------- + 1] - 1} = 9.83%
[((10,989,914 * 15.805))
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = --------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1995 and the total return for the
one year period are as follows:
Ending Value Total Return
---------------- -----------------
$1,137.13 $1,137.13 - $1,000
----------------------- = 13.71%
$1,000
Cumlative total return for five years ended December 31, 1995, is as
follows:
$1,204.87 - $1,000
------------------ = 20.49%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,335.50 - $1,000
----------------------- = 33.55%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1995:
$1,137.13/$1,000 - 1 = 13.73%
Five years ended December 31, 1995:
1/5
($1,204.87/$1,000) - 1 = 3.80%
Since inception through December 31, 1995:
1/7.67
($1,335.50/$1,000) - 1 = 4.43%
Unit Value Information
----------------------
Unit
Date Value
---------- ------
05/01/89 $10.000
12/31/89 10.756
12/31/90 11.454
12/31/91 12.922
12/31/92 13.529
12/31/93 14.609
12/31/94 13.484
12/31/95 15.805
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
DIVERSIFIED INCOME SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended December
31, 1995 was computed by dividing the net investment income per accumulation
unit earned during the period by the maximum offering price per unit on the last
day of the period in accordance with the formula prescribed by the Securities
and Exchange Commission:
[(($1,301,386)) 6
2 * { ------------------------ + 1] - 1} = 7.76%
[((59,213,865 * 1.754))
Total return is the percentage change between the public offering price of one
subaccount unit at the beginning of the period to the public offering price of
one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1995 and the total return for the
one year period are as follows:
Ending Value Total Return
---------------- -----------------
$1,121.99 $1,121.99 - $1,000
------------------ = 12.19%
$1,000
Cumlative total return for five years ended December 31, 1995, is as
follows:
$1,263.88 - $1,000
------------------ = 26.39%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,474.00 - $1,000
------------------ = 47.40%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1995:
$1,121.99/$1,000 - 1 = 12.19%
Five years ended December 31, 1995:
1/5
($1,263.88/$1,000) - 1 = 4.80%
Since inception through December 31, 1995:
1/7.67
($1,474.00/$1,000) - 1 = 5.19%
Unit Value Information
----------------------
Unit
Date Value
-------- -------
05/01/88 $1.000
12/31/88 1.025
12/31/89 1.135
12/31/90 1.219
12/31/91 1.379
12/31/92 1.457
12/31/93 1.621
12/31/94 1.516
12/31/95 1.754
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GROWTH STOCK SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1995 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ ------------
$1,224.50 $1,224.50 - $1,000
------------------- = 22.45%
$1,000
Cumlative total return for five years ended December 31, 1995, is as
follows:
$1,818.07 - $1,000
------------------ = 81.81%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$2,307.00 - $1,000
------------------ = 130.70%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1995:
$1,224.50/$1,000 - 1 = 22.45%
Five years ended December 31, 1995:
1/5
($1,818.07/$1,000) - 1 = 12.70%
Since inception through December 31, 1995:
1/7.67
($2,307.00/$1,000) - 1 = 11.52%
Unit Value Information
----------------------
Unit
Date Value
-------- -------
05/01/88 $1.000
12/31/88 0.999
12/31/89 1.358
12/31/90 1.298
12/31/91 1.966
12/31/92 1.996
12/31/93 2.143
12/31/94 2.054
12/31/95 2.587
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
ASSET ALLOCATION SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1995 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ ------------
$1,168.61 $1,168.61 - $1,000
------------------ = 16.86%
$1,000
Cumlative total return for five years ended December 31, 1995, is as
follows:
$1,528.11 - $1,000
------------------ = 52.81%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,854.00 - $1,000
------------------ = 85.40%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1995:
$1,168.61/$1,000 - 1 = 16.86%
Five years ended December 31, 1995:
1/5
($1,528.11/$1,000) - 1 = 8.85%
Since inception through December 31, 1995:
1/7.67
($1,854.00/$1,000) - 1 = 8.38%
Unit Value Information
----------------------
Unit
Date Value
---------- -------
05/01/88 $1.000
12/31/88 1.020
12/31/89 1.245
12/31/90 1.253
12/31/91 1.578
12/31/92 1.665
12/31/93 1.797
12/31/94 1.773
12/31/95 2.134
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GLOBAL GROWTH SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1995 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ ------------
$1,252.41 $1,252.41 - $1,000
------------------ = 25.24%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,435.40 - $1,000
------------------ = 43.54%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1995:
$1,252.41/$1,000 - 1 = 25.24%
<PAGE>
Since inception through December 31, 1995:
1/3.67
($1,435.40/$1,000) - 1 = 10.35%
Unit Value Information
----------------------
Unit
Date Value
---------- --------
05/01/92 $10.000
12/31/92 10.989
12/31/93 12.784
12/31/94 12.237
12/31/95 15.754
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
MONEY MARKET SUBACCOUNT
The subaccount's standardized yield for the seven day period ended
December 31, 1995 was computed by dividing 1 by the unit price for December 24,
1995, then multiplying this by the unit price on December 31, 1995 to get a base
period return. The base period return is then multiplied by 365 days and then
divided by 7. This calculation for the seven day period ended December 31, 1995
was as follows:
((1 / 1.366126) x 1.367592) -1 = .001073 - Base Period Return
.001073 x (365 / 7) = .0559 or 5.59%
The compound or effective yield for this same period is calculated by taking the
base period return and adding 1, raising the sum to a power equal to 365 divided
by 7 and subtracting 1 from the result. This calculation for the seven day
period ended December 31, 1995 was as follows:
365/7
(.001073 + 1) -1 = .0575 or 5.75%
Date Unit Price
------ ----------
12/24/95 1.366126
12/31/95 1.367592
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
AGGRESSIVE GROWTH SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,237.05 $1,237.05 - $1,000
------------------ = 23.70%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,176.10 - $1,000
------------------ = 17.61%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1995:
$1,237.05/$1,000 - 1 = 23.70%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1.67
($1,176.10/$1,000) - 1 = 10.50%
Unit Value Information
----------------------
Unit
Date Value
---------- -------
05/01/94 $10.000
12/31/94 9.796
12/31/95 12.461
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GROWTH & INCOME SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,247.59 $1,247.59 - $1,000
------------------ = 24.76%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,220.40 - $1,000
------------------ = 22.04%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1995:
$1,247.59/$1,000 - 1 = 24.76%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1.67
($1,220.40/$1,000) - 1 = 12.67%
Unit Value Information
----------------------
Unit
Date Value
---------- -------
05/01/94 $10.000
12/31/94 10.069
12/31/95 12.904
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
HIGH YIELD SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended December
31, 1995 was computed by dividing the net investment income per accumulation
unit earned during the period by the maximum offering price per unit on the last
day of the period in accordance with the formula prescribed by the Securities
and Exchange Commission:
[ $181,896 6
2 * { ------------------------ + 1] - 1} = 4.37%
[((2,321,419 * 10.941))
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,122.53 $1,122.53 - $1,000
------------------ = 12.25%
$1,000
Cumulative total return since inception through December 31, 1995, is as
follows:
$1,024.10 - $1,000
------------------ = 2.41%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1995:
$1,122.53/$1,000 - 1 = 12.25%
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1.67
($1,024.10/$1,000) - 1 = 1.44%
Unit Value Information
----------------------
Unit
Date Value
---------- --------
05/01/94 $10.000
12/31/94 9.452
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GLOBAL ASSET ALLOCATION SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,124.00 $1,124.00 - $1,000
------------------ = 12.42%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1
($1,124.00/$1,000) - 1 = 12.42%
Unit Value Information
----------------------
Unit
Date Value
-------- --------
01/01/95 $10.000
12/31/95 11.590
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
INTERNATIONAL STOCK SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,092.20 $1,092.20 - $1,000
------------------ = 9.22%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1
($1,092.20/$1,000) - 1 = 9.22%
Unit Value Information
----------------------
Unit
Date Value
-------- -------
01/01/95 $10.000
12/31/95 11.272
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GLOBAL BOND SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended December
31, 1995 was computed by dividing the net investment income per accumulation
unit earned during the period by the maximum offering price per unit on the last
day of the period in accordance with the formula prescribed by the Securities
and Exchange Commission:
[ $31,423 6
2 * { ---------------------------- + 1] - 1} = 2.83%
[ ((574,142 * 11.743))
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1995 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1995 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$1,174.30 $1,174.30 - $1,000
------------------ = 17.43%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1995 is as follows:
1/1
($1,174.30/$1,000) - 1 = 17.43%
Unit Value Information
----------------------
Unit
Date Value
-------- -------
01/01/95 $10.000
12/31/95 11.743
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,380,981
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,380,981
<CASH> 0
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 1,380,981
<POLICY-LOSSES> 1,380,981
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,380,981
243,690
<INVESTMENT-INCOME> 243,548
<INVESTMENT-GAINS> 0
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<CUMULATIVE-DEFICIENCY> 0
</TABLE>
