<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1997.
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. 16
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 43
----------------------------------
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, 1997 pursuant to paragraph (b) of Rule 485.
- -----
60 days after filing pursuant to paragraph (a)(1) of Rule 485.
- -----
on pursuant to paragraph (a)(1) 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, 1996 on February 27, 1997.
<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>
FORTIS
OPPORTUNITY
VARIABLE
ANNUITY
Individual Flexible
Premium Deferred
Variable Annuity Contract
FORTIS BENEFITS INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE:
P.O. BOX 64272 500 BIELENBERG DRIVE 1-800-800-2638
ST. PAUL, MN 55164 WOODBURY, MN 55125 (EXTENSION 3057)
This Prospectus describes an individual flexible premium deferred variable
annuity contract ("Contract") issued by Fortis Benefits Insurance Company
("Fortis Benefits"). The minimum initial or subsequent purchase payment is
generally $50.
The Contract allows you to accumulate funds on a tax-deferred basis. Contract
Owners may elect a 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.
A Statement of Additional Information, dated May 1, 1997, about the Contracts
has been filed with the Securities and Exchange Commission and is available
without charge, from Fortis Benefits at the address and phone number printed
above. The Table of Contents for the Statement of Additional Information appears
on page 21 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 OFFENSE.
PROSPECTUS DATED
MAY 1, 1997
FORTIS-REGISTERED TRADEMARK-
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 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.... 14
- Annuity Forms..................................................................................... 14
- Death of Annuitant or Other Payee................................................................. 14
CHARGES AND DEDUCTIONS.................................................................................. 14
- Premium Taxes..................................................................................... 14
- Annual Administrative Charge...................................................................... 15
- Charges Against the Separate Account.............................................................. 15
- Surrender Charge.................................................................................. 15
- Miscellaneous..................................................................................... 16
- Reduction of Charges.............................................................................. 16
FIXED ACCOUNT........................................................................................... 16
- General Description............................................................................... 16
- Fixed Account Value............................................................................... 16
- Fixed Account Transfers, Total and Partial Surrenders............................................. 16
GENERAL PROVISIONS...................................................................................... 17
- The Contract...................................................................................... 17
- Postponement of Payments.......................................................................... 17
- 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............................................................................................ 18
FEDERAL TAX MATTERS..................................................................................... 18
VOTING PRIVILEGES....................................................................................... 20
STATE REGULATION........................................................................................ 21
LEGAL MATTERS........................................................................................... 21
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION......................................................... 21
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>
U.S. Global
Money Government Diversified Global High Asset Asset
Market Securities Income Bond Yield Allocation Allocation Value
Series Series Series Series Series Series Series Series
------ ---------- ----------- ------ ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee............... 0.30% 0.46% 0.47% 0.75% 0.50% 0.48% 0.90% 0.70%
Other Expenses................ 0.08 0.07 0.08 0.27 0.13 0.06 0.30 0.17
Total Fortis Series Operating
Expenses..................... 0.38 0.53 0.55 1.02 0.63 0.54 1.20 0.87
<CAPTION>
Growth & S&P 500 Blue Chip Global Growth Aggressive
Income Index Stock Growth Stock International Growth
Series Series Series Series Series Stock Series Series
-------- ------- --------- ------ ------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee............... 0.69% 0.40% 0.90% 0.70% 0.62% 0.85% 0.70%
Other Expenses................ 0.07 0.39 0.23 0.09 0.05 0.29 0.08
Total Fortis Series Operating
Expenses..................... 0.76 0.79 1.13 0.79 0.67 1.14 0.78
</TABLE>
--------------------------------
(a) As a percentage of Series average net assets based on 1996 historical
data.
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 $ 103 $ 144 $ 215
U.S. Government Securities Series........................... 65 107 152 231
Diversified Income Series................................... 65 108 153 233
Global Bond Series.......................................... 70 122 177 280
High Yield Series........................................... 66 110 157 241
Asset Allocation Series..................................... 65 107 152 232
Global Asset Allocation Series.............................. 72 127 185 298
Growth & Income Series...................................... 67 114 163 254
Growth Stock Series......................................... 67 111 159 245
Global Growth Series........................................ 68 115 165 257
Aggressive Growth Series.................................... 68 115 164 256
International Stock Series.................................. 71 126 182 292
S&P 500 Index Series........................................ 68 115 165 257
Blue Chip Stock Series...................................... 71 125 182 291
Value Series................................................ 69 117 169 265
</TABLE>
If you COMMENCE AN ANNUITY payment option, or do NOT surrender your Contract,
you would pay the following cumulative expenses on a $1,000 investment,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market Series......................................... $ 19 $ 58 $ 99 $ 215
U.S. Government Securities Series........................... 20 62 107 231
Diversified Income Series................................... 20 63 108 233
Global Bond Series.......................................... 25 77 132 280
High Yield Series........................................... 21 65 112 241
Asset Allocation Series..................................... 20 62 107 232
Global Asset Allocation Series.............................. 27 82 140 298
Growth & Income Series...................................... 22 69 118 254
Growth Stock Series......................................... 22 66 114 245
Global Growth Series........................................ 23 70 120 257
Aggressive Growth Series.................................... 23 70 119 256
International Stock Series.................................. 26 81 137 292
S&P 500 Index Series........................................ 23 70 120 257
Blue Chip Stock Series...................................... 26 80 137 291
Value Series................................................ 24 72 124 265
</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, 1996 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, 1996. 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, 1996
Accumulation Units in
Force................... 36,220,947 9,635,092 55,653,680 1,088,043 3,337,604 154,525,474 2,330,884 7,892,683 13,713,860
Accumulation Unit
Values.................. $1.418 $15.935 $1.801 $11.961 $11.928 $2.368 $12.884 $15.468 $18.510
January 1, 1996*
Accumulation Unit
Values.................. -- -- -- -- -- -- -- -- --
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.................. $1.367 $15.805 $1.753 $11.743 $10.941 $2.134 $11.590 $12.904 $15.754
January 1, 1995*
Accumulation Unit
Values.................. -- -- -- $10.000 -- -- $10.000 -- --
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................... $1.311 $13.483 $1.515 -- $9.834 $1.773 -- $10.083 $12.236
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................... $1.278 $14.609 $1.621 -- -- $1.797 -- -- $12.784
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 S&P BLUE
STOCK STOCK GROWTH VALUE 500 CHIPS
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Accumulation Units in
Force................... 3,137,348 169,095,500 5,706,895 1,071,648 1,259,758 915,358
Accumulation Unit
Values.................. $12.690 $2.971 $13.232 $11.048 $11.326 $11.520
January 1, 1996*
Accumulation Unit
Values.................. -- -- -- $10.000 $10.000 $10.000
December 31, 1995
Accumulation Units in
Force................... 1,157,063 160,247,280 3,033,587 -- -- --
Accumulation Unit
Values.................. $11.271 $2.587 $12.461 -- -- --
January 1, 1995*
Accumulation Unit
Values.................. $10.000 -- -- -- -- --
December 31, 1994
Accumulation Units in
Force................... -- 148,657,108 1,155,647 -- -- --
Accumulation Unit
Value................... -- $2.054 $9.723 -- -- --
May 1, 1994*
Accumulation Unit
Value................... 10.00 -- -- --
December 31, 1993
Accumulation Units in
Force................... -- 118,720,649 -- -- -- --
Accumulation Unit
Value................... -- $2.142 -- -- -- --
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 1996, Fortis Benefits had approximately $91 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
$175 billion in assets as of year-end 1996.
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."
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,
11
<PAGE>
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.
If the contract is issued on or after May 1, 1997 and in a state that has
approved the Enhanced Death Benefit Rider (check with your representative as to
its availability in your state), the death benefit will be equal to the greater
of (1), (2), or (3) as follows:
(1)(a) If a Contract Owner or the Annuitant dies before the date any Contract
Owner or Annuitant first reaches age 75, the accumulation of Net
Purchase Payments made less all prior surrenders and less previously
imposed surrender charges at an effective annual rate of 3.0%. This
amount may not exceed a maximum of two times the following: Net Purchase
Payments made less all prior surrenders and less previously imposed
surrender charges. This amount is referred to as the "roll-up amount."
or
(1)(b) If the Annuitant or a Contract Owner dies on or after the date any
Contract Owner or Annuitant first reaches age 75, the roll-up amount as
of the date that a Contract Owner or Annuitant first reaches age 75 plus
subsequent Net Purchase Payments made, less subsequent surrenders and
less subsequently imposed surrender charges.
(2) The Contract Value as of the date used for valuing the death benefit.
(3) The Contract Value (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.)
If the contract is issued prior to May 1, 1997, or on or after that date in a
state that has not approved the Enhanced Death Benefit rider, the death benefit
will be equal to the greater of (1), (2), or (3) as follows:
(1) the sum of all 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
(3) the Contract Value (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 a
Fixed Account interest rate, [equal to] the contract guaranteed rate, 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 amount will be
transferred proportionately from existing Subaccount balances. 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 part of a plan of a governmental
employer, a plan of a
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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.
[Your loan may have either a variable rate, or a fixed rate that is fixed for
the life of the loan. If we have mailed you an endorsement to your contract
providing for a fixed rate, and if you have accepted this endorsement, then your
loan will have a fixed rate. Otherwise your loan will have a variable rate.
Loan interest rates are set on August 1st each year and are applicable to all
loans made during the 12 months following the date the rate is set.
For variable rate loans the loan interest rate is reset every August 1st. The
rate is equal to 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 July 1st plus 1%.
For fixed rate loans the loan interest rate is equal to 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 minimum guaranteed Fixed
Account interest rate specified on the contract.]
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.
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 you fail to make loan repayments when due, we will treat the loan as in
default and the entire outstanding loan balance will be due at once. Unpaid
accrued interest shall be treated as part of the loan balance. Interest shall
accrue on the loan balance until you repay it or until we recover the loan
balance from the contract when we are permitted to do so by IRS rules.
[If loan payments are not made when due, the entire loan balance may become
immediately taxable. In such a case, premature distribution taxes as well as
ordinary income taxes may be due. Interest accruing on a defaulting loan in
subsequent years may also be taxable in such years until the loan balance is
repaid.]
If any loan amount is outstanding on the Annuity Commencement Date, you may not
apply the amount held as security for the loan to an annuity settlement. 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.
Transfers from the Fixed Account of the amount held as security for the loan
balance are restricted while a Contract loan is outstanding.
Withdrawals from the contract are also restricted while a loan is outstanding.
The minimum contract value remaining after any surrender must be at least $1,000
plus 105% of the sum of the outstanding loan plus any unpaid accrued interest.
When the loan balance is fully repaid, amounts held in the Fixed Account can be
transferred and amounts held in the contract may be withdrawn, subject to
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. 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
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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
below), with payments guaranteed for 10 years. If the Contract is issued under
certain retirement plans, however, federal pension law may require that any
default payments be made pursuant to plan provisions and/or federal law. Tax
laws and regulations may impose further restrictions to assure that the primary
purpose of the plan is distribution of the accumulated funds to the employee.
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
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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. 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 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.
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. 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.
The annual administrative charge and charges against the Separate Account
described above are for the purposes described and Fortis Benefits may receive a
profit as a result of these charges.
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.")
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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 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."
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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.
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.
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<PAGE>
- 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 7.30% of all purchase payments. Fortis Investors pays a
selling allowance not in excess of 5.0% 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
actuarial present values which are approximately equivalent to the amounts of
the selling allowances and service fees set forth above. Additionally,
registered representatives, broker-dealer firms, and exempt firms may be
eligible for additional 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.
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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, 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); SIMPLE IRA Plans under Section 408(p); 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
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<PAGE>
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 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
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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>
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APPENDIX A
SAMPLE DEATH BENEFIT CALCULATIONS
<TABLE>
<CAPTION>
DATE OF DEATH IS THE 3RD CONTRACT ANNIVERSARY: EXAMPLE 1 EXAMPLE 2
----------- -----------
<S> <C> <C> <C>
a. Net Purchase Payments Made Prior to Date of Death, accumulated at 3.0%................... $ 20,000 $ 20,000
b. Contract Value on Date of Death.......................................................... $ 17,000 $ 25,000
Death Benefit is larger of a, and b................................................................. $ 20,000 $ 25,000
</TABLE>
<TABLE>
<CAPTION>
DATE OF DEATH IS THE 8TH CONTRACT ANNIVERSARY: EXAMPLE 3 EXAMPLE 4 EXAMPLE 5
----------- ----------- -----------
<S> <C> <C> <C> <C>
a. Net Purchase Payments Made Prior to Date of Death, accumulated at 3.0%.......... $ 20,000 $ 20,000 $ 20,000
b. Contract Value on 5th Contract Anniversary...................................... $ 15,000 $ 30,000 $ 30,000
c. Contract Value on Date of Death................................................. $ 17,000 $ 25,000 $ 35,000
Death Benefit is larger of a, b, and c..................................................... $ 20,000 $ 30,000 $ 35,000
</TABLE>
<TABLE>
<CAPTION>
DATE OF DEATH IS THE 13TH CONTRACT ANNIVERSARY: EXAMPLE 6 EXAMPLE 7 EXAMPLE 8
----------- ----------- -----------
<S> <C> <C> <C> <C>
a. Net Purchase Payments Made Prior to Date of Death, accumulated at 3.0%.......... $ 20,000 $ 20,000 $ 20,000
b. Contract Value on 10th Contract Anniversary..................................... $ 15,000 $ 40,000 $ 40,000
c. Contract Value on Date of Death................................................. $ 17,000 $ 30,000 $ 50,000
Death Benefit is larger of a, b, and c..................................................... $ 20,000 $ 40,000 $ 50,000
</TABLE>
A-1
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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) 0.13%
--------------------------------------------------------------------------------------------------------------
= Total Expense Rate 2.15%
--------------------------------------------------------------------------------------------------------------
</TABLE>
The Annual Administrative Charge Rate is calculated by dividing the total Annual
Contract Charges we collected in 1996 by the average policy value in force in
1996.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = 1000.00 X 0.0215 = $21.52
Year 2 Beginning Policy Value = $1028.48
Year 2 Expense = 1028.48 X 0.0215 = $22.13
Year 3 Beginning Policy Value = $1057.77
Year 3 Expense = 1057.77 X 0.0215 = $22.76
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to $21.52 + $22.13 + $22.76 = $66.41
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 $66.41 + $45.00 = $111.41
B-1
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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, 1997
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, 1997. 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
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . .8
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .9
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."
1
<PAGE>
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 $175 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 (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
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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 and Registration Statement, have been
audited by Ernst & Young LLP, as set forth in their report 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 $31,643,856, $29,918,620 and $30,567,607 to Fortis
Investors for annuity contract distribution services during 1994, 1995 and
1996 respectively. Of these totals, the sums of $4,065,075, $3,925,959 and
$7,531,629 for the years 1994, 1995 and 1996 respectively, was not reallowed
to other 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
3
<PAGE>
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.)
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
4
<PAGE>
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 unmarried and have adjusted gross income of $25,000 or less, or (3) are
married and have adjusted gross income of $40,000 or less. An individual may
also establish an IRA for his or her spouse if they file a joint return for the
taxable year and his or her spouse earns less than the individual does for that
year. The annual purchase payments for both spouses' Contracts cannot exceed
the lesser of $4,000 or 100% of the couple's combined earned income, and no more
than $2,000 may be contributed to either spouse's IRA for any year. Individuals
who are active participants in other retirement plans and whose adjusted gross
income (with certain special adjustment) exceed the cut-off point ($25,000 for
unmarried, $40,000 for married persons filing jointly, and $0 for married
persons filing a separate return) by less than $10,000 are entitled to make
deductible IRA contributions in proportionately reduced amounts. For example, a
married individual who is an active participant in another retirement plan and
files a separate tax return is entitled to a partial IRA deduction if the
individual's adjusted gross income is less than $10,000 and no IRA deduction if
his or her adjusted gross income is equal to or greater than $10,000.
An individual may make non-deductible IRA contributions to the extent of (1) the
lesser of $2,000 ($4,000 in the case of a spousal IRA) or 100% of compensation
over (2) the IRA deductible contribution made with respect to the individual.
An individual may not make any contributions to his/her own IRA for the year
in which he/she reaches age 70 1/2 or for any year thereafter. Contributions
to a spouse's IRA may not be made for any year in which that spouse reaches
age 70 1/2 or for any year thereafter.
5
<PAGE>
TAXATION OF DISTRIBUTIONS. Distributions from IRA Contracts are taxed as
ordinary income to the recipient, although special rules exist for the tax-free
return of non-deductible contributions. In addition, taxable distributions
received under an IRA Contract prior to age 59 1/2 are subject to a 10% penalty
tax in addition to regular income tax. Certain distributions are exempted from
this penalty tax including distributions following the owner's death or
disability or distribution in the form of an annuity for the life (or life
expectancy) of the owner (or the owner and beneficiary), or distributions not in
excess of deductible medical expenses or certain distributions to pay health
insurance premiums after an extended period of unemployment.
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for IRAs are
generally the same as described above with respect to Section 403(b) 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 $24,000 or 15% of
the employee's earned income. Employees of certain small employers may have
contributions made to a special kind of SEP (SARSEP) on their behalf on a salary
reduction basis if the SARSEP plan was in effect on December 31, 1996. These
salary reduction contributions may not exceed $9,500 in 1997, which is indexed
for inflation. Employees of tax-exempt organizations and state or local
government agencies have never been eligible for the salary reduction type of
SEP.
TAXATION OF DISTRIBUTIONS. Generally, distribution payments from SEPs are
subject to the same distribution rules described above for IRAs.
REQUIRED DISTRIBUTIONS. SEP distributions are subject to the same minimum
required distribution rules described above for IRAs.
TAX-FREE ROLLOVERS. Generally, rollovers and direct transfers may be made to
and from SEPs in the same manner as described above for IRAs, subject to the
same conditions and limitations. Rollovers to other IRAs, excluding SIMPLE IRAs
are also possible. Special rules apply if the rollover is from a SARSEP IRA.
PURCHASE PAYMENTS: Under Section 408(p) of the Code, small employers may
establish a type of IRA plan referred to as a Savings Incentive Match Plan for
Employees (SIMPLE Plan). An employee may contribute annually through his or her
employer a pre-tax salary reduction contribution not to exceed the lesser of
$6,000 or 100% of compensation. The employer must annually either (1) match the
employee contribution dollar for dollar up to 3% of pay, or (2) make a 2% of pay
contribution for each eligible employee regardless of whether the employee makes
any salary reduction contribution. In two out of every five years, the employer
has the option to reduce the matching contribution as low as 1% of pay but
advance notice must be provided to employees.
TAXATION OF DISTRIBUTIONS: Generally, distributions from SIMPLE IRA Plans are
subject to the same distribution rules described above for IRAs. However, if an
individual withdraws any amount from his SIMPLE IRA Plan within the first two
years of his or her commencement of participation in the employer's SIMPLE IRA
Plan, the 10% penalty tax for premature distribution, if such tax applies, will
be increased to 25%.
REQUIRED DISTRIBUTIONS: SIMPLE distributions are subject to the same minimum
distribution rules described above for IRAs.
TAX-FREE ROLLOVERS: Generally, rollovers and direct transfers may be made to
and from SIMPLE IRAs in the same manner as described above for IRAs, subject to
the same conditions and limitations. Rollovers or transfers to other IRAs, other
than SIMPLE IRAs, are also possible but only after the second anniversary of
commencement of participation in the employer's SIMPLE IRA
6
<PAGE>
Plan.
SECTION 457 UNFUNDED DEFERRED COMPENSATION PLANS OF PUBLIC EMPLOYERS AND
TAX-EXEMPT ORGANIZATIONS
PURCHASE PAYMENTS. Under Section 457 of the Code, all individuals who perform
services for a state or local government or governmental agency may participate
in a deferred compensation program. Other tax-exempt employers may establish
unfunded deferred compensation plans under Section 457 for employees and/or
independent contractors.
Though not actually a qualified plan as that term is normally used, this type of
program allows individuals to defer the receipt of compensation that otherwise
would be currently payable and therefore to defer the payment of federal income
taxes on such amounts. Assuming that the program meets the requirements to be
considered an eligible deferred compensation plan (an "EDCP"), an individual may
contribute (and thereby defer from current income for tax purposes) the lesser
of $7,500 or 33-1/3% of the individual's includible compensation. (Includible
compensation means compensation from the employer which would be currently
includible in gross income for federal tax purposes.) In addition, during the
last three years before an individual attains normal retirement age, additional
"catch-up" deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Contracts offered by this Prospectus. The Contract is owned by the employer and
is subject to the claims of the employer's creditors. The employee has no
rights or interest in the Contract and is entitled only to payment in accordance
with the EDCP provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from an EDCP are
includible in gross income for the taxable year in which such amounts are paid
or otherwise made available.
DISTRIBUTIONS BEFORE SEPARATION FROM SERVICE. Distributions generally are not
permitted under an EDCP prior to separation from service or reaching age 70 1/2,
except in cases of severe financial hardship. Hardship distributions are
includible in the gross income of the individual in the year in which paid.
REQUIRED DISTRIBUTIONS. The distribution requirements for these qualified plans
are generally the same as described above with respect to Section 403(b) 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. Any transfer must be
with employer consent.
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
PURCHASE PAYMENTS. Private taxable employers may establish unfunded,
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors. Certain
arrangements of tax-exempt employers entered into prior 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.
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.
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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, $160,000) or five times the annual limit for lump sum distributions.
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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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,
International Stock, Value, S & P 500 and Blue Chip Stock Subaccounts, the
Norwest Select Fund's ValuGrowth, Intermediate Bond, Small Company Stock and
Income Equity Subaccounts, the Scudder Variable Life Investment Fund's
International Subaccount, the Alliance Variable Product Series Fund's Money
Market, International and Premier Growth Subaccounts, the SAFECO Resource
Series Fund's Growth and Equity Subaccounts, the Federated Insurance Series
Fund's High Income, Utility and American Leaders Subaccounts, the Lexington
Funds, Inc.'s Natural Resources Trust and Emerging Markets Subaccounts, the
MFS Variable Insurance Trust Fund's MFS Emerging Growth, MFS High Income and
MFS World Government Subaccounts, the Montgomery Variable Series Fund's
Emerging Markets and Growth Subaccounts, the Strong Variable Insurance Funds'
Discovery, Government Securities, Advantage and International Subaccounts,
the TCI Portfolios, Inc. Fund's TCI Balanced and TCI Growth Subaccounts and
Van Eck Worldwide Ins. Trust Fund's Worldwide Bond and Gold & Natural
Resources Subaccounts) as of December 31, 1996, 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 Global Asset Allocation, Global Bond, and
International Stock Subaccounts and the Norwest Select Fund's Small Company
Stock Subaccount which are for the years ended December 31, 1996 and 1995;
the Fortis Series Fund, Inc.'s Value, S & P 500 and Blue Chip Stock
Subaccounts and the Norwest Select Fund's Income Equity Subaccount which are
for the period from May 1, 1996 to December 31, 1996; The SAFECO Resource
Series Fund's Growth and Equity Subaccounts which are for the period from
December 1, 1996 to December 31, 1996; and the Alliance Variable Product
Series Fund's Money Market, International and Premier Growth Subaccounts, the
Federated Insurance Series Fund's High Income, Utility and American Leaders
Subaccounts, the Lexington Funds, Inc.'s Natural Resources Trust and Emerging
Markets Subaccounts, the MFS Variable Insurance Trust Fund's MFS Emerging
Growth, MFS High Income and MFS World Government Subaccounts, the Montgomery
Variable Series Fund's Emerging Markets and Growth Subaccounts, the Strong
Variable Insurance Funds' Discovery, Government Securities, Advantage and
International Subaccounts, the TCI Portfolios, Inc. Fund's
1
<PAGE>
TCI Balanced and TCI Growth Subaccounts and Van Eck Worldwide Ins. Trust
Fund's Worldwide Bond and Gold & Natural Resources Subaccounts which are for
the period from February 1, 1996 to December 31, 1996. 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, 1996 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, 1996, 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
Minneapolis, MN
April 18, 1997
2
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets
December 31, 1996
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS INSURANCE
SHARES COST AT MARKET VALUE COMPANY
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments in Fortis Series Fund, Inc.,
(NOTE 3):
Growth Stock Series 15,583,268 $ 341,611,800 $ 507,916,391 $ -
U.S. Government Securities Series 14,526,572 156,757,189 153,538,606 -
Money Market Series 5,029,790 54,521,952 55,044,510 -
Asset Allocation Series 21,539,395 304,056,275 366,021,085 -
Diversified Income Series 8,572,475 100,804,245 100,281,675 -
Global Growth Series 13,583,403 187,528,373 258,026,237 -
Aggressive Growth Series 5,544,810 70,132,053 75,519,214 -
Growth & Income Series 8,051,806 100,203,874 122,087,921 -
High Yield Series 4,051,930 40,889,644 39,813,044 -
Global Asset Allocation Series 2,728,172 31,152,329 33,676,273 3,634,755
Global Bond Series 1,679,027 18,243,166 18,623,272 5,608,266
International Stock Series 3,493,832 39,573,523 43,469,557 3,652,514
Value Series 1,111,402 11,764,918 12,648,523 808,092
S & P 500 Series 1,616,568 17,115,725 18,536,048 4,070,786
Blue Chip Stock Series 1,258,592 13,357,117 14,688,036 4,143,071
Investments in Norwest Select Fund,
(NOTE 3)
ValuGrowth Fund 730,869 8,675,998 10,495,280 -
Intermediate Bond Fund 547,127 6,007,333 5,865,200 -
Small Company Stock Fund 451,480 5,384,371 6,094,981 1,524,340
Income Equity Fund 866,818 9,055,905 9,675,189 -
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE LIFE
VARIABLE LIFE UNITS INSURANCE POLICIES
INSURANCE POLICIES OUTSTANDING PER ACCUMULATION
UNIT
-------------------------------------------------------------------
<S> <C> <C> <C>
Investments in Fortis Series Fund, Inc.,
(NOTE 3):
Growth Stock Series $ 507,916,391 169,472,646 $ 3.00
U.S. Government Securities Series 153,538,606 9,635,092 15.94
Money Market Series 55,044,510 36,552,266 1.51
Asset Allocation Series 366,021,085 154,525,474 2.37
Diversified Income Series 100,281,675 55,653,680 1.80
Global Growth Series 258,026,237 13,993,552 18.44
Aggressive Growth Series 75,519,214 5,706,895 13.23
Growth & Income Series 122,087,921 7,892,683 15.47
High Yield Series 39,813,044 3,337,604 11.93
Global Asset Allocation Series 30,041,518 2,330,884 12.89
Global Bond Series 13,015,006 1,088,043 11.96
International Stock Series 39,817,043 3,137,348 12.69
Value Series 11,840,431 1,071,648 11.05
S & P 500 Series 14,465,262 1,279,947 11.30
Blue Chip Stock Series 10,544,965 915,358 11.52
Investments in Norwest Select Fund,
(NOTE 3)
ValuGrowth Fund 10,495,280 744,037 14.11
Intermediate Bond Fund 5,865,200 519,750 11.28
Small Company Stock Fund 4,570,641 306,790 14.90
Income Equity Fund 9,675,189 877,957 11.02
</TABLE>
3
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets (continued)
December 31, 1996
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS INSURANCE
SHARES COST AT MARKET VALUE COMPANY
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments in Scudder Variable Life Investment,
(NOTE 3):
International Portfolio 258,508 $ 2,962,830 $ 3,425,231 $ -
Investments in Alliance Variable Product Series,
(NOTE 3):
Money Market Portfolio 5,593,809 5,593,809 5,593,809 -
International Portfolio 20,015 292,978 298,024 -
Premier Growth Portfolio 14,757 225,188 231,690 -
Investments in SAFECO Resource Series,
(NOTE 3):
Growth Portfolio 9,852 200,319 189,755 -
Equity Portfolio 9,038 216,232 196,581 -
Investments in Federated Insurance Series,
(NOTE 3):
High Income Fund 89,298 895,837 914,407 -
Utility Fund 16,766 194,954 198,012 -
American Leaders Fund 32,437 482,939 494,990 -
Investments in Lexington Funds, Inc.,
(NOTE 3):
Natural Resources Trust 54,496 771,851 778,755 -
Emerging Markets Fund 6,520 64,919 65,720 -
Investments in MFS Variable Insurance Trust,
(NOTE 3):
MFS Emerging Growth Series 153,869 2,066,856 2,037,226 -
MFS High Income Series 36,337 394,868 394,984 -
MFS World Government Series 4,019 42,240 42,523 -
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE LIFE
VARIABLE LIFE UNITS INSURANCE POLICIES
INSURANCE POLICIES OUTSTANDING PER ACCUMULATION
UNIT
-------------------------------------------------------------------
<S> <C> <C> <C>
Investments in Scudder Variable Life Investment,
(NOTE 3):
International Portfolio $ 3,425,231 260,708 $13.14
Investments in Alliance Variable Product Series,
(NOTE 3):
Money Market Portfolio 5,593,809 539,196 10.37
International Portfolio 298,024 28,337 10.52
Premier Growth Portfolio 231,690 19,611 11.81
Investments in SAFECO Resource Series,
(NOTE 3):
Growth Portfolio 189,755 18,249 10.40
Equity Portfolio 196,581 20,103 9.78
Investments in Federated Insurance Series,
(NOTE 3):
High Income Fund 914,407 83,778 10.91
Utility Fund 198,012 18,507 10.70
American Leaders Fund 494,990 43,455 11.39
Investments in Lexington Funds, Inc.,
(NOTE 3):
Natural Resources Trust 778,755 64,788 12.02
Emerging Markets Fund 65,720 6,919 9.50
Investments in MFS Variable Insurance Trust,
(NOTE 3):
MFS Emerging Growth Series 2,037,226 180,147 11.31
MFS High Income Series 394,984 36,197 10.91
MFS World Government Series 42,523 4,084 10.41
</TABLE>
4
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets (continued)
December 31, 1996
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS INSURANCE
SHARES COST AT MARKET VALUE COMPANY
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments in Montgomery Variable Series,
(NOTE 3):
Emerging Markets Fund 17,894 $ 189,135 $ 190,569 $ -
Growth Fund 72,534 913,392 894,347 -
Investments in Strong Variable Insurance Funds,
(NOTE 3):
Discovery Fund II 8,480 89,400 91,586 -
Government Securities Fund II 7,211 69,577 69,301 -
Advantage Fund II 30,027 302,525 301,173 -
International Fund II 31,910 355,770 358,346 -
Investments in TCI Portfolios, Inc.,
(NOTE 3):
TCI Balanced Fund 14,998 112,124 113,083 -
TCI Growth Fund 6,828 70,806 69,920 -
Investments in Van Eck Worldwide Insurance Trust,
(NOTE 3):
Worldwide Bond Fund 3,306 36,302 36,700 -
Gold & Natural Resources Fund 28,206 453,574 471,605 -
---------------------------------------------------------
Total $1,533,834,215 $1,869,479,379 $23,441,824
---------------------------------------------------------
---------------------------------------------------------
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE LIFE
VARIABLE LIFE UNITS INSURANCE POLICIES
INSURANCE POLICIES OUTSTANDING PER ACCUMULATION
UNIT
-------------------------------------------------------------------
<S> <C> <C> <C>
Investments in Montgomery Variable Series,
(NOTE 3):
Emerging Markets Fund $ 190,569 17,917 $10.64
Growth Fund 894,347 70,482 12.69
Investments in Strong Variable Insurance Funds,
(NOTE 3):
Discovery Fund II 91,586 9,105 10.06
Government Securities Fund II 69,301 6,998 9.90
Advantage Fund II 301,173 29,586 10.18
International Fund II 358,346 34,083 10.51
Investments in TCI Portfolios, Inc.,
(NOTE 3):
TCI Balanced Fund 113,083 10,307 10.97
TCI Growth Fund 69,920 7,475 9.35
Investments in Van Eck Worldwide Insurance Trust,
(NOTE 3):
Worldwide Bond Fund 36,700 3,565 10.29
Gold & Natural Resources Fund 471,605 47,229 9.99
------------------------------------
Total $1,846,037,555 470,602,480
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets
Year ended December 31, 1996
<TABLE>
<CAPTION>
FORTIS U.S.
FORTIS GOVERNMENT FORTIS FORTIS
GROWTH STOCK SECURITIES MONEY MARKET ASSET ALLOCATION
SERIES SERIES SERIES SERIES
---------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 1,755,003 $ 11,268,567 $ 1,961,696 $ 18,389,804
Mortality and expense and policy advance charges
(NOTE 4) (6,383,239) (2,182,582) (304,880) (4,666,220)
Net realized gain (loss) on investments 6,173,815 (229,036) 875,419 4,730,794
Net unrealized appreciation (depreciation) of
investments during the period 62,258,164 (8,049,967) (396,193) 17,669,052
---------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 63,803,743 806,982 2,136,042 36,123,430
CAPITAL TRANSACTIONS
Purchase of Variable Account units 40,354,935 9,792,095 53,529,569 35,139,069
Redemption of Variable Account units (19,671,112) (32,995,603) (38,173,512) (27,343,627)
Mortality and expense charge redeemed 6,383,239 2,182,582 304,880 4,666,220
Funding of subaccount by Fortis Benefits Insurance
Company - - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - -
---------------------------------------------------------------
Increase (decrease) from capital transactions 27,067,062 (21,020,926) 15,660,937 12,461,662
Net assets at beginning of period 417,045,586 173,752,550 37,247,531 317,435,993
---------------------------------------------------------------
Net assets at end of period $507,916,391 $153,538,606 $55,044,510 $366,021,085
---------------------------------------------------------------
---------------------------------------------------------------
<CAPTION>
FORTIS FORTIS FORTIS FORTIS
DIVERSIFIED GLOBAL GROWTH AGGRESSIVE GROWTH &
INCOME SERIES SERIES GROWTH SERIES INCOME SERIES
---------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 7,814,749 $ 349,640 $ 130,127 $ 3,357,159
Mortality and expense and policy advance charges
(NOTE 4) (1,375,570) (2,982,707) (818,660) (1,187,861)
Net realized gain (loss) on investments 94,162 1,304,350 1,462,499 214,625
Net unrealized appreciation (depreciation) of
investments during the period (3,883,159) 34,010,868 311,941 14,270,467
---------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 2,650,182 32,682,151 1,085,907 16,654,390
CAPITAL TRANSACTIONS
Purchase of Variable Account units 4,487,798 56,339,715 45,154,232 51,705,892
Redemption of Variable Account units (12,133,337) (4,633,717) (9,407,569) (1,795,563)
Mortality and expense charge redeemed 1,375,570 2,982,707 818,660 1,187,861
Funding of subaccount by Fortis Benefits Insurance
Company - - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - -
---------------------------------------------------------------
Increase (decrease) from capital transactions (6,269,969) 54,688,705 36,565,323 51,098,190
Net assets at beginning of period 103,901,462 170,655,381 37,867,984 54,335,341
---------------------------------------------------------------
Net assets at end of period $100,281,675 $258,026,237 $75,519,214 $122,087,921
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
6
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
FORTIS
FORTIS GLOBAL ASSET FORTIS FORTIS
HIGH YIELD ALLOCATION GLOBAL BOND INTERNATIONAL
SERIES SERIES SERIES STOCK SERIES
----------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 3,381,726 $ 1,354,041 $ 900,099 $ 1,318,016
Mortality and expense and policy advance charges
(NOTE 4) (431,670) (300,249) (142,264) (377,251)
Net realized gain (loss) on investments 60,612 62,447 11,779 153,762
Net unrealized appreciation (depreciation) of
investments during the period (261,534) 2,171,960 394,408 3,249,452
----------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 2,749,134 3,288,199 1,164,022 4,343,979
CAPITAL TRANSACTIONS
Purchase of Variable Account units 14,950,454 15,032,759 8,709,675 24,843,475
Redemption of Variable Account units (3,738,286) (743,168) (2,924,096) (2,013,891)
Mortality and expense charge redeemed 431,670 300,249 142,264 377,251
Funding of subaccount by Fortis Benefits Insurance
Company - 2,944,303 5,030,752 2,926,075
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - (142,728) (218,365) (101,798)
----------------------------------------------------------
Increase (decrease) from capital transactions 11,643,838 17,391,415 10,740,230 26,031,112
Net assets at beginning of period 25,420,072 12,996,659 6,719,020 13,094,466
----------------------------------------------------------
Net assets at end of period $39,813,044 $33,676,273 $18,623,272 $43,469,557
----------------------------------------------------------
----------------------------------------------------------
<CAPTION>
FORTIS FORTIS NORWEST SELECT
FORTIS S & P 500 BLUE CHIP VALUGROWTH
VALUE SERIES* SERIES* STOCK SERIES* FUND
----------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 67,900 $ 102,931 $ 50,146 $ 82,203
Mortality and expense and policy advance charges
(NOTE 4) (50,034) (58,475) (42,346) (106,853)
Net realized gain (loss) on investments 4,138 79,382 101,880 55,679
Net unrealized appreciation (depreciation) of
investments during the period 883,605 1,420,323 1,330,919 1,308,423
----------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 905,609 1,544,161 1,440,599 1,339,452
CAPITAL TRANSACTIONS
Purchase of Variable Account units 11,049,449 14,397,817 12,543,584 4,632,105
Redemption of Variable Account units (62,025) (990,762) (2,873,938) (340,655)
Mortality and expense charge redeemed 50,034 58,475 42,346 106,853
Funding of subaccount by Fortis Benefits Insurance
Company 710,000 3,550,000 3,550,000 -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company (4,544) (23,643) (14,555) -
----------------------------------------------------------
Increase (decrease) from capital transactions 11,742,914 16,991,887 13,247,437 4,398,303
Net assets at beginning of period - - - 4,757,525
----------------------------------------------------------
Net assets at end of period $12,648,523 $18,536,048 $14,688,036 $10,495,280
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
7
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
NORWEST SELECT NORWEST SELECT NORWEST SELECT SCUDDER
INTERMEDIATE SMALL COMPANY INCOME EQUITY INTERNATIONAL
BOND FUND STOCK FUND FUND* PORTFOLIO
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 266,665 $ 512,352 $ 73,375 $ 47,233
Mortality and expense and policy advance charges
(NOTE 4) (59,335) (36,673) (42,286) (37,291)
Net realized gain (loss) on investments 2,306 8,076 3,546 7,053
Net unrealized appreciation (depreciation) of
investments during the period (240,519) 722,953 619,284 312,160
-----------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (30,883) 1,206,708 653,919 329,155
CAPITAL TRANSACTIONS
Purchase of Variable Account units 3,468,748 3,069,610 9,076,709 1,328,103
Redemption of Variable Account units (700,061) (128,442) (97,725) (80,771)
Mortality and expense charge redeemed 59,335 36,673 42,286 37,291
Funding of subaccount by Fortis Benefits Insurance
Company - 1,038,350 - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - -
-----------------------------------------------------------------------
Increase (decrease) from capital transactions 2,828,022 4,016,191 9,021,270 1,284,623
Net assets at beginning of period 3,068,061 872,082 - 1,811,453
-----------------------------------------------------------------------
Net assets at end of period $5,865,200 $6,094,981 $9,675,189 $3,425,231
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
ALLIANCE ALLIANCE ALLIANCE
MONEY MARKET INTERNATIONAL PREMIER GROWTH
PORTFOLIO** PORTFOLIO** PORTFOLIO**
--------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 102,380 $ 1,304 $ 24,242
Mortality and expense and policy advance charges
(NOTE 4) (10,300) (544) (671)
Net realized gain (loss) on investments - 1,004 28,494
Net unrealized appreciation (depreciation) of
investments during the period - 5,046 6,502
--------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 92,080 6,810 58,567
CAPITAL TRANSACTIONS
Purchase of Variable Account units 29,009,905 3,914,735 1,256,492
Redemption of Variable Account units (23,518,476) (3,624,065) (1,084,040)
Mortality and expense charge redeemed 10,300 544 671
Funding of subaccount by Fortis Benefits Insurance
Company - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - -
--------------------------------------------------
Increase (decrease) from capital transactions 5,501,729 291,214 173,123
Net assets at beginning of period - - -
Net assets at end of period $ 5,593,809 $ 298,024 $ 231,690
--------------------------------------------------
--------------------------------------------------
</TABLE>
8
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
SAFECO SAFECO FEDERATED FEDERATED
GROWTH EQUITY HIGH INCOME UTILITY
PORTFOLIO*** PORTFOLIO*** FUND** FUND**
-----------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 14,945 $ 17,950 $ 20,894 $ 2,018
Mortality and expense and policy advance charges
(NOTE 4) (48) (26) (1,205) (203)
Net realized gain (loss) on investments (6,108) - 6,428 11,122
Net unrealized appreciation (depreciation) of
investments during the period (10,564) (19,651) 18,570 3,058
-----------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (1,775) (1,727) 44,687 15,995
CAPITAL TRANSACTIONS
Purchase of Variable Account units 441,504 198,282 1,538,226 1,026,928
Redemption of Variable Account units (250,022) - (669,711) (845,114)
Mortality and expense charge redeemed 48 26 1,205 203
Funding of subaccount by Fortis Benefits Insurance
Company - - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - -
-----------------------------------------------------------
Increase (decrease) from capital transactions 191,530 198,308 869,720 182,017
Net assets at beginning of period - - - -
-----------------------------------------------------------
Net assets at end of period $189,755 $196,581 $ 914,407 $ 198,012
-----------------------------------------------------------
-----------------------------------------------------------
<CAPTION>
LEXINGTON LEXINGTON
FEDERATED NATURAL EMERGING
AMERICAN RESOURCES MARKETS
LEADERS FUND** TRUST FUND** FUND**
----------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 3,741 $ 1,130 $ -
Mortality and expense and policy advance charges
(NOTE 4) (869) (909) (253)
Net realized gain (loss) on investments 22,746 33,868 (583)
Net unrealized appreciation (depreciation) of
investments during the period 12,051 6,904 801
----------------------------------------------
Net increase (decrease) in net assets resulting from
operations 37,669 40,993 (35)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,372,344 2,056,140 1,131,006
Redemption of Variable Account units (915,892) (1,319,287) (1,065,504)
Mortality and expense charge redeemed 869 909 253
Funding of subaccount by Fortis Benefits Insurance
Company - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - -
----------------------------------------------
Increase (decrease) from capital transactions 457,321 737,762 65,755
Net assets at beginning of period - - -
----------------------------------------------
Net assets at end of period $ 494,990 $ 778,755 $ 65,720
----------------------------------------------
----------------------------------------------
</TABLE>
9
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
MONTGOMERY
MFS EMERGING MFS HIGH MFS WORLD EMERGING
GROWTH INCOME GOVERNMENT MARKETS
SERIES** SERIES** SERIES** FUND**
-----------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 8,097 $ 21,440 $ - $ 391
Mortality and expense and policy advance charges
(NOTE 4) (3,876) (1,019) (116) (375)
Net realized gain (loss) on investments 148,625 12,701 2,897 (499)
Net unrealized appreciation (depreciation) of
investments during the period (29,630) 116 283 1,434
-----------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 123,216 33,238 3,064 951
CAPITAL TRANSACTIONS
Purchase of Variable Account units 21,176,704 672,340 262,500 801,303
Redemption of Variable Account units (19,266,570) (311,613) (223,157) (612,060)
Mortality and expense charge redeemed 3,876 1,019 116 375
Funding of subaccount by Fortis Benefits Insurance
Company - - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - -
-----------------------------------------------------------
Increase (decrease) from capital transactions 1,914,010 361,746 39,459 189,618
Net assets at beginning of period - - - -
-----------------------------------------------------------
Net assets at end of period $2,037,226 $394,984 $ 42,523 $190,569
-----------------------------------------------------------
-----------------------------------------------------------
<CAPTION>
STRONG
MONTGOMERY STRONG GOVERNMENT
GROWTH DISCOVERY SECURITIES
FUND** FUND II** FUND II**
--------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 41,303 $ 6,715 $ 1,630
Mortality and expense and policy advance charges
(NOTE 4) (1,779) (544) (671)
Net realized gain (loss) on investments 42,751 (5,280) 2,051
Net unrealized appreciation (depreciation) of
investments during the period (19,045) 2,186 (276)
--------------------------------------------
Net increase (decrease) in net assets resulting from
operations 63,230 3,077 2,734
CAPITAL TRANSACTIONS
Purchase of Variable Account units 2,961,408 321,349 743,861
Redemption of Variable Account units (2,132,070) (233,384) (677,965)
Mortality and expense charge redeemed 1,779 544 671
Funding of subaccount by Fortis Benefits Insurance
Company - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - -
--------------------------------------------
Increase (decrease) from capital transactions 831,117 88,509 66,567
Net assets at beginning of period - - -
--------------------------------------------
Net assets at end of period $ 894,347 $ 91,586 $ 69,301
--------------------------------------------
--------------------------------------------
</TABLE>
10
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
STRONG STRONG TCI TCI
ADVANTAGE INTERNATIONAL BALANCED GROWTH
FUND II** FUND II** FUND** FUND**
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 5,379 $ 1,058 $ 140 $ 113
Mortality and expense and policy advance charges
(NOTE 4) (48) (26) (1,205) (203)
Net realized gain (loss) on investments 1,416 15,704 2,990 (5,589)
Net unrealized appreciation (depreciation) of
investments during the period (1,352) 2,576 959 (886)
-----------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 5,395 19,312 2,884 (6,565)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,277,539 4,776,591 651,649 1,563,734
Redemption of Variable Account units (981,809) (4,437,583) (542,655) (1,487,452)
Mortality and expense charge redeemed 48 26 1,205 203
Funding of subaccount by Fortis Benefits Insurance
Company - - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - -
-----------------------------------------------------------------
Increase (decrease) from capital transactions 295,778 339,034 110,199 76,485
Net assets at beginning of period - - - -
-----------------------------------------------------------------
Net assets at end of period $ 301,173 $ 358,346 $113,083 $ 69,920
-----------------------------------------------------------------
-----------------------------------------------------------------
<CAPTION>
VAN ECK VAN ECK COMBINED
WORLDWIDE GOLD & NATURAL VARIABLE
BOND FUND** RESOURCES FUND** ACCOUNT
-------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 468 $ 3,629 $ 53,462,399
Mortality and expense and policy advance charges
(NOTE 4) (869) (1,505) (21,613,710)
Net realized gain (loss) on investments (109) (3,564) 15,488,353
Net unrealized appreciation (depreciation) of
investments during the period 398 18,031 128,100,118
-------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (112) 16,591 175,437,160
CAPITAL TRANSACTIONS
Purchase of Variable Account units 63,735 2,385,593 499,209,661
Redemption of Variable Account units (27,792) (1,932,084) (227,006,165)
Mortality and expense charge redeemed 869 1,505 21,613,710
Funding of subaccount by Fortis Benefits Insurance
Company - - 19,749,480
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - (505,633)
-------------------------------------------------
Increase (decrease) from capital transactions 36,812 455,014 313,061,053
Net assets at beginning of period - - 1,380,981,166
-------------------------------------------------
Net assets at end of period $36,700 $ 471,605 $1,869,479,379
-------------------------------------------------
-------------------------------------------------
</TABLE>
* For the period from May 1, 1996 to December 31, 1996.
** For the period from February 1, 1996 to December 31, 1996.
*** For the period from December 1, 1996 to December 31, 1996.
SEE ACCOMPANYING NOTES.
11
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets
Year ended December 31, 1995
<TABLE>
<CAPTION>
FORTIS U.S. FORTIS
FORTIS GOVERNMENT FORTIS ASSET
GROWTH STOCK SECURITIES MONEY MARKET ALLOCATION
SERIES SERIES SERIES SERIES
-----------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 1,840,330 $ 8,296 $ 1,390,716 $ 12,053,233
Mortality and expense and policy advance charges
(NOTE 4) (4,926,616) (2,226,178) (485,370) (3,776,116)
Net realized gain (loss) on investments 2,244,343 (2,199,244) 624,600 657,519
Net unrealized appreciation (depreciation) of
investments during the period 81,868,441 30,648,947 29,966 41,467,924
-----------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 81,026,498 26,231,821 1,559,912 50,402,560
CAPITAL TRANSACTIONS
Purchase of Variable Account units 38,293,107 8,352,984 32,372,114 26,712,802
Redemption of Variable Account units (13,094,690) (28,554,947) (37,771,314) (7,551,884)
Mortality and expense charge redeemed 4,926,616 2,226,178 485,370 3,776,116
Funding of subaccount by Fortis Benefits
Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - -
-----------------------------------------------------------
Increase (decrease) from capital transactions 30,125,033 (17,975,785) (4,913,830) 22,937,034
Net assets at beginning of period 305,894,055 165,496,514 40,601,449 244,096,399
-----------------------------------------------------------
Net assets at end of period $417,045,586 $173,752,550 $37,247,531 $317,435,993
-----------------------------------------------------------
-----------------------------------------------------------
<CAPTION>
FORTIS FORTIS FORTIS FORTIS
DIVERSIFIED GLOBAL GROWTH AGGRESSIVE GROWTH &
INCOME SERIES SERIES GROWTH SERIES INCOME SERIES
-------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 4,826 $ 889,918 $ 131,332 $ 909,272
Mortality and expense and policy advance charges
(NOTE 4) (1,319,921) (1,926,551) (304,716) (437,914)
Net realized gain (loss) on investments (722,251) 489,178 534,513 35,576
Net unrealized appreciation (depreciation) of
investments during the period 16,334,785 35,553,129 4,721,034 7,722,201
-------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 14,297,439 35,005,674 5,082,163 8,229,135
CAPITAL TRANSACTIONS
Purchase of Variable Account units 5,015,452 18,528,694 24,973,529 31,466,100
Redemption of Variable Account units (11,835,588) (8,118,814) (3,729,001) (816,805)
Mortality and expense charge redeemed 1,319,921 1,926,551 304,716 437,914
Funding of subaccount by Fortis Benefits
Insurance Company - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - -
-------------------------------------------------------------
Increase (decrease) from capital transactions (5,500,215) 12,336,431 21,549,244 31,087,209
Net assets at beginning of period 95,104,238 123,313,276 11,236,577 15,018,997
-------------------------------------------------------------
Net assets at end of period $103,901,462 $170,655,381 $37,867,984 $54,335,341
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
12
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1995
<TABLE>
<CAPTION>
FORTIS NORWEST
FORTIS GLOBAL ASSET FORTIS FORTIS SELECT
HIGH YIELD ALLOCATION GLOBAL BOND INTERNATIONAL VALUGROWTH
SERIES SERIES SERIES STOCK SERIES FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 2,182,916 $ 345,923 $ 336,887 $ 180,007 $ 50,547
Mortality and expense and policy advance charges
(NOTE 4) (251,064) (77,959) (49,301) (74,571) (39,979)
Net realized gain (loss) on investments 47,908 (27,354) 52,221 1,557 12,413
Net unrealized appreciation (depreciation) of
investments during the period (221,078) 351,983 (14,301) 646,603 510,859
--------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 1,758,682 592,593 325,506 753,596 533,840
CAPITAL TRANSACTIONS
Purchase of Variable Account units 14,183,765 12,556,722 8,567,265 12,412,684 3,059,819
Redemption of Variable Account units (2,740,528) (230,615) (2,223,052) (146,385) (225,312)
Mortality and expense charge redeemed 251,064 77,959 49,301 74,571 39,979
Funding of subaccount by Fortis Benefits
Insurance Company - - - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - - -
--------------------------------------------------------------------------
Increase (decrease) from capital transactions 11,694,301 12,404,066 6,393,514 12,340,870 2,874,486
Net assets at beginning of period 11,967,089 - - - 1,349,199
--------------------------------------------------------------------------
Net assets at end of period $25,420,072 $12,996,659 $6,719,020 $13,094,466 $4,757,525
--------------------------------------------------------------------------
--------------------------------------------------------------------------
<CAPTION>
NORWEST NORWEST
SELECT SELECT SMALL SCUDDER COMBINED
INTERMEDIATE COMPANY INTERNATIONAL VARIABLE
BOND FUND STOCK FUND PORTFOLIO ACCOUNT
-----------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 172,247 $ 28,697 $ 5,274 $ 20,530,421
Mortality and expense and policy advance charges
(NOTE 4) (27,041) (2,828) (19,707) (15,945,832)
Net realized gain (loss) on investments 24,440 (329) (4,479) 1,770,611
Net unrealized appreciation (depreciation) of
investments during the period 98,386 (12,343) 150,241 219,856,777
-----------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 268,032 13,197 131,329 226,211,977
CAPITAL TRANSACTIONS
Purchase of Variable Account units 2,608,516 859,696 1,113,419 241,076,668
Redemption of Variable Account units (521,303) (3,639) (431,126) (117,995,003)
Mortality and expense charge redeemed 27,041 2,828 19,707 15,945,832
Funding of subaccount by Fortis Benefits
Insurance Company - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - -
-----------------------------------------------------------
Increase (decrease) from capital transactions 2,114,254 858,885 702,000 139,027,497
Net assets at beginning of period 685,775 - 978,124 1,015,741,692
-----------------------------------------------------------
Net assets at end of period $3,068,061 $872,082 $1,811,453 $1,380,981,166
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
13
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets
Year ended December 31, 1994
<TABLE>
<CAPTION>
FORTIS U.S.
FORTIS GOVERNMENT FORTIS FORTIS ASSET
GROWTH STOCK SECURITIES MONEY MARKET ALLOCATION
SERIES SERIES SERIES SERIES
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 2,224,886 $ 13,644,959 $ - $ 9,186,739
Mortality and expense and policy advance charges
(NOTE 4) (3,753,659) (2,648,040) (491,242) (3,050,115)
Net realized gain (loss) on investments 1,017,245 (3,898,323) 194,135 283,379
Net unrealized appreciation (depreciation) of
investments during the period (10,439,005) (24,335,220) 1,255,055 (9,690,299)
--------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (10,950,533) (17,236,624) 957,948 (3,270,296)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 72,313,277 12,541,099 52,469,852 58,509,925
Redemption of Variable Account units (13,597,387) (60,391,902) (40,583,910) (6,821,686)
Mortality and expense charge redeemed 3,753,659 2,648,040 491,242 3,050,115
Funding of subaccount by Fortis Benefits Insurance
Company - - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - - -
--------------------------------------------------------------------
Increase (decrease) from capital transactions 62,469,549 (45,202,763) 12,377,184 54,738,354
Net assets at beginning of period 254,375,039 227,935,901 27,266,317 192,628,341
--------------------------------------------------------------------
Net assets at end of period $305,894,055 $165,496,514 $40,601,449 $244,096,399
--------------------------------------------------------------------
--------------------------------------------------------------------
<CAPTION>
FORTIS FORTIS FORTIS
DIVERSIFIED GLOBAL GROWTH AGGRESSIVE
INCOME SERIES SERIES GROWTH SERIES
---------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 7,607,329 $ 829,695 $ 45,402
Mortality and expense and policy advance charges
(NOTE 4) (1,344,477) (1,383,450) (48,160)
Net realized gain (loss) on investments (767,738) 37,068 (14,814)
Net unrealized appreciation (depreciation) of
investments during the year (12,476,808) (3,836,491) 354,186
---------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (6,981,694) (4,353,178) 336,614
CAPITAL TRANSACTIONS
Purchase of Variable Account units 24,210,219 63,570,141 11,827,795
Redemption of Variable Account units (14,240,935) (2,600,492) (975,992)
Mortality and expense charge redeemed 1,344,477 1,383,450 48,160
Funding of subaccount by Fortis Benefits Insurance
Company - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - -
---------------------------------------------------
Increase (decrease) from capital transaction 11,313,761 62,353,099 10,899,963
Net assets at beginning of period 90,772,171 65,313,355 -
---------------------------------------------------
Net assets at end of period $95,104,238 $123,313,276 $11,236,577
---------------------------------------------------
---------------------------------------------------
</TABLE>
14
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1994
<TABLE>
<CAPTION>
FORTIS FORTIS NORWEST SELECT
GROWTH & INCOME HIGH YIELD VALUGROWTH
SERIES SERIES FUND
-----------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 154,775 $ 546,340 $ -
Mortality and expense and policy advance charges
(NOTE 4) (66,282) (67,340) (4,796)
Net realized gain (loss) on investments (5,003) (2,813) 499
Net change in unrealized appreciation (depreciation)
of investments during the period (139,658) (596,104) (24,752)
-----------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (56,168) (119,917) (29,049)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 15,221,338 13,770,714 1,395,749
Redemption of Variable Account units (212,455) (1,751,048) (22,297)
Mortality and expense charge redeemed 66,282 67,340 4,796
Funding of subaccount by Fortis Benefits Insurance
Company - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - -
-----------------------------------------------------
Increase (decrease) from capital transactions 15,075,165 12,087,006 1,378,248
Net assets at beginning of period - - -
-----------------------------------------------------
Net assets at end of period $15,018,997 $11,967,089 $1,349,199
-----------------------------------------------------
-----------------------------------------------------
<CAPTION>
NORWEST SELECT SCUDDER COMBINED
INTERMEDIATE INTERNATIONAL VARIABLE
BOND FUND PORTFOLIO ACCOUNT
----------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ - $ - $ 34,240,125
Mortality and expense and policy advance charges
(NOTE 4) (2,966) (3,751) (12,864,278)
Net realized gain (loss) on investments (113) (2,393) (3,158,871)
Net change in unrealized appreciation (depreciation)
of investments during the period 51 (36,913) (59,965,958)
----------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (3,028) (43,057) (41,748,982)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 698,986 1,033,608 327,562,703
Redemption of Variable Account units (13,149) (16,178) (141,227,431)
Mortality and expense charge redeemed 2,966 3,751 12,864,278
Funding of subaccount by Fortis Benefits Insurance
Company - - -
Redemption of Fortis Benefits Insurance Company
investment in subaccount - - -
Dividend income distribution to Fortis Benefits
Insurance Company - - -
----------------------------------------------------
Increase (decrease) from capital transactions 688,803 1,021,181 199,199,550
Net assets at beginning of period - - 858,291,124
----------------------------------------------------
Net assets at end of period $685,775 $ 978,124 $1,015,741,692
----------------------------------------------------
----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
15
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements
December 31, 1996
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 December 31, 1996, Fortis Benefits had
approximately $91 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 $175 billion
in assets at the end of 1996.
Fortis Advisers, Inc. (a wholly-owned subsidiary of Fortis, Inc.) provides
investment management services to the Fortis Series Fund, Inc. 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 Fortis Series Fund, Inc.
portfolios to which Fortis Advisers, Inc. provided investment management
services amounted to $11,076,174, $7,819,224, and $5,839,044 in 1996, 1995 and
1994 respectively.
16
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
There are forty three subaccounts within the Account. The investment objectives
and policies of each of the Account's subaccounts are as follows.
FORTIS SERIES FUNDS, INC.
- - GROWTH STOCK PORTFOLIO SUBACCOUNT--seeks growth of capital through short-
term and long-term appreciation.
- - U.S. GOVERNMENT SECURITIES PORTFOLIO SUBACCOUNT--seeks to earn a high level
of current income consistent with prudent investment risk.
- - MONEY MARKET PORTFOLIO SUBACCOUNT--seeks high level of capital stability
and liquidity and, to the extent consistent with these objectives, a high
level of current income.
- - ASSET ALLOCATION PORTFOLIO 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 PORTFOLIO SUBACCOUNT--seeks high level of current income
by investing primarily in a diversified portfolio of government securities
and investment grade corporate bonds.
- - GLOBAL GROWTH PORTFOLIO SUBACCOUNT--seeks growth of capital through long-
term capital appreciation, through ownership of equity securities,
allocated among diverse international markets.
- - AGGRESSIVE GROWTH PORTFOLIO SUBACCOUNT--seeks long-term capital
appreciation in equity securities.
- - GROWTH AND INCOME PORTFOLIO SUBACCOUNT--seeks growth of capital and current
income, through ownership of equity securities that provide an income
component and the potential for growth.
17
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
- - HIGH YIELD PORTFOLIO SUBACCOUNT--seeks maximum total return through current
income and capital appreciation, through ownership of a diversified
portfolio of high-yielding fixed-income securities.
- - GLOBAL ASSET ALLOCATION SUBACCOUNT-- seeks favorable overall rates of
return on capital, primarily through increased ownership of foreign &
domestic equity securities during periods when stock market conditions
appear favorable, and short-term and long-term foreign & domestic debt
instruments during periods 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.
- - VALUE SUBACCOUNT--seeks growth of capital through short and long-term
capital appreciation. Investing in equity securities based on the "Value"
philosophy.
- - S & P 500 INDEX SUBACCOUNT--seeks growth of capital by replicating the
total return of the Standard & Poor's 500 Composite Stock Price Index.
- - BLUE CHIP STOCK SUBACCOUNT--seeks capital appreciation by investing
primarily in large and medium-sized blue chip companies.
NORWEST SELECT FUNDS
- - VALUGROWTH STOCK FUND--seeks growth of capital by investing principally in
medium and large capitalization companies that possess above-average growth
characteristics and attractive valuations.
- - INTERMEDIATE BOND FUND--seeks income through investing primarily in a
diversified portfolio of government and corporate bonds in an evenly
balanced maturity structure.
18
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
- - SMALL COMPANY STOCK FUND--seeks growth of capital by investing primarily in
the common stock of small and medium size domestic companies, in the early
stage of development or may produce goods and services which have a
favorable prospect for growth.
- - INCOME EQUITY FUND--seeks income by investing primarily in the common stock
of large domestic companies that are perceived to have above-average return
potential based on current market valuations.
SCUDDER VARIABLE LIFE INVESTMENT
- - INTERNATIONAL PORTFOLIO--seeks long-term growth of capital primarily
through diversified holdings of marketable foreign securities.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
- - MONEY MARKET PORTFOLIO--seeks income by investing in money market
securities, with less than one year until maturity, and meets the objective
of safety of principal, excellent liquidity and maximum current income to
the extent consistent with the first two objectives.
- - INTERNATIONAL PORTFOLIO--seeks to obtain a total return on its assets from
long-term growth of capital principally through a broad portfolio of
marketable securities of established foreign companies.
- - PREMIER GROWTH PORTFOLIO--seeks growth of capital by pursuing aggressive
investment policies. Investments will be based upon their potential for
capital appreciation.
19
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
SAFECO RESOURCE SERIES TRUST
- - EQUITY PORTFOLIO--seeks long-term growth of capital and reasonable income
by investing principally in common stocks.
- - GROWTH PORTFOLIO--seeks growth of capital and the increased income that
ordinarily follows from such growth.
FEDERATED INSURANCE SERIES
- - HIGH INCOME FUND II--seek high current income, by investing primarily in a
professionally managed, diversified portfolio of fixed income securities.
- - UTILITY FUND II--seeks high current income and moderate capital
appreciation, by investing primarily in a professionally managed
diversified portfolio of equity and debt securities of utility companies.
- - AMERICAN LEADERS FUND II--seeks long-term capital growth, by investing the
majority of its assets in common stock of "blue chip" companies.
LEXINGTON FUNDS DISTRIBUTOR, INC.
- - NATURAL RESOURCES TRUST--seek long-term growth of capital through
investments primarily in common stocks of companies that own or develop
natural resources and other basic commodities, or supply goods and services
to such companies.
- - EMERGING MARKETS FUND--seeks long-term growth of capital primarily through
investment in equity securities and equivalents of companies domiciled in,
or doing business in, emerging countries and emerging markets.
20
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
MFS VARIABLE INSURANCE TRUST
- - MFS EMERGING GROWTH SERIES--seeks long-term growth of capital through
investment in common stock of companies that are early in their life cycle,
with potential to become major enterprises.
- - MFS HIGH INCOME SERIES--seeks high current income through investing,
primarily in a professionally managed diversified portfolio of fixed income
securities, some of which may involve equity features.
- - MFS WORLD GOVERNMENTS SERIES--seeks growth of capital, with moderate
current income through investment in a internationally diversified
portfolio consisting primarily of debt securities and lesser extent equity
securities
MONTGOMERY VARIABLE SERIES
- - EMERGING MARKETS FUND--seeks long-term growth of capital primarily through
investment in equity securities and equivalents of companies domiciled in,
or doing business in, emerging countries and emerging markets.
- - GROWTH FUND--seeks capital appreciation by investing at least 65% of its
assets in the equity securities of domestic companies.
STRONG VARIABLE INSURANCE FUNDS, INC.
- - DISCOVERY FUND II--Seeks capital growth by investing in securities that are
believed to represent growth opportunities.
- - GOVERNMENT SECURITIES FUND II--seeks total return by investing for a high
level of current income with a moderate degree of share-price fluctuation.
- - ADVANTAGE FUND II--seeks current income with a very low degree of share-
price fluctuation, by investing primarily in ultra short-term
investment-grade debt obligations.
21
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
- - INTERNATIONAL FUND II--seeks capital growth by investing primarily in
equity securities of issuers located outside of the United States.
TCI PORTFOLIOS, INC.
- - TCI BALANCED--seeks capital growth and current income by investing in a
combination of common stocks (and other equity equivalents) and fixed
income securities.
- - TCI GROWTH--seeks capital growth by investing in common stocks that have a
better than average potential for appreciation.
VAN ECK WORLDWIDE INSURANCE TRUST
- - WORLDWIDE BOND FUND--seeks high return through a flexible policy of
investing globally, primarily in debt securities.
- - GOLD AND NATURAL RESOURCES FUND--seeks long-term capital appreciation by
investing in equity and debt securities of companies engaged in the
exploration, development, production and distribution of gold and other
natural resources, such as strategic and other metals, minerals, forest
products, oil, natural gas and coal.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Account are segregated from Fortis Benefits Insurance
Company's other assets. The operations of the Account are part of Fortis
Benefits Insurance Company. The following is a summary of significant
accounting policies consistently followed by the Account in the preparation
of its financial statements.
INVESTMENT VALUATION
Investments in mutual funds (the "Funds") are valued at the net asset
(market) value per share at the close of business on December 31, 1996 as
reported by the Fund.
22
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT TRANSACTIONS
Investment Transactions are accounted for on the trade date. Realized gains and
losses on investments are determined in the basis of identified cost. Capital
gain distributions from mutual funds are recorded on the ex-dividend date and
reinvested upon receipt.
INVESTMENT INCOME
Dividend income from mutual funds is recorded on the ex-dividend date and
reinvested upon receipt.
3. INVESTMENTS
Investment in shares of the Fortis Series Funds Inc., Norwest Select Fund,
Scudder Variable Life Investment Fund, Alliance Variable Products Series Fund,
Inc., SAFECO Resource Series Trust, Federated Insurance Series, Lexington Funds
Distributor, Inc., MFS Variable Insurance Trust, Montgomery Variable Series,
Strong Variable Insurance Funds, Inc., TCI Portfolios, Inc., and Van Eck
Worldwide Insurance Trust (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 portfolio. The cost of investments sold
and redeemed is determined on the average cost method. Unrealized appreciation
or depreciation of investments represents the Account's share of the mutual
fund's undistributed net investment income, undistributed realized gains or
losses and unrealized appreciation or depreciation in the Funds' investments.
23
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
Purchases and sales of shares of the Fund are recorded on the trade date. The
number of shares and aggregate cost of purchases and proceeds from sales of
shares were as follows:
<TABLE>
<CAPTION>
SHARES
-------------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
--------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Fortis Series Fund, Inc.,
Growth Stock Series 1,316,877 636,480 $40,354,935 $13,497,297
U.S. Government Securities Series 911,132 3,066,517 9,792,095 33,224,639
Money Market Series 4,890,211 3,484,284 53,529,569 37,298,093
Asset Allocation Series 2,119,407 1,656,181 35,139,069 22,612,833
Diversified Income Series 357,973 1,005,530 4,487,798 12,039,175
Global Growth Series 3,180,571 254,987 56,339,715 3,329,367
Aggressive Growth Series 3,202,119 654,509 45,154,232 7,945,070
Growth & Income Series 3,719,238 123,779 51,705,892 1,580,938
High Yield Series 1,460,586 365,643 14,950,454 3,677,674
Global Asset Allocation Series 1,548,139 73,695 17,977,062 823,449
Global Bond Series 1,282,696 280,803 13,740,427 3,130,682
International Stock Series 2,397,683 175,126 27,769,550 1,961,927
Value Series 1,110,964 3,953 11,759,449 62,431
S & P 500 Series 1,695,947 90,342 17,947,817 935,023
Blue Chip Series 1,524,910 271,863 16,093,584 2,786,613
Norwest Select Fund,
ValuGrowth Fund 348,043 25,400 4,632,105 284,976
Intermediate Bond Fund 323,851 64,140 3,468,748 697,755
Small Company Stock Fund 345,221 9,976 4,107,960 120,366
Income Equity Fund 855,795 9,655 9,076,709 94,179
Scudder Variable Life Investment,
International Portfolio 98,552 6,404 1,328,103 73,718
Alliance Variable Product Series,
Money Market Portfolio 29,009,905 23,518,475 29,009,905 23,518,476
International Portfolio 267,012 245,510 3,914,735 3,623,061
Premier Growth Portfolio 83,324 69,550 1,256,492 1,055,546
</TABLE>
24
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
SHARES
-------------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
--------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
(CONTINUED)
SAFECO Resource Series,
Growth Portfolio 21,412 12,345 $ 441,504 $ 256,130
Equity Portfolio 9,038 - 198,282 -
Federated Insurance Series:
High Income Fund 155,252 67,532 1,538,226 663,283
Utility Fund 90,748 74,159 1,026,928 833,792
American Leaders Fund 95,282 62,716 1,372,344 893,146
Lexington Funds, Inc.:
Natural Resources Trust 152,771 98,312 2,056,140 1,285,419
Emerging Markets Fund 113,436 106,965 1,131,006 1,066,087
MFS Variable Insurance Trust:
MFS Emerging Growth Series 1,578,159 1,407,439 21,176,704 19,117,745
MFS High Income Series 61,750 27,858 672,340 298,912
MFS World Government Series 25,429 21,388 262,500 220,260
Montgomery Variable Series:
Emerging Markets Fund 76,452 58,302 801,303 612,559
Growth Fund 244,447 176,044 2,961,408 2,089,319
Strong Variable Insurance Funds:
Discovery Fund II 29,429 21,579 321,349 238,664
Government Securities Fund II 77,682 70,643 743,861 675,914
Advantage Fund II 126,607 97,506 1,277,539 980,393
International Fund II 426,271 397,453 4,776,591 4,457,879
TCI Portfolios, Inc.:
TCI Balanced Fund 81,790 72,450 651,649 539,665
TCI Growth Fund 151,030 144,527 1,563,734 1,481,863
Van Eck Worldwide Ins. Trust:
Worldwide Bond Fund 6,334 2,578 63,735 27,683
Gold & Natural Resources Fund 146,230 118,292 2,385,593 1,928,520
</TABLE>
25
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
SHARES
-------------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
--------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
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 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 75,540 314 859,233 3,639
Small Company Stock Fund 38,761 94,688 392,834 968,236
Scudder Variable Life Investment:
International Portfolio 101,034 39,728 1,113,265 431,133
YEAR ENDED DECEMBER 31, 1994
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>
26
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The number of shares and cost of shares issued from reinvestment of dividends
with the Funds were as follows:
COST OF
SHARES SHARES
-----------------------------
YEAR ENDED DECEMBER 31, 1996
Fortis Series Fund, Inc.:
Growth Stock Series 53,172 $ 1,755,003
U.S. Government Securities Series 1,115,661 11,268,567
Money Market Series 183,457 1,961,696
Asset Allocation Series 1,078,332 18,389,804
Diversified Income Series 701,215 7,814,749
Global Growth Series 18,721 349,640
Aggressive Growth Series 9,589 130,127
Growth & Income Series 222,479 3,357,159
High Yield Series 346,560 3,381,726
Global Asset Allocation Series 11,755 1,354,041
Global Bond Series 81,830 900,099
International Stock Series 109,584 1,318,016
Value Series 5,990 67,900
S & P 500 Series 8,915 102,931
Blue Chip Stock Series 4,298 50,146
Norwest Select Fund:
ValuGrowth Fund 5,666 82,203
Intermediate Bond Fund 24,747 266,665
Small Company Stock Fund 38,370 512,352
Income Equity Fund 6,608 73,375
Scudder Variable Life Investment:
International Portfolio 3,949 47,233
Alliance Capital Management:
Money Market Series 102,380 102,380
International Series 88 1,304
Premier Growth Series 1,734 24,242
27
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
COST OF
SHARES SHARES
--------------------------
YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
SAFECO Resource Series:
Growth Series 785 $ 14,945
Equity Series 810 17,950
Federated Insurance Series:
High Income Series 2,069 20,894
Utility Series 174 2,018
American Leaders Series 244 3,741
Lexington Funds, Inc.:
Natural Resources Trust Fund 82 1,130
Emerging Markets Fund - -
Massachusetts Financial Service Group:
Emerging Growth Series 610 8,097
High Income Series 1,972 21,440
World Government Series - -
Montgomery Variable Funds:
Emerging Markets Fund 38 391
Growth Fund 3,413 41,303
Strong Variable Annuity Funds:
Discovery II Fund 678 6,715
Government Securities II Fund 163 1,630
Advantage II Fund 535 5,379
International II Fund 96 1,058
American Century Investments:
TCI Balanced Fund 20 140
TCI Growth Fund 10 113
Van Eck World Wide Insurance Trust:
Worldwide Bond Fund 44 468
Gold & Natural Resources Fund 215 3,629
28
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
COST OF
SHARES SHARES
----------------------------
YEAR ENDED DECEMBER 31, 1995
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 75,502 909,272
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
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
29
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
COST OF
SHARES SHARES
-----------------------------
YEAR ENDED DECEMBER 31, 1994 (CONTINUED)
Norwest Select Fund:
ValuGrowth Stock Fund - $ -
Intermediate Bond Fund - -
Adjustable U.S. Government Reserve Fund - -
Scudder Variable Life Investment Fund:
International Portfolio - -
Fortis Benefits' investment in the subaccounts represented the following number
of shares of the Funds held and aggregate cost of amounts invested at December
31, 1996:
COST OF
SHARES SHARES
----------------------------
Fortis Series Fund, Inc.:
Global Asset Allocation Series 294,457 $ 2,980,543
Global Bond Series 505,627 5,110,208
International Stock Series 293,568 2,958,854
Value Series 71,006 710,588
S & P 500 Series 355,022 3,553,364
Blue Chip Stock Series 355,013 3,552,202
Norwest Select Fund:
ValuGrowth Fund 112,914 1,166,340
30
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
4. ORGANIZATIONAL EXPENSES AND OTHER CHARGES
ORGANIZATION EXPENSES
Fortis Benefits assumed all organizational expenses of the Account.
PREMIUM TAXES
Where premium taxes or similar assessments are imposed by states or other
jurisdiction 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 jurisdiction 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.
POLICY ADMINISTRATION CHARGE
A $35 annual policy administrative charge is deducted each contract year from
value of each Opportunity Variable and Masters Variable Annuity Contract or $30
for each Norwest Passage Variable and Value Advantage Plus Variable Annuity
contract on each anniversary of the contract date and upon total surrender of
the contract. This charge will be waived during the Accumulation Period if the
Contract Value at the end of the Contract Year (or upon total surrender) is
$25,000 or more, for the Opportunity Variable, Masters Variable and Norwest
Passage Variable Annuity Contracts.
MORTALITY AND EXPENSE RISK CHARGE
Fortis Benefits assesses each subaccount of the Opportunity Variable, Masters
Variable and Norwest Passage Variable Annuity 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. For the Value Advantage Plus Variable
Annuity the mortality and expense risk charge is assessed at an annual rate of
.45%.
31
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
4. ORGANIZATIONAL EXPENSES AND OTHER CHARGES (CONTINUED)
ADMINISTRATIVE CHARGE
Fortis Benefits assesses each subaccount of the Opportunity Variable and Masters
Variable Annuity a daily charge for administrative expense at annual rate of
.10% of the net assets representing equity of contract owners held in each
subaccount. For the Norwest Passage Variable Annuity the mortality and expense
risk 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 by us more than five years prior to the
surrender date for Opportunity Variable Annuity and Norwest Passage
Variable Annuity and seven years for Masters Variable Annuity and 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 for Opportunity
Variable Annuity and Norwest Passage Variable Annuity and seven years
prior to the surrender date for Masters Variable Annuity.
- For Norwest Passage Variable Annuity and Masters Variable Annuity any
earnings that have not been previously surrendered.
- For Value Advantage Plus Variable Annuity there is no Surrender
charge.
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 and is set at 5% during each of the first five years of the
Opportunity Variable Annuity and Norwest Passage Variable Annuity contracts,
after which no surrender charge applies, and is set at 7% during the first
seven years of the Masters Variable Annuity contracts, with a sliding scale
down to zero by the end of the seventh year. Surrender charges collected by
Fortis Benefits were $2,727,170, $2,205,945 and $1,988,863 in 1996, 1995 and
1994, respectively.
32
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
5. 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.
33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheets of Fortis Benefits Insurance
Company, an indirect wholly-owned subsidiary of Fortis AMEV and Fortis AG, as of
December 31, 1996 and 1995, and the related statements of income, changes in
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1996. 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, 1996 and 1995, and the results of its operations and its
cash flows for each of three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, MN
February 12, 1997
24
<PAGE>
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Investments (NOTE 3):
Fixed maturities, at fair value (amortized cost 1996--$2,078,438;
1995--$1,951,204)................................................................... $2,115,499 $2,075,624
Equity securities, at fair value (cost 1996--$84,144; 1995--$60,935)................. 106,290 78,852
Mortgage loans on real estate, less allowance for possible losses (1996--$9,697;
1995--$8,353)....................................................................... 582,869 562,697
Policy loans......................................................................... 60,722 53,863
Short-term investments............................................................... 182,817 153,499
Real estate and other investments.................................................... 29,628 11,918
--------- ---------
3,077,825 2,936,453
Cash................................................................................... 20,474 1
Receivables:
Uncollected premiums................................................................. 71,386 55,992
Reinsurance recoverable on unpaid and paid losses.................................... 12,939 11,812
Due from affiliates.................................................................. -- 388
Other................................................................................ 9,045 14,581
--------- ---------
93,370 82,773
Accrued investment income.............................................................. 39,519 41,209
Deferred policy acquisition costs (NOTE 4)............................................. 268,075 237,509
Property and equipment at cost, less accumulated depreciation (NOTE 5)................. 52,882 60,031
Deferred federal income taxes (NOTE 7)................................................. 17,008 --
Other assets........................................................................... 8,005 3,551
Assets held in separate accounts (NOTE 8).............................................. 2,374,718 1,781,485
--------- ---------
TOTAL ASSETS........................................................................... $5,951,876 $5,143,012
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
25
<PAGE>
BALANCE SHEETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
POLICY RESERVES AND LIABILITIES:
Future policy benefit reserves:
Traditional life insurance......................................................... $ 434,378 $ 407,706
Interest sensitive and investment products......................................... 1,175,480 1,101,931
Accident and health................................................................ 834,119 832,925
--------- ---------
2,443,977 2,342,562
Unearned revenues.................................................................... 12,622 13,044
Other policy claims and benefits payable............................................. 191,940 196,403
Policyholder dividends payable....................................................... 8,783 7,930
--------- ---------
2,657,322 2,559,939
Accrued expenses..................................................................... 42,223 68,441
Current income taxes payable......................................................... 17,424 5,375
Deferred federal income taxes (NOTE 7)............................................... -- 9,538
Other liabilities.................................................................... 104,834 31,145
Due to affiliates.................................................................... 4,926 --
Liabilities related to separate accounts (NOTE 8).................................... 2,344,474 1,757,476
--------- ---------
TOTAL POLICY RESERVES AND LIABILITIES.................................................. 5,171,203 4,431,914
SHAREHOLDER'S EQUITY (NOTES 1, 9 AND 11):
Common Stock, $5 par value:
Authorized, issued and outstanding shares--1,000,000................................. 5,000 5,000
Additional paid-in capital........................................................... 468,000 408,000
Retained earnings.................................................................... 265,613 207,421
Unrealized gains on investments, net (NOTE 3)........................................ 36,290 88,131
Unrealized gains on assets held in separate accounts, net (NOTE 3)................... 5,770 2,546
--------- ---------
TOTAL SHAREHOLDER'S EQUITY............................................................. 780,673 711,098
--------- ---------
TOTAL POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY............................ $5,951,876 $5,143,012
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
26
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
REVENUES
Insurance operations:
Traditional life insurance premiums..................................... $ 258,496 $ 251,353 $ 207,824
Interest sensitive and investment product policy charges................ 63,336 46,076 37,823
Accident and health premiums............................................ 974,046 934,900 776,799
---------- ---------- ---------
1,295,878 1,232,329 1,022,446
Net investment income (NOTE 3)............................................ 206,023 203,537 162,514
Net realized gains (losses) on investments (NOTE 3)....................... 25,731 55,080 (28,815)
Other income.............................................................. 31,725 33,085 35,958
---------- ---------- ---------
TOTAL REVENUES........................................................ 1,559,357 1,524,031 1,192,103
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance.............................................. 220,227 202,911 162,168
Interest sensitive and investment products.............................. 90,358 73,676 55,026
Accident and health claims.............................................. 778,439 769,588 620,367
---------- ---------- ---------
1,089,024 1,046,175 837,561
Policyholder dividends.................................................... 4,169 4,305 1,986
Amortization of deferred policy acquisition costs (NOTE 4)................ 39,325 41,291 34,566
Insurance commissions..................................................... 94,723 95,559 86,111
General and administrative expenses....................................... 242,825 254,940 197,427
---------- ---------- ---------
TOTAL BENEFITS AND EXPENSES........................................... 1,470,066 1,442,270 1,157,651
---------- ---------- ---------
Income before federal income taxes and cumulative effect of accounting
changes.................................................................. 89,291 81,761 34,452
Federal income taxes (NOTE 7)............................................. 31,099 27,891 11,595
---------- ---------- ---------
NET INCOME................................................................ $ 58,192 $ 53,870 $ 22,857
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes.
27
<PAGE>
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
GAINS GAINS ON ASSETS
ADDITIONAL (LOSSES) ON HELD IN
COMMON PAID-IN RETAINED INVESTMENTS, SEPARATE
STOCK CAPITAL EARNINGS NET ACCOUNTS, NET TOTAL
----------- ----------- ----------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 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................ -- -- -- -- (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................ -- -- -- -- 1,992 1,992
----------- ----------- ----------- ------- ------ ---------
Balance, December 31, 1995............... 5,000 408,000 207,421 88,131 2,546 711,098
Net income............................... -- -- 58,192 -- -- 58,192
Additional paid-in capital............... -- 60,000 -- -- -- 60,000
Change in unrealized gains on
investments, net........................ -- -- -- (51,841) -- (51,841)
Change in unrealized gain on assets held
in separate account, net................ -- -- -- -- 3,224 3,224
----------- ----------- ----------- ------- ------ ---------
Balance, December 31, 1996............... $ 5,000 $ 468,000 $ 265,613 $ 36,290 $ 5,770 $ 780,673
----------- ----------- ----------- ------- ------ ---------
----------- ----------- ----------- ------- ------ ---------
</TABLE>
See accompanying notes.
28
<PAGE>
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
------------ ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 58,192 $ 53,870 $ 22,857
Adjustments to reconcile net income to net cash provided by operating
activities:
Increase in future policy benefit reserves for traditional, interest
sensitive and accident and health policies.......................... 26,193 80,478 79,014
Increase in other policy claims and benefits and policyholder
dividends payable................................................... 18,638 27,676 10,075
Provision for deferred federal income taxes.......................... (1,094) (13,584) (2,356)
Increase in income taxes payable..................................... 12,049 1,023 3,283
Amortization of deferred policy acquisition costs.................... 39,325 41,291 34,566
Policy acquisition costs deferred.................................... (66,515) (56,391) (54,349)
Provision for mortgage loan losses................................... 1,344 924 1,105
Provision for depreciation........................................... 17,312 15,654 12,267
Amortization of investment premiums (discount) net................... 1,821 (239) (914)
Change in receivables, accrued investment income, unearned premiums,
accrued expenses and other liabilities.............................. 38,614 3,427 (36,650)
Net realized (gains) losses on investments........................... (25,731) (55,080) 28,815
Other................................................................ (261) (2,431) (135)
------------ ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 119,887 96,618 97,578
INVESTING ACTIVITIES
Purchases of fixed maturity investments................................ (2,778,352) (2,151,133) (1,943,697)
Sales or maturities of fixed maturity investments...................... 2,652,887 2,000,068 1,798,184
Increase in short-term investments..................................... (29,318) (35,908) (44,266)
Purchases of other investments......................................... (210,182) (240,264) (211,836)
Sales of other investments............................................. 163,569 112,598 104,399
Purchases of property and equipment.................................... (10,992) (19,975) (16,164)
Purchase of group insurance business................................... -- -- (6,644)
Other.................................................................. -- 1,229 500
------------ ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES............................ (212,388) (333,385) (319,524)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received.............................................. 128,446 187,484 200,499
Surrenders and death benefits........................................ (125,274) (60,522) (19,207)
Interest credited to policyholders................................... 49,802 48,918 31,867
Additional paid-in capital from shareholder............................ 60,000 50,000 13,000
------------ ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 112,974 225,880 226,159
------------ ---------- -----------
Increase (decrease) in cash............................................ 20,473 (10,887) 4,213
CASH AT BEGINNING OF YEAR........................................ 1 10,888 6,675
------------ ---------- -----------
CASH AT END OF YEAR.............................................. $ 20,474 $ 1 $ 10,888
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
See accompanying notes.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
DECEMBER 31, 1996
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Fortis Benefits Insurance Company (the Company) is an indirect wholly-owned
subsidiary of Fortis AMEV and Fortis AG. 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.
RECOGNITION OF REVENUES AND POLICY RESERVES AND LIABILITIES
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 traditional life insurance are recognized as revenues when due
over the premium-paying period. Reserves for future policy benefits are
computed using the net level method and include investment yield, mortality,
withdrawal, and other assumptions based on the Company's experience,
modified as necessary to reflect anticipated trends and to include
provisions for possible unfavorable deviations.
Revenues for interest sensitive and investment products consist of charges
assessed against policy account balances during the period for the cost of
insurance, policy administration, and surrender charges. Future policy
benefit reserves are computed under the retrospective deposit method and
consist of policy account balances before applicable surrender charges.
Policy benefits charged to expense during the period include amounts paid in
excess of policy account balances and interest credited to policy account
balances. Interest credit rates for universal life and investment products
ranged from 6.2% to 7% and 4% to 7.8% in 1996 and 1995, respectively.
Premiums for accident and health insurance products, including medical, long
and short-term disability and dental insurance products are recognized as
revenues ratably over the contract period in proportion to the risk insured.
Reserves for future disability benefits are based on the 1964 Commissioners
Disability Table at 6% interest. Calculated reserves are modified based on
the Company's actual experience. Other policy claims and benefits payable
for reported and incurred but not reported claims and related claims
adjustment expenses are determined using case-basis estimates and past
experience. The methods of making such estimates and establishing the
related liabilities are continually reviewed and updated. Any adjustments
resulting therefrom are reflected in income currently.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, which vary with and are directly related to
the production of new business are deferred to the extent recoverable and
amortized. For traditional life insurance products, such costs are amortized
over the premium paying period. For interest sensitive and investment products,
such costs are amortized in relation to expected future gross profits. For
accident and health and group life insurance products, these costs represent the
present value at the acquisition of these lines in the October 1, 1991 purchase
(see Note 2) of future profits which are amortized against the expected premium
revenues of the lines acquired. These amortization periods require significant
management judgment and are reviewed continually. As excess amounts of deferred
costs over future premiums or gross profits are identified, such excess amounts
are expensed.
INVESTMENTS
The Company's investment strategy is developed based on many factors including
insurance liability matching, rate of return, maturity, credit risk, tax
considerations and regulatory requirements.
All fixed maturity investments are classified as available-for-sale and carried
at fair value. That determination is made at the time of each purchase and,
prospectively, is reevaluated as of each balance sheet date.
Changes in fair values of available-for-sale securities, after related deferred
income taxes and after adjustment for the changes in pattern of amortization of
deferred policy acquisition costs and participating policyholder dividends, are
reported directly in shareholder's equity as unrealized gains (losses) on
investments and, accordingly, have no effect on net income. The offsets to the
unrealized appreciation or depreciation represent adjustments of deferred policy
acquisition cost amortization and policyholder dividends payable that would have
been required as a charge or credit to income had such unrealized amounts been
realized.
Mortgage loans constitute first liens on commercial real estate and other income
producing properties. The insurance statutes in Minnesota generally require that
the initial principal loaned not exceed 80% of the appraised value of the
property securing the loan. The Company's policy fully complies with this
statute. Mortgage loans on real estate are reported at unpaid balance, adjusted
for amortization of premium or discount, less allowance for possible losses. The
change in the allowance for possible losses is recorded with realized gains and
losses on investments. Policy loans are reported at unpaid balance.
Realized gains and losses on sales of investments, and declines in value judged
to be other-than-temporary, are recognized on the specific identification basis.
Investment income is recorded as earned.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. The
Company provides for depreciation principally on the straight-line method over
the estimated useful lives of the related property.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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 with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 financial statements have been reclassified
to conform to the 1996 presentation.
2. ACQUIRED BUSINESS
In 1991, the company purchased certain assets and assumed certain
liabilities from The Mutual Benefit Life Insurance Company in Rehabilitation
(MBL). The seller transferred to the Company, the assets and liabilities
relating to the group life, accident and health, disability and dental insurance
business of MBL. The acquisition was accounted for as a purchase. The original
purchase price of the acquisition was $318,000,000. Subsequent additional
payments of $20,850,000 were made ending in 1994. These additional payments, as
well as $126,515,000 of the original purchase price represent the present value
of future profits on the lines of business acquired at the date of acquisition
and have been accounted for as deferred policy acquisition costs (see Note 4).
3. INVESTMENTS
AVAILABLE FOR SALE SECURITIES
The following is a summary of the available for sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
December 31, 1996:
Fixed income securities:
Governments.................................. $ 321,574 $ 3,418 $ 1,323 $ 323,669
Public utilities............................. 92,116 2,758 403 94,471
Industrial and miscellaneous................. 1,656,420 38,413 6,527 1,688,306
Other........................................ 8,328 750 25 9,053
--------- ----------- ----------- ---------
Total fixed income securities................ 2,078,438 45,339 8,278 2,115,499
Equity securities............................ 84,144 23,340 1,194 106,290
--------- ----------- ----------- ---------
Total...................................... $2,162,582 $ 68,679 $ 9,472 $2,221,789
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
December 31, 1995:
Fixed income securities:
Governments.................................. $ 453,406 $ 36,938 $ 142 $ 490,202
Public utilities............................. 55,793 4,617 -- 60,410
Industrial and miscellaneous................. 1,420,374 82,705 1,282 1,501,797
Other........................................ 21,631 1,586 2 23,215
--------- ----------- ----------- ---------
Total fixed income securities................ 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
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
3. INVESTMENTS (CONTINUED)
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1996, by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less............................................... $ 57,745 $ 57,849
Due after one year through five years................................. 576,951 588,257
Due after five years through ten years................................ 666,892 675,262
Due after ten years................................................... 776,850 794,131
--------- ---------
Total................................................................. $2,078,438 $2,115,499
--------- ---------
--------- ---------
</TABLE>
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 36% of outstanding principal is
concentrated in the states of California, Texas and New York at December 31,
1996 as compared to concentrated interests in California, Florida and New York
of 35% at December 31, 1995. Loan commitments outstanding totaled $6,141,000 at
December 31, 1996.
In May 1993, FASB issued Statement 114, ACCOUNTING FOR CREDITORS FOR IMPAIRMENT
OF A LOAN, which became 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 carried at $2,537,000 and $2,385,000 at
December 31, 1996 and 1995, respectively, on deposit with various governmental
authorities as required by law.
NET UNREALIZED GAINS (LOSSES)
The adjusted net unrealized gains (losses) recorded in shareholder's equity for
the year ended December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Change in unrealized gains before adjustments...................... $ (83,065) $ 214,452 $(155,923)
Adjustments:
Decrease (increase) in amortization of deferred policy acquisition
costs............................................................. 3,376 (9,789) 9,288
Participating policyholders' share of earnings..................... -- -- 2,684
Deferred income taxes.............................................. 31,072 (71,632) 50,383
--------- --------- ---------
Change in net unrealized gains (losses)............................ (48,617) 133,031 (93,568)
Net unrealized gains (losses), beginning of year................... 90,677 (42,354) 51,214
--------- --------- ---------
Net unrealized gains (losses), end of year......................... $ 42,060 $ 90,677 $ (42,354)
--------- --------- ---------
--------- --------- ---------
</TABLE>
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
3. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Major categories of net investment income and realized gains (losses) on
investments for each year were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities................................................... $ 141,973 $ 139,062 $ 119,668
Equity securities.................................................. 6,682 2,026 1,937
Mortgage loans on real estate...................................... 52,949 49,227 36,816
Policy loans....................................................... 3,195 2,797 2,731
Short-term investments............................................. 5,175 11,863 4,671
Real estate and other investments.................................. 5,358 4,750 2,138
--------- --------- ---------
215,332 209,725 167,961
Expenses........................................................... (9,309) (6,188) (5,447)
--------- --------- ---------
$ 206,023 $ 203,537 $ 162,514
--------- --------- ---------
--------- --------- ---------
NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Fixed maturities................................................... $ 3,334 $ 50,393 $ (27,854)
Equity securities.................................................. 18,281 2,830 1,352
Mortgage loans on real estate...................................... (144) (242) (2,992)
Policy loans....................................................... -- -- --
Short-term investments............................................. 57 (3) (60)
Real estate and other investments.................................. 4,203 2,102 739
--------- --------- ---------
$ 25,731 $ 55,080 $ (28,815)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from sales of investments in fixed maturities were $2,652,887,000,
$2,000,068,000 and $1,798,185,000 in 1996, 1995 and 1994, respectively. Gross
gains of $28,606,000, $61,070,000 and $16,618,000 and gross losses of
$25,272,000, $10,677,000 and $44,472,000 were realized on the sales in 1996,
1995 and 1994, respectively.
4. 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
LIFE PRODUCTS AND HEALTH TOTAL
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Balance January 1, 1995........................ $ 49,910 $ 141,309 $ 40,979 $ 232,198
Acquisition costs deferred..................... -- 56,391 -- 56,391
Acquisition costs amortized.................... (11,378) (17,071) (12,842) (41,291)
Additional amortization of deferred acquisition
costs from unrealized gains on
available-for-sale securities -- (9,789) -- (9,789)
----------- --------------- ----------- ---------
Balance December 31, 1995...................... 38,532 170,840 28,137 237,509
Acquisition costs deferred..................... -- 66,515 -- 66,515
Acquisition costs amortized.................... (5,375) (19,695) (14,255) (39,325)
Reduced amortization of deferred acquisition
costs from unrealized gains on
available-for-sale securities................. -- 3,376 -- 3,376
----------- --------------- ----------- ---------
Balance December 31, 1996...................... $ 33,157 $ 221,036 $ 13,882 $ 268,075
----------- --------------- ----------- ---------
----------- --------------- ----------- ---------
</TABLE>
Included within total deferred policy acquisition costs at December 31, 1996 is
$27,914,000 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 two years is as follows: 1997-- $17,478,000; and
1998--$10,436,000.
During 1996, 1995 and 1994, 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 $1,894,000, $4,825,000 and $(935,000),
respectively. In addition, the Company recorded (reduced) policyholder dividends
payable of $1,095,000 in 1995 and $(761,000) in 1994.
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
5. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land........................................................................ $ 1,900 $ 1,900
Building and improvements................................................... 25,133 23,319
Furniture and equipment..................................................... 95,370 85,592
--------- ---------
122,403 110,811
Less accumulated depreciation............................................... (69,521) (50,780)
Net property and equipment.................................................. $ 52,882 $ 60,031
--------- ---------
--------- ---------
</TABLE>
6. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims and claims
adjustment expenses is summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables........... $ 928,832 $ 838,810 $ 806,538
Add: Incurred losses related to:
Current year..................................................... 865,907 827,261 656,052
Prior years...................................................... (64,094) (28,520) (58,218)
--------- --------- ---------
Total incurred losses.......................................... 801,813 798,741 597,834
Deduct: Paid losses related to:
Current year..................................................... 549,144 492,460 377,595
Prior years...................................................... 233,790 216,259 187,967
--------- --------- ---------
Total paid losses.............................................. 782,934 708,719 565,562
--------- --------- ---------
Balance as of December 31, net of reinsurance recoverables......... $ 947,711 $ 928,832 $ 838,810
--------- --------- ---------
--------- --------- ---------
</TABLE>
The table above compares to the amounts reported on the balance sheet in the
following respects: (1) the table above is presented net of ceded reinsurance
and the accident and health reserves reported on the balance sheet are gross of
ceded reinsurance; (2) the table above includes claims adjustment expense
liabilities that are included in accrued expenses on the balance sheet; and (3)
the table above includes accident and health benefits payable which are included
with other policy claims and benefits payable reported on the balance sheet.
In each of the years presented above, the accident and health insurance line of
business experienced overall favorable development on claims reserves
established as of the previous year end. The favorable development was a result
of lower medical costs 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.
7. FEDERAL INCOME TAXES
The Company reports its taxable income in a consolidated federal income tax
return along with other affiliated subsidiaries of Fortis, Inc. Income tax
expense or credits are allocated among the affiliated subsidiaries by applying
corporate income tax rates to taxable income or loss determined on a separate
return basis according to a Tax Allocation Agreement.
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial statement purposes and
for income tax purposes.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
7. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserves.................................................................. $ 51,271 $ 54,346
Separate account assets/liabilities....................................... 40,989 34,386
Unrealized losses......................................................... 2,648 --
Accrued liabilities....................................................... 8,439 13,781
Claims and benefits payable............................................... 7,764 2,626
Other..................................................................... 1,549 123
--------- ---------
Total deferred tax assets............................................... 112,660 105,262
Deferred tax liabilities:
Other..................................................................... 2,348 --
Unrealized gains.......................................................... 20,402 48,826
Deferred policy acquisition costs......................................... 67,850 60,930
Investments............................................................... 1,942 --
Fixed assets.............................................................. 3,110 5,044
--------- ---------
Total deferred tax liabilities.......................................... 95,652 114,800
--------- ---------
Net deferred tax asset (liability)...................................... $ 17,008 $ (9,538)
--------- ---------
--------- ---------
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets, and, therefore, no such valuation
allowance has been established.
The Company's tax expense (credit) for the year ended December 31 is shown as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current.............................................................. $ 32,193 $ 39,660 $ 15,046
Deferred............................................................. (1,094) (11,769) (3,451)
--------- --------- ---------
$ 31,099 $ 27,891 $ 11,595
--------- --------- ---------
--------- --------- ---------
</TABLE>
Federal Income tax payments and refunds resulted in net payments of $16,434,000,
$40,453,000 and $10,351,000 in 1996, 1995 and 1994, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory income tax rate............................................ 35.0% 35.0% 35.0%
Tax audit provision.................................................. -- -- 0.8
Other, net........................................................... (.2) (0.9) (2.1)
--------- --------- ---------
34.8% 34.1% 33.7%
--------- --------- ---------
--------- --------- ---------
</TABLE>
8. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<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.............................. $2,344,474 $1,757,476
Assets of the separate accounts owned by the Company, at fair value....... 30,244 24,009
--------- ---------
$2,374,718 $1,781,485
--------- ---------
--------- ---------
</TABLE>
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
9. 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
------------------------------- --------------------
1996 1995 1994 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices......... $ 55,046 $ 30,576 $ 49,759 $ 482,507 $ 377,040
Deferred policy acquisition costs............... 27,190 15,100 19,783 268,075 237,509
Investment valuation differences................ (1,600) 330 370 31,326 114,413
Policy reserves................................. (19,505) (29,238) (25,213) (131,159) (114,259)
Current income taxes payable.................... (1,292) (1,294) -- (7,895) (7,895)
Deferred income taxes........................... 1,094 11,769 2,356 17,008 (9,538)
Realized gains (losses) on investments.......... 264 1,938 (1,052) -- --
Realized gains (losses) transferred to the
Interest Maintenance Reserve (IMR), net of
tax............................................ 2,335 31,711 (18,456) -- --
Amortization of IMR, net of tax................. (6,130) (5,261) (5,479) -- --
Property and equipment.......................... -- -- -- 20,481 27,172
Interest maintenance reserve.................... -- -- -- 50,019 53,814
Asset valuation reserve......................... -- -- -- 62,961 48,507
Other, net...................................... 790 (1,761) 789 (12,650) (15,665)
--------- --------- --------- --------- ---------
As reported herein.............................. $ 58,192 $ 53,870 $ 22,857 $ 780,673 $ 711,098
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
10. REINSURANCE
The maximum amount that the Company retains on any one life is $500,000 of
life insurance including accidental death. Amounts in excess of $500,000 are
reinsured with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums for the year ended December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Life insurance......................................................... $ 8,680 $ 4,661 $ 5,571
Accident and health insurance.......................................... 6,793 3,410 36,782
--------- --------- ---------
$ 15,473 $ 8,071 $ 42,353
--------- --------- ---------
--------- --------- ---------
</TABLE>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Life insurance........................................................ $ 7,225 $ 2,489 $ 1,650
Accident and health insurance......................................... 5,993 8,807 19,913
--------- --------- ---------
$ 13,218 $ 11,296 $ 21,563
--------- --------- ---------
--------- --------- ---------
</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.
11. STATUTORY INFORMATION
Dividend distributions to parent are restricted as to amount by state
regulatory requirements. The Company had $47,728,000 free from such restrictions
at December 31, 1996. 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 form state to state, may differ from 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 not
expected to be completed before 1998, 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.
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
12. 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,
1996, 1995 and 1994, were $13,319,000, $10,074,000 and $8,944,000, respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $68,616,000, $59,308,000 and $57,307,000, in commissions to its affiliate,
Fortis Investors, Inc. for the years ended December 31, 1996, 1995 and 1994,
respectively.
13. 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 the 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
------------------------------------------
1996 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities...................................... $2,115,499 $2,115,499 $2,075,624 $2,075,624
Equity securities..................................... 106,290 106,290 78,852 78,852
Mortgage loans on real estate......................... 582,869 614,555 562,697 605,501
Policy loans.............................................. 60,722 60,722 53,863 53,863
Short-term investments.................................... 182,817 182,817 153,499 153,499
Cash...................................................... 20,474 20,474 1 1
Assets held in separate accounts.......................... 2,371,601 2,371,601 1,781,485 1,781,485
Liabilities:
Individual and group annuities (subject to discretionary
withdrawal).............................................. $ 916,754 $ 886,110 $ 865,623 $ 834,621
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company 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, 1996.
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 $3,913,000, $3,765,000
and $3,536,000 in 1996, 1995 and 1994, respectively.
37
<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, 1996 was 3.80%.
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) to the 365th/7] - 1
The seven day effective yield for the Money Market Subaccount as of December 31,
1996 was 3.87%.
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:
Yield=2[((((a-b)/cd)+1) to the 6th)-1]
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, 1996:
SUBACCOUNT YIELD
---------- -----
U.S. Government Securities . . . . . . . . . . . . . . . . . . 7.45%
Diversified Income . . . . . . . . . . . . . . . . . . . . . . 7.92%
High Yield . . . . . . . . . . . . . . . . . . . . . . . . . . 8.83%
Global Bond. . . . . . . . . . . . . . . . . . . . . . . . . . 5.30%
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)to the nth) = 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
SUBACCOUNT PERIOD ENDED PERIOD ENDED SUBACCOUNT (1) TO
DEC. 31, 1996 DEC. 31, 1996(1) DEC. 31, 1996
<S> <C> <C> <C>
GROWTH STOCK 11.38% 5.98% 12.10%
U.S. GOVERNMENT SECURITIES -2.68% 1.14% 3.20%
DIVERSIFIED INCOME -0.73% 2.50% 4.96%
ASSET ALLOCATION 7.51% 5.81% 8.87%
GLOBAL GROWTH 14.00% N/A 11.69%
HIGH YIELD 5.53% N/A 3.21%
GROWTH & INCOME 16.37% N/A 14.69%
AGGRESSIVE GROWTH 2.70% N/A 7.68%
GLOBAL ASSET ALLOCATION 7.70% N/A 10.40%
GLOBAL BOND -1.64% N/A 6.12%
INTERNATIONAL STOCK 9.09% N/A 9.50%
VALUE N/A N/A N/A
S & P 500 N/A N/A N/A
BLUE CHIP N/A N/A N/A
</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, International Stock Subaccount on January 2, 1995,
Value Subaccount, Blue Chip Stock Subaccount, and S & P 500
<PAGE>
Index Subaccount on January 1, 1996, 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,
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
SUBACCOUNT PERIOD ENDED PERIOD ENDED COMMENCEMENT
DEC. 31, 1995 DEC. 31, 1995 TO DEC. 31, 1995
<S> <C> <C> <C>
GROWTH STOCK 11.38% 33.67% 169.20%
U.S. GOVERNMENT SECURITIES -2.68% 5.82% 31.35%
DIVERSIFIED INCOME -0.73% 13.17% 52.20%
ASSET ALLOCATION 7.51% 32.63% 108.90%
GLOBAL GROWTH 14.00% N/A 67.61%
HIGH YIELD 5.53% N/A 8.79%
GROWTH & INCOME 16.37% N/A 44.18%
AGGRESSIVE GROWTH 2.70% N/A 21.83%
GLOBAL ASSET ALLOCATION 7.70% N/A 21.88%
GLOBAL BOND -1.64% N/A 12.62%
INTERNATIONAL STOCK 9.09% N/A 19.91%
VALUE N/A N/A 6.99%
S & P 500 N/A N/A 9.77%
BLUE CHIP N/A N/A 11.70%
- ----------------
</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, Value Subaccount, Blue Chip Stock Subaccount, and S & P 500 Index
Subaccount on January 1, 1996, 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.
A-2
<PAGE>
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
A-3
<PAGE>
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
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
A-4
<PAGE>
High Yield Subaccount
Morningstar Publications, Inc. high yield
Lipper Analytical Services, Inc. high current yield
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, 1996.
Statements of Changes in Net Assets for the years ended December
31, 1996, 1995 and 1994.
Notes to Financial Statements
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, 1996 and 1995.
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, 1996, 1995 and 1994.
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).
(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).
<PAGE>
(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).
(f) Enhanced Death Benefit Rider (incorporated by reference from
Form N-4 Registration Statement filed by Fortis Benefits and
its Variable Account D contemporaneously herewith, File No.
33-37577.)
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. Not applicable.
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
Peggy L. Ettestad (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.
Item 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1997 there were 48,344 Contract owners.
<PAGE>
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 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
<PAGE>
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.:
Name and Principal Positions and Offices
Business Address with Underwriter
- ------------------ ---------------------
Robert W. Beltz, Jr.* Vice President
Mark C. Cadalbert* Compliance Officer
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
Dean C. Kopperud* President and Director
Scott R. Plummer* 2nd Vice President &
Corporate Counsel
- ------------------------
* Address: 500 Bielenberg Drive, Woodbury, Mn 55125.
(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
<PAGE>
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.
Fortis Benefits Insurance Company represents:
(a) that the fees and charges imposed under the provisions of the Contract
covered by this registration statement, in the aggregate, are
reasonable in relation to the services to be rendered by the
Registrant associated with the Contracts, the expenses to be incurred
by the Registrant associated with the Contracts, and the risks assumed
by the Registrant associated with the Contracts.
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 23rd day of
April, 1997.
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 23, 1997.
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
--------------------- (Chief Executive Officer)
Robert Brian Pollock
/s/ Senior Vice President, Controller
--------------------- and Treasurer (Principal
Michael John Peninger Accounting Officer and
Principal Financial Officer)
*By: /s/
--------------------
Robert Brian Pollock
Attorney-in-Fact
<PAGE>
Exhibit Index
Exhibit No.
- -----------
Consent of Accountants
Schedule of Computation
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 12, 1997 on the financial statements of Fortis
Benefits Insurance Company and our reports dated April 18, 1997 on the financial
statements of Fortis Benefits Insurance Company Variable Account D in
Post-Effective Amendment No. 16 to the Registration Statement (Form N-4 No.
33-19421) and related Prospectus and Statement of Additional Information of
Fortis Benefits Insurance Company 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, 1997
<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, 1996 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:
[(($939,047)) 6
2 * { ---------------------------- + 1]- 1} = 7.45%
[((9,635,092 * 15.935))
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, 1996 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1996 and the total return for the
one year period are as follows:
Ending Value Total Return
---------------- -----------------
$973.22 $973.22 - $1,000
----------------------- = -2.68%
$1,000
Cumlative total return for five years ended December 31, 1996, is as
follows:
$1,058.17 - $1,000
----------------------- = 5.82%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$1,313.5 - $1,000
----------------------- = 31.35%
$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, 1996:
$973.22/$1,000 - 1 = -2.68%
Five years ended December 31, 1996:
1/5
($1,058.17/$1,000) - 1 = 1.14%
Since inception through December 31, 1996:
1/8.67
($1,313.50/$1,000) - 1 = 3.20%
<TABLE>
<CAPTION>
Unit Value Information
----------------------
<S> <C>
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
12/31/96 15.935
</TABLE>
<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, 1996 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:
[(($651,229)) 6
2 * { ---------------------------- + 1] - 1} = 7.92%
[((55,653,680 * 1.802))
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, 1996 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1996 and the total return for the
one year period are as follows:
Ending Value Total Return
------------- ------------
$992.37 $992.37 - $1,000
--------------------- = - .73%
$1,000
Cumlative total return for five years ended December 31, 1996, is as
follows:
$1,131.74 - $1,000
----------------------- = 13.17%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$1,522.00 - $1,000
----------------------- = 52.20%
$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, 1996:
$992.37/$1,000 - 1 = - .73%
Five years ended December 31, 1996:
1/5
($1,131.74/$1,000) - 1 = 2.50%
Since inception through December 31, 1996:
1/8.67
($1,522.00/$1,000) - 1 = 4.96%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
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
12/31/96 1.802
</TABLE>
<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, 1996 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1996 and the total return for the
one year period are as follows:
Ending Value Total Return
---------------- -----------------
$1,113.82 $1,113.82 - $1,000
----------------------- = 11.38%
$1,000
Cumlative total return for five years ended December 31, 1996, is as
follows:
$1,336.70 - $1,000
----------------------- = 33.67%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$2,692.00 - $1,000
----------------------- = 169.20%
$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, 1996:
$1,113.82/$1,000 - 1 = 11.385%
Five years ended December 31, 1996:
1/5
($1,336.70/$1,000) - 1 = 5.98%
Since inception through December 31, 1996:
1/8.67
($2,692.00/$1,000) - 1 = 12.10%
<TABLE>
<CAPTION>
Unit Value Information
----------------------
<S> <C>
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
12/31/96 2.972
</TABLE>
<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, 1996 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1996 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ -----------------
$1,075.12 $1,075.12 - $1,000
----------------------- = 7.51%
$1,000
Cumlative total return for five years ended December 31, 1996, is as
follows:
$1,326.27 - $1,000
----------------------- = 32.63%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$2,089.00 - $1,000
----------------------- = 108.90%
$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, 1996:
$1,075.12/$1,000 - 1 = 7.51%
Five years ended December 31, 1996:
1/5
($1,326.27/$1,000) - 1 = 5.81%
Since inception through December 31, 1996:
1/8.67
($2,089.00/$1,000) - 1 = 8.87%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
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
12/31/96 2.369
</TABLE>
<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, 1996 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1996 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ ------------
$1,140.00 $1,140.00 - $1,000
------------------- = 14.00%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$1,676.10 - $1,000
----------------------- = 67.61%
$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
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, 1996:
$1,140.00/$1,000 - 1 = 14.00%
<PAGE>
Since inception through December 31, 1996:
1/4.67
($1,676.10/$1,000) - 1 = 11.69%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
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
12/31/96 18.511
</TABLE>
<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, 1996 was computed by dividing 1 by the unit price for December 24, 1996,
then multiplying this by the unit price on December 31, 1996 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, 1996
was as follows:
((1 / 1.417826) x 1.418859) -1 = .000729 - Base Period Return
.000729 x (365 / 7) = .0380 or 3.80%
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, 1996 was as follows:
365/7
(.000729 + 1) -1 = .0387 or 3.87%
Date Unit Price
------ ------------
12/24/96 1.417826
12/31/96 1.418859
<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, 1996 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1996 and the cumulative total return since
inception is as follows:
Ending Value Total Return
---------------- -----------------
$1,026.95 $1,026.95 - $1,000
----------------------- = 2.70%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$1,218.30 - $1,000
----------------------- = 21.83%
$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, 1996:
$1,026.95/$1,000 - 1 = 2.70%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1996 is as follows:
1/2.67
($1,218.30/$1,000) - 1 = 7.68%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
Unit
Date Value
---------- ----------
05/01/94 $10.000
12/31/94 9.796
12/31/95 12.461
12/31/96 13.233
</TABLE>
<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, 1996 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1996 and the cumulative total return since
inception is as follows:
Ending Value Total Return
---------------- -----------------
$1,163.70 $1,163.70 - $1,000
----------------------- = 16.37%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$1,441.80 - $1,000
------------------- = 44.18%
$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, 1996:
$1,163.70/$1,000 - 1 = 16.37%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1996 is as follows:
1/2.67
($1,441.80/$1,000) - 1 = 14.69%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
Unit
Date Value
---------- ----------
05/01/94 $10.000
12/31/94 10.069
12/31/95 12.904
12/31/96 15.468
</TABLE>
<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, 1996 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:
[ $287,560 6
2 * { ---------------------------- + 1] - 1} = 8.83%
[((3,337,604 * 11.929))
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, 1996 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1996 and the cumulative total return since
inception is as follows:
Ending Value Total Return
---------------- -------------
$1,055.30 $1,055.30 - $1,000
------------------- = 5.53%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$1,087.90 - $1,000
----------------------- = 8.79%
$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, 1996:
$1,055.30/$1,000 - 1 = 5.53%
Average annual total return since inception of the subaccount through
December 31, 1996 is as follows:
1/2.67
($1,087.90/$1,000) - 1 = 3.21%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
Unit
Date Value
---------- ----------
05/01/94 $10.000
12/31/94 9.452
12/31/95 10.941
12/31/96 11.929
</TABLE>
<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, 1996 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1996 and the cumulative total return since
inception is as follows:
Ending Value Total Return
---------------- ------------
$1,077.00 $1,077.00 - $1,000
-------------------- = 7.70%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$1,218.80 - $1,000
----------------------- = 21.88%
$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, 1996:
$1,077.00/$1,000 - 1 = 7.70%
Average annual total return since inception of the subaccount through
December 31, 1996 is as follows:
1/2
($1,218.80/$1,000) - 1 = 10.40%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
Unit
Date Value
---------- ----------
01/01/95 $10.000
12/31/95 11.590
12/31/96 12.888
</TABLE>
<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, 1996 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1996 and the cumulative total return since
inception is as follows:
Ending Value Total Return
---------------- -----------------
$1,090.89 $1,090.89 - $1,000
------------------- = 9.09%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$1,199.10 - $1,000
----------------------- = 19.91%
$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, 1996:
$1,090.89/$1,000 - 1 = 9.09%
Average annual total return since inception of the subaccount through
December 31, 1996 is as follows:
1/2
($1,199.10/$1,000) - 1 = 9.50%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
Unit
Date Value
---------- ----------
01/01/95 $10.000
12/31/95 11.272
12/31/96 12.691
</TABLE>
<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, 1996 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:
[ $56,811 6
2 * { ---------------------------- + 1] - 1} = 5.30%
[ ((1,088,043 * 11.962))
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, 1996 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1996 and the cumulative total return since
inception is as follows:
Ending Value Total Return
---------------- ------------
$983.65 $983.65 - $1,000
------------------ = -1.64%
$1,000
Cumulative total return since inception through December 31, 1996, is as
follows:
$1,126.20 - $1,000
----------------------- = 12.62%
$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, 1996:
$983.65/$1,000 - 1 = -1.64%
Average annual total return since inception of the subaccount through
December 31, 1996 is as follows:
1/2
($1,126.20/$1,000) - 1 = 6.12%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
Unit
Date Value
---------- ----------
01/01/95 $10.000
12/31/95 11.743
12/31/96 11.962
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
VALUE 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 May 1, 1996 and unit information shown
below, and adjusting for the annual administration charge, the value of such
investment at December 31, 1996 and the cumulative total return since inception
is as follows:
Ending Value Total Return
---------------- ------------
$1,069.90 $1,069.90 - $1,000
------------------- = 6.99%
$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, 1996 is as follows:
1/.67
($1,069.90/$1,000) - 1 = 10.61%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
Unit
Date Value
---------- ----------
05/01/96 $10.000
12/31/96 11.049
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
S & P 500 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 May 1, 1996 and unit information shown
below, and adjusting for the annual administration charge, the value of such
investment at December 31, 1996 and the cumulative total return since inception
is as follows:
Ending Value Total Return
---------------- ------------
$1,097.70 $1,097.70 - $1,000
--------------------- = 9.77%
$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, 1996 is as follows:
1/.67
($1,097.70/$1,000) - 1 = 14.93%
<TABLE>
<CAPTION>
Unit Value Information
----------------------------
<S> <C>
Unit
Date Value
---------- ----------
05/01/96 $10.000
12/31/96 11.327
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
BLUE CHIP 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 May 1, 1996 and unit information shown
below, and adjusting for the annual administration charge, the value of such
investment at December 31, 1996 and the cumulative total return since inception
is as follows:
Ending Value Total Return
---------------- -----------------
$1,117.00 $1,117.00 - $1,000
----------------------- = 11.70%
$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, 1996 is as follows:
1/.67
($1,117.00/$1,000) - 1 = 18.00%
Unit Value Information
----------------------------
Unit
Date Value
---------- ----------
05/01/96 $10.000
12/31/96 11.520
