<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1998.
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. 18
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 53
----------------------------------
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, 1998 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.
----------------------------------
<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 Information Summary -- Financial
information
5. General Description of Summary--Separate Account
Registrant, Depositor and Investment Options; Fortis Benefits
Portfolio Companies and 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;
Accumulation 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 Information Additional Information
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History Fortis Benefits
18. Services Services
19. Purchases of Securities Reduction of Charges
Being Offered
20. Underwriters Services
21. Calculation of Performance Data Appendix A
22. Annuity Payments Calculation of Annuity Payments
23. Financial Statements Financial Statements
<PAGE>
PROFILE [LOGO]FORTIS-SM-
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS
THAT YOU SHOULD CONSIDER AND KNOW BEFORE PURCHASING THE OPPORTUNITY+ ANNUITY.
THIS ANNUITY IS MORE FULLY DESCRIBED IN THE PROSPECTUS WHICH ACCOMPANIES THIS
PROFILE. PLEASE READ THE PROSPECTUS CAREFULLY.
1. THE ANNUITY CONTRACT
Opportunity+ Variable and Fixed Annuity is a contract between you and
Fortis Benefits Insurance Company. It is designed to help you accumulate
assets for your retirement and other long term financial goals on a tax
deferred basis.
Opportunity+ offers you a diverse selection of money managers and
investment options. You may divide your money among the 18 investment
portfolios of the Fortis Series Fund and the fixed account of Fortis
Benefits.
The investment portfolios offer professionally managed investment options
with goals ranging from capital preservation to aggressive growth. Your
choices are found on the next page. These portfolios are designed to
provide you with better potential return than the fixed account. Your
investment, however, is not guaranteed. The value of your Opportunity+
contract can fluctuate up or down based on your choices and you may
experience a loss. Opportunity+ does provide you with a death benefit that
protects your beneficiaries from such loss.
You can also choose to put all or part of your money in the fixed account.
For this account, Fortis Benefits guarantees your investment and the
interest rate it sets once a year.
Like most annuities, this contract has two phases: the accumulation phase
and the income phase. During the accumulation phase, you invest money in
your contract. Your contract value is based on your investment choices. You
may withdraw money from your contract. However, as with most other
tax-deferred investments, you will pay taxes on earnings and untaxed
contributions when you withdraw them. You may also be subject to an IRS tax
penalty if you make withdrawals before age 59 1/2.
During the income phase, you can elect to receive regular payments from
your contract. Depending on your choice, these payments can be fixed in
dollar amount or can vary with investment performance. The amount of these
income payments also are determined by the amount you are able to
accumulate during the accumulation phase of your contract.
2. ANNUITY INCOME OPTIONS
(THE INCOME PHASE)
You may select one of four annuity income options:
(1) monthly payments during your lifetime;
(2) monthly payments during your lifetime, but with payments continuing to
your beneficiary for a period from 10 to 20 years (as you select) if
you die before the end of the selected period;
(3) monthly payments during your lifetime and the lifetime of another
person you select; and
(4) monthly payments during your lifetime and the lifetime of another
person, with the payments reduced by 1/2 when one of you dies.
At the start of the income phase you can choose to have the payments come
from the fixed account, the investment portfolios, or both. The dollar
amount of your payments coming from the fixed account will be fixed. The
payments from the investment portfolios you select will go up or down
depending on their performance. Once payments begin, you cannot change
your annuity option.
3.PURCHASING AN OPPORTUNITY + FIXED
AND VARIABLE ANNUITY CONTRACT
You can buy this contract through your registered representative who can
help you complete the proper forms. The minimum initial investment is $50.
You can make additional contributions of at least $50 at any time during
the accumulation period. The minimum investment may be smaller for certain
employer sponsored plans.
<PAGE>
4. INVESTMENT OPTIONS
You can invest your money in any of the following investment portfolios
which are described in the fund prospectus:
INTERNATIONAL STOCK
Lazard Freres - International Stock Series
Fortis - Global Growth Series
Morgan Stanley - Global Asset
Allocation Series
DOMESTIC STOCK
SMALL CAP Fortis - Aggressive Growth Series
Berger - Small Cap Value Series
MID CAP Fortis - Growth Stock Series
Dreyfus - Mid Cap Stock Series
LARGE CAP Alliance - Large Cap Growth Series
T. Rowe Price - Blue Chip Stock Series
Dreyfus - S & P 500 Index Series
Fortis - Growth & Income Series
Fortis - Value Series
Fortis - Asset Allocation Series
INTERNATIONAL BONDS
Mercury - Global Bond Series
DOMESTIC BONDS
Fortis - High Yield Series
Fortis - Diversified Income Series
Fortis - U.S. Government Securities Series
CASH Fortis - Money Market Series
You may also choose to invest in the guaranteed fixed account.
5. EXPENSES
Each year we deduct a $30 contract maintenance fee from your contract
value. This fee is waived if your contract value is at least $25,000. We
also deduct insurance charges equal to 1.35% annually of the average daily
value of your contract in the investment portfolios. As with other
professionally managed investments, there are also investment charges on
money in the investment portfolios, estimated to range from 0.38% to 1.16%.
If you decide to cancel your contract or take money out in excess of the
annual free withdrawal amount, there may be a withdrawal charge equal to 5%
of the investment you withdraw, within 5 years of its payment. The annual
free withdrawal amount is 10% of your payments beginning in year one.
In a limited number of states, you may also be assessed a state premium tax
charge of up to 4%, depending upon the state. In these states, this tax
will be deducted when you cancel the contract, begin the income phase, or
if the death benefit is paid. In many states, there is no tax at all.
The following chart is designed to help you understand the expenses in your
contract. The column labeled "Total Annual Expenses" includes the total of
the $30 contract maintenance fee (included as 0.05%), the 1.35% insurance
charge and the investment management expenses for each portfolio. The
right side of the chart shows you two examples of the expenses, in dollars,
you would pay under the contract. The examples assume that you invest
$1,000, earn 5% annually and withdraw your money: (1) at the end of one
year, and (2) at the end of ten years. In the first example, the total
annual expenses are assessed along with the withdrawal charges. In the
second example the total annual expenses for the ten years are shown but
there is no withdrawal charge assessed. The premium tax is assumed to be
0% for both examples. Please see the prospectus for more complete
examples.
<PAGE>
<TABLE>
PORTFOLIO TOTAL ANNUAL TOTAL ANNUAL TOTAL EXAMPLES
INSURANCE INVESTMENT ANNUAL
EXPENSES EXPENSES EXPENSES 1 YEAR 10 YEARS
<S> <C> <C> <C> <C> <C>
INTERNATIONAL STOCK
Lazard Freres - International Stock 1.40% 1.08% 2.48% $70 $278
Fortis - Global Growth 1.40% 0.79% 2.19% $67 $249
Morgan Stanley - Global Asset Allocation 1.40% 1.16% 2.56% $71 $286
- ---------------------------------------------------------------------------------------------------------
DOMESTIC STOCK
SMALL CAP
Fortis - Aggressive Growth 1.40% 0.76% 2.16% $67 $246
Berger - Small Cap Value 1.40% 1.10% 2.50% $70 $280
MID CAP
Fortis - Growth Stock 1.40% 0.66% 2.06% $66 $236
Dreyfus - Mid Cap Stock 1.40% 1.10% 2.50% $70 $280
LARGE CAP
Alliance - Large Cap Growth 1.40% 1.10% 2.50% $70 $280
T. Rowe Price - Blue Chip Stock 1.40% 1.02% 2.42% $69 $272
Dreyfus - S&P500 Index 1.40% 0.51% 1.91% $64 $220
Fortis - Growth & Income 1.40% 0.70% 2.10% $66 $240
Fortis - Value 1.40% 0.83% 2.23% $67 $253
Fortis - Asset Allocation 1.40% 0.53% 1.93% $64 $222
- ---------------------------------------------------------------------------------------------------------
INTERNATIONAL BONDS
Mercury - Global Bond 1.40% 1.10% 2.50% $70 $280
- ---------------------------------------------------------------------------------------------------------
DOMESTIC BONDS
Fortis - High Yield 1.40% 0.62% 2.02% $65 $231
Fortis - Diversified Income 1.40% 0.55% 1.95% $65 $224
Fortis - U.S. Government Securities 1.40% 0.54% 1.94% $64 $223
- ---------------------------------------------------------------------------------------------------------
CASH
Fortis - Money Market 1.40% 0.38% 1.78% $63 $206
- ---------------------------------------------------------------------------------------------------------
</TABLE>
6. TAXES
Your earnings are not taxed until you withdraw them from the contract. If
you take money out during the accumulation phase, earnings come out first
and are taxable ordinary income. If you make a withdrawal prior to age
591/2, you may be charged a 10% federal tax penalty on that amount.
Payments during the income phase are considered partly a return of your
original investment and partly earnings.You will only be taxed on the
earnings portion. However, if your contract is funded with pretax or tax
deductible dollars (qualified plan contributions), then the entire payment
will be taxable.
7. ACCESS TO YOUR MONEY
You can make withdrawals at any time during the accumulation phase. The
minimum amount you can withdraw is $500. You can withdraw up to 10% of
your total investments each year with no charge. Any payment invested in
the contract for more than five years can be withdrawn without a charge.
All other withdrawals will be charged 5% of each payment you take out. You
may also have to pay income tax and a tax penalty on any money you
withdraw.
SYSTEMATIC WITHDRAWALS: You can have money automatically sent to you each
month during the accumulation phase of your contract. Systematic
withdrawals are available for amounts of $50 or more. Of course,
withdrawals may be taxable and subject to an IRS tax penalty.
<PAGE>
8. PERFORMANCE
The value of your contract will go up or down depending on the investment
portfolios you choose. The following chart shows the total return for each
investment portfolio for the time periods shown. Insurance charges,
investment management charges and all other expenses of the investment
portfolio have been deducted from these numbers. These numbers do not
reflect any withdrawal charges or the annual contract fee which, if
applied, would reduce the performance. Past performance is not
a guarantee of future results.
<TABLE>
PORTFOLIO 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL STOCK
Lazard Freres - International Stock 10.49% 12.48% 12.83% -- -- -- -- -- -- --
Fortis - Global Growth 5.39% 17.50% 28.74% (4.28%) 16.34% -- -- -- -- --
Morgan Stanley - Global Asset Allocation 11.99% 11.20% 15.90% -- -- -- -- -- -- --
DOMESTIC STOCK - SMALL CAP
Fortis - Aggressive Growth 0.06% 6.19% 28.15% -- -- -- -- -- -- --
Berger - Small Cap Value* -- -- -- -- -- -- -- -- -- --
DOMESTIC STOCK - MID CAP
Fortis - Growth Stock 10.91% 14.85% 25.96% (4.12%) 7.32% 1.55% 51.44% (4.40%) 34.66% 0.83%
Dreyfus - Mid Cap Stock* -- -- -- -- -- -- -- -- -- --
DOMESTIC STOCK - LARGE CAP
Alliance - Large Cap Growth*
T. Rowe Price - Blue Chip Stock 25.25% -- -- -- -- -- -- -- -- --
Dreyfus - S&P500 Index 30.55% -- -- -- -- -- -- -- -- --
Fortis - Growth & Income 25.98% 19.87% 27.98% -- -- -- -- -- -- --
Fortis - Value 23.56% -- -- -- -- -- -- -- -- --
Fortis - Asset Allocation 18.62% 10.99% 20.35% (1.65%) 8.32% 5.50% 25.93% 0.63% 22.08% 1.98%
INTERNATIONAL BONDS
Mercury - Global Bond (1.04%) 1.86% 17.43% -- -- -- -- -- -- --
DOMESTIC BONDS
Fortis - High Yield 8.29% 9.03% 11.26% -- -- -- -- -- -- --
Fortis - Diversified Income 8.96% 2.74% 15.72% (6.50%) 11.25% 5.64% 13.11% 7.40% 10.81% 2.47%
Fortis - U.S. Government Securities 7.62% 0.82% 17.22% (7.70%) 7.98% 4.70% 12.85% 6.45% -- --
CASH
Fortis - Money Market 3.93% 3.75% 4.31% 2.52% 1.39% 1.97% 4.50% 6.43% 7.96% 3.02%
</TABLE>
- ------------------
*As these portfolios are new, no performance data is available.
9. DEATH BENEFIT
If you die during the accumulation phase, your contract beneficiary will
receive a death benefit. This death benefit will be the greater of three
amounts:
1) your contract value;
2) the money you put in less a proportionate reduction related to any
withdrawals; and
3) at the time of death, the highest anniversary contract value up to
your 75th birthday; plus (a) any money you put in since that
anniversary, less (b) a proportionate reduction related to any money
you took out since that anniversary.
10. OTHER INFORMATION
FREE LOOK PERIOD: You may cancel your contract within 10 days of receiving
it (or whatever period is required by your state). We will pay you the
value of your contract without imposing a withdrawal charge. This may be
more or less than the amount you invested. If required by law, we will
return your original payment.
NO PROBATE: In most cases, your beneficiary will receive the death benefit
when you die without going through probate.
DOLLAR COST AVERAGING: You can invest gradually with a regular amount of
money into your chosen investment portfolios from any of the portfolios,
or from the fixed account. This can lower your average cost per unit over
time as compared to your cost on a single purchase.
AUTOMATIC REBALANCING: You can maintain your asset allocation mix by asking
us to readjust your money on a periodic basis. This can help you keep your
investment in line with your goals.
NURSING HOME WAIVER: You will be able to take your money out without a
withdrawal charge when you are in a nursing home and meet certain
conditions.
11. Inquiries
If you need more information, please contact us at:
Fortis Benefits Insurance Company
P.O. Box 64272
St. Paul, MN 55164
800-800-2000, Ext. 3057
<PAGE>
<PAGE>
FORTIS
OPPORTUNITY
VARIABLE
ANNUITY
Individual Flexible
Premium Deferred
Variable Annuity Contract
PROSPECTUS DATED
May 1, 1998
FORTIS-R-
FORTIS BENEFITS INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE:
P.O. BOX 64272 500 BIELENBERG DRIVE 1-800-800-2000
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, Aggressive
Growth Series, Small-Cap Value Series, Mid-Cap Stock Series, and Large-Cap
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 (or longer in some states)
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, 1998, 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.
95530 (5/98)
<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% 0.47% 0.47% 0.75% 0.50% 0.90% 0.48% 0.70%
Other Expenses................ 0.08% 0.07% 0.08% 0.35% 0.12% 0.26% 0.05% 0.13%
Total Fortis Series Operating
Expenses..................... 0.38% 0.54% 0.55% 1.10% 0.62% 1.16% 0.53% 0.83%
<CAPTION>
Growth &
Income
Series
--------
<S> <C>
Investment Advisory and
Management Fee............... 0.65%
Other Expenses................ 0.05%
Total Fortis Series Operating
Expenses..................... 0.70%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Blue Chip Mid Cap Small Cap Global Large Cap Growth
Index Stock International Stock Value Growth Growth Stock
Series Series Stock Series Series Series Series Series Series
------- --------- ------------- --------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee............... 0.40% 0.90% 0.85% 0.90% 0.90% 0.70% 0.90% 0.61%
Other Expenses................ 0.11% 0.12% 0.23% 0.20% 0.20% 0.09% 0.20% 0.05%
Total Fortis Series Operating
Expenses..................... 0.51% 1.02% 1.08% 1.10% 1.10% 0.79% 1.10% 0.66%
<CAPTION>
Aggressive
Growth
Series
----------
<S> <C>
Investment Advisory and
Management Fee............... 0.69%
Other Expenses................ 0.07%
Total Fortis Series Operating
Expenses..................... 0.76%
</TABLE>
--------------------------------
(a) As a percentage of Series average net assets based on 1997 historical data
except that for Small Cap Value Series, Mid Cap Stock Series and Large Cap
Growth Series these amounts are based upon estimates for their current
fiscal year.
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......................................... 63 100 140 206
U.S. Government Securities Series........................... 64 105 148 223
Diversified Income Series................................... 65 105 149 224
Global Bond Series.......................................... 70 122 176 280
High Yield Series........................................... 65 107 152 231
Global Asset Allocation Series.............................. 71 126 183 294
Asset Allocation Series..................................... 64 105 148 222
Value Series................................................ 67 114 163 253
Growth & Income Series...................................... 66 110 156 240
S&P 500 Index Series........................................ 64 104 147 220
Blue Chip Stock Series...................................... 69 120 172 272
International Stock Series.................................. 70 121 175 278
Mid Cap Stock Series........................................ 70 122 176 280
Small Cap Value Series...................................... 70 122 176 280
Global Growth Series........................................ 67 113 161 249
Large Cap Growth Series..................................... 70 122 176 280
Growth Stock Series......................................... 66 109 154 236
Aggressive Growth Series.................................... 67 112 159 246
</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......................................... 18 55 95 206
U.S. Government Securities Series........................... 19 60 103 223
Diversified Income Series................................... 20 60 104 224
Global Bond Series.......................................... 25 77 131 280
High Yield Series........................................... 20 62 107 231
Global Asset Allocation Series.............................. 26 81 138 294
Asset Allocation Series..................................... 19 60 103 222
Value Series................................................ 22 69 118 253
Growth & Income Series...................................... 21 65 111 240
S&P 500 Index Series........................................ 19 59 102 220
Blue Chip Stock Series...................................... 24 75 127 272
International Stock Series.................................. 25 76 130 278
Mid Cap Stock Series........................................ 25 77 131 280
Small Cap Value Series...................................... 25 77 131 280
Global Growth Series........................................ 22 68 116 249
Large Cap Growth Series..................................... 25 77 131 280
Growth Stock Series......................................... 21 64 109 236
Aggressive Growth Series.................................... 22 67 114 246
</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, 1997 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 from Fortis Benefits at the address and phone number on the cover of
this prospectus.
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; 1-800-800-2000 (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 1-800-800-2000 (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 1-800-800-2000 (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, 1997. Accumulation
units have been rounded to the nearest whole unit.
<TABLE>
<CAPTION>
U.S. GLOBAL
MONEY GOV'T DIVERSIFIED GLOBAL HIGH ASSET ASSET GROWTH S&P
MARKET SECURITIES INCOME BOND YIELD ALLOCATION ALLOCATION VALUE & INCOME 500
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31,
1997
Accumulation
Units in
Force........ 31,491,629 7,743,923 49,942,498 1,123,401 4,194,544 2,918,483 156,035,843 3,402,217 11,003,248 5,491,818
Accumulation
Unit
Values....... $1.474617 $17.149938 $1.963344 $11.837281 $12.917282 $14.433538 $2.809839 $13.651572 $19.487584 $14.786540
December 31,
1996
Accumulation
Units in
Force........ 36,220,947 9,635,092 55,653,680 1,088,043 3,337,604 2,330,884 154,525,474 1,071,648 7,892,683 1,259,758
Accumulation
Unit
Values....... $1.418 $15.935 $1.801 $11.961 $11.928 $12.884 $2.368 $11.048 $15.468 $11.326
January 1, 1996*
Accumulation
Unit
Values....... -- -- -- -- -- -- -- $10.000 -- $10.000
December 31,
1995
Accumulation
Units in
Force........ 26,915,976 10,989,914 59,213,865 574,142 2,321,419 1,117,596 148,700,081 -- 4,204,163 --
Accumulation
Unit
Values....... $1.367 $15.805 $1.753 $11.743 $10.941 $11.590 $2.134 -- $12.904 --
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 --
Accumulation
Unit Value... $1.311 $13.483 $1.515 -- $9.834 -- $1.773 -- $10.083 --
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 -- -- --
Accumulation
Unit Value... $1.278 $14.609 $1.621 -- -- -- $1.797 -- -- --
December 31,
1992
Accumulation
Units in
Force........ 20,674,556 9,505,984 19,353,521 -- -- -- 49,688,937 -- -- --
Accumulation
Unit Value... $1.261 $13.529 $1.457 -- -- -- $1.665 -- -- --
May 1, 1992*
Accumulation
Unit Value... -- -- -- -- -- -- -- -- -- --
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>
BLUE INTERNATIONAL GLOBAL GROWTH AGGRESSIVE
CHIP STOCK GROWTH STOCK GROWTH
--------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
December 31,
1997
Accumulation
Units in
Force........ 4,149,587 4,239,821 13,725,612 156,975,866 6,551,677
Accumulation
Unit
Values....... $14.429421 $14.021796 $19.507894 $3.296005 $13.241215
December 31,
1996
Accumulation
Units in
Force........ 915,358 3,137,348 13,713,860 169,095,500 5,706,895
Accumulation
Unit
Values....... $11.520 $12.690 $18.510 $2.971 $13.232
January 1, 1996*
Accumulation
Unit
Values....... $10.000 -- -- -- --
December 31,
1995
Accumulation
Units in
Force........ -- 1,157,063 10,769,830 160,247,280 3,033,587
Accumulation
Unit
Values....... -- $11.271 $15.754 $2.587 $12.461
January 1, 1995*
Accumulation
Unit
Values....... -- $10.000 -- -- --
December 31,
1994
Accumulation
Units in
Force........ -- -- 10,055,959 148,657,108 1,155,647
Accumulation
Unit Value... -- -- $12.236 $2.054 $9.723
May 1, 1994*
Accumulation
Unit Value... -- -- 10.00
December 31,
1993
Accumulation
Units in
Force........ -- -- 5,108,957 118,720,649 --
Accumulation
Unit Value... -- -- $12.784 $2.142 --
December 31,
1992
Accumulation
Units in
Force........ -- -- 698,720 79,582,321 --
Accumulation
Unit Value... -- -- $10.989 $1.996 --
May 1, 1992*
Accumulation
Unit Value... -- -- 10.00 -- --
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 1997, Fortis Benefits had approximately $94 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 Fortis
Insurance Company (formerly 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
$167 billion in assets as of year-end 1997.
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. 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, Growth & Income Series, S&P 500 Index
Series, Blue Chip Stock Series, Growth Stock Series, Global Growth Series,
International Stock
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Series, Aggressive Growth Series, Small Cap Value Series, Mid Cap Stock Series,
and Large Cap 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.
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 the application not being complete.
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 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
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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 1-800-800-2000 (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, 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
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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 church, or a salary reduction contribution-only Section
403(b) plan satisfying the diversification requirements of the Employee
Retirement
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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, up to age 105, in
the application. The Annuity Commencement Date marks the beginning of the period
during which an Annuitant receives annuity payments under the Contract. Except
for contracts issued in connection with life insurance policies issued by Fortis
Benefits, the Annuity Commencement Date must be at least two years after the
Contract Date.
Depending on the type of retirement arrangement in connection with which a
Contract is issued, amounts that are distributed either too soon or too late may
be subject to penalty taxes under the Internal Revenue Code. See "Federal Tax
Matters." You should consider this carefully in selecting or changing an Annuity
Commencement Date.
In order for the Contract Owner to advance or defer the Annuity Commencement
Date, the Contract Owner must submit a Written Request during the Annuitant's
lifetime. The request must be received at our Home Office at least 30 days
before the then-scheduled Annuity Commencement Date. The new Annuity
Commencement Date must also be at least 30 days after the Written Request is
received. There is no right to make any total or partial surrender during the
Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
If the Contract Value at the end of the Valuation Period which contains the
Annuity Commencement Date is less than $5,000, we may pay the entire Contract
Value, without the imposition of any charges other than premium taxes, if
applicable, in a single sum payment to the Annuitant or other properly
designated payee and cancel the Contract.
Otherwise, Fortis Benefits will apply (1) the Fixed Account Value to provide a
Fixed Annuity Option and (2) the Separate Account Value in any Subaccount to
provide a Variable Annuity Option using the same Subaccount, unless the Contract
Owner has notified us by Written Request to apply the Fixed Account Value and
Separate Account Value in different proportions. Any such Written Request must
be received by us at our Home Office at least 30 days before the Annuity
Commencement Date.
Annuity payments under a Fixed or Variable Annuity Option will be made on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If more than one person is named as an
Annuitant, the Contract Owner may elect to name one of such persons to be the
sole Annuitant as of the Annuity Commencement Date. We reserve the right to
change the frequency of any annuity payment so that each payment will be at
least $50. There is no right to make any total or partial surrender during the
Annuity Period.
The amount of each annuity payment will depend on the amount of Contract Value
applied to an annuity option, the form of annuity
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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% (the assumed investment return)
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 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
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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.")
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.
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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."
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
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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.
- 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.
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- 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.
Fortis Investors will pay a selling allowance to its registered representatives
and selling brokers in varying amounts which under normal circumstances is not
expected to exceed 6.25% of purchase payments plus a servicing fee of .25% of
contract value per year, starting in the first contract year.
Fortis Investors may, under certain flexible compensation arrangements, pay
lesser or greater selling allowances and larger or smaller service fees to its
registered representatives and other broker dealer firms than as set forth
above. However, in such case, such flexible compensation arrangements will have
actuarial present values 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.
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
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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 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
19
<PAGE>
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 have the voting interest during the
Annuity Period, and Beneficiaries have the voting interest after the death of
the Annuitant or Contract Owner. However, if the Investment Company Act of 1940
or any rules thereunder should be amended or if the present interpretation
thereof should change, and as a result Fortis Benefits determines that it is
permitted to vote shares of the Portfolios in its own right, it may elect to do
so.
During the Accumulation Period, the number of shares of a Portfolio attributable
to a Contract is determined by dividing the amount of Contract Value in the
corresponding Subaccount pursuant to the Contract as of the record date for the
shareholders meeting by the net asset value of one Portfolio share as of that
date. During the Annuity Period, or after the death of the Contract Owner or
Annuitant, the number of Portfolio shares deemed attributable to the Contract
will be computed in a comparable manner, based on the liability for future
variable annuity payments allocable to that Subaccount under the Contract as of
the record date. Such liability for future payments will be calculated on the
basis of the mortality assumptions and the assumed interest rate used in
determining the number of Annuity Units credited to the Contract and the
applicable Annuity Unit value on the record date. During the Annuity Period, the
number of votes attributable to a Contract will generally decrease since funds
set aside to make the annuity payments will decrease.
Where Contract Owners are permitted to instruct us as to how to vote Portfolio
shares, our policy is to permit an Annuitant or payee who is not the Contract
Owner to direct the Contract Owner with respect to the voting of certain
Portfolio shares attributable to his or her Contract. An Annuitant or other
payee may direct the Contract Owner with respect to that number of Portfolio
shares that is attributable to purchase payments, if any, contributed by such
Annuitant or payee and any additional shares, to the extent authorized by an
employee benefit plan. (For these purposes, the number of shares attributable to
the Annuitant or payee is computed on a basis consistent with that for
attributing Portfolio shares to Contract Owners, as described above.)
Contract Owners are to instruct Fortis Benefits to vote in accordance with such
directions from Annuitants and payees. Furthermore, Contract Owners are to
instruct Fortis Benefits to vote shares of any Portfolio for which directions
could have been but were not received from Annuitants and other payees in the
same proportion as other shares in that Portfolio attributable to the Contract
Owner which are to be voted in accordance with directions received from
Annuitants and other payees. The Contract Owner may instruct us as to the voting
of any other shares attributable to Contracts as the Contract Owner may
determine. The Separate Account, Fortis Series and Fortis Benefits do not have
any obligation to determine whether or not voting directions are requested or
received by a Contract Owner or whether or not a Contract Owner has instructed
Fortis Benefits in accordance with directions given by Annuitants and other
payees.
Fortis Benefits will vote shares as to which it has received no timely
instructions, and any shares attributable to excess amounts Fortis Benefits has
accumulated in the related Subaccount, in proportion to the voting instructions
which it receives with respect to all Contracts and other variable annuity
contracts participating in a Portfolio. To the extent that Fortis Benefits or
any affiliated company holds any shares of a Portfolio, they will be voted in
the same proportion as instructions for that Portfolio that are received from
persons holding the voting interest with respect to all Fortis Benefits separate
accounts participating in that Portfolio. Shares held by separate accounts other
than the Separate Account will in general be voted in accordance with
instructions of participants in such other separate accounts. This diminishes
the relative voting influence of the Contracts.
Each person having a voting interest in a Subaccount of the Separate Account
will receive proxy material, reports and other materials relating to the
appropriate Portfolio. Pursuant to the procedures described above, these persons
may give instructions regarding the election of the Board of Directors of Fortis
Series, ratification of the selection of its independent auditors, the approval
of the investment manager of a Portfolio, changes in fundamental investment
policies of a Portfolio and all other matters that are put to a vote by Fortis
Series shareholders.
STATE REGULATION
Fortis Benefits is subject to regulation and supervision by the Commerce
Department of the State of Minnesota, which periodically examines its affairs.
It is also subject to the insurance laws and regulations
20
<PAGE>
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>
21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheets of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis AMEV and Fortis AG, as
of December 31, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its operations and its
cash flows for each of three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
Minneapolis, Minnesota
February 27, 1998
F-1
<PAGE>
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost 1997--$2,325,589;
1996--$2,078,438)................................................................... $2,415,915 $2,115,499
Equity securities, at fair value (cost 1997--$88,719; 1996--$84,144)................. 109,832 106,290
Mortgage loans on real estate, less allowance for possible losses (1997--$11,085;
1996--$9,697)....................................................................... 602,064 582,869
Policy loans......................................................................... 68,566 60,722
Short-term investments............................................................... 70,537 182,817
Real estate and other investments.................................................... 55,035 29,628
--------- ---------
3,321,949 3,077,825
Cash and cash equivalents.............................................................. 9,901 20,474
Receivables:
Uncollected premiums................................................................. 74,220 71,386
Reinsurance recoverable on unpaid and paid losses.................................... 13,852 12,939
Other................................................................................ 19,762 9,045
--------- ---------
107,834 93,370
Accrued investment income.............................................................. 47,376 39,519
Deferred policy acquisition costs...................................................... 291,742 268,075
Property and equipment at cost, less accumulated depreciation.......................... 42,773 52,882
Deferred federal income taxes.......................................................... 15,037 17,008
Other assets........................................................................... 4,250 8,005
Assets held in separate accounts....................................................... 2,978,622 2,374,718
--------- ---------
TOTAL ASSETS........................................................................... $6,819,484 $5,951,876
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-2
<PAGE>
BALANCE SHEETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
POLICY RESERVES AND LIABILITIES:
Future policy benefit reserves:
Traditional life insurance......................................................... $ 449,017 $ 434,378
Interest sensitive and investment products......................................... 1,264,227 1,175,480
Accident and health................................................................ 792,249 834,119
--------- ---------
2,505,493 2,443,977
Unearned revenues.................................................................... 10,653 12,622
Other policy claims and benefits payable............................................. 260,596 191,940
Policyholder dividends payable....................................................... 8,197 8,783
--------- ---------
2,784,939 2,657,322
Debt................................................................................. 26,433 --
Accrued expenses..................................................................... 49,909 42,223
Current income taxes payable......................................................... 10,549 17,424
Other liabilities.................................................................... 113,222 104,834
Due to affiliates.................................................................... 6,925 4,926
Liabilities related to separate accounts............................................. 2,947,401 2,344,474
--------- ---------
TOTAL POLICY RESERVES AND LIABILITIES.................................................. 5,939,378 5,171,203
SHAREHOLDER'S EQUITY:
Common Stock, $5 par value:
Authorized, issued and outstanding shares--1,000,000............................... 5,000 5,000
Additional paid-in capital........................................................... 468,000 468,000
Retained earnings.................................................................... 332,723 265,613
Unrealized gains on investments, net................................................. 68,981 36,290
Unrealized gains on assets held in separate accounts, net............................ 5,402 5,770
--------- ---------
TOTAL SHAREHOLDER'S EQUITY............................................................. 880,106 780,673
--------- ---------
TOTAL POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY............................ $6,819,484 $5,951,876
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-3
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
REVENUES
Insurance operations:
Traditional life insurance premiums....................................... $ 269,540 $ 258,496 $ 251,353
Interest sensitive and investment product policy charges.................. 77,429 63,336 46,076
Accident and health insurance premiums.................................... 891,037 974,046 934,900
---------- --------- ---------
1,238,006 1,295,878 1,232,329
Net investment income....................................................... 228,724 206,023 203,537
Net realized gains on investments........................................... 41,101 25,731 55,080
Other income................................................................ 36,458 31,725 33,085
---------- --------- ---------
TOTAL REVENUES............................................................ 1,544,289 1,559,357 1,524,031
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance................................................ 204,497 220,227 202,911
Interest sensitive investment products.................................... 103,077 90,358 73,676
Accident and health claims................................................ 707,113 778,439 769,588
---------- --------- ---------
1,014,687 1,089,024 1,046,175
Policyholder dividends........................................................ 2,935 4,169 4,305
Amortization of deferred policy acquisition costs............................. 43,931 39,325 41,291
Insurance commissions......................................................... 107,378 94,723 95,559
General and administrative expenses........................................... 273,128 242,825 254,940
---------- --------- ---------
TOTAL BENEFITS AND EXPENSES............................................... 1,442,059 1,470,066 1,442,270
---------- --------- ---------
Income before federal income taxes............................................ 102,230 89,291 81,761
Federal income taxes.......................................................... 35,120 31,099 27,891
---------- --------- ---------
NET INCOME.................................................................... $ 67,110 $ 58,192 $ 53,870
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes.
F-4
<PAGE>
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
UNREALIZED GAINS
GAINS (LOSSES) ON
ADDITIONAL (LOSSES) ON ASSETS 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, 1995................. $ 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 (losses) on
investments, net........................ -- -- -- 131,039 -- 131,039
Change in unrealized gains (losses) on
assets held in separate accounts, 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 (losses) on
investments, net........................ -- -- -- (51,841) -- (51,841)
Change in unrealized gains (losses) on
assets held in separate accounts, net... -- -- -- -- 3,224 3,224
----------- ----------- ----------- ------- ------ ---------
Balance, December 31, 1996............... 5,000 468,000 265,613 36,290 5,770 780,673
Net income............................... -- -- 67,110 -- -- 67,110
Change in unrealized gains (losses) on
investments, net........................ -- -- -- 32,691 -- 32,691
Change in unrealized gains (losses) on
assets held in separate account, net.... -- -- -- -- (368) (368)
----------- ----------- ----------- ------- ------ ---------
Balance, December 31, 1997............... $ 5,000 $ 468,000 $ 332,723 $ 68,981 $ 5,402 $ 880,106
----------- ----------- ----------- ------- ------ ---------
----------- ----------- ----------- ------- ------ ---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
------------ ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 67,110 $ 58,192 $ 53,870
Adjustments to reconcile net income to net cash provided by operating
activities:
(Decrease)/increase in future policy benefit reserves for
traditional, interest sensitive and accident and health policies.... (2,496) 26,193 80,478
Increase in other policy claims and benefits and policyholder
dividends payable................................................... 68,070 18,638 27,676
Provision for deferred federal income taxes.......................... (6,449) (1,094) (13,584)
(Decrease)/increase in income taxes payable.......................... (6,875) 12,049 1,023
Amortization of deferred policy acquisition costs.................... 43,931 39,325 41,291
Policy acquisition costs deferred.................................... (69,694) (66,515) (56,391)
Provision for mortgage loan losses................................... 1,388 1,344 924
Provision for depreciation........................................... 14,351 17,312 15,654
Write-off of investment.............................................. 3,000 -- --
Amortization of investment (discounts) premiums, net................. (466) 1,821 (239)
Change in receivables, accrued investment income, unearned premiums,
accrued expenses and other liabilities.............................. (2,720) 38,614 3,427
Net realized gains on investments.................................... (41,101) (25,731) (55,080)
Other................................................................ (12,496) (261) (2,431)
------------ ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 55,553 119,887 96,618
INVESTING ACTIVITIES
Purchases of fixed maturity investments................................ (3,611,770) (2,778,352) (2,151,133)
Sales or maturities of fixed maturity investments...................... 3,378,898 2,652,887 2,000,068
Decrease (increase) in short-term investments.......................... 112,280 (29,318) (35,908)
Purchases of other investments......................................... (209,771) (210,182) (240,264)
Sales of other investments............................................. 205,084 163,569 112,598
Purchases of property and equipment.................................... (4,242) (10,992) (19,975)
Other.................................................................. (617) -- 1,229
------------ ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES............................ (130,138) (212,388) (333,385)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received.............................................. 200,760 128,446 187,484
Surrenders and death benefits........................................ (190,361) (125,274) (60,522)
Interest credited to policyholders................................... 53,613 49,802 48,918
Additional paid-in capital from shareholder............................ -- 60,000 50,000
------------ ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 64,012 112,974 225,880
------------ ---------- -----------
(Decrease) increase in cash and cash equivalents......................... (10,573) 20,473 (10,887)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................... 20,474 1 10,888
------------ ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR......................... $ 9,901 $ 20,474 $ 1
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
DECEMBER 31, 1997
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.
BASIS OF STATEMENT PRESENTATION
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.
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:
REVENUE RECOGNITION AND FUTURE POLICY BENEFIT RESERVES
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
crediting rates for universal life and investment products ranged from 2.5% to
8.75% in 1997 and 1996.
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.
CLAIMS AND BENEFITS PAYABLE
Other policy claims and benefits payable for reported and incurred but not
reported claims and related claims adjustment expenses are determined using
case-basis estimates and past experience. The methods of making such estimates
and establishing the related liabilities are continually reviewed and updated.
Any adjustments resulting therefrom are reflected in income currently.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, which vary with and are directly related to
the production of new business, are deferred to the extent recoverable and
amortized. For traditional 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. Estimation of future gross profits requires
significant management judgment and are reviewed periodically. As excess amounts
of deferred costs over future premiums or gross profits are identified, such
excess amounts are expensed.
INVESTMENTS
The Company's investment strategy is developed based on many factors including
insurance liability matching, rate of return, maturity, credit risk, tax
considerations and regulatory requirements.
All fixed maturity investments and all marketable equity securities are
classified as available-for-sale and carried at fair value.
Changes in fair values of available-for-sale securities, after related deferred
income taxes and after adjustment for the changes in 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 unrealized
appreciation or depreciation is net of deferred policy acquisition cost
amortization and taxes that would have been required as a charge or credit to
income had such unrealized amounts been realized.
Mortgage loans constitute first liens on commercial real estate and other income
producing properties. The insurance statutes in Minnesota generally require that
the initial principal loaned not exceed 80% of the appraised value of the
property securing the loan. The Company's policy fully complies with this
statute. Mortgage loans on real estate are reported at 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 their unpaid balance. Short term investments are at
cost which approximates fair value.
Realized gains and losses on sales of investments, and declines in value judged
to be other-than-temporary, are recognized on the specific identification basis.
Investment income is recorded as earned.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. The
Company provides for depreciation principally on the straight-line method over
the estimated useful lives of the related property.
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
Revenues and expenses related to the separate account assets and liabilities, to
the extent of benefits paid, are provided to the separate account policyholders
and are excluded from the amounts reported in the accompanying statements of
operations.
Assets and liabilities associated with the separate accounts relate to deposits
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
There are a number of insurance companies that are currently under regulatory
supervision. This may result in future assessments by state guaranty fund
associations to cover losses to policyholders of insolvent or rehabilitated
companies. These assessments can be partially recovered through a reduction in
future premium taxes in some states. The Company believes it has adequately
provided for the impact of future assessments.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost which approximates fair value.
NEW FINANCIAL ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 defines the financial statement presentation for all changes in a
company's equity during a period except those resulting from investments by
owners and distributions to owners. SFAS No. 130 will be adopted by the Company
in the first quarter of 1998. Because the statement is merely a change in
presentation, the Company does not expect the adoption of this statement to have
a significant impact on the financial statements.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform to the 1997 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 estimated
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).
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
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
COST GAIN LOSS FAIR VALUE
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
December 31, 1997:
Fixed maturities:
Governments.................................. $ 228,856 $ 8,698 $ 30 $ 237,524
Public utilities............................. 121,128 4,217 13 125,332
Industrial and miscellaneous................. 1,932,894 77,442 1,625 2,008,711
Other........................................ 42,711 1,637 -- 44,348
---------- -------- -------- ----------
Total fixed maturities....................... 2,325,589 91,994 1,668 2,415,915
Equity securities............................ 88,719 24,769 3,656 109,832
---------- -------- -------- ----------
Total...................................... $2,414,308 $116,763 $ 5,324 $2,525,747
---------- -------- -------- ----------
---------- -------- -------- ----------
December 31, 1996:
Fixed maturities:
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 maturities....................... 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
---------- -------- -------- ----------
---------- -------- -------- ----------
</TABLE>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1997, by contractual maturity, are shown below (in
thousands).
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
---------- ----------
<S> <C> <C>
Due in one year or less............................................... $ 75,748 $ 76,109
Due after one year through five years................................. 849,193 865,006
Due after five years through ten years................................ 543,847 562,900
Due after ten years................................................... 856,801 911,900
---------- ----------
Total................................................................. $2,325,589 $2,415,915
---------- ----------
---------- ----------
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 37% of outstanding principal is
concentrated in the states of New York, California and Florida, at December 31,
1997 as compared to concentrated interests in California, Texas and New York of
36% at December 31, 1996. Loan commitments outstanding totaled $34,235,000 at
December 31, 1997.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $2,548,000 and $2,537,000 at
December 31, 1997 and 1996, respectively, on deposit with various governmental
authorities as required by law.
INVESTMENT IN MANAGED DENTAL INITIATIVE
In 1997, the Company acquired a 99% ownership in a managed dental initiative
called Dental Health Alliance, Inc. (DHA). Based on an analysis of future DHA
profitability, the entire investment was written-off at December 31, 1997. The
income statement reflects $13,561,000 of general and administrative expenses
related to 1997 DHA losses and ownership write-off.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
3. INVESTMENTS (CONTINUED)
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>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Change in unrealized gains (losses) before adjustments............. $ 53,239 $ (83,065) $ 214,452
Adjustments:
Increase) decrease in amortization of deferred policy acquisition
costs............................................................. (2,096) 3,376 (9,789)
Deferred income taxes (expense) benefit............................ (18,820) 31,072 (71,632)
--------- --------- ---------
Change in net unrealized gains (losses)............................ 32,323 (48,617) 133,031
Net unrealized gains (losses), beginning of year................... 42,060 90,677 (42,354)
--------- --------- ---------
Net unrealized gains, end of year.................................. $ 74,383 $ 42,060 $ 90,677
--------- --------- ---------
--------- --------- ---------
</TABLE>
NET INVESTMENT INCOME AND NET REALIZED GAINS ON INVESTMENTS
Major categories of net investment income and realized gains on investments for
each year were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities................................................... $ 160,444 $ 141,973 $ 139,062
Equity securities.................................................. 9,306 6,682 2,026
Mortgage loans on real estate...................................... 54,662 52,949 49,227
Policy loans....................................................... 4,144 3,195 2,797
Short-term investments............................................. 2,851 5,175 11,863
Real estate and other investments.................................. 4,635 5,358 4,750
--------- --------- ---------
236,042 215,332 209,725
Expenses........................................................... (7,318) (9,309) (6,188)
--------- --------- ---------
$ 228,724 $ 206,023 $ 203,537
--------- --------- ---------
--------- --------- ---------
NET REALIZED GAINS ON INVESTMENTS
Fixed maturities................................................... $ 13,827 $ 3,334 $ 50,393
Equity securities.................................................. 26,760 18,281 2,830
Mortgage loans on real estate...................................... 301 (144) (242)
Short-term investments............................................. -- 57 (3)
Real estate and other investments.................................. 213 4,203 2,102
--------- --------- ---------
$ 41,101 $ 25,731 $ 55,080
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from sales of investments in fixed maturities were $3,360,682,000,
$2,652,887,000, and $2,000,068,000 in 1997, 1996 and 1995, respectively. Gross
gains of $30,860,000, $28,606,000 and $61,070,000 and gross losses of
$17,033,000, $25,272,000, and $10,677,000 were realized on the sales in 1997,
1996 and 1995, 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, 1996....................... $ 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 losses on
available-for-sale securities................. -- 3,376 -- 3,376
----------- --------------- ----------- ---------
Balance, January 1, 1997....................... 33,157 221,036 13,882 268,075
Acquisition costs deferred..................... 37,857 31,837 -- 69,694
Acquisition costs amortized.................... (20,738) (14,501) (8,692) (43,931)
Increased amortization of deferred acquisition
costs from unrealized gains on
available-for-sale securities................. -- (2,096) -- (2,096)
----------- --------------- ----------- ---------
Balance, December 31, 1997..................... $ 50,276 $ 236,276 $ 5,190 $ 291,742
----------- --------------- ----------- ---------
----------- --------------- ----------- ---------
</TABLE>
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
4. DEFERRED POLICY ACQUISITION COSTS (CONTINUED)
Included within total deferred policy acquisition costs at December 31, 1997 is
$10,434,000 of present value of future profits (PVP) resulting from acquisitions
accounted for as a purchase. All remaining PVP will be amortized in 1998.
During 1997, 1996 and 1995, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized net capital gains resulted in additional amortization of deferred
acquisition costs of $732,000, $1,894,000 and $4,825,000, respectively. In
addition, the Company recorded policyholder dividends payable of $1,095,000 in
1995.
5. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land........................................................................ $ 1,900 $ 1,900
Building and improvements................................................... 24,148 25,133
Furniture and equipment..................................................... 87,537 95,370
--------- ---------
113,585 122,403
Less accumulated depreciation............................................... (70,812) (69,521)
--------- ---------
Net property and equipment.................................................. $ 42,773 $ 52,882
--------- ---------
--------- ---------
</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
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables........... $ 947,711 $ 928,832 $ 838,810
Add: Incurred losses related to:
Current year..................................................... 773,316 865,907 827,261
Prior years...................................................... (59,634) (64,094) (28,520)
--------- --------- ---------
Total incurred losses.......................................... 713,682 801,813 798,741
Deduct: Paid losses related to:
Current year..................................................... 437,405 549,144 492,460
Prior years...................................................... 235,952 233,790 216,259
--------- --------- ---------
Total paid losses.............................................. 673,357 782,934 708,719
--------- --------- ---------
Balance as of December 31, net of reinsurance recoverables......... $ 988,036 $ 947,711 $ 928,832
--------- --------- ---------
--------- --------- ---------
</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 and a
reduction of loss reserves due to lower than anticipated inflation in medical
costs.
Management has incorporated the favorable reserve development into its current
estimates of reserve levels. Accordingly, future development on December 31,
1997 reserves is not expected to be as favorable as that experienced in the past
two years.
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.
F-11
<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, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Separate account assets/liabilities....................................... $ 56,620 $ 40,989
Reserves.................................................................. 43,143 51,271
Claims and benefits payable............................................... 15,238 7,764
Accrued liabilities....................................................... 8,785 8,439
Investments............................................................... 4,795 2,648
Other..................................................................... 3,042 1,549
--------- ---------
Total deferred tax assets............................................... 131,623 112,660
Deferred tax liabilities:
Deferred policy acquisition costs......................................... 72,369 67,850
Unrealized gains.......................................................... 39,015 20,402
Fixed assets.............................................................. 3,914 3,110
Investments............................................................... 1,220 1,942
Other..................................................................... 68 2,348
--------- ---------
Total deferred tax liabilities.......................................... 116,586 95,652
--------- ---------
Net deferred tax asset.................................................. $ 15,037 $ 17,008
--------- ---------
--------- ---------
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets, and, therefore, no such valuation
allowance has been established.
The Company's tax expense (benefit) for the year ended December 31 is shown as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current.............................................................. $ 41,569 $ 32,193 $ 39,660
Deferred............................................................. (6,449) (1,094) (11,769)
--------- --------- ---------
$ 35,120 $ 31,099 $ 27,891
--------- --------- ---------
--------- --------- ---------
</TABLE>
Federal income tax payments and refunds resulted in net payments of $58,859,000,
$16,434,000, and $40,453,000 in 1997, 1996 and 1995, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory income tax rate............................................ 35.0% 35.0% 35.0%
Other, net........................................................... (.6) (.2) (0.9)
--------- --------- ---------
34.4% 34.8% 34.1%
--------- --------- ---------
--------- --------- ---------
</TABLE>
8. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Premium and annuity considerations for the variable annuity products and
variable universal life products for which the contract holder, rather
than the Company, bears the investment risk.............................. $2,947,401 $2,344,474
Assets of the separate accounts owned by the Company, at fair value....... 31,221 30,244
---------- ----------
$2,978,622 $2,374,718
---------- ----------
---------- ----------
</TABLE>
9. REINSURANCE
In the second quarter of 1996, First Fortis Life Insurance Company (First
Fortis), an affiliate, received approval from the New York State Insurance
Department for a reinsurance agreement with the Company. The agreement, which
became effective as of January 1, 1996, decreased First Fortis' long-term
disability reinsurance retention from a $10,000 net monthly benefit to a $2,000
net monthly benefit for claims incurred on and after January 1, 1996. The
Company has assumed $5,742,000 and $6,144,000 of premium from First Fortis in
1997 and 1996, respectively. The Company has assumed $5,452,000 and $3,599,000
of reserves in 1997 and 1996, respectively, from First Fortis.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
9. REINSURANCE (CONTINUED)
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>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Life insurance........................................................ $ 8,159 $ 8,680 $ 4,661
Accident and health insurance......................................... 13,712 6,793 3,410
--------- --------- ---------
$ 21,871 $ 15,473 $ 8,071
--------- --------- ---------
--------- --------- ---------
</TABLE>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Life insurance........................................................ $ 2,973 $ 7,225 $ 2,489
Accident and health insurance......................................... 14,781 5,993 8,807
--------- --------- ---------
$ 17,754 $ 13,218 $ 11,296
--------- --------- ---------
--------- --------- ---------
</TABLE>
Reinsurance ceded would become a liability of the Company in the event the
reinsurers are unable to meet the obligations assumed under the reinsurance
agreement. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities or economic characteristics of the reinsurers.
10. DIVIDEND RESTRICTIONS
Dividend distributions to parent are restricted as to amount by state
regulatory requirements. The Company had $52,367,000 free from such restrictions
at December 31, 1997. Distributions in excess of this amount would require
regulatory approval.
11. REGULATORY ACCOUNTING REQUIREMENTS
Statutory-basis financial statements are prepared in accordance with
accounting practices prescribed or permitted by Minnesota insurance regulatory
authorities. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed; such practices may differ from state to state, may differ 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 1999, 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. The
Company exceeds the minimum RBC requirements.
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
11. REGULATORY ACCOUNTING REQUIREMENTS (CONTINUED)
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
------------------------------- --------------------
1997 1996 1995 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices........ $ 62,593 $ 55,046 $ 30,576 $ 528,671 $ 482,507
Deferred policy acquisition costs.............. 25,763 27,190 15,100 291,742 268,075
Investment valuation differences............... (497) (2,219) 330 80,245 31,326
Deferred and uncollected premiums.............. (107,194) (4,096) -- -- --
Policy reserves................................ 89,895 (19,873) (29,238) (150,649) (131,159)
Commissions.................................... (3,171) (1,639)
Current income taxes payable................... 6,450 2,386 (1,294) 3,712 (7,895)
Deferred income taxes.......................... 6,449 (1,094) 11,769 (520) 17,008
Realized gains on investments.................. 251 2,599 1,938 -- --
Realized gains transferred to the Interest
Maintenance Reserve (IMR), net of tax......... 9,644 2,335 31,711 -- --
Amortization of IMR, net of tax................ (6,315) (6,130) (5,261) -- --
Write-off of investment........................ (11,705) -- -- -- --
Pension expense................................ (4,153) -- --
Guaranty Funds................................. -- 3,023 --
Property and equipment......................... -- -- -- 15,520 20,481
Interest maintenance reserve................... -- -- -- 53,348 50,019
Asset valuation reserve........................ -- -- -- 75,939 62,961
Other, net..................................... (900) 664 (1,761) (17,902) (12,650)
--------- --------- --------- --------- ---------
As reported herein............................. $ 67,110 $ 58,192 $ 53,870 $ 880,106 $ 780,673
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
12. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company receives various services from Fortis, Inc. and its affiliates.
These services include assistance in benefit plan administration, corporate
insurance, accounting, tax, auditing, investment and other administrative
functions. The fees paid to Fortis, Inc. for these services for years ended
December 31, 1997, 1996 and 1995, were $12,015,000, $13,319,000 and $10,074,00,
respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $72,105,000, $68,616,000 and $59,308,000 in commissions to its affiliate,
Fortis Investors, Inc., for the years ended December 31, 1997, 1996 and 1995,
respectively.
Administrative expenses allocated for the Company may be greater or less than
the expenses that would be incurred if the Company were operating on a separate
company basis.
Fortis Information Technology (Fortis IT) is a business unit within the Company
and is managed by Fortis, Inc. Based upon an agreement established with Fortis
Inc., over/under charges are transferred annually to Fortis, Inc. The amounts
transferred were $5,149,000 in 1997; $476,000 in 1996 and $0 in 1995. Effective
January 1, 1998, Fortis IT operations have been transferred to Fortis, Inc.
13. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS
The fair values for fixed maturity securities and equity securities are based on
quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
Mortgage loans are reported at unpaid principal balance less allowances for
possible losses. The fair values of mortgage loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Mortgage loans with
similar characteristics are aggregated for purposes of the calculations. It is
not practicable to estimate the fair value of policy loans as repayment terms
are at the discretion of the policyholder. For short-term investments, the
carrying amount is a reasonable estimate of fair value. The fair values for the
Company's policy reserves under the investment products are determined using
cash surrender value. As the debt was underwritten in the current year, the
outstanding balance is a reasonable estimate of fair value.
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
13. FAIR VALUE DISCLOSURES (CONTINUED)
The fair values under all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk, such that the Company's
exposure to changing interest rates is minimized through the matching of
investment maturities with amounts due under insurance contracts.
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31
----------------------------------------------
1997 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities...................................... $2,415,915 $2,415,915 $2,115,499 $2,115,499
Equity securities..................................... 109,832 109,832 106,290 106,290
Mortgage loans on real estate............................. 602,064 661,055 582,869 614,555
Policy loans.............................................. 68,566 68,566 60,722 60,722
Short-term investments.................................... 70,537 70,537 182,817 182,817
Assets held in separate accounts.......................... 2,978,622 2,978,622 2,374,718 2,371,601
Liabilities:
Individual and group annuities (subject to discretionary
withdrawal).............................................. $ 977,495 $ 945,558 $ 916,754 $ 886,110
Debt...................................................... 26,433 26,433 -- --
</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 is an indirect wholly-owned subsidiary of Fortis, Inc., which
sponsors a defined benefit pension plan covering employees and certain agents
who meet eligibility requirements as to age and length of service. The benefits
are based on years of service and career compensation. Fortis, Inc.'s funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes, and to charge each subsidiary an allocable amount
based on its employee census. Pension cost allocated to the Company amounted to
approximately $1,594,000, $1,354,000 and $1,179,000 for 1997, 1996 and 1995,
respectively. As of January 1, 1997, the Plan's total accumulated benefit
obligation determined in accordance with ERISA was approximately $56,838,000.
This amount was based on an assumed interest rate of 8.00% and included vested
benefits of approximately $54,831,000. The fair market value of the Plan assets
as of January 1, 1997 was approximately $60,004,000.
The Company participates in a contributory profit sharing plan, sponsored by
Fortis, Inc., covering employees and certain agents who meet eligibility
requirements as to age and length of service. Benefits are payable to
participants on retirement or disability and to the beneficiaries of
participants in the event of death. The first three percent of an employee's
contribution is matched 200% by the Company. The amount expensed was
approximately $3,926,000, $3,913,000 and 3,765,000 for 1997, 1996 and 1995,
respectively.
In addition to retirement benefits, the Company participates in other health
care and life insurance benefit plans ("postretirement benefits") for retired
employees, sponsored by Fortis, Inc. Health care benefits, either through a
Fortis Inc.-sponsored retiree plan for retirees under age 65 or through a cost
offset for individually purchased Medigap policies for retirees over age 65, are
available to employees who retire on or after January 1, 1993, at age 55 or
older, with 15 years or more service. Life insurance, on a retiree pay all
basis, is available to those who retire on or after January 1, 1993.
Net postretirement benefit costs allocated to the Company for the years ended
December 31, 1997, 1996 and 1995 were $304,000, $290,000 and $287,000,
respectively, and includes the expected cost of such benefits for newly eligible
or vested employees, interest cost, gains and losses arising from differences
between actuarial assumptions and actual experience, and amortization of the
transition obligation. The Company made contributions to the plans of
approximately $20,000, $8,000 and $0 in 1997, 1996 and 1995, respectively, as
claims were incurred.
At December 31, 1997 and 1996, the unfunded postretirement benefit obligation
for retirees and other fully eligible or vested plan participants was $1,148,000
and $844,000, respectively. The discount rate used in determining the
accumulated postretirement benefit obligation was 7.5%. The health care cost
trend rate for those under age 65 was 12.8%, graded to 5.5% over 26 years. The
health care cost trend rate for those over age 65 was 12.0%, graded to 6.2% over
26 years.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
16. DEBT
The following is a summary of the debt at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
Mortgage note bearing a floating interest rate of 200 basis points over LIBOR, (5.84%
at December 31, 1997) adjustable every six months, principal and interest due
monthly, matures July 2001........................................................... $ 3,150
Mortgage note bearing a floating interest rate of 225 basis points over LIBOR (5.84%
at December 31, 1997) adjustable every six months, principal and interest due
monthly, balloon payment due July 1998............................................... 18,100
Mortgage note bearing interest at 7.60%, principal and interest due monthly, matures
October 2002......................................................................... 5,183
---------
$ 26,433
---------
---------
</TABLE>
Maturities of the debt as of December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998.................................................................................. $ 18,222
1999.................................................................................. 126
2000.................................................................................. 136
2001.................................................................................. 3,119
2002.................................................................................. 4,830
---------
26,433
---------
---------
</TABLE>
These mortgage notes are collateralized by certain real estate investments
included in real estate and other investments in the balance sheet.
Interest expense paid by the Company during 1997 on this debt was approximately
$1,075,000.
17. YEAR 2000 ISSUES (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company and any of
its businesses or subsidiaries. All of the Company's major businesses are
heavily dependent upon internal computer systems, and many have significant
interaction with systems of third parties.
A comprehensive review of the Company's computer systems and business processes
has been conducted to identify the major systems that could be affected by the
Year 2000 issue. Steps are being taken to resolve any potential problems
including modification to existing software and the purchase of new software.
These measures are scheduled to be completed and tested on a timely basis. The
Company's goal is to complete internal remediation and testing of each system by
early 1999.
Factors that could influence the total costs to be incurred by the Company in
connection with the Year 2000 issue include the ability of the Company to
successfully identify systems containing two-digit year codes, the nature and
amount of programming required to fix the affected programs, the related labor
and consulting costs for such remediation, and the ability of third parties that
interface with the Company to successfully address their Year 2000 issues.
The Company is evaluating the Year 2000 readiness of advisors and other third
parties whose system failures could have an impact on the Company's operations.
The potential materiality of any such impact is not entirely known at this time.
The Company is closely monitoring these entities to avoid any unforeseen
circumstances.
F-16
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
APPENDIX A
SAMPLE DEATH BENEFIT CALCULATIONS
(FOR CONTRACTS ISSUED ON AND AFTER
MAY 1, 1997 WITH ENHANCED DEATH BENEFIT RIDER)
<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
<PAGE>
(This page has been left blank intentionally.)
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 .66
--------------------------------------------------------------------------------------------------------------
+ Annual Administrative Charge Rate (See Below) .05
--------------------------------------------------------------------------------------------------------------
= Total Expense Rate 2.06
--------------------------------------------------------------------------------------------------------------
</TABLE>
The Annual Administrative Charge Rate is calculated by dividing the total Annual
Contract Charges we collected in 1997 by the average policy value in force in
1997.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = 1000.00 X .0206 = $20.61
Year 2 Beginning Policy Value = $1029.39
Year 2 Expense = 1,029.39 X .0206 = $21.22
Year 3 Beginning Policy Value = $1059.64
Year 3 Expense = 1,059.64 X .0206 = $21.84
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to $20.61 + $21.22 + $21.84 = $63.67
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 $63.67 + $45.00 = $108.67
B-1
<PAGE>
(This page has been left blank intentionally.)
B-2
<PAGE>
<TABLE>
<S> <C>
BULK RATE
U.S. POSTAGE
</TABLE>
FORTIS-R-
<TABLE>
<S> <C>
PAID
PERMIT NO. 3794
</TABLE>
FORTIS FINANCIAL GROUP
<TABLE>
<S> <C>
MINNEAPOLIS, MN
</TABLE>
P.O. BOX 64284
ST. PAUL, MN 55164
PROSPECTUS
MAY 1, 1998
<PAGE>
FORTIS
OPPORTUNITY+
VARIABLE
ANNUITY
Individual Flexible
Premium Deferred
Variable Annuity Contract
PROSPECTUS DATED
May 1, 1998
FORTIS-R-
FORTIS BENEFITS INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE:
P.O. BOX 64272 500 BIELENBERG DRIVE 1-800-800-2000
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 following investment
portfolios of the Fortis Series Fund, Inc. (the "Portfolios"):
<TABLE>
<S> <C>
Money Market Series S&P 500 Index Series
U.S. Government Securities Series Blue Chip Stock Series
Diversified Income Series International Stock Series
Global Bond Series Mid Cap Stock Series
High Yield Series Small Cap Value Series
Global Asset Allocation Series Global Growth Series
Asset Allocation Series Large Cap Growth Series
Value Series Growth Stock Series
Growth & Income Series Aggressive Growth Series
</TABLE>
The accompanying Prospectus for the Portfolios 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 (or longer in some states)
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 for the Portfolios. All of the Prospectuses should be read
carefully and kept for future reference.
A Statement of Additional Information, dated May 1, 1998, 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.
99184 (5/98)
<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
- The Portfolios...................................................... 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 Contract Owner (or Annuitant)........... 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
- Nursing Care/Hospitalization Waiver of Surrender Charges............ 16
- 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. The Annuitant is the person named in the application for the Contract.
If such person dies before the Annuity Commencement Date and there is an additional
annuitant named in the application, the additional annuitant shall become the
Annuitant. If there is no named additional annuitant, or the additional annuitant has
predeceased the annuitant who is named in the application, the Contract Owner, if he
or she is a natural person, shall become the Annuitant.
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.
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.
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 available 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............ $ 30 (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.
PORTFOLIO ANNUAL EXPENSES (a)
<TABLE>
<CAPTION>
FBIC AND FIRST FORTIS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US GLOBAL
MONEY GOVERNMENT DIVERSIFIED GLOBAL HIGH ASSET ASSET GROWTH &
MARKET SECURITIES INCOME BOND YIELD ALLOCATION ALLOCATION VALUE INCOME
------ ---------- ----------- ------ ------ ---------- ---------- ------ --------
Investment Advisory and
Management Fee............... 0.30% 0.47% 0.47% 0.75% 0.50% 0.90% 0.48% 0.70% 0.65%
Other Expenses................ 0.08% 0.07% 0.08% 0.35% 0.12% 0.26% 0.05% 0.13% 0.05%
Total Series Fund Operating
Expenses..................... 0.38% 0.54% 0.55% 1.10% 0.62% 1.16% 0.53% 0.83% 0.70%
</TABLE>
<TABLE>
<CAPTION>
SMALL LARGE
BLUE MIDCAP CAP CAP
S&P 500 CHIP INTERNATIONAL STOCK VALUE GLOBAL GROWTH GROWTH AGGRESSIVE
INDEX STOCK STOCK SERIES SERIES GROWTH SERIES STOCK GROWTH
------- ------ ------------- ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee............... 0.40% 0.90% 0.85% 0.90% 0.90% 0.70% 0.90% 0.61% 0.69%
Other Expenses................ 0.11% 0.12% 0.23% 0.20% 0.20% 0.09% 0.20% 0.05% 0.07%
Total Series Fund Operating
Expenses..................... 0.51% 1.02% 1.08% 1.10% 1.10% 0.79% 1.10% 0.66% 0.76%
</TABLE>
--------------------------------
(a) As a percentage of Portfolio average net assets based on 1997 historical
data except that for Small Cap Value Series, Mid Cap Value Series and
Large Cap Growth Series these amounts are based upon estimates for their
current fiscal year.
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......................................... $ 63 $ 101 $ 141 $ 209
U.S. Government Securities Series........................... 65 106 149 225
Diversified Income Series................................... 65 106 150 226
Global Bond Series.......................................... 70 123 178 282
High Yield Series........................................... 65 108 153 234
Global Asset Allocation Series.............................. 71 126 183 294
Asset Allocation Series..................................... 65 105 149 224
Value Series................................................ 68 114 164 255
Growth & Income Series...................................... 66 111 157 242
S&P 500 Index Series........................................ 64 105 148 222
Blue Chip Stock Series...................................... 69 120 174 274
International Stock Series.................................. 70 122 177 280
Mid Cap Stock Series........................................ 70 123 178 282
Small Cap Value Series...................................... 70 123 178 282
Global Growth Series........................................ 67 113 162 251
Large Cap Growth Series..................................... 70 123 178 282
Growth Stock Series......................................... 66 109 155 238
Aggressive Growth Series.................................... 67 112 160 248
</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......................................... $ 18 $ 56 $ 96 $ 209
U.S. Government Securities Series........................... 20 61 104 225
Diversified Income Series................................... 20 61 105 226
Global Bond Series.......................................... 25 78 133 282
High Yield Series........................................... 20 63 108 234
Global Asset Allocation Series.............................. 26 81 138 294
Asset Allocation Series..................................... 20 60 104 224
Value Series................................................ 23 69 119 255
Growth & Income Series...................................... 21 66 112 242
S&P 500 Index Series........................................ 19 60 103 222
Blue Chip Stock Series...................................... 24 75 129 274
International Stock Series.................................. 25 77 132 280
Mid Cap Stock Series........................................ 25 78 133 282
Small Cap Value Series...................................... 25 78 133 282
Global Growth Series........................................ 22 68 117 251
Large Cap Growth Series..................................... 25 78 133 282
Growth Stock Series......................................... 21 64 110 238
Aggressive Growth Series.................................... 22 67 115 248
</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, 1997 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 the Portfolios. Amounts
for state premium taxes or similar assessments will also be deducted, where
applicable.
See Appendix B for an explanation of the calculation 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. The investment objective of each of the Subaccounts of
the Separate Account and that of the corresponding Portfolio 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 the Portfolios, which accompanies this Prospectus,
and the Portfolios' Statement of Additional Information, which is available upon
request from Fortis Benefits at the address and phone number on the cover of
this prospectus.
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 $30 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 of the death of the Contract Owner, or the Annuitant if the
Contract Owner is a non-natural person prior to the Annuity Commencement Date, a
death benefit is payable to the Beneficiary of the Contract. See "Benefit
Payable on Death of Contract Owner (or Annuitant)."
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; 1-800-800-2000 (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 1-800-800-2000 (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 1-800-800-2000 (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, 1997. Accumulation
units have been rounded to the nearest whole unit.
<TABLE>
<CAPTION>
GLOBAL
MONEY U.S. GOV'T DIVERSIFIED GLOBAL ASSET ASSET
MARKET SECURITIES INCOME BOND HIGH YIELD ALLOCATION ALLOCATION VALUE
---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997
Accumulation Units in
Force................... 31,491,629 7,743,923 49,942,498 1,123,401 4,194,544 2,918,483 156,035,843 3,402,217
Accumulation Unit
Values.................. $1.474617 $17.149938 $1.963344 $11.837281 $12.917282 $14.433538 $2.809839 $13.651572
December 31, 1996
Accumulation Units in
Force................... 36,220,947 9,635,092 55,653,680 1,088,043 3,337,604 2,330,884 154,525,474 1,071,648
Accumulation Unit
Values.................. $1.418 $15.935 $1.801 $11.961 $11.928 $12.884 $2.368 $11.048
January 1, 1996*
Accumulation Unit
Values.................. -- -- -- -- -- -- -- $10.000
December 31, 1995
Accumulation Units in
Force................... 26,915,976 10,989,914 59,213,865 574,142 2,321,419 1,117,596 148,700,081 --
Accumulation Unit
Values.................. $1.367 $15.805 $1.753 $11.743 $10.941 $11.590 $2.134 --
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 --
Accumulation Unit
Value................... $1.311 $13.483 $1.515 -- $9.834 -- $1.773 --
May 1, 1994*
Accumulation Unit
Value................... 10.00 --
December 31, 1993
Accumulation Units in
Force................... 21,315,022 15,601,818 56,005,709 -- -- -- 106,834,367 --
Accumulation Unit
Value................... $1.278 $14.609 $1.621 -- -- -- $1.797 --
December 31, 1992
Accumulation Units in
Force................... 20,674,556 9,505,984 19,353,521 -- -- -- 49,688,937 --
Accumulation Unit
Value................... $1.261 $13.529 $1.457 -- -- -- $1.665 --
May 1, 1992*
Accumulation Unit
Value................... -- -- -- -- -- -- -- --
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>
GROWTH & S&P 500 BLUE INTERNATIONAL GLOBAL GROWTH AGGRESSIVE
INCOME INDEX CHIP STOCK GROWTH STOCK GROWTH
---------- ---------- ---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997
Accumulation Units in
Force................... 11,003,248 5,491,818 4,149,587 4,239,821 13,725,612 156,975,866 6,551,677
Accumulation Unit
Values.................. $19.487584 $14.786540 $14.429421 $14.021796 $19.507894 $3.296005 $13.241215
December 31, 1996
Accumulation Units in
Force................... 7,892,683 1,259,758 915,358 3,137,348 13,713,860 169,095,500 5,706,895
Accumulation Unit
Values.................. $15.468 $11.326 $11.520 $12.690 $18.510 $2.971 $13.232
January 1, 1996*
Accumulation Unit
Values.................. -- $10.000 $10.000 -- -- -- --
December 31, 1995
Accumulation Units in
Force................... 4,204,163 -- -- 1,157,063 10,769,830 160,247,280 3,033,587
Accumulation Unit
Values.................. $12.904 -- -- $11.271 $15.754 $2.587 $12.461
January 1, 1995*
Accumulation Unit
Values.................. -- -- -- $10.000 -- -- --
December 31, 1994
Accumulation Units in
Force................... 1,489,517 -- -- -- 10,055,959 148,657,108 1,155,647
Accumulation Unit
Value................... $10.083 -- -- -- $12.236 $2.054 $9.723
May 1, 1994*
Accumulation Unit
Value................... 10.00 -- -- 10.00
December 31, 1993
Accumulation Units in
Force................... -- -- -- -- 5,108,957 118,720,649 --
Accumulation Unit
Value................... -- -- -- -- $12.784 $2.142 --
December 31, 1992
Accumulation Units in
Force................... -- -- -- -- 698,720 79,582,321 --
Accumulation Unit
Value................... -- -- -- -- $10.989 $1.996 --
May 1, 1992*
Accumulation Unit
Value................... -- -- -- -- 10.00 -- --
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 1997, Fortis Benefits had approximately $94 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 Fortis
Insurance Company (formerly 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
$167 billion in assets as of year-end 1997.
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 the
Portfolios, each of which represents a separate investment Portfolio within the
Portfolios. 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. New Subaccounts may be added as new Portfolios are added and made
available to Contract Owners. Correspondingly, if any Portfolios are eliminated,
Subaccounts may be eliminated from the Separate Account.
THE PORTFOLIOS
Contract holders may choose from among a number of different Portfolios, each of
which is a mutual fund available for purchase only as a funding vehicle for
benefits under variable life insurance and variable annuities issued by Fortis
Benefits and other life insurance companies. Each Portfolio corresponds to one
of the Subaccounts of the Separate Account. The assets of each Portfolio are
separate from the others and each Portfolio operates as a separate investment
portfolio whose performance has no effect on the investment performance of any
other Portfolio. More detailed information for each Portfolio offered, such as
its investment policies and restrictions, charges, risks attendant to investing
in it, and other aspects of its operations, may be found in the current
prospectus for each Portfolio. Such a prospectus for the Portfolios being
considered must accompany this Prospectus and should be read in conjunction with
it. A copy of each prospectus may be obtained without charge from Fortis
Benefits by calling 1-800-800-2000, ext. 3057, or writing P.O. Box 64272, St.
Paul, Minnesota 55164.
As indicated, Portfolios may also be available to registered separate accounts
offering variable annuity and variable life products of other participating
insurance companies, as well as to the Separate Account and other separate
accounts of Fortis Benefits. Although Fortis Benefits does not anticipate any
disadvantages to this, there is a possibility that a material conflict may arise
between the interest of the Separate Account and one or more of the other
separate accounts participating in the Portfolios. A conflict may occur due to a
change in law affecting the operations of variable life and variable annuity
separate accounts, differences in the voting instructions of the Contract Owners
and those of other companies, or some other reason. In the event of conflict,
Fortis Benefits will take any steps necessary to protect the Contract Owners and
variable annuity payees.
Fortis Benefits purchases and redeems Portfolio 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 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 operates as a separate investment portfolio whose
performance has no effect on the investment performance of any other Portfolio.
9
<PAGE>
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.
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 the application not being complete.
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 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
10
<PAGE>
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 1-800-800-2000 (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, 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
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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 CONTRACT OWNER (OR ANNUITANT)
If the Contract Owner dies prior to the Annuity Commencement Date, a death
benefit will be paid to the Beneficiary. If the Contract Owner is a non-natural
person, then a death benefit will be paid upon the death of the Annuitant prior
to the Annuity Commencement Date. In such case, if more than one Annuitant has
been named, the death benefit payable upon the death of an Annuitant will only
be paid upon the death of the last survivor of the persons so named.
The term "decedent" in the death benefit description below refers to the death
of the Contract Owner unless the Contract Owner is a non-natural person, in
which case it refers to the death of the Annuitant. Also, the death benefit
description refers to the age of the Contract Owner. If the Contract Owner is a
non-natural person, the relevant age will instead be that of the Annuitant.
Additionally, the death benefit description makes reference to "Pro Rata
Adjustments." A Pro Rata Adjustment is calculated separately for each
withdrawal, creating a decrease in the death benefit proportional to the
decrease the withdrawal makes in the Contract Value. Pro Rata Adjustments are
made for amounts withdrawn for partial surrenders and any associated surrender
charge (which shall be deemed to be an amount withdrawn), but not for any
Contract fee-related surrenders.
The death benefit will equal the greatest of (1), (2) or (3):
(1) The Contract Value as of the date used for valuing the death benefit.
(2) The sum or all Net Purchase Payments made, reduced by Pro Rata Adjustments
for each withdrawal.
The Pro Rata Adjustment for a given withdrawal is equal to:
(a) the withdrawn amount, divided by
(b) the Contract Value immediately before the amount was withdrawn, the
result multiplied by
(c) the aggregate amount of all prior Net Purchase Payments less Pro Rata
Adjustments for all prior withdrawals.
(3) The highest Anniversary Value of each of the Contract's anniversaries prior
to the earlier of: (1) the decedent's death, or (2) the Contract Owner's
attainment of age 75.
An Anniversary Value is equal to:
(a) the Contract Value on the anniversary, plus
(b) any Net Purchase Payments made since the anniversary, reduced by
(c) Pro Rata Adjustments for any withdrawals made since the anniversary.
The Pro Rata Adjustment for a given withdrawal is equal to:
(a) the withdrawn amount, divided by
(b) the Contract Value immediately before the amount was withdrawn, the
result multiplied by
(c) the quantity equal to:
(i) the Contract Value on the anniversary, plus
(ii) Net Purchase Payments made since the anniversary and before the
withdrawal, minus
(iii) Pro Rata Adjustments for withdrawals made since the anniversary
and before the given withdrawal.
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 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.
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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 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, up to age 105, in
the application. The Annuity Commencement Date marks the beginning of the period
during which an Annuitant receives annuity payments under the Contract. 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. 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
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one person is named as an Annuitant, the Contract Owner may elect to name one of
such persons to be the sole Annuitant as of the Annuity Commencement Date. We
reserve the right to change the frequency of any annuity payment so that each
payment will be at least $50. There is no right to make any total or partial
surrender during the Annuity Period.
The amount of each annuity payment will depend on the amount of Contract Value
applied to an annuity option, the form of annuity selected and the age of the
Annuitant. Information concerning the relationship between the Annuitant's sex
and the amount of annuity payments, including special requirements in connection
with employee benefit plans, is set forth under "Calculation of Annuity
Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity form
selected.
The dollar amount of variable annuity payments varies during the annuity period
based on changes in Annuity Unit Values for the Subaccounts that you choose to
use in connection with your payments.
RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS
If a Subaccount on which a variable annuity payment is based has an average
effective net investment return higher than 3% (the assumed investment return)
per annum during the period between two such annuity payments, the Annuity Unit
Value will increase, and the second payment will be higher than the first.
Conversely, if the Subaccount's average effective net investment return over the
period between the annuity payments is less than 3% per annum, the Annuity Unit
Value will decrease, and the second payment will be lower than the first. "Net
investment return," for this purpose, refers to the Subaccount's overall
investment performance, net of the mortality and expense risk and administrative
expense charges, which are assessed at a nominal aggregate annual rate of 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 $30
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 $30 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 3%, independent of the actual
investment experience of the General Account. We may, at our sole discretion,
credit higher rates of interest, although we are not obligated to credit
interest in excess of the guaranteed rate of 3% per year. Any interest rate in
excess of 3% per year with respect to any amount in the 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 3% 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 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 the Annuitant if the Annuitant
is an non-natural person, 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 the Portfolios and a list of the
portfolio securities held in each Portfolio. 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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- 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 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.
Fortis Investors will pay a selling allowance to its registered representatives
and selling brokers in varying amounts which under normal circumstances is not
expected to exceed 6.25% of purchase payments plus a servicing fee of .25% of
contract value per year, starting in the first contract year.
Fortis Investors may, under certain flexible compensation arrangements, pay
lesser or greater selling allowances and larger or smaller service fees to its
registered representatives and other broker dealer firms than as set forth
above. However, in such case, such flexible compensation arrangements will have
actuarial present values 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.
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.
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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 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.
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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 a Portfolio in proportion to
instructions received from the persons having the voting interest in the
Contract as of the record date for the corresponding Portfolio shareholders
meeting. Contract Owners have the voting interest during the Accumulation
Period, persons receiving annuity payments have the voting interest during the
Annuity Period, and Beneficiaries have the voting interest after the death of
the Annuitant or 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 a
Portfolio, ratification of the selection of its independent auditors, the
approval of the investment manager of a Portfolio, changes in fundamental
investment policies of a Portfolio and all other matters that are put to a vote
of Portfolio shareholders.
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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>
21
<PAGE>
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. Purchase Payments Made Prior to Date of Death............................................ $ 30,000 $ 30,000
b. Contract Value on Date of Death.......................................................... $ 20,000 $ 37,000
c. 1 Year Ratchet Option Value.............................................................. $ 35,000 $ 37,000
Death Benefit is larger of a, b, and c.............................................................. $ 35,000 $ 37,000
<CAPTION>
DATE OF DEATH IS THE 5TH CONTRACT ANNIVERSARY: EXAMPLE 1 EXAMPLE 2
----------- -----------
<S> <C> <C> <C>
a. Purchase Payments Made Prior to Date of Death............................................ $ 30,000 $ 30,000
b. Contract Value on Date of Death.......................................................... $ 32,000 $ 35,000
c. 1 Year Ratchet Option Value.............................................................. $ 36,000 $ 35,000
Death Benefit is larger of a, b, and c.............................................................. $ 36,000 $ 35,000
<CAPTION>
DATE OF DEATH IS THE 10TH CONTRACT ANNIVERSARY: EXAMPLE 1 EXAMPLE 2
----------- -----------
<S> <C> <C> <C>
a. Purchase Payments Made Prior to Date of Death............................................ $ 30,000 $ 30,000
b. Contract Value on Date of Death.......................................................... $ 20,000 $ 40,000
c. 1 Year Ratchet Option Value.............................................................. $ 34,000 $ 40,000
Death Benefit is larger of a, b, and c.............................................................. $ 34,000 $ 40,000
</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 Portfolio
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Growth Stock Series, is calculated as
follows:
<TABLE>
<C> <S> <C> <C>
--------------------------------------------------------------------------------------------------------------
Total Variable Account Annual Expenses 1.30%
--------------------------------------------------------------------------------------------------------------
+ Total Series Fund Operating Expenses .66%
--------------------------------------------------------------------------------------------------------------
+ Annual Administrative Charge Rate (See Below) .07%
--------------------------------------------------------------------------------------------------------------
= Total Expense Rate 2.08%
--------------------------------------------------------------------------------------------------------------
</TABLE>
The Annual Administrative Charge Rate is calculated by dividing the total Annual
Contract Charges we collected in 1997 by the average policy value in force in
1997.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = 1000.00 X .0208 = $20.82
Year 2 Beginning Policy Value = $1029.18
Year 2 Expense = 1029.18 X .0208 = $21.43
Year 3 Beginning Policy Value = $1059.21
Year 3 Expense = 1059.21 X .0208 = $22.06
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to $20.82 + $21.43 + $22.06 = $64.31
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 $64.31 + $45.00 = $109.31
B-1
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B-2
<PAGE>
<TABLE>
<S> <C>
BULK RATE
U.S. POSTAGE
</TABLE>
FORTIS-R-
<TABLE>
<S> <C>
PAID
PERMIT NO. 3794
</TABLE>
FORTIS FINANCIAL GROUP
<TABLE>
<S> <C>
MINNEAPOLIS, MN
</TABLE>
P.O. BOX 64284
ST. PAUL, MN 55164
PROSPECTUS
MAY 1, 1998
<PAGE>
Individual Flexible Premium Deferred Variable Annuity Contracts (Opportunity and
Opportunity +)
Issued by
FORTIS BENEFITS INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
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, 1998. A copy of the Prospectus may be obtained
without charge from Fortis Investors, Inc. 1-800-800-2000, 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
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 Fortis 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 AMEV/VSB 1990. 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 $167 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.
2
<PAGE>
VARIABLE ANNUITY PAYMENTS. Variable annuity payments start at the end of the
Valuation Period that contains the Annuity Commencement Date, and will vary in
amount as the related Annuity Unit values vary. The amount of the first monthly
payment is shown on the annuity tables contained in the Contract for each $1,000
of Contract Value applied to the Variable Annuity Option selected as of the end
of such Valuation Period. The first variable annuity payment is, in effect,
allocated among the Subaccounts in the same proportion as the Contract Value is
allocated among the Subaccounts upon commencement of annuity payments.
Payments after the first will vary in amount and are determined on the first
Valuation Date of each subsequent monthly period. If the monthly payment under
the annuity form selected is based on the value of Annuity Units of a single
Subaccount, the monthly payment is found by multiplying the number of the
Contract's Annuity Units for that Subaccount by the Annuity Unit value of such
Subaccount as of the first Valuation Date in each monthly period following the
Annuity Commencement Date. If the monthly payment under the Variable Annuity
Option selected is based upon the value of Annuity Units in more than one
Subaccount, this is repeated for each applicable Subaccount. The sum of these
payments is the variable annuity payment.
GENDER OF ANNUITANT
The amount of each annuity payment ordinarily will be higher for a male
Annuitant than for a female Annuitant of the same age with an otherwise
identical Contract. This is because, statistically, females tend to have longer
life expectancies than males. However, there will be no differences between
male and female Annuitants in any jurisdiction, including Montana and
Massachusetts, where such differences are not permitted. We will also make
available Contracts with no such differences in connection with certain
employer-sponsored benefit plans. Employers should be aware that, under most
such plans, Contracts that make distinctions based on gender are prohibited by
law.
SERVICES
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
Title to the assets of the Separate Account is held by Fortis Benefits. The
assets of the Separate Account are kept segregated and held separate and apart
from Fortis Benefit's other assets. Fortis Advisers, Inc., an affiliate of
Fortis Benefits, maintains records of all purchases and redemptions of shares of
Fortis Series Fund, Inc. held by each of the Subaccounts of the Separate
Account.
EXPERTS
The financial statements of Fortis Benefits Insurance Company and Fortis
Benefits Insurance Company Variable Account D, appearing in this Statement of
Additional Information 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
$29,918,620, $30,567,607 and $27,024,997 to Fortis Investors for annuity
contract distribution services during 1995, 1996 and 1997 respectively. Of
these totals, the sums of $3,925,959, $7,531,629 and $5,091,431 for the years
1995, 1996 and 1997 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 741/2 in Washington state. Contracts are not
currently available in New Jersey and New York.
3
<PAGE>
LIMITATION ON ALLOCATIONS
Under the Contract, Fortis Benefits reserves the right to control the amount of
any assets in any investment alternative. Pursuant to this authority, Fortis
Benefits has established the following administrative procedures for the
protection of the interests of ail investors participating in Fortis Series'
Portfolios: a Contract Owner may not invest, allocate, transfer or exchange
Contract Value into any Subaccount if the value allocated to that Subaccount
under the Contract (and under any other insurance or annuity contracts directly
or indirectly controlled by the same person, jointly or individually) would
immediately thereafter equal 25% or more of the related Fortis Series
Portfolio's net assets. Fortis Benefits reserves the right to modify these
procedures at any time.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise required by law or regulation, and subject to Fortis Advisers,
Inc.'s right to terminate its investment advisory arrangements with Fortis
Series, neither the investment adviser nor any investment policy may be changed
without the consent of Fortis Benefits. No investment policy will be changed
unless a statement of change is filed with and approved by the Commerce
Commissioner of the State of Minnesota. If required, approval of or change of
any investment objective will be filed with the Insurance Department of each
state where Contracts have been delivered. The Contract Owner (or, after
annuity payments start, the Annuitant) will be notified of any material
investment policy change which has been approved. Notification of an investment
policy change will be provided to Contract Owners prior to its implementation by
the Separate Account if Contract Owner comment or vote is required for such
change.
TAXATION UNDER CERTAIN RETIREMENT PLANS
Federal income tax information concerning the purchase of Contracts for specific
types of retirement plans is set forth below. You should also refer to "Federal
Tax Matters" in the Prospectus. The tax information provided is not
comprehensive, and you should consult a qualified tax adviser before taking any
action in connection with a retirement plan.
SECTION 403(b) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS OR
PUBLIC EDUCATIONAL INSTITUTIONS
PURCHASE PAYMENTS. Under Section 403(b) of the Internal Revenue Code ("Code"),
payments made by certain employers (i.e., tax-exempt organizations meeting the
requirements of Section 501(c)(3) of the Code, or public educational
institutions) to purchase Contracts for their employees are excludible from the
gross income of employees to the extent that such aggregate purchase payments do
not exceed certain limitations prescribed by the Code. This is the case whether
the purchase payments are a result of voluntary salary reduction amounts or
employer contributions. Salary reduction payments are, however, subject to FICA
(social security) taxes.
TAXATION OF DISTRIBUTIONS. Distributions from a Section 403(b) tax-deferred
annuity contract are taxed as ordinary income to the recipient as described
under "Federal Tax Matters" in the Prospectus. Taxable distributions received
before the employee attains age 591/2 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 591/2 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
4
<PAGE>
been distributed, the employee's entire interest must be distributed in
accordance with rules similar to those applicable upon the death of the Contract
Owner in the case of a Non-Qualified Contract, as described in the Prospectus.
Certain of these and other provisions are incorporated in a special endorsement
attached to Contracts that are intended to qualify under Section 403(b), and
reference should be made to that endorsement for its complete terms.
TAX FREE EXCHANGES AND ROLLOVERS. The Code provides for the tax-free exchange
of one Section 403(b) annuity contract for another Section 403(b) annuity
contract, and the IRS has ruled (Revenue Ruling 90-24) that amounts transferred
may qualify as tax-free transfers under certain circumstances. In addition,
Section 403(b)(8) of the Code permits tax-free rollovers from Section 403(b)
programs to individual retirement annuities or other Section 403(b) programs
under certain circumstances.
SECTION 401 QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY PLANS
PURCHASE PAYMENTS. Subject to certain limitations prescribed by the Code,
purchase payments made by an employer (or a self-employed individual) under a
pension, profit-sharing or annuity plan qualified under Section 401 or
Section 403(a) of the Code are generally deductible by the employer and
excluded from the taxable income of the employee for federal income tax
purposes, whether made under a salary reduction agreement or directly by
employer contributions. Salary reduction payments are, however, subject to
FICA (social security) taxes. Purchase payments made directly by an employee
generally are made on an after-tax basis.
TAXATION OF DISTRIBUTIONS. Distributions from Contracts purchased under these
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions, as described under "Federal Tax
Matters--Qualified Plans," in the Prospectus. However, if an employee or other
payee receives a "lump sum" distribution, as defined in the Code, from an exempt
employees' trust, the taxable portion of the distribution may be subject to
special tax treatment. For most individuals receiving lump sum distributions
after attaining age 59 1/2, the rate of tax may be determined under a special
5-year income averaging provision. Those who attained age 50 by January 1, 1986
may instead elect to use a 10-year income averaging provision based on the
income tax rates in effect for 1986. Taxable distributions received prior to
attainment of age 59 1/2 under a Contract purchased under a qualified plan are
subject to the same 10% penalty tax (and the same exceptions) as described above
with respect to Section 403(b) annuity contracts.
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuity contracts.
TAX-FREE ROLLOVERS. If, within 60 days of receipt, an employee who receives a
single sum distribution transfers all of the taxable amount received to another
plan qualified under Section 401 or 403(a), or to an individual retirement
account or annuity as provided for under the Code, the transferred amount will
not
be taxed in the year of distribution. Certain "partial" distributions may also
qualify for tax-free rollover treatment, but only if transferred to an
individual retirement account or annuity. However, income tax may be required
to be withheld from the distribution unless the distribution is transferred
directly from the qualified plan to an individual retirement account or annuity.
INDIVIDUAL RETIREMENT ANNUITIES
PURCHASE PAYMENTS. Individuals may make contributions for individual retirement
annuity ("IRA") Contracts. Deductible contributions for any year may be made up
to the lesser of $2,000 or 100% of compensation for individuals who (1) are not
(and whose spouses are not) active participants in another retirement plan, (2)
are 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
5
<PAGE>
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 701/2 or for any year thereafter. Contributions to a
spouse's IRA may not be made for any year in which that spouse reaches age
70 1/2 or for any year thereafter.
TAXATION OF DISTRIBUTIONS. Distributions from IRA Contracts are taxed as
ordinary income to the recipient, although special rules exist for the tax-free
return of non-deductible contributions. In addition, taxable distributions
received under an IRA Contract prior to age 59 1/2 are subject to a 10% penalty
tax in addition to regular income tax. Certain distributions are exempted from
this penalty tax including distributions following the owner's death or
disability or 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
6
<PAGE>
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 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.
7
<PAGE>
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.
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.
Fortis Benefits relies upon an SEC No-Action letter dated December 22, 1988
providing relief from certain restrictions provided in the Investment Company
Act of 1940 relative to restrictions on redemptions and it complies with its
conditions.
The computer systems Fortis Benefits uses to process policy transactions and
valuations need to be adjusted to be able to continue to administer its policies
after Year 2000. Fortis Benefits is devoting all resources necessary to make
these systems modifications and expects that the necessary changes will be
complete on time and in a way that will result in no disruption to its policy
servicing operations. However, as is the case with most system conversion
projects, risks and uncertainties exist, due in part to reliance on third party
vendors. Nonperformance by any of these entities, or other unforeseen
circumstances, could have a material adverse impact on Fortis Benefits' ability
to perform its policy servicing operations. Fortis Benefits is closely
monitoring these entities to avoid any unforeseen circumstances.
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
<PAGE>
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' Money Market, International
and Premier Growth Subaccounts; the SAFECO Resource Series' Growth and Equity
Subaccounts; the Federated Insurance Series' U.S. Government Securities II, High
Income Bond Fund II, Utility II and American Leaders II Subaccounts; the
Lexington Funds, Inc.'s Natural Resources Trust and Emerging Markets
Subaccounts; the MFS Variable Insurance Trusts' Emerging Growth, High Income and
World Government Subaccounts; the Montgomery Variable Fund's Emerging Markets
and Growth Subaccounts; the Strong Variable Insurance Funds' Discovery II,
Government Securities II, Advantage II and International II
10
<PAGE>
Subaccounts; the American Century Investments' VP Balanced and VP Growth
Subaccounts; the Van Eck Worldwide Insurance Trust's Worldwide Bond Fund and
Worldwide Hard Assets Fund Subaccounts; which are for the year ended December
31, 1997 and the period from February 1, 1996 to December 31, 1996, the
Federated Insurance Series' U.S. Government Securities II Subaccount; the
Neuberger & Berman, Inc.'s AMT Limited Maturity Bond and AMT Partners
Subaccounts; and INVESCO, Inc.'s Health & Sciences, Industrial Income and
Technology Subaccounts which are for the period from May 1, 1997 to December
31, 1997. 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, 1997 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the portfolio
subaccounts constituting Fortis Benefits Insurance Company Variable Account D at
December 31, 1997, and the changes in its net assets for the periods described
in the first paragraph, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 27, 1998
11
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments in Fortis Series Fund, Inc.:
Growth Stock 14,375,006 $ 319,371,939 $ 526,688,738 $ -
U.S. Government Securities 12,436,321 133,641,350 132,824,879 -
Money Market 4,418,694 48,519,928 48,737,748 -
Asset Allocation 24,886,252 369,053,147 438,465,903 -
Diversified Income 8,183,245 96,070,615 98,063,099 -
Global Growth 13,579,667 192,589,384 275,542,311 -
Aggressive Growth 6,280,567 79,209,399 86,757,870 -
Growth & Income 11,433,483 159,110,074 214,442,986 -
High Yield 5,030,852 51,098,901 54,179,260 -
Global Asset Allocation 3,466,188 40,992,002 46,053,856 3,929,345
Global Bond 1,765,333 19,093,344 18,796,550 5,498,223
International Stock 4,743,824 56,508,624 63,379,379 3,929,653
Value 3,534,352 43,077,826 47,432,774 989,974
S & P 500 5,973,876 77,839,842 89,188,764 5,305,433
Blue Chip Stock 4,414,170 55,644,996 65,094,254 5,199,878
Investments in Norwest Select Fund:
ValuGrowth 1,255,007 17,561,630 21,661,424 -
Intermediate Bond 830,073 9,156,722 9,180,606 -
Small Company Stock 901,726 11,658,864 11,506,028 1,673,475
Income Equity 2,910,000 34,946,322 39,808,806 -
Investments in Scudder Variable Life Investment
Fund
International 438,322 5,596,162 6,184,726 -
Investments in Alliance Variable Product Series:
Money Market 7,052,507 7,052,507 7,052,507 -
International 176,819 2,624,996 2,655,816 -
Premier Growth 95,455 1,984,749 2,003,592 -
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE ANNUITY
VARIABLE UNITS CONTRACTS PER
ANNUITY OUTSTANDING ACCUMULATION UNIT
CONTRACTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investments in Fortis Series Fund, Inc.:
Growth Stock $ 526,688,738 157,557,760 $ 3.34
U.S. Government Securities 132,824,879 7,743,923 17.15
Money Market 48,737,748 31,691,981 1.54
Asset Allocation 438,465,903 156,035,843 2.81
Diversified Income 98,063,099 49,942,498 1.96
Global Growth 275,542,311 14,220,295 19.38
Aggressive Growth 86,757,870 6,551,667 13.24
Growth & Income 214,442,986 11,003,248 19.49
High Yield 54,179,260 4,194,544 12.92
Global Asset Allocation 42,124,511 2,918,483 14.43
Global Bond 13,298,327 1,123,401 11.84
International Stock 59,449,726 4,239,821 14.02
Value 46,442,800 3,402,217 13.65
S & P 500 83,883,331 5,698,661 14.72
Blue Chip Stock 59,894,376 4,149,587 14.43
Investments in Norwest Select Fund:
ValuGrowth 21,661,424 1,260,231 17.19
Intermediate Bond 9,180,606 740,789 12.39
Small Company Stock 9,832,553 611,312 16.08
Income Equity 39,808,806 2,920,566 13.63
Investments in Scudder Variable Life Investment
Fund
International 6,184,726 437,666 14.13
Investments in Alliance Variable Product Series:
Money Market 7,052,507 649,382 10.86
International 2,655,816 245,490 10.82
Premier Growth 2,003,592 127,363 15.73
</TABLE>
12
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
ATTRIBUTABLE NET ASSET
TO VALUE FOR
FORTIS ATTRIBUTABLE VARIABLE
BENEFITS TO ACCUMULATION ANNUITY
NET ASSETS AT INSURANCE VARIABLE UNIT CONTRACTS PER
SHARES COST MARKET VALUE COMPANY ANNUITY OUTSTANDING ACCUMULATION
CONTRACTS UNITS
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in SAFECO Resource Series:
Growth 159,934 $4,246,527 $3,734,465 $ - $3,734,465 255,499 $14.62
Equity 57,151 1,477,843 1,439,067 - 1,439,067 118,412 12.15
Investments in Federated Insurance Series:
U.S. Government Securities II 20,249 212,638 213,422 - 213,422 19,937 10.70
High Income Bond Fund II 235,896 2,533,079 2,583,066 - 2,583,066 207,634 12.44
Utility II 115,477 1,602,778 1,650,178 - 1,650,178 121,810 13.55
American Leaders II 162,682 3,094,027 3,193,445 - 3,193,445 212,945 15.00
Investments in Lexington Funds, Inc.:
Natural Resources Trust 77,554 1,209,583 1,156,327 - 1,156,327 90,147 12.83
Emerging Markets 71,797 625,202 639,707 - 639,707 77,056 8.30
Investments in MFS Variable Insurance Trust:
Emerging Growth 258,277 4,073,740 4,168,592 - 4,168,592 303,026 13.76
High Income 54,983 650,542 679,037 - 679,037 55,017 12.34
World Government 10,612 108,301 108,348 - 108,348 10,694 10.13
Investments in Montgomery Variable Funds:
Emerging Markets 62,209 665,132 657,547 - 657,547 62,541 10.51
Growth 126,112 1,765,250 1,903,023 - 1,903,023 115,144 16.53
Investments in Strong Variable Insurance Funds:
Discovery II 19,683 247,313 236,792 - 236,792 21,234 11.15
Government Securities II - - - - - - -
Advantage II - - - - - - -
International II 35,494 339,380 330,805 - 330,805 36,547 9.05
Investments in American Century Investments:
VP Balanced 68,765 565,613 566,623 - 566,623 44,869 12.63
VP Growth 14,644 149,824 141,757 - 141,757 15,651 9.06
</TABLE>
13
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets (continued)
<TABLE>
<CAPTION>
ATTRIBUTABLE NET ASSET
TO FORTIS ATTRIBUTABLE ACCUMULATIO VALUE FOR
NET ASSETS AT BENEFITS TO VARIABLE N UNITS VARIABLE
SHARES COST MARKET VALUE INSURANCE ANNUITY OUTSTANDING ANNUITY
COMPANY CONTRACTS CONTRACTS PER
ACCUMULATION
UNIT
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in Van Eck Worldwide
Insurance Trust:
Worldwide Bond Fund 25,351 $ 277,884 $ 278,607 $ - $ 278,607 26,552 $10.49
Worldwide Hard Assets Fund 84,227 1,381,845 1,323,208 - 1,323,208 135,426 9.77
Investments in Neuberger & Berman,
Inc.:
AMT Limited Maturity Bond 23,809 334,594 336,187 - 336,187 32,024 10.50
AMT Partners 28,668 573,526 590,553 - 590,553 47,329 12.48
Investments in INVESCO, Inc.:
Health & Sciences 13,819 149,889 153,663 - 153,663 13,820 11.12
Industrial Income 19,806 351,069 337,492 - 337,492 27,808 12.14
Technology 14,713 174,352 168,898 - 168,898 14,794 11.42
----------------------------------------------------------------------
Totals $1,859,213,254 $2,332,292,685 $26,525,981 $2,305,766,704 469,532,644
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
14
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets
Year ended December 31, 1997
<TABLE>
<CAPTION>
FORTIS FORTIS U.S. FORTIS FORTIS FORTIS FORTIS
GROWTH GOVERNMENT MONEY FORTIS ASSET DIVERSIFIED GLOBAL AGGRESSIVE
STOCK SECURITIES MARKET ALLOCATION INCOME GROWTH GROWTH
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 49,675 $9,784,129 $2,375,151 $ 60,002,739 $ 6,905,359 $ - $ 1,231
Mortality and expense and policy advance
charges (7,089,187) (1,875,555) (750,583) (5,433,367) (1,307,512) (3,682,512) (1,052,753)
Net realized gain (loss) on investments 20,147,178 (347,001) 820,447 6,303,022 177,507 5,836,551 102,856
Net unrealized appreciation (depreciation)
of investments during the period 41,012,209 2,402,114 (304,737) 7,447,945 2,515,054 12,455,062 2,161,309
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 54,119,875 9,963,687 2,140,278 68,320,339 8,290,408 14,609,101 1,212,643
CAPITAL TRANSACTION
Purchase of Variable Account units 11,292,630 5,975,823 49,678,086 25,706,170 3,115,896 19,063,321 14,369,199
Redemption of Variable Account units (53,729,345) (38,528,792) (58,875,709) (27,015,058) (14,932,392) (19,838,860) (5,395,939)
Mortality and expense charges redeemed 7,089,187 1,875,555 750,583 5,433,367 1,307,512 3,682,512 1,052,753
Funding of subaccount by Fortis Benefits
Insurance Company - - - - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - - - - - -
Dividend income distribution to Fortis
Benefits Insurance Company - - - - - - -
Net increase (decrease) from capital -------------------------------------------------------------------------------------------
transactions (35,347,528) (30,677,414) (8,447,040) 4,124,479 (10,508,984) 2,906,973 10,026,013
Net assets at beginning of period 507,916,391 153,538,606 55,044,510 366,021,085 100,281,675 258,026,237 75,519,214
-------------------------------------------------------------------------------------------
Net assets at end of period $526,688,738 $132,824,879 $48,737,748 $438,465,903 $ 98,063,099 $275,542,311 $86,757,870
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
15
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
FORTIS GLOBAL FORTIS FORTIS
FORTIS GROWTH FORTIS HIGH ASSET GLOBAL INTERNATIONAL FORTIS
& INCOME YIELD ALLOCATION BOND STOCK FORTIS VALUE S & P 500
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 6,654,164 $ 71,851 $ 2,358,159 $ 805,285 $ 2,559,479 $ 2,718,491 $ 1,361,090
Mortality and expense and policy
advance charges (2,311,419) (641,985) (489,857) (172,763) (684,830) (377,532) (607,630)
Net realized gain (loss)
on investments 1,120,673 85,907 218,706 (68,168) 309,917 61,399 831,297
Net unrealized appreciation
(depreciation) of investments
during the period 33,449,045 4,156,960 2,537,910 (676,900) 2,974,721 3,471,343 9,928,599
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 38,912,463 3,672,733 4,624,918 (112,546) 5,159,287 5,873,701 11,513,356
CAPITAL TRANSACTIONS
Purchase of Variable Account
units 56,082,796 14,037,885 9,248,738 2,704,435 16,326,079 29,249,997 82,381,056
Redemption of Variable Account
units (4,951,613) (3,986,387) (1,791,957) (2,463,332) (2,103,233) (695,317) (23,769,708)
Mortality and expense charges
redeemed 2,311,419 641,983 489,857 172,763 684,830 377,532 607,630
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 - - (193,973) (128,042) (157,141) (21,662) (79,618)
-----------------------------------------------------------------------------------------------
Net increase (decrease) from
capital transactions 53,442,602 10,693,483 7,752,665 285,824 14,750,535 28,910,550 59,139,360
Net assets at beginning of period 122,087,921 39,813,044 33,676,273 18,623,272 43,469,557 12,648,523 18,536,048
-----------------------------------------------------------------------------------------------
Net assets at end of period $214,442,986 $54,179,260 $46,053,856 $18,796,550 $63,379,379 $47,432,774 $89,188,764
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
16
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
NORWEST NORWEST
FORTIS BLUE NORWEST INTERMEDIATE SMALL NORWEST SCUDDER ALLIANCE
CHIP VALUGROWTH BOND COMPANY INCOME INTERNATIONAL MONEY MARKET
STOCK STOCK EQUITY
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 293,654 $ 579,724 $ 633,659 $ 1,503,400 $ 330,791 $ 89,071 $375,670
Mortality and expense and policy
advance charges (447,570) (221,359) (101,678) (95,073) (305,439) (66,114) (33,431)
Net realized gain (loss) on investments 107,559 104,535 2,550 25,285 38,572 40,064 -
Net unrealized appreciation
(depreciation) of investments during
the period 8,118,339 2,305,264 165,968 (863,445) 4,243,198 164,076 -
------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 8,071,982 2,768,164 700,499 570,167 4,307,122 227,097 342,239
CAPITAL TRANSACTIONS
Purchase of Variable Account units 42,777,440 8,653,105 3,293,135 5,021,855 25,830,279 2,768,738 168,171,990
Redemption of Variable Account units (832,257) (476,484) (779,906) (276,048) (309,223) (302,454)(167,088,962)
Mortality and expense charges redeemed 447,570 221,359 101,678 95,073 305,439 66,114 33,431
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 (58,517) - - - - - -
------------------------------------------------------------------------------------------
Net increase (decrease) from capital
transactions 42,334,236 8,397,980 2,614,907 4,840,880 25,826,495 2,532,398 1,116,459
Net assets at beginning of period 14,688,036 10,495,280 5,865,200 6,094,981 9,675,189 3,425,231 5,593,809
------------------------------------------------------------------------------------------
Net assets at end of period $65,094,254 $21,661,424 $9,180,606 $11,506,028 $39,808,806 $6,184,726 $7,052,507
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
17
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
FEDERATED
ALLIANCE U.S. FEDERATED
ALLIANCE PREMIER SAFECO SAFECO GOVERNMENT HIGH INCOME FEDERATED
INTERNATIONAL GROWTH GROWTH EQUITY SECURITIES II* BOND FUND II UTILITY II
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 19,713 $ 954 $ 506,511 $ 102,844 $ 3,957 $ 67,548 $ 4,035
Mortality and expense and policy advance
charges (4,653) (4,656) (4,146) (4,251) (265) (3,413) (1,118)
Net realized gain (loss) on investments 524,319 185,183 260,166 21,442 (1,381) 120,901 48,748
Net unrealized appreciation (depreciation)
of investments during the period 25,774 12,341 (501,499) (19,125) 784 31,419 44,341
---------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 565,153 193,822 261,032 100,910 3,095 216,455 96,006
CAPITAL TRANSACTIONS
Purchase of Variable Account units 65,480,879 13,005,720 13,595,285 4,689,201 1,957,483 7,473,177 8,386,519
Redemption of Variable Account units (63,692,893) (11,432,296) (10,315,753) (3,551,876) (1,747,421) (6,024,386) (7,031,477)
Mortality and expense charges redeemed 4,653 4,656 4,146 4,251 265 3,413 1,118
Funding of subaccount by Fortis Benefits
Insurance Company - - - - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - - - - - -
Dividend income distribution to Fortis
Benefits Insurance Company - - - - - - -
---------------------------------------------------------------------------------------
Net increase (decrease) from capital
transactions 1,792,639 1,578,080 3,283,678 1,141,576 210,327 1,452,204 1,356,160
Net assets at beginning of period 298,024 231,690 189,755 196,581 - 914,407 198,012
---------------------------------------------------------------------------------------
Net assets at end of period $ 2,655,816 $ 2,003,592 $ 3,734,465 $ 1,439,067 $ 213,422 $ 2,583,066 $ 1,650,178
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
* For the period from May 1, 1997 to December 31, 1997.
SEE ACCOMPANYING NOTES.
18
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
LEXINGTON
FEDERATED NATURAL LEXINGTON MONTGOMERY
AMERICAN RESOURCES EMERGING MFS EMERGING MFS HIGH MFS WORLD EMERGING
LEADERS II TRUST MARKETS GROWTH INCOME GOVERNMENT MARKETS
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 11,802 $ 37,809 $ 238 $ 5,222 $ - $ 3,011 $ 585
Mortality and expense and policy advance
charges (6,487) (4,044) (1,766) (8,094) (3,208) (888) (2,178)
Net realized gain (loss) on investments 366,916 147,314 22,277 278,077 64,089 (9,538) 17,971
Net unrealized appreciation (depreciation)
of investments during the period 87,367 (60,160) 13,703 124,482 28,378 (237) (9,020)
---------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 459,598 120,919 34,452 399,687 89,259 (7,652) 7,358
CAPITAL TRANSACTIONS
Purchase of Variable Account units 20,909,386 7,675,556 10,873,736 50,380,648 2,109,055 4,223,973 7,351,843
Redemption of Variable Account units (18,677,016) (7,422,947) (10,335,967) (48,657,063) (1,917,469) (4,151,384) (6,894,401)
Mortality and expense charges redeemed 6,487 4,044 1,766 8,094 3,208 888 2,178
Funding of subaccount by Fortis Benefits
Insurance Company - - - - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - - - - - -
Dividend income distribution to Fortis
Benefits Insurance Company - - - - - - -
---------------------------------------------------------------------------------------
Net increase (decrease) from capital
transactions 2,238,857 256,653 539,535 1,731,679 194,794 73,477 459,620
Net assets at beginning of period 494,990 778,755 65,720 2,037,226 394,984 42,523 190,569
---------------------------------------------------------------------------------------
Net assets at end of period $ 3,193,445 $1,156,327 $ 639,707 $ 4,168,592 $ 679,037 $ 108,348 $ 657,547
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
19
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
STRONG STRONG AMERICAN AMERICAN
MONTGOMERY DISCOVERY GOVERNMENT STRONG STRONG CENTURY VP CENTURY
GROWTH FUND II SECURITIES II ADVANTAGE II INTERNATIONAL II BALANCED VP GROWTH
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 80,509 $ - $ 4,238 $ 6,644 $ 25,600 $ 8,363 $ 2,139
Mortality and expense and policy advance
charges (2,758) (673) (446) (122) (2,462) (1,284) (355)
Net realized gain (loss) on investments 110,597 6,584 1,688 6,199 (1,178) (65,865) 32,718
Net unrealized appreciation (depreciation)
of investments during the period 156,818 (12,707) 277 1,352 (11,451) 51 (7,181)
-----------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 345,166 (6,796) 5,757 14,073 10,509 (58,735) 27,321
CAPITAL TRANSACTIONS
Purchase of Variable Account units 4,720,065 1,491,187 192,449 40,789 13,896,848 9,336,521 5,761,482
Redemption of Variable Account units (4,059,313) (1,339,858) (267,953) (356,157) (13,937,360) (8,825,530) (5,717,321)
Mortality and expense charges redeemed 2,758 673 446 122 2,462 1,284 355
Funding of subaccount by Fortis Benefits
Insurance Company - - - - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - - - - - -
Dividend income distribution to Fortis
Benefits Insurance Company - - - - - - -
-----------------------------------------------------------------------------------------
Net increase (decrease) from capital
transactions 663,510 152,002 (75,058) (315,246) (38,050) 512,275 44,516
Net assets at beginning of period 894,347 91,586 69,301 301,173 358,346 113,083 69,920
-----------------------------------------------------------------------------------------
Net assets at end of period $ 1,903,023 $ 236,792 $ - $ - $ 330,805 $ 566,623 $ 141,757
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
20
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
VAN ECK NEUBERGER &
VAN ECK WORLDWIDE BERMAN AMT NEUBERGER &
WORLDWIDE HARD ASSETS LIMITED BERMAN AMT
BOND FUND FUND MATURITY BOND* PARTNERS*
-------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 1,403 $ 21,541 $ - $ -
Mortality and expense and policy
advance charges (1,009) (4,933) (742) (1,259)
Net realized gain (loss) on
investments 15,991 176,670 8,178 12,902
Net unrealized appreciation
(depreciation) of investments
during the period 325 (76,669) 1,593 17,027
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 16,710 116,609 9,029 28,670
CAPITAL TRANSACTIONS
Purchase of Variable Account units 2,437,708 13,173,938 3,132,473 1,237,645
Redemption of Variable Account
units (2,213,520) (12,443,877) (2,806,057) (677,021)
Mortality and expense charges
redeemed 1,009 4,933 742 1,259
Funding of subaccount by Fortis
Benefits Insurance Company - - - -
Redemption of Fortis Benefits
Insurance Company investment in
subaccount - - - -
Dividend income distribution to
Fortis Benefits Insurance Company - - - -
-------------------------------------------------------------
Net increase (decrease) from
capital transactions 225,197 734,994 327,158 561,883
Net assets at beginning of period 36,700 471,605 - -
-------------------------------------------------------------
Net assets at end of period $ 278,607 $ 1,323,208 $ 336,187 $ 590,553
-------------------------------------------------------------
-------------------------------------------------------------
<CAPTION>
INVESCO INVESCO
HEALTH& INDUSTRIAL INVESCO COMBINED
SCIENCES* INCOME* TECHNOLOGY* VARIABLE ACCOUNT
-------------------------------------------------------------
OPERATIONS
Dividend income $ 1,508 $ 23,677 $ - $ 100,392,623
Mortality and expense and policy
advance charges (293) (361) (393) (27,814,406)
Net realized gain (loss) on
investments (3,047) 5,339 1,683 38,273,799
Net unrealized appreciation
(depreciation) of investments
during the period 3,774 (13,577) (5,452) 137,496,762
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 1,942 15,078 (4,162) 248,348,778
CAPITAL TRANSACTIONS
Purchase of Variable Account units 664,230 512,375 1,293,756 871,752,580
Redemption of Variable Account
units (512,802) (190,322) (1,121,089) (684,463,505)
Mortality and expense charges
redeemed 293 361 393 27,814,406
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 - - - (638,953)
-------------------------------------------------------------
Net increase (decrease) from
capital transactions 151,721 322,414 173,060 214,464,528
Net assets at beginning of period - - - 1,869,479,379
-------------------------------------------------------------
Net assets at end of period $ 153,663 $ 337,492 $ 168,898 $2,332,292,685
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
* For the period from May 1, 1997 to December 31, 1997.
SEE ACCOMPANYING NOTES.
21
<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
FORTIS GROWTH GOVERNMENT FORTIS MONEY FORTIS ASSET DIVERSIFIED FORTIS GLOBAL
STOCK SECURITIES MARKET ALLOCATION INCOME GROWTH
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERTIONS
Dividend income $ 1,755,003 $ 11,268,567 $ 1,961,696 $ 18,389,804 $ 7,814,749 $ 349,640
Mortality and expense and policy advance
charges (6,383,239) (2,182,582) (304,880) (4,666,220) (1,375,570) (2,982,707)
Net realized gain (loss) on investments 6,173,815 (229,036) 875,419 4,730,794 94,162 1,304,350
Net unrealized appreciation (depreciation)
of investments during the period 62,258,164 (8,049,967) (396,193) 17,669,052 (3,883,159) 34,010,868
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 63,803,743 806,982 2,136,042 36,123,430 2,650,182 32,682,151
CAPITAL TRANSACTIONS
Purchase of Variable Account units 40,354,935 9,792,095 53,529,569 35,139,069 4,487,798 56,339,715
Redemption of Variable Account units (19,671,112) (32,995,603) (38,173,512) (27,343,627) (12,133,337) (4,633,717)
Mortality and expense charges redeemed 6,383,239 2,182,582 304,880 4,666,220 1,375,570 2,982,707
Funding of subaccount by Fortis Benefits
Insurance Company - - - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - - - - -
Dividend income distribution to
Fortis Benefits Insurance Company - - - - - -
Net increase (decrease) from capital -------------------------------------------------------------------------------------
transactions 27,067,062 (21,020,926) 15,660,937 12,461,662 (6,269,969) 54,688,705
Net assets at beginning of period 417,045,586 173,752,550 37,247,531 317,435,993 103,901,462 170,655,381
-------------------------------------------------------------------------------------
Net assets at end of period $507,916,391 $153,538,606 $ 55,044,510 $366,021,085 $100,281,675 $258,026,237
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
22
<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 FORTIS
AGGRESSIVE FORTIS GROWTH FORTIS HIGH ASSET FORTIS GLOBAL INTERNATIONAL
GROWTH & INCOME YIELD ALLOCATION BOND STOCK
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 130,127 $ 3,357,159 $ 3,381,726 $ 1,354,041 $ 900,099 $ 1,318,016
Mortality and expense and policy advance
charges (818,660) (1,187,861) (431,670) (300,249) (142,264) (377,251)
Net realized gain (loss) on investments 1,462,499 214,625 60,612 62,447 11,779 153,762
Net unrealized appreciation (depreciation)
of investments during the period 311,941 14,270,467 (261,534) 2,171,960 394,408 3,249,452
----------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,085,907 16,654,390 2,749,134 3,288,199 1,164,022 4,343,979
CAPITAL TRANSACTIONS
Purchase of Variable Account units 45,154,232 51,705,892 14,950,454 15,032,759 8,709,675 24,843,475
Redemption of Variable Account units (9,407,569) (1,795,563) (3,738,286) (743,168) (2,924,096) (2,013,891)
Mortality and expense charges redeemed 818,660 1,187,861 431,670 300,249 142,264 377,251
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)
----------------------------------------------------------------------------------------
Net increase (decrease) from capital
transactions 36,565,323 51,098,190 11,643,838 17,391,415 10,740,230 26,031,112
Net assets at beginning of period 37,867,984 54,335,341 25,420,072 12,996,659 6,719,020 13,094,466
----------------------------------------------------------------------------------------
Net assets at end of period $75,519,214 $122,087,921 $39,813,044 $33,676,273 $18,623,272 $43,469,557
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
23
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
FORTIS NORWEST NORWEST
FORTIS BLUE CHIP NORWEST INTERMEDIATE SMALL COMPANY
FORTIS VALUE* S & P 500* STOCK* VALUGROWTH BOND STOCK
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 67,900 $ 102,931 $ 50,146 $ 82,203 $ 266,665 $ 512,352
Mortality and expense and policy
advance charges (50,034) (58,475) (42,346) (106,853) (59,335) (36,673)
Net realized gain (loss) on investments 4,138 79,382 101,880 55,679 2,306 8,076
Net unrealized appreciation (depreciation)
of investments during the period 883,605 1,420,323 1,330,919 1,308,423 (240,519) 722,953
----------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 905,609 1,544,161 1,440,599 1,339,452 (30,883) 1,206,708
CAPITAL TRANSACTIONS
Purchase of Variable Account units 11,049,449 14,397,817 12,543,584 4,632,105 3,468,748 3,069,610
Redemption of Variable Account units (62,025) (990,762) (2,873,938) (340,655) (700,061) (128,442)
Mortality and expense charges redeemed 50,034 58,475 42,346 106,853 59,335 36,673
Funding of subaccount by Fortis Benefits
Insurance Company 710,000 3,550,000 3,550,000 - - 1,038,350
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - - - - -
Dividend income distribution to Fortis
Benefits Insurance Company (4,544) (23,643) (14,555) - - -
----------------------------------------------------------------------------------------
Net increase (decrease) from capital
transactions 11,742,914 16,991,887 13,247,437 4,398,303 2,828,022 4,016,191
Net assets at beginning of period - - - 4,757,525 3,068,061 872,082
----------------------------------------------------------------------------------------
Net assets at end of period $12,648,523 $18,536,048 $14,688,036 $10,495,280 $5,865,200 $6,094,981
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
* For the period from May 1, 1996 to December 31, 1996.
SEE ACCOMPANYING NOTES.
24
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
NORWEST ALLIANCE ALLIANCE
INCOME SCUDDER MONEY ALLIANCE PREMIER SAFECO
EQUITY* INTERNATIONAL MARKET*** INTERNATIONAL*** GROWTH*** GROWTH**
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 73,375 $ 47,233 $ 102,380 $ 1,304 $ 24,242 $ 14,945
Mortality and expense and policy
advance charges (42,286) (37,291) (10,300) (544) (671) (48)
Net realized gain (loss) on investments 3,546 7,053 - 1,004 28,494 (6,108)
Net unrealized appreciation (depreciation)
of investments during the period 619,284 312,160 - 5,046 6,502 (10,564)
--------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 653,919 329,155 92,080 6,810 58,567 (1,775)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 9,076,709 1,328,103 29,009,905 3,914,735 1,256,492 441,504
Redemption of Variable Account units (97,725) (80,771) (23,518,476) (3,624,065) (1,084,040) (250,022)
Mortality and expense charges redeemed 42,286 37,291 10,300 544 671 48
Funding of subaccount by Fortis Benefits
Insurance Company - - - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - - - - -
Dividend income distribution to Fortis
Benefits Insurance Company - - - - - -
--------------------------------------------------------------------------------------
Net increase (decrease) from capital
transactions 9,021,270 1,284,623 5,501,729 291,214 173,123 191,530
Net assets at beginning of period - 1,811,453 - - - -
--------------------------------------------------------------------------------------
Net assets at end of period $9,675,189 $3,425,231 $ 5,593,809 $ 298,024 $ 231,690 $ 189,755
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
* For the period from May 1, 1996 to December 31, 1996.
** For the period from December 1, 1996 to December 31, 1996.
*** For the period from February 1, 1996 to December 31, 1996.
SEE ACCOMPANYING NOTES.
25
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
LEXINGTON
FEDERATED FEDERATED NATURAL LEXINGTON
SAFECO HIGH INCOME FEDERATED AMERICAN RESOURCES EMERGING
EQUITY** BOND FUND II*** UTILITY II*** LEADERS II*** TRUST*** MARKETS***
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 17,950 $ 20,894 $ 2,018 $ 3,741 $ 1,130 $ -
Mortality and expense and policy
advance charges (26) (1,205) (203) (869) (909) (253)
Net realized gain (loss) on investments - 6,428 11,122 22,746 33,868 (583)
Net unrealized appreciation (depreciation)
of investments during the period (19,651) 18,570 3,058 12,051 6,904 801
------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,727) 44,687 15,995 37,669 40,993 (35)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 198,282 1,538,226 1,026,928 1,372,344 2,056,140 1,131,006
Redemption of Variable Account units - (669,711) (845,114) (915,892) (1,319,287) (1,065,504)
Mortality and expense charges redeemed 26 1,205 203 869 909 253
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 - - - - - -
------------------------------------------------------------------------------------
Net increase (decrease) from capital
transactions 198,308 869,720 182,017 457,321 737,762 65,755
Net assets at beginning of period - - - - - -
------------------------------------------------------------------------------------
Net assets at end of period $196,581 $ 914,407 $ 198,012 $ 494,990 $ 778,755 $ 65,720
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
** For the period from December 1, 1996 to December 31, 1996.
*** For the period from February 1, 1996 to December 31, 1996.
SEE ACCOMPANYING NOTES.
26
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
MONTGOMERY STRONG STRONG
MFS EMERGING MFS HIGH MFS WORLD EMERGING MONTGOMERY DISCOVERY GOVERNMENT
GROWTH*** INCOME*** GOVERNMENT*** MARKETS*** GROWTH*** FUND II*** SECURITIES II***
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 8,097 $ 21,440 $ - $ 391 $ 41,303 $ 6,715 $ 1,630
Mortality and expense and
policy advance charges (3,876) (1,019) (116) (375) (1,779) (544) (671)
Net realized gain (loss)
on investments 148,625 12,701 2,897 (499) 42,751 (5,280) 2,051
Net unrealized appreciation
(depreciation)of investments
during the period (29,630) 116 283 1,434 (19,045) 2,186 (276)
--------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 123,216 33,238 3,064 951 63,230 3,077 2,734
CAPITAL TRANSACTIONS
Purchase of Variable Account units 21,176,704 672,340 262,500 801,303 2,961,408 321,349 743,861
Redemption of Variable Account units (19,266,570) (311,613) (223,157) (612,060) (2,132,070) (233,384) (677,965)
Mortality and expense charges redeemed 3,876 1,019 116 375 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 - - - - - - -
--------------------------------------------------------------------------------------------
Net increase (decrease) from capital
transactions 1,914,010 361,746 39,459 189,618 831,117 88,509 66,567
Net assets at beginning of period - - - - - - -
--------------------------------------------------------------------------------------------
Net assets at end of period $ 2,037,226 $ 394,984 $ 42,523 $ 190,569 $ 894,347 $ 91,586 $ 69,301
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
*** For the period from February 1, 1996 to December 31, 1996.
SEE ACCOMPANYING NOTES.
27
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
VAN ECK VAN ECK
STRONG STRONG AMERICAN AMERICAN WORLDWIDE WORLDWIDE COMBINED
ADVANTAGE INTERNATIONAL CENTURY VP CENTURY BOND HARD ASSETS VARIABLE
II*** II*** BALANCED*** VP GROWTH*** FUND*** FUND*** ACCOUNT
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 5,379 $ 1,058 $ 140 $ 113 $ 468 $ 3,629 $ 53,462,399
Mortality and expense and policy (48) (26) (1,205) (203) (869) (1,505) (21,613,710)
advance charges
Net realized gain (loss) on investments 1,416 15,704 2,990 (5,589) (109) (3,564) 15,488,353
Net unrealized appreciation
(depreciation) of investments during
the period (1,352) 2,576 959 (886) 398 18,031 128,100,118
-----------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 5,395 19,312 2,884 (6,565) (112) 16,591 175,437,160
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,277,539 4,776,591 651,649 1,563,734 63,735 2,385,593 499,209,661
Redemption of Variable Account units (981,809) (4,437,583) (542,655) (1,487,452) (27,792) (1,932,084) (227,006,165)
Mortality and expense charges redeemed 48 26 1,205 203 869 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)
-----------------------------------------------------------------------------------------
Net increase (decrease) from capital
transactions 295,778 339,034 110,199 76,485 36,812 455,014 313,061,053
Net assets at beginning of period - - - - - - 1,380,981,166
-----------------------------------------------------------------------------------------
Net assets at end of period $ 301,173 $ 358,346 $ 113,083 $ 69,920 $ 36,700 $ 471,605 $1,869,479,379
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
*** For the period from February 1, 1996 to December 31, 1996.
SEE ACCOMPANYING NOTES.
28
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements
December 31, 1997
1. GENERAL
FORTIS BENEFITS INSURANCE COMPANY
Variable Account D (the Account) was established as a segregated asset account
of Fortis Benefits Insurance Company (Fortis Benefits) on October 14, 1987 under
Minnesota law. The Account is registered under the Investment Company Act of
1940 as a unit investment trust.
Fortis Benefits was founded in 1910. At the end of 1997, Fortis Benefits had
approximately $94 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 assets in excess
of $167 billion at the end of 1997.
There were forty-nine subaccounts that had activity in 1997, forty-seven of
these subaccounts are active, and two are inactive as of December 31, 1997. The
investment objectives and policies of each of the Account's subaccounts are as
follows.
29
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements
December 31, 1997
ACTIVE SUBACCOUNTS
FORTIS SERIES FUND, INC.
- - GROWTH STOCK SUBACCOUNT--seeks growth of capital through short-term and
long-term appreciation.
30
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
FORTIS SERIES FUND, INC. (CONTINUED)
- - U.S. GOVERNMENT SECURITIES SUBACCOUNT--seeks to earn a high level of
current income consistent with prudent investment risk.
- - MONEY MARKET 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 SUBACCOUNT--seeks favorable overall rates of return on
capital, primarily through increased ownership of equity securities during
periods when stock market conditions appear favorable, and short-term and
long-term debt instruments during periods when stock market conditions are
less favorable.
- - DIVERSIFIED INCOME SUBACCOUNT--seeks high level of current income by
investing primarily in a diversified portfolio of government securities and
investment grade corporate bonds.
- - GLOBAL GROWTH SUBACCOUNT--seeks growth of capital through long-term capital
appreciation, through ownership of equity securities, allocated among
diverse international markets.
- - AGGRESSIVE GROWTH SUBACCOUNT--seeks long-term capital appreciation in
equity securities.
- - GROWTH & INCOME SUBACCOUNT--seeks growth of capital and current income,
through ownership of equity securities that provide an income component and
the potential for growth.
- - HIGH YIELD SUBACCOUNT--seeks maximum total return through current income
and capital appreciation, through ownership of a diversified portfolio of
high-yielding fixed-income securities.
31
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
FORTIS SERIES FUND, INC. (CONTINUED)
- - GLOBAL ASSET ALLOCATION SUBACCOUNT--seeks favorable overall rates of return
on capital, primarily through increased ownership of foreign and domestic
equity securities during periods when stock market conditions appear
favorable, and short-term and long-term foreign and 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 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 SUBACCOUNT--seeks growth of capital by investing principally in
medium and large capitalization companies that possess above-average growth
characteristics and attractive valuations.
- - INTERMEDIATE BOND SUBACCOUNT--seeks income through investing primarily in a
diversified portfolio of government and corporate bonds in an evenly
balanced maturity structure.
32
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
NORWEST SELECT FUNDS (CONTINUED)
- - SMALL COMPANY STOCK SUBACCOUNT--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 SUBACCOUNT--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 FUND
- - INTERNATIONAL SUBACCOUNT--seeks long-term growth of capital primarily
through diversified holdings of marketable foreign securities.
ALLIANCE VARIABLE PRODUCT SERIES
- - MONEY MARKET SUBACCOUNT--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 SUBACCOUNT--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 SUBACCOUNT--seeks growth of capital by pursuing aggressive
investment policies, investments will be based upon their potential for
capital appreciation.
33
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
SAFECO RESOURCE SERIES
- - GROWTH SUBACCOUNT--seeks growth of capital and the increased income that
ordinarily follows from such growth.
- - EQUITY SUBACCOUNT--seeks long-term growth of capital and reasonable income
by investing principally in common stocks.
FEDERATED INSURANCE SERIES
- - U.S. GOVERNMENT SECURITIES II SUBACCOUNT--seeks to provide current income,
by investing at least 65% of the value of the assets in securities of the
U.S. Government, its agencies or instrumentalities.
- - HIGH INCOME BOND FUND II SUBACCOUNT--seek high current income, by investing
primarily in a professionally managed, diversified portfolio of fixed
income securities.
- - UTILITY II SUBACCOUNT--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 II SUBACCOUNT--seeks long-term capital growth, by
investing the majority of its assets in common stock of "blue chip"
companies.
LEXINGTON FUNDS, INC.
- - NATURAL RESOURCES TRUST SUBACCOUNT--seeks 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 SUBACCOUNT--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.
34
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
MFS VARIABLE INSURANCE TRUST
- - EMERGING GROWTH SUBACCOUNT--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.
- - HIGH INCOME SUBACCOUNT--seeks high current income through investing,
primarily in a professionally managed diversified portfolio of fixed income
securities, some of which may involve equity features.
- - WORLD GOVERNMENT SUBACCOUNT--seeks growth of capital, with moderate current
income through investment in an internationally diversified portfolio
consisting primarily of debt securities and, to a lesser extent, equity
securities.
MONTGOMERY VARIABLE FUNDS
- - EMERGING MARKETS SUBACCOUNT--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 SUBACCOUNT--seeks capital appreciation by investing at least 65% of
its assets in the equity securities of domestic companies.
STRONG VARIABLE INSURANCE FUNDS
- - DISCOVERY II SUBACCOUNT--seeks capital growth by investing in securities
that are believed to represent growth opportunities.
- - INTERNATIONAL II SUBACCOUNT--seeks capital growth by investing primarily in
equity securities of issuers located outside of the United States.
35
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
AMERICAN CENTURY INVESTMENTS
- - VP BALANCED SUBACCOUNT--seeks capital growth and current income by
investing in a combination of common stocks (and other equity equivalents)
and fixed income securities.
- - VP GROWTH SUBACCOUNT--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 SUBACCOUNT--seeks high return through a flexible policy
of investing globally, primarily in debt securities.
- - WORLDWIDE HARD ASSETS FUND SUBACCOUNT--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.
NEUBERGER & BERMAN, INC.
- - AMT LIMITED MATURITY BOND SUBACCOUNT--seeks to provide the highest current
income consistent with low risk by primarily investing in U.S. Government
and Agency securities and investment grade debt securities issued by
financial institutions, corporations and others.
- - AMT PARTNERS SUBACCOUNT--seeks capital growth, by investing principally in
common stock of any other equity securities of established companies.
INVESCO VARIABLE INVESTMENTS FUNDS, INC.
- - HEALTH & SCIENCES SUBACCOUNT--seeks capital appreciation by investing in
equity securities of companies that develop, produce or distribute products
or services related to health care.
36
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
INVESCO VARIABLE INVESTMENTS FUNDS, INC. (CONTINUED)
- - INDUSTRIAL INCOME SUBACCOUNT--seeks the best possible current income while
following sound investment practices. The fund normally invests 65% of its
total assets in dividend-paying common stock, and an additional 10% in
equity securities that do not pay a regular dividend, with the remainder
being invested in corporate bonds.
- - TECHNOLOGY SUBACCOUNT--seeks capital appreciation by investing in equity
securities of companies in technology-related industries.
INACTIVE SUBACCOUNTS
STRONG VARIABLE INSURANCE FUNDS
- - GOVERNMENT SECURITIES II SUBACCOUNT--seeks total return by investing for a
high level of current income with a moderate degree of share-price
fluctuation.
- - ADVANTAGE II SUBACCOUNT--seeks current income with a very low degree of
share-price fluctuation, by investing primarily in ultra short-term
investment-grade debt obligations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Account are segregated from Fortis Benefits' other assets. The
operations of the Account are part of Fortis Benefits. The following is a
summary of significant accounting policies consistently followed by the Account
in the preparation of its financial statements.
INVESTMENT TRANSACTIONS
Capital gain distributions from subaccounts are recorded on the ex-dividend date
and reinvested upon receipt.
37
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
INVESTMENT INCOME
Dividend income from subaccounts is recorded on the ex-dividend date and
reinvested upon receipt.
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 reported amounts of net assets at the date of the financial
statements and the reported amounts of net increase and decrease in net assets
from operations during the reporting period. Actual results could differ from
these estimates.
3. INVESTMENTS
Investment in shares of the Fortis Series Fund, Inc. Subaccounts 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 these Series. The Series' net asset
value is based on market quotations of the securities held in the portfolio.
Investment in the other subaccounts is valued at the net asset (market) value
per share at the close of business on December 31, 1997, as reported by the
respective mutual fund.
The cost of investments sold and redeemed is determined on the average cost
method. Unrealized appreciation or depreciation of investments represents the
Account's share of the subaccounts' undistributed net investment income,
undistributed realized gains or losses and unrealized appreciation or
depreciation.
38
<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, including reinvested dividends
and realized capital gains, and average cost of investments sold or redeemed
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
SHARES
-------------------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock 335,736 1,531,197 $ 11,342,305 $ 33,582,166
U.S. Government Securities 1,516,213 3,606,464 15,759,952 38,875,792
Money Market 4,699,565 5,310,661 52,053,237 58,055,261
Asset Allocation 4,812,001 1,449,334 85,708,909 20,712,037
Diversified Income 865,982 1,255,212 10,021,255 14,754,885
Global Growth 995,381 999,116 19,063,321 14,002,309
Aggressive Growth 1,136,613 420,068 14,370,430 5,293,083
Growth & Income 3,670,172 288,495 62,736,960 3,830,940
High Yield 1,365,421 386,498 14,109,736 3,900,480
Global Asset Allocation 869,773 147,998 11,606,897 1,767,225
Global Bond 309,549 239,582 3,509,720 2,659,542
International Stock 1,405,870 168,466 18,885,558 1,950,457
Value 2,474,886 56,145 31,968,488 655,579
S & P 500 6,117,672 1,766,129 83,742,146 23,018,029
Blue Chip Stock 3,219,587 67,752 43,071,094 783,215
Norwest Select Fund:
ValuGrowth 552,655 28,517 9,232,829 371,949
Intermediate Bond 353,877 70,931 3,926,794 777,355
Small Company Stock 451,498 19,700 6,525,255 250,763
Income Equity 2,067,474 24,292 26,161,070 270,651
Scudder Variable Life Investment Fund:
International 201,696 21,882 2,857,809 262,389
Alliance Variable Product Series:
Money Market 168,743,834 167,088,962 168,547,660 167,088,962
International 4,259,167 4,102,363 65,500,592 63,168,574
Premier Growth 659,976 579,278 13,006,674 11,247,113
SAFECO Resource Series:
Growth 558,931 408,849 14,101,796 10,055,588
Equity 200,558 150,645 4,792,045 3,530,435
Federated Insurance Series:
U.S. Government Securities II 189,579 169,330 1,961,440 1,748,802
High Income Bond Fund II 717,728 571,130 7,540,725 5,903,485
</TABLE>
39
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
SHARES
-------------------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federated Insurance Series (continued):
Utility II 654,493 555,782 $ 8,390,554 $ 6,982,730
American Leaders II 1,176,026 1,045,781 20,921,188 18,310,100
Lexington Funds, Inc.:
Natural Resources Trust 514,330 491,272 7,713,365 7,275,632
Emerging Markets 1,022,290 957,013 10,873,974 10,313,690
MFS Variable Insurance Trust:
Emerging Growth 3,384,527 3,280,119 50,385,870 48,378,986
High Income 180,043 161,398 2,109,055 1,853,381
World Government 415,944 409,351 4,226,984 4,160,922
Montgomery Variable Funds:
Emerging Markets 610,961 569,631 7,352,428 6,876,431
Growth 360,865 307,287 4,800,574 3,948,716
Strong Variable Insurance Funds:
Discovery II 122,063 110,861 1,491,187 1,333,274
Government Securities II 19,685 26,896 196,687 266,265
Advantage II 4,923 35,492 47,433 349,958
International II 1,239,125 1,235,541 13,922,448 13,938,538
American Century Investments:
VP Balanced 1,182,715 1,128,948 9,344,884 8,891,395
VP Growth 566,923 559,107 5,763,621 5,684,603
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 227,792 205,747 2,439,111 2,197,529
Worldwide Hard Assets Fund 807,446 751,425 13,195,479 12,267,207
Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 226,730 202,921 3,132,473 2,797,879
AMT Partners 62,683 34,016 1,237,645 664,119
INVESCO, Inc.:
Health & Sciences 63,755 49,852 665,738 515,849
Industrial Income 30,556 10,750 536,052 184,983
Technology 114,405 99,648 1,293,756 1,119,404
</TABLE>
40
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
SHARES
-------------------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock 1,370,049 636,480 $ 42,109,938 $ 13,497,297
U.S. Government Securities 2,026,793 3,066,517 21,060,662 33,224,639
Money Market 5,073,668 3,484,284 55,491,265 37,298,093
Asset Allocation 3,197,739 1,656,181 53,528,873 22,612,833
Diversified Income 1,059,188 1,005,530 12,302,547 12,039,175
Global Growth 3,199,292 254,987 56,689,355 3,329,367
Aggressive Growth 3,211,708 654,509 45,284,359 7,945,070
Growth & Income 3,941,717 123,779 55,063,051 1,580,938
High Yield 1,807,146 365,643 18,332,180 3,677,674
Global Asset Allocation 1,559,894 73,695 16,386,800 823,449
Global Bond 1,364,526 280,803 9,609,774 3,130,682
International Stock 2,507,267 175,126 26,161,491 1,961,927
Value 1,116,954 3,953 11,117,349 62,431
S & P 500 1,704,862 90,342 14,500,748 935,023
Blue Chip Stock 1,529,208 271,863 12,593,730 2,786,613
Norwest Select Fund:
ValuGrowth 353,709 25,400 4,714,308 284,976
Intermediate Bond 348,598 64,140 3,735,413 697,755
Small Company Stock 383,591 9,976 3,581,962 120,366
Income Equity 862,403 9,655 9,150,084 94,179
Scudder Variable Life Investment Fund:
International 102,501 6,404 1,375,336 73,718
Alliance Variable Product Series:
Money Market 29,112,285 23,518,475 29,112,285 23,518,476
International 267,100 245,510 3,916,039 3,623,061
Premier Growth 85,058 69,550 1,280,734 1,055,546
SAFECO Resource Series:
Growth 22,197 12,345 456,449 256,130
Equity 9,848 - 216,232 -
Federated Insurance Series:
High Income Bond Fund II 157,321 67,532 1,559,120 663,283
Utility II 90,922 74,159 1,028,946 833,992
American Leaders II 95,526 62,716 1,376,085 893,146
Lexington Funds, Inc.:
Natural Resources Trust 152,853 98,312 2,057,270 1,285,419
Emerging Markets 113,436 106,965 1,131,006 1,066,087
</TABLE>
41
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
SHARES
-------------------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MFS Variable Insurance Trust:
Emerging Growth 1,578,769 1,407,439 $ 21,184,801 $ 19,117,945
High Income 63,722 27,858 693,780 298,912
World Government 25,429 21,388 262,500 220,260
Montgomery Variable Funds:
Emerging Markets 76,490 58,302 801,694 612,559
Growth 247,860 176,044 3,002,711 2,089,319
Strong Variable Insurance Funds:
Discovery II 30,107 21,579 328,064 238,664
Government Securities II 77,845 70,643 745,491 675,914
Advantage II 127,142 97,506 1,282,918 980,393
International II 426,367 397,453 4,777,649 4,457,879
American Century Investments:
VP Balanced 81,810 72,450 651,789 539,665
VP Growth 151,040 144,527 1,563,847 1,481,863
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 6,378 2,578 64,203 27,683
Worldwide Hard Assets Fund 146,445 118,292 2,389,222 1,928,520
</TABLE>
Fortis Benefits' investment in the subaccounts represented the following number
of shares of the Funds held and aggregate cost of amounts invested at December
31, 1997:
<TABLE>
<CAPTION>
COST OF
SHARES SHARES
----------------------------
<S> <C> <C>
Fortis Series Fund, Inc.:
Global Asset Allocation 295,737 $ 3,040,051
Global Bond 516,382 5,230,947
International Stock 294,127 3,002,830
Value 73,766 752,487
S & P 500 355,359 3,584,178
Blue Chip Stock 352,534 3,534,435
Norwest Select Fund:
Small Company Stock 131,150 1,389,185
</TABLE>
42
<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 Annuity and Masters Variable Annuity and $30
for each Norwest Passage Variable Annuity and Value Advantage Plus Variable
Annuity on each anniversary of the contract date and upon total surrender of the
contract. This charge will be waived during the accumulation period if the
contract value at the end of the contract year (or upon total surrender) is
$25,000 or more, for the Opportunity Variable Annuity, Masters Variable Annuity
and Norwest Passage Variable Annuity.
MORTALITY AND EXPENSE RISK CHARGE
Fortis Benefits assesses each subaccount of the Opportunity Variable Annuity,
Masters Variable Annuity and Norwest Passage Variable Annuity a daily charge for
mortality and expense risk at an annual rate of 1.25% of the net assets. For the
Value Advantage Plus Variable Annuity the mortality and expense risk charge is
assessed at an annual rate of 0.45%.
43
<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 Annuity and
Masters Variable Annuity a daily charge for administrative expense at annual
rate of 0.10% of the net assets. For the Norwest Passage Variable Annuity the
mortality and expense risk charge is assessed at an annual rate of 0.15%.
SURRENDER CHARGE
FREE SURRENDERS
The following amounts can be withdrawn from the contract without a surrender
charge:
- - Any purchase payments received more than five years prior to the surrender
date for Opportunity Variable Annuity and seven years for Master Variable
Annuity and have not been previously surrendered.
- - In any contract year, up to 10% of the purchase payments received less than
five years prior to the surrender date for Opportunity Variable Annuity and
seven years prior to the surrender date for Masters Variable Annuity.
- - For Master 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. The percentage of
payments is set at 5% during the first five years on the Opportunity Variable
Annuity and Norwest Passage Variable Annuity contracts with a sliding scale down
to zero by the end of the fifth year, and is set at 7% during the first seven
years of the Master Variable Annuity contracts, with a sliding scale down to
zero by the end of the seventh year. Surrender charges collected by Fortis
Benefits were $3,567,880 and $2,727,170 in 1997 and 1996, respectively.
44
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
5. FEDERAL INCOME TAXES
The operations of the Account form part of, and are taxed with, the operations
of Fortis Benefits, which is taxed as a life insurance company under the
Internal Revenue Code. As a result, the net asset value of the subaccounts are
not affected by income taxes on income distributions received by the
subaccounts.
6. RELATED PARTY TRANSACTIONS
Fortis Advisers, Inc. (a wholly-owned subsidiary of Fortis, Inc.) provides
investment management services to Fortis Series Fund, Inc. in exchange for
investment advisory and management fees. Investment advisory and management fees
are based on each portfolio's daily net assets and decrease in reduced
percentages as average daily net assets increase. The fees represent an
investment expense to Fortis Series Fund, Inc. which reduces the portfolios' net
assets. The fees charged by Fortis Advisers, Inc. are not available on an
individual variable account basis. Fees for all variable accounts to which
Fortis Advisers, Inc. provided investment management services amounted to
$14,415,172 and $11,076,174 in 1997 and 1996, respectively.
7. YEAR 2000 ISSUE (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Account. The Account
has no computer systems of its own but is dependent upon the systems of Fortis
Benefits, Fortis Advisers and certain other third parties.
45
<PAGE>
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
7. YEAR 2000 ISSUE (UNAUDITED) (CONTINUED)
A comprehensive review of Fortis Benefits' and Fortis Advisers' computer systems
and business processes has been conducted to identify the major systems that
could be affected by the Year 2000 issue. Steps are being taken to resolve any
potential problems including modification to existing software and the purchase
of new software. These measures are scheduled to be completed and tested on a
timely basis. Fortis Benefits' and Fortis Advisers' goal is to complete internal
remediation and testing of each system by early 1999. The Year 2000 readiness of
the unaffiliated investment managers and other third parties whose system
failures could have an impact on the Account's operations is currently being
evaluated. The potential materiality of any such impact is not known at this
time.
46
<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, 1997 was 4.24%.
An effective yield may also be quoted for the Money Market Subaccount.
Effective yield is calculated by compounding the current yield as follows:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
The seven day effective yield for the Money Market Subaccount as of December 31,
1997 was 4.32%.
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:
| 6 |
|( a-b ) |
Yield=2 |( ----- +1) -1 |
|( cd ) |
| |
Where: a = net investment income earned during the period by the Portfolio whose
shares are owned by the Subaccount.
b = expenses accrued for the period, including a proportionate amount
of the annual administrative charge (based on average Contract size),
c = the average daily number of Accumulation Units outstanding during
the period, and
d = the offering price per Accumulation Unit at the end of the last
day of the period.
The following table sets forth yield figures for the thirty days ended December
31, 1997:
<TABLE>
<CAPTION>
SUBACCOUNT YIELD
---------- -----
<S> <C>
U.S. Government Securities..............................7.62%
Diversified Income......................................8.60%
High Yield..............................................6.87%
Global Bond.............................................3.78%
</TABLE>
A-1
<PAGE>
TOTAL RETURN CALCULATIONS
Total return information will be given for the one year and five year periods
ended on a specific date, provided that, if the registration statement has been
effective for a Subaccount only during a shorter period, then such shorter
period will be used.
AVERAGE ANNUAL TOTAL RETURN
Total average annual compounded rates of return for each period will be computed
to the nearest one hundredth of a percent, according to the following formula:
n
P(1 + T) = CSV
Where: P = a hypothetical initial purchase payment of $1000,
T = average annual total return,
n = number of years, and
CSV = end of period Cash Surrender Value of hypothetical $1000
purchase payment made at the beginning of the period.
The following table shows total average annual rates of return for the period
indicated:
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR COMMENCEMENT OF
-------- --------- ---------------
SUBACCOUNT PERIOD ENDED PERIOD ENDED SUBACCOUNT (1) TO
---------- ------------ ------------ -----------------
DEC. 31, 1997 DEC. 31, 1997(1) DEC. 31, 1997
------------- ---------------- -------------
<S> <C> <C> <C>
GROWTH STOCK 7.40% 8.10% 11.96%
U.S. GOVERNMENT SECURITIES 4.13% 1.79% 3.54%
DIVERSIFIED INCOME 5.43% 3.23% 5.30%
ASSET ALLOCATION 15.12% 8.63% 9.92%
GLOBAL GROWTH 1.89% 9.86% 10.66%
HIGH YIELD 4.78% N/A 4.77%
GROWTH & INCOME 22.50% N/A 18.14%
AGGRESSIVE GROWTH (3.44%) N/A 21.91%
GLOBAL ASSET ALLOCATION 8.50% N/A 5.55%
GLOBAL BOND (4.54%) N/A 2.56%
INTERNATIONAL STOCK 6.99% N/A 9.06%
VALUE 20.06% N/A 14.85%
S & P 500 27.05% N/A 20.94%
BLUE CHIP 21.75% N/A 20.94%
</TABLE>
- -----------------------
(1) Commencing with effective date of initial registration statement for Global
Growth Subaccount on May 1, 1992,
A-2
<PAGE>
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 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.
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR
-------- ---------
SUBACCOUNT PERIOD ENDED PERIOD ENDED COMMENCEMENT TO
---------- ------------ ------------ ---------------
DEC. 31, 1997 DEC. 31, 1997(1) DEC. 31, 1997
------------- ---------------- -------------
<S> <C> <C> <C>
GROWTH STOCK 7.40% 47.63% 198.10%
U.S. GOVERNMENT SECURITIES 4.13% 9.27% 40.00%
DIVERSIFIED INCOME 5.43% 17.23% 64.80%
ASSET ALLOCATION 15.12% 51.27% 149.50%
GLOBAL GROWTH 1.89% 60.02% 77.58%
HIGH YIELD 4.77% N/A 18.67%
GROWTH & INCOME 22.50% N/A 84.39%
AGGRESSIVE GROWTH (3.44%) N/A 21.91%
GLOBAL ASSET ALLOCATION 8.50% N/A 33.84%
GLOBAL BOND (4.54%) N/A 7.87%
INTERNATIONAL STOCK 6.99% N/A 29.72%
VALUE 20.06% N/A 26.02%
S & P 500 27.05% N/A 37.37%
BLUE CHIP 21.75% N/A 33.79%
</TABLE>
- --------------------------
(1) Commencing with effective date of initial 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 Index
Subaccount on January 1, 1996, and for all other Subaccounts on May 2,
1988.
A-3
<PAGE>
Yield figures do not reflect any surrender charge, and yield and total return
figures do not reflect any premium tax charge. Yield and total return figures
do reflect the reimbursement of certain Fortis Series expenses. Current Fixed
Account effective annual rates of interest may also be quoted in advertising and
other sales materials, and these rates do not reflect any deductions or charges.
Fortis Benefits may advertise its relative performance as compiled by outside
organizations. Following is a list of ratings services which may be referred to
in advertisements, along with the category in which the applicable Subaccount is
included:
<TABLE>
<CAPTION>
PORTFOLIO NAME RATING SERVICE CATEGORY
<S> <C> <C>
International Stock Morningstar Publications, Inc. Foreign Stock
Subaccount Lipper Analytical Services, Inc. International Fund
Variable Annuity Research & Data Service International Stock
Global Growth Morningstar Publications, Inc. World Stock
Subaccount Lipper Analytical Services, Inc. Global Fund
Variable Annuity Research & Data Service International Stock
Global Asset Morningstar Publications, Inc. International Hybrid
Allocation Subaccount Lipper Analytical Services, Inc. Global Flexible Portfolio
Variable Annuity Research & Data Service Balanced/International
Aggressive Growth Morningstar Publications, Inc. Small Growth
Subaccount Lipper Analytical Services, Inc. Small Cap Fund
Variable Annuity Research & Data Service Aggressive Growth
Small Cap Value Morningstar Publications, Inc. Small Value
Subaccount Lipper Analytical Services, Inc. Small Cap Fund
Variable Annuity Research & Data Service Small Company Funds
GrowthStock Morningstar Publications, Inc. Mid Cap Growth
Subaccount Lipper Analytical Services, Inc. Mid Cap Fund
Variable Annuity Research & Data Service Growth
Mid Cap Stock Morningstar Publications, Inc. Mid Cap Blend
Subaccount Lipper Analytical Services, Inc. Mid Cap Fund
Variable Annuity Research & Data Service All Equity Funds
Large Cap Growth Morningstar Publications, Inc. Large Blend
Subaccount Lipper Analytical Services, Inc. Growth Fund
Variable Annuity Research & Data Service Growth
Blue Chip Stock Morningstar Publications, Inc. Large Blend
Subaccount Lipper Analytical Services, Inc. Growth Fund
Variable Annuity Research & Data Service Growth
S&P 500 Index Morningstar Publications, Inc. Large Blend
Subaccount Lipper Analytical Services, Inc. S& P 500 Index Fund
Variable Annuity Research & Data Service Growth and Income Funds
Growth & Income Morningstar Publications, Inc. Mid Cap Blend
Subaccount Lipper Analytical Services, Inc. Growth & Income
Variable Annuity Research & Data Service Growth and Income
A-4
<PAGE>
Value Subaccount Morningstar Publications, Inc. Large Blend
Lipper Analytical Services, Inc. Growth & Income
Variable Annuity Research & Data Service Equity-Income
Asset Allocation Morningstar Publications, Inc. Domestic Hybrid
Subaccount Lipper Analytical Services, Inc. Flexible Portfolio
Variable Annuity Research & Data Service Balanced
Global Bond Morningstar Publications, Inc. International Bond
Subaccount Lipper Analytical Services, Inc. Global Income
Variable Annuity Research & Data Service International Bonds
High Yield Morningstar Publications, Inc. High Yield Bond
Subaccount Lipper Analytical Services, Inc. High Current Yield
Variable Annuity Research & Data Service Corporate Bond High Yield
Diversified Income Morningstar Publications, Inc. Intermediate-Term Bond
Subaccount Lipper Analytical Services, Inc. Corp Debt BBB Rated
Variable Annuity Research & Data Service Corporate Bond General Funds
U.S. Government Morningstar Publications, Inc. Intermediate Government
Subaccount Lipper Analytical Services, Inc. Intermediate U.S. Govt.
Variable Annuity Research & Data Service Government Bond General Funds
Money Market Morningstar Publications, Inc. Money Market
Subaccount Lipper Analytical Services, Inc. Money Market
Variable Annuity Research & Data Service Money Market
</TABLE>
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, 1997.
Statements of Changes in Net Assets for the years ended December
31, 1997, 1996 and 1995.
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, 1997 and 1996.
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, 1997, 1996 and 1995.
Notes to Financial Statements for Fortis Benefits Insurance
Company.
There are no financial statements included in Part A.
b. Exhibits:
1. Resolution of the Board of Directors of Fortis Benefits Insurance
Company effecting the establishment of Variable Account D (filed
as part of the initial filing of this Form N-4 registration
statement filed on December 31, 1987).
2. Not applicable
3. (a) Form of Principal Underwriter and Administrative Servicing
Agreement (incorporated by reference from Form N-4
registration statement, File No. 33-73986, filed on January
11, 1994).
<PAGE>
(b) Form of Amendment to Principal Underwriter and
Administrative Servicing Agreement (incorporated by
reference from Form N-4 registration statement, File No.
33-73986, filed on January 11, 1994).
(c) Form of Dealer Sales Agreement (filed as a part of
Post-Effective Amendment No. 12 to this Form N-4
registration statement filed on December 22, 1994).
4. (a) Form of Variable Annuity Contract - (filed as a part of
Post-Effective Amendment No. 13 to this Form N-4
registration statement filed April 27, 1995).
(b) Form of Enhanced Variable Annuity Contract--filed herewith.
(c) 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).
(d) 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).
(e) 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).
(f) 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).
(g) 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
<PAGE>
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).
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--filed herewith.
(b) Power of Attorney for Messrs. Freedman, Clayton, 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--filed
herewith.
14. Financial Data Schedule --previously filed.
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 OFFICES WITH DEPOSITOR
BUSINESS ADDRESS ----------------------
------------------
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
<PAGE>
OTHER DIRECTORS
- ---------------
Allen Royal Freedman (2) Chairman of the Board
J. Kerry Clayton (2)
Arie Aristide Fakkert (3)
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
Melinda S. Urion (1) Senior Vice President and
Chief Financial Officer
Dickson W. Lewis (1) Senior Vice President--
Distribution and Marketing
- ---------------------------
(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
<PAGE>
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, 1998 there were 53,789 Contract owners.
Item 28. INDEMNIFICATION
Pursuant to the Principal Underwriter and Administrative Servicing Agreement
filed as Exhibit 3(a) and (b) to this Registration Statement and incorporated by
this reference, Fortis Benefits has agreed to indemnify Fortis Investors (and
its agents, employees, and controlling persons) for damages and expenses arising
out of certain material misstatements and omissions in connection with the offer
and sale of the Contracts, unless the misstatement or omission was based on
information supplied by Fortis Investors; provided, however, that no such
indemnity will be made to Fortis Investors or its controlling persons for
liabilities to which they would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations under such agreement. This
indemnity could apply to certain directors, officers or controlling persons of
the Separate Account by virtue of the fact that they are also agents, employees
or controlling persons of Fortis Investors. Pursuant to the Principal
Underwriter and Servicing Agreement, Fortis Investors has agreed to indemnify
Variable Account D, Fortis Benefits, and each of its officers, directors and
controlling persons for damages and expenses (1) arising out of certain material
misstatements and omissions in connection with the offer and sale of the
Contracts, if the misstatement or omission was based on information furnished by
Fortis Investors or (2) otherwise arising out of Fortis Investors' negligence,
bad faith, willful misfeasance or reckless disregard of its responsibilities.
Pursuant to its Dealer Sales Agreements, a form of which is filed as Exhibit 3
(c) and (d) to this registration statement and is incorporated herein by this
reference, firms that sell the Contracts agree to indemnify Fortis Benefits,
Fortis Investors, the Separate Account, and their officers, directors,
employees, agents, and controlling persons from liabilities and expenses arising
out of the wrongful conduct or omissions of said selling firm or its officers,
directors, employees, controlling persons or agents.
Also, Fortis Benefit's By-Laws (see Article VI, Section 5 thereof, which is
incorporated herein by reference from Exhibit 6(b) to this Registration
Statement) provide for indemnity and payment of expenses of Fortis Benefit's
officers, directors and employees in connection with certain legal proceedings,
judgments, and settlements arising by reason of their service as such, all to
the extent and in the manner permitted by law. Applicable Minnesota law
generally permits payment of such indemnification and expenses in a civil
proceeding if it appears that the person seeking indemnification has acted in
good faith and in a manner that he reasonably believed to be in, or not opposed
to, the best interests of Fortis Benefits and if such person has received no
improper personal benefit, or in a criminal proceeding if the person seeking
indemnification also has no reasonable cause of believe his conduct was
unlawful.
Insofar as indemnification for any liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of Fortis
Benefits or the Separate Account pursuant to the foregoing provisions, or
otherwise, Fortis Benefits and the Separate Account have been advised that in
the
<PAGE>
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 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
- ------------------ ---------------------
Roger W. Arnold * Vice President
Robert W. Beltz, Jr.* Vice President and Director
Jeffrey R. Black * Business Development and
Sales Desk Officer
Mark C. Cadalbert* Compliance Officer
Peter M. Delahanty * Vice President
Tamara L. Fagely* 2nd Vice President
Joanne M. Herron* Assistant Treasurer
John E. Hite* Assistant Secretary
and Vice President
Carol M. Houghtby* Vice President, Treasurer
and Director
Dean C. Kopperud* President and Director
<PAGE>
Christine D. Pawlenty * Custom Solutions Group Officer
Mary B. Petersen * 2nd Vice President
Scott R. Plummer* 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 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
<PAGE>
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 17th day of
April, 1998
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 17, 1998.
SIGNATURE TITLE WITH FORTIS BENEFITS
- --------- --------------------------
*
- -------------------------
Allen R. Freedman Chairman of the Board
*
- -------------------------
J. Kerry Clayton Director
*
- -------------------------
Thomas Michael Keller Director
- -------------------------
Arie Aristide Fakkert Director
/s/
- -------------------------
Dean C. Kopperud Director
/s/
- -------------------------
Robert Brian Pollock President and Director (Chief
Executive Officer)
/s/
- ----------------------
Michael John Peninger Senior Vice President, Controller and Treasurer
(Principal Accounting Officer and Principal
Financial Officer)
<PAGE>
*By: /s/
-----------------------
Robert Brian Pollock
Attorney-in-Fact
<PAGE>
Exhibit Index
EXHIBIT NO.
- ----------
4(b) Form of Enhanced Variable Annuity Contract
10(a) Consent of Auditors
14 Schedules of Computation
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
St. Paul, Minnesota
A STOCK COMPANY
OPPORTUNITY
We will pay the Annuitant the first of a series of annuity payments on the
Annuity Commencement Date. Subsequent payments will be paid on the same day of
each month according to the provisions of this contract. THE AMOUNT AND DURATION
OF THE DEATH BENEFIT MAY BE VARIABLE OR FIXED UNDER SPECIFIED CONDITIONS, AND
MAY INCREASE OR DECREASE DEPENDING ON INVESTMENT RESULTS OF THE SUBACCOUNTS OF
THE SEPARATE ACCOUNT.
THE CONTRACT VALUE OF THE SEPARATE ACCOUNT UNDER THIS POLICY INCREASES OR
DECREASES DEPENDING ON INVESTMENT RESULTS OF THE SUBACCOUNTS OF THE SEPARATE
ACCOUNT. THERE IS NO GUARANTEED MINIMUM CONTRACT VALUE IN THE SEPARATE ACCOUNT.
THE FIXED ACCOUNT DOES HAVE GUARANTEED MINIMUM CONTRACT VALUES.
This contract is issued in consideration of the payment of the Purchase Payment
shown on the contract data page.
Signed at the Home Office, St. Paul, Minnesota, on the contract date.
RIGHT TO RETURN CONTRACT
You may cancel this contract by delivering or mailing a Written notice or
sending a telegram to the company and returning the contract before midnight of
the tenth day after the date You receive it. Notice given by mail and return of
the contract by mail are effective on being postmarked, properly addressed, and
postage prepaid. The company must return the sum of (a) the difference between
the premiums paid including any contract fees or other charges and the amounts
allocated to any Separate Accounts including the fixed account under the
contract and (b) the cash value of the contract, or if the contract does not
have a cash value, the reserve for the contract, on the date the returned
contract is received by the company or its agent. The company must return the
payment within 10 days after it receives notice of cancellation and the returned
contract.
/s/Dean C. Kopperud /s/ Peggy Ettestad
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY--NON-PARTICIPATING. NO DIVIDENDS.
ALL PAYMENTS AND VALUES PROVIDED BY THE SEPARATE ACCOUNT ARE VARIABLE, MAY
INCREASE OR DECREASE, AND ARE NOT GUARANTEED AS TO AMOUNT. PAYMENTS AND VALUES
PROVIDED BY THE FIXED ACCOUNT ARE GUARANTEED AS FOUND IN THE CONTRACT. THE
VARIABLE PROVISIONS OF THIS CONTRACT ARE FOUND ON PAGE 6.
<PAGE>
READ YOUR CONTRACT CAREFULLY
This contract is a legal contract between the contract owner and Fortis Benefits
Insurance Company.
TABLE OF CONTENTS
Page #
Annuitant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4, 5
Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 10
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 3
Fixed Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Fixed Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . .11
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . .4, 5
Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7, 8
Variable Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . . . .11
Any contract amendments or endorsements follow the contract data page.
Additional benefits added by rider follow the Optional Annuity Forms Tables.
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CONTRACT DATA PAGE
ANNUITANT: JOHN DOE
OWNER: JOHN DOE
CONTRACT NUMBER: A12300
BENEFICIARY AT ISSUE: JANE DOE
CONTRACT DATE: MAY 1, 1998
ANNUITY COMMENCEMENT DATE: MARCH 1, 2040
THE SURRENDER CHARGE IS 5% FOR FIVE YEARS ON EACH PAYMENT SUBJECT TO THE
CONDITIONS OUTLINED IN THE SURRENDER PROVISIONS ON PAGES 8 AND 9.
THE ANNUAL ADMINISTRATIVE CHARGE IS $30.
THE MAXIMUM ASSET CHARGE FACTOR IS 1.35% annually, or 0.0036986% daily (for the
Separate Account only) (1.25% FOR MORTALITY RISK AND EXPENSE RISK AND .10% FOR
ADMINISTRATIVE EXPENSE CHARGE).
CURRENT MAXIMUM
------- -------
TRANSFER CHARGE $0.00 $25.00
INITIAL PURCHASE PAYMENT: $25,000
FUTURE ALLOCATION OF NET PURCHASE PAYMENTS
Shown below is the Net Purchase Payment allocation You selected at the contract
Issue Date:
[DIVERSIFIED INCOME]
[GROWTH STOCK]
[ASSET ALLOCATION]
[MONEY MARKET]
[U.S. GOVERNMENT]
[GLOBAL GROWTH]
[AGGRESSIVE GROWTH]
[GROWTH AND INCOME]
[HIGH YIELD]
[GLOBAL ASSET ALLOCATION]
[INTERNATIONAL STOCK]
[GLOBAL BOND]
[VALUE SERIES]
[S&P 500 INDEX]
[BLUE CHIP STOCK]
[MIDCAP STOCK SERIES]
[PREMIER GROWTH SERIES]
[SMALL CAP VALUE SERIES]
[FIXED ACCOUNT]
[ ]
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DEFINITIONS
WE, US, OUR
Fortis Benefits Insurance Company.
YOU, YOUR
The owner of this contract, or after the annuity commencement date, the
Annuitant.
ACCUMULATION UNIT
A unit of measurement used to calculate the value of Your interest in the
Separate Account before the annuity commencement date.
ANNUITANT
The person or persons named in the Application and on whose life the first
annuity payment is to be made. If such person dies before the Annuity
Commencement Date and there is an additional annuitant named in the Application
who survives, the additional annuitant shall become the Annuitant. If there is
no named additional annuitant, or the additional annuitant has predeceased the
annuitant named in the Application, the owner, if he or she is a natural person,
shall become the Annuitant. The contract owner is not permitted to name more
than one annuitant under a contract used in connection with a retirement plan
that receives favorable tax treatment under the Internal Revenue Code.
ANNIVERSARY, ANNIVERSARIES
After the contract date, the same day and month in each subsequent year.
ANNUITY UNIT
A unit of measurement to calculate Variable Annuity payments.
APPLICATION
The document You signed, if any, to apply for this contract.
BENEFICIARY
The person entitled to receive benefits as per the terms of the contract in case
of the death of the Annuitant or the contract owner, as applicable.
CONTRACT VALUE
The total of the fixed account value and the Separate Account value.
CONTRACT YEAR
A period of 12 consecutive months beginning on the Issue Date or any Anniversary
thereafter.
DESIGNATED BENEFICIARY
The person designated as the Beneficiary by the contract owner.
FIXED ANNUITY
An annuity under which We promise to pay the Annuitant or other properly
designated payee one or more fixed payments.
FUND
The "Fund" or "Funds" are those investment portfolios available under the
contract to which the owner may allocate Net Purchase Payments, each of which
is, or is a series of, a management investment company registered under the
Investment Company Act of 1940.
HOME OFFICE
Our office at 500 Bielenberg Drive, Woodbury, Minnesota 55125; 1-800-800-2000,
extension 3057; Mailing address: P.O. Box 64272, St. Paul, Minnesota 55164.
ISSUE DATE
The date on which this contract becomes effective as shown on the contract data
page.
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NET PURCHASE PAYMENT
The gross amount of the Purchase Payment less any applicable premium taxes.
PURCHASE PAYMENT
An amount paid to the company under this contract as consideration for the
benefits described herein.
SEPARATE ACCOUNT
A segregated investment account entitled Variable Account D, established by Us
pursuant to applicable law.
SUBACCOUNT
The subaccounts of the Separate Account to which Contract Value may be allocated
and earn a return. Each subaccount invests all of its assets in a different Fund
having the same investment policies and objectives as that subaccount.
VALUATION DATE
All business days except, with respect to any Subaccount, days on which the
related Fund does not value its shares.
VALUATION PERIOD
The period beginning with the close of business on a Valuation Date and ending
at the close of business for the next Valuation Date.
VARIABLE ANNUITY
An annuity under which We promise to pay the Annuitant or other properly
designated payee one or more payments which vary in amount in accordance with
the net investment experience of the applicable Subaccounts You select to
measure the value of the payment.
WRITTEN, IN WRITING
A written request or notice, signed and dated, and received at Our Home Office.
The form and content of the request or notice must be acceptable to Us.
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GENERAL PROVISIONS
THE CONTRACT
This contract along with any attached riders or application constitute the
entire contract. Any change or waiver of this contract or its provisions must be
made In Writing and signed by Our President, Secretary, and Registrar.
CONTROL
You may, during the lifetime of the Annuitant and without the consent of any
Beneficiary, assign or surrender this contract, amend or modify it with Our
Written consent, and exercise, receive and enjoy every other right, benefit and
privilege contained in this contract except as otherwise provided herein.
INCONTESTABILITY
This contract will be incontestable from the contract date.
MISSTATEMENT OF AGE OR SEX
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, We will deduct the overpayment from
the next payment(s) due. We add underpayments to the next payment. The amount of
any adjustment will be paid or charged with interest at the rate of 3% per year.
ASSIGNMENT AND OWNERSHIP RIGHTS
If this contract is owned by a trust, custodian or employer, the ownership can
be assigned to the Annuitant. Contract ownership may also be assigned if the
owner is the Annuitant. 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 Our Home
Office. The change will be effective on the date it was made as soon as We
record it, although We are not bound by a change until the date it is recorded.
Owner and Beneficiary rights are subject to any assignment of record at Our Home
Office.
If this contract is part of a qualified plan under the Internal Revenue Code,
the ownership cannot be changed in any way unless the change is consistent with
the definition of annuity in 401(g) of the Internal Revenue Code, as amended. In
this case, the contract cannot be discounted, assigned, or pledged as collateral
or security for a loan, or for any other reason to a person other than Us,
except by the trustee of an employee trust qualified
under the Internal Revenue Code, the custodian of a custodial account treated as
such, or the employer under a qualified non-trusteed pension plan.
SETTLEMENT
All benefits under this contract are payable from Our Home Office.
NON-PARTICIPATING
This contract is non-participating and does not share in Our surplus earnings.
OWNERSHIP OF THE ASSETS
We will have exclusive and absolute ownership and control of Our assets,
including all assets allocated to the Separate Account. That portion of the
assets of the Separate Account equal to the reserves and other contract
liabilities with respect to the Separate Account shall not be chargeable with
liabilities arising out of any other business We may conduct.
BENEFICIARY
Before the annuity commencement date and while the Annuitant is living, You may
name or change a Beneficiary, a successor beneficiary, or the successor owner by
giving Us Written notice of the change. 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 Your notice.
We need the consent of any irrevocably named person before making a requested
change.
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In the event of the death of a contract owner or Annuitant prior to the annuity
commencement date, the Beneficiary will be as follows. The Beneficiary shall be
the surviving owner, if any, notwithstanding that the beneficiary designated by
the contract owner(s) may be different. Otherwise, the Beneficiary will be the
beneficiary designated by the contract owner. If there is no such Designated
Beneficiary in effect or if such Designated Beneficiary is no longer living, the
estate of the last surviving contract owner will be the Beneficiary.
REPORTS
At least once a year We will send You a report containing information required
by the Investment Company Act of 1940 and applicable state laws.
VALUES AND BENEFITS
The values and benefits payable under this contract are at least equal to the
minimum values and benefits required by the statutes of the state in which this
contract is delivered.
RIGHTS RESERVED BY US
When required by law, We will obtain Your approval of changes and We will gain
approval from any appropriate regulatory authority. Such approval may not be
required in all cases, however. Examples of the changes We may make include:
(1) To make the contract meet the requirements of the Investment Company Act of
1940.
(2) To operate the Separate Account in any form permitted by law.
(3) To transfer any assets in any Subaccount to another Subaccount, or to one
or more Separate Accounts, or to the fixed account.
(4) To add, combine or remove Subaccounts in the Separate Account.
(5) To substitute for the Fund shares held in any Subaccount, the shares of
another Fund or the shares of another investment company or any other
investment permitted by law.
(6) To make any changes as required by the Internal Revenue Code or by any
other applicable law in order to continue treatment of the contract as an
annuity.
PURCHASE PAYMENTS
The Purchase Payment shown on the contract data page is due on or before the
contract date. We will accept additional Purchase Payments of at least $50 at
any time after the contract date. We reserve the right to refuse a Purchase
Payment for any reason.
ALLOCATION OF PURCHASE PAYMENTS
The initial allocation of Purchase Payments is shown on the contract data page.
The percentage allocation for future Purchase Payments between the accounts may
be changed at any time by Written notice. Changes in allocations of prior
Purchase Payments are subject to the Transfer provision. Changes in the
allocation will be effective on the date We receive Your notice. The allocation
may be 100% to any account or may be divided among the accounts in whole
percentage points totaling 100%.
TERMINATION
This contract remains in force until surrendered for its full value, or all
annuity payments have been made, or the death benefit has been paid.
If the Contract Value is less than $1,000, We may cancel this contract on any
Valuation Date. We will notify You at least 90 days in advance of Our intention
to cancel this contract. This cancellation is considered a total surrender of
this contract, subject to the surrender charges and annual administrative
charges.
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FIXED ACCOUNT
Purchase payments will be allocated to the fixed account in the percentage You
specified. Interest will be credited to the account at rates We determine. We
will not change interest rates with respect to any amount more than once each
calendar year. The interest credited will not be less than 3% per year.
FIXED ACCOUNT VALUE
The fixed account value on any Valuation Date is:
(1) The sum of Your Net Purchase Payments allocated to the fixed account.
(2) PLUS any transfers from the Separate Account.
(3) PLUS interest credited as specified above.
(4) MINUS any surrenders, surrender charges, and annual administrative charges
allocated to the fixed account.
(5) MINUS any transfers to the Separate Account.
SEPARATE ACCOUNT
SUBACCOUNTS
The Separate Account has several Subaccounts, each investing in one of the
corresponding Funds. Net Purchase Payments are initially allocated to the
Subaccounts and the fixed account as shown on the contract data page.
We will use the Net Purchase Payments to purchase Fund shares applicable to the
Subaccounts at their net asset value. We will be the owner of all Fund shares
purchased with the Net Purchase Payment.
SUBACCOUNT ACCUMULATION UNITS
Purchase Payments received under this contract and allocated to the Separate
Account will be credited in the form of Subaccount Accumulation Units. The
number of Subaccount Accumulation Units is found by dividing the amount of the
Net Purchase Payment allocated to the Subaccount by the Subaccount Accumulation
Unit value at the end of the Valuation Period in which the Purchase Payment was
received at the Home Office. The value of each Subaccount Accumulation Unit was
arbitrarily set as of the date the Subaccount first purchased the Fund shares.
Subsequent values on any Valuation Date are equal to the previous Subaccount
Accumulation Unit value times the net investment factor for the Valuation Period
ending on that Valuation Date.
SEPARATE ACCOUNT VALUE
Your Separate Account value is the total of the values of Your interest in each
Subaccount, which for that Subaccount is equal to:
(1) the number of Subaccount Accumulation Units.
(2) TIMES the Subaccount Accumulation Unit value.
Your Separate Account value will vary from Valuation Date to Valuation Date
reflecting the total value of Your interest in the Subaccounts.
CONTRACT VALUE
Your Contract Value is the total of the fixed account value and the Separate
Account value.
NET INVESTMENT FACTOR
The net investment factor is an index number which reflects charges to this
contract and the investment performance during a Valuation Period. If the net
investment factor is greater than one, the Subaccount Accumulation Unit value
has increased. If it is less than one, then the Subaccount Accumulation Unit
value has decreased.
The net investment factor for a Subaccount is determined by dividing (1) by (2),
and then subtracting (3) from the result, where:
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(1) is the net result of:
(a) the net asset value per share of the Fund shares held in the
Subaccount, determined at the end of the current Valuation Period.
(b) PLUS the per share amount of any dividend or capital gain
distributions made on the Fund shares held in the Subaccount during
the current Valuation Period.
(c) MINUS a per share charge for the increase PLUS a per share credit for
the decrease, in any income taxes reserved for which We determine to
have resulted from the investment operations of the Subaccount or any
other taxes which are applicable to this contract.
(2) is the net asset value per share of the Fund shares held in the Subaccount,
determined at the beginning of the current Valuation Period.
(3) is a factor representing the mortality risk, expense risk, and
administrative expense charge. We will determine the asset charge factor
annually, but in no event may it exceed the Maximum Asset Charge Factor as
specified on the contract data page.
ANNUAL ADMINISTRATIVE CHARGE AND PREMIUM TAXES
We will deduct an annual administrative charge shown on the contract data page
at the following times:
(1) On each contract Anniversary.
(2) On the surrender of this contract for its full value if not surrendered on
a contract Anniversary.
This charge will be waived if the Contract Value at the end of the Contract Year
(or upon total surrender) is $25,000 or more.
Premium taxes, if any, levied by any unit of government will be deducted from
the Contract Value.
These deductions will be made from the fixed account and Separate Account on a
pro rata basis. The amount deducted from the Separate Account value will be
deducted by an automatic surrender of Subaccount Accumulation Units on a pro
rata basis.
TRANSFERS
We will make transfers at the end of the Valuation Period in which We receive
Your request for the transfer, subject to the following restrictions. We
reserve the right to restrict the frequency of, or otherwise modify, condition,
terminate, or impose charges upon transfers. The current and maximum transfer
charges are shown on the contract data page. In addition, the Funds may impose
transfer charges.
Before the annuity commencement date, You may transfer part or all of the fixed
account value from the fixed account to the Separate Account subject to the
following:
(1) You may only make a transfer once each Contract Year.
(2) No more than 50% of the fixed account value may be transferred unless the
balance after the transfer would be less than $1,000. If the value is less
than $1,000, You may transfer the entire balance to the Separate Account.
(3) You must transfer at least $500 or the total fixed account value, if less.
No transfers from the fixed account may be made after the annuity commencement
date.
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SURRENDERS
TOTAL SURRENDER
At any time prior to the annuity commencement date and during the lifetime of
the Annuitant, You may surrender this contract by sending Us a Written request.
The amount payable on surrender is:
(1) the Contract Value at the end of the Valuation Period in which We receive
Your request.
(2) MINUS the annual administrative charge if the surrender does not occur on a
contract Anniversary.
(3) MINUS any applicable surrender charge.
Upon payment of the above surrender amount, this contract is terminated and We
have no further obligation under this contract.
All collateral assignees must consent to any surrender. We may require that this
contract be returned to Our Home Office prior to making payment.
PARTIAL SURRENDER
At any time prior to the annuity commencement date and during the lifetime of
the Annuitant, You may surrender a portion of the fixed account value and/or the
Separate Account value by sending Us a Written request.
You must surrender an amount equal to at least $500 including any surrender
charge. The remaining Contract Value, if any, must be at least $1,000.
We will surrender Subaccount Accumulation Units from the Separate Account,
and/or dollar amounts from the fixed account, so that the total amount
surrendered equals the sum of the following:
(1) the dollar amount of Your partial surrender request.
(2) PLUS any surrender charges.
You must specify the accounts from which surrender is to be made. Surrenders
will be made effective at the end of the Valuation Period in which We receive
Your request. If You do not specify, the partial surrender will be taken from
the Subaccounts and the fixed account on a pro rata basis.
SURRENDER CHARGES
ORDER OF SURRENDER
For purposes of determining surrender charges, the Contract Value is divided
into the following categories:
(1) New Purchase Payments - Purchase Payments We received within five years of
the date of surrender or partial surrender.
(2) Old Purchase Payments - Purchase Payments not defined as new Purchase
Payments.
(3) Earnings - the current value of a Purchase Payment minus the original value
of the Purchase Payment.
Surrenders will be taken from the Contract Value available in the following
order:
(1) Old Purchase Payments.
(2) New Purchase Payments.
(3) Earnings.
FREE SURRENDER
Surrenders taken from the following amounts are not subject to a surrender
charge:
(1) Old Purchase Payments not already surrendered.
(2) In each Contract Year, 10% of all new Purchase Payments.
(3) Earnings.
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AMOUNT OF SURRENDER CHARGE
The surrender charge is found by multiplying the amount of the surrender which
is not eligible for a free surrender by .05. The surrender charge will be
deducted proportionately from the fixed account and/or the Subaccounts from
which the surrender is taken.
GENERAL SURRENDER PROVISIONS
The amount surrendered, minus any charges, will normally be paid to You within 7
days of:
(1) receipt of Your Written request; and
(2) receipt of Your contract, if required.
We have the right to defer payment of surrenders from the fixed account for up
to 6 months from the date We receive Your request.
DEATH BENEFIT
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
A death benefit will be paid to the Beneficiary if , prior to the annuity
commencement date:
(1) the contract owner dies; or
(2) the last remaining Annuitant dies leaving no surviving contract owner who
is a natural person.
This section makes reference to the age of the contract owner. If the contract
owner is a nonnatural person, the relevant age will instead be that of the
Annuitant.
Subsections (2) and (3) make reference to "Pro Rata Adjustments." A Pro Rata
Adjustment is calculated separately for each withdrawal, creating a decrease in
the death benefit proportional to the decrease the withdrawal makes in the
Contract Value. Pro Rata Adjustments are made for amounts withdrawn for partial
surrenders and surrender charges (which shall be deemed to be amounts
withdrawn), but not for any contract fee-related surrenders.
The death benefit will equal the greatest of (1), (2) or (3):
(1) The Contract Value as of the date used for valuing the death benefit.
(2) The sum of all Net Purchase Payments made, reduced by Pro Rata Adjustments
for each withdrawal.
The Pro Rata Adjustment for a given withdrawal is equal to:
(a) The withdrawn amount, divided by
(b) the Contract Value immediately before the amount was withdrawn, the
result multiplied by
(c) the aggregate amount of all prior Net Purchase Payments less Pro Rata
Adjustments for all prior withdrawals.
(3) The highest Anniversary value of each of the contract's Anniversaries prior
to the earlier of: (A) the date of decedent's death, or (B) the date the
contract owner reaches his or her 75th birthday.
An Anniversary value is determined for each Anniversary, and is equal to:
(a) the Contract Value on the Anniversary, plus
(b) any Net Purchase Payments made since the Anniversary, reduced by
(c) Pro Rata Adjustments for any withdrawals made since the Anniversary.
The Pro Rata Adjustment for a given withdrawal is equal to:
(a) the withdrawn amount, divided by
(b) the Contract Value immediately before the amount was withdrawn, the
result multiplied by
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(c) the quantity equal to:
(i) the Contract Value on the Anniversary, plus
(ii) Net Purchase Payments made since the Anniversary and before the
given withdrawal, minus
(iii) Pro Rata Adjustments for withdrawals made since the Anniversary
and before the given withdrawal.
If a contract owner dies before the annuity commencement date, the death benefit
must be distributed to the Beneficiary, either (1) within five years after the
date of death of the contract owner, or (2) over some period not greater than
the life or life expectancy of the Beneficiary, with payments beginning within
one year after the date of death of the contract owner. These mandatory
distribution requirements will not apply when the Beneficiary designated by the
contract owner is the spouse of the deceased contract owner, if the spouse
elects to continue the contract in the spouse's own name as contract owner. We
will pay a single sum to the Beneficiary unless an annuity option is chosen.
The Beneficiary will receive the death benefit as of the end of the Valuation
Period in which We receive:
(1) proof of the decedent's death; and
(2) a Written request from the Beneficiary for either a single sum payment or
payment under an annuity form.
DEATH BENEFIT ON OR AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies on or after the annuity commencement date, the Beneficiary
will receive the death benefit, if any, as provided by the annuity form in
effect.
In any event, to the extent required by the Internal Revenue Code, the remaining
interest payable to the Beneficiary will be distributed at least as rapidly as
the method of distribution used at the date of death.
PROOF OF DEATH
We accept any of the following as proof of death:
(1) A copy of a certified death certificate.
(2) A copy of a certified decree of a court of competent jurisdiction as to the
finding of death.
(3) A Written statement by a medical doctor who attended the deceased at the
time of death.
(4) Any other proof satisfactory to Us.
PAYMENT OF BENEFITS
GENERAL
On the annuity commencement date, the Contract Value will be applied, as
specified by the contact owner, to provide payments to the Annuitant under one
or more of the annuity options provided in the contract or under such other
settlement options as may be agreed to by Us. If more than one person is named
as Annuitant, due to the designation of multiple Annuitants, the contract owner
may elect to name one of such persons to be the sole Annuitant as of the annuity
commencement date.
APPLICATION OF CONTRACT VALUE
We apply the fixed account value to provide a Fixed Annuity, and the Separate
Account value to provide a Variable Annuity, unless You tell Us In Writing to
apply fixed and Separate Account values in different proportions. If the
Contract Value on the annuity commencement date is less than $5,000, We may pay
the Contract Value in a single sum and cancel this contract.
ANNUITY COMMENCEMENT DATE
The annuity commencement date is selected by You and stated in the Application.
You may change the annuity commencement date at any time if We receive Written
notice at least 30 days before both the current annuity commencement date and
the new annuity commencement date.
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If the annuity commencement date does not occur on a Valuation Date that is at
least two years after the Issue Date, We reserve the right to change the annuity
commencement date to the first Valuation Date that is at least two years after
the Issue Date.
FREQUENCY AND AMOUNT OF PAYMENTS
Annuity payments will be made monthly unless We agree to a different payment
schedule. We reserve the right to change the frequency of either a Fixed Annuity
payment or a Variable Annuity payment so that each payment will be at least $50.
FIXED ANNUITY PAYMENTS
Fixed annuity payments start at the end of the Valuation Period that contains
the annuity commencement date. The amount of a first monthly payment for the
annuity form selected will be at least as favorable as the annuity tables of
this contract for each $1,000 of Contract Value applied as of the end of such
Valuation Period.
We may, as of the annuity commencement date, offer for sale, single premium
annuity contracts. If so, the annuity benefits available under this contract
will be at least as favorable as the benefit available by using the Contract
Value to purchase one of Our single premium immediate annuities.
The dollar amount of any payments after the first payment are specified during
the entire period of annuity payments, according to the provisions of the
annuity form selected.
VARIABLE ANNUITY PAYMENTS
ANNUITY UNITS
We convert the Subaccount Accumulation Units into Subaccount Annuity Units at
the values determined at the end of the Valuation Period which contains the
annuity commencement date. The number of Subaccount Annuity Units remains
constant, as long as an annuity remains in force and allocation among the
Subaccounts has not changed.
Each Subaccount Annuity Unit value was arbitrarily set at $10 when the
Subaccount first converted Subaccount Accumulation Units into Annuity Units.
Subsequent values on any Valuation Date are equal to the previous Subaccount
Annuity Unit value times the net investment factor for that Subaccount for the
Valuation Period ending on that Valuation Date, with an offset for the 3%
assumed interest rate used in the annuity tables of this contract.
Variable annuity payments start on the end of the Valuation Period that contains
the annuity commencement date. The amount of a first monthly payment for the
illustrated annuity forms, is shown in the annuity tables of this contract for
each $1,000 of Contract Value applied as of the end of such Valuation Period.
Payments after the first payment will vary in amount and are determined on the
first Valuation Date of each subsequent payment period. If the payment under the
annuity form selected is based on the variable Annuity Unit value of a single
Subaccount, the payment is found by multiplying the Subaccount Annuity Unit
value on the payment date by the number of Subaccount Annuity Units.
If the payment under the annuity form selected is based upon variable Annuity
Unit values of more than one Subaccount, the above procedure is repeated for
each applicable Subaccount. The sum of these payments is the Variable Annuity
payment.
We guarantee that the amount of each payment after the first payment will not be
affected by variations in expense or mortality experience.
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OPTIONAL ANNUITY FORMS
You may select an annuity form or change a previous selection. The selection or
change must be In Writing and received by Us at least 30 days before the annuity
commencement date. If no annuity form selection is in effect on the annuity
commencement date, We automatically apply Option B, with payments guaranteed for
10 years.
The following options are available for the Fixed Annuity payments and the
Variable Annuity payments:
OPTION A. Life Annuity - Payments are made as of the first Valuation Date of
each monthly period during the Annuitant's life, starting with the annuity
commencement date. No payments will be made after the Annuitant dies.
OPTION B. Life Annuity with Payments Guaranteed for 10 Years or 20 Years -
Payments are made as of the first Valuation Date of each monthly period starting
on the annuity commencement date. Payments will continue as long as the
Annuitant lives. If the Annuitant dies before all of the guaranteed payments
have been made, We will continue installments of the guaranteed payments to the
Beneficiary.
OPTION C. Joint and Full Survivor Annuity - Payments are made as of the first
Valuation Date of each monthly period starting with the annuity commencement
date. Payments will continue as long as either the Annuitant or the joint
Annuitant is alive. Payments will stop when both the Annuitant and the joint
Annuitant have died.
We also have other annuity forms available and information about them can be
obtained by Writing to Us.
The annuity tables show the amount of the first annuity payment, for each $1,000
of Contract Value applied under Options A, B, and C.
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OPTION TABLES
Installments shown are for an initial monthly payment for each $1,000 of
Contract Value applied under an option. Age, as used in these tables, is age as
of nearest birthday on the annuity commencement date. Rates for monthly payments
for ages and periods certain not shown, if allowed by Us, will be computed on an
actuarially equivalent basis.
ACTUARIAL BASIS
Installments shown in these tables are based on the 1983 Table a and with
compound interest at the effective rate of 3% per year.
<TABLE>
OPTIONS A AND B
MALE FEMALE
10 Year Period 20 Year Period 10 Year Period 20 Year Period
Age Life Only Certain and Life Certain and Life Age Life Only Certain and Life Certain and Life
<S> <C> <C> <C> <C> <C> <C> <C>
50 4.27 4.22 4.08 50 3.90 3.89 3.82
51 4.34 4.29 4.14 51 3.97 3.95 3.88
52 4.43 4.37 4.20 52 4.03 4.01 3.93
53 4.51 4.45 4.26 53 4.10 4.08 3.99
54 4.60 4.54 4.32 54 4.18 4.15 4.04
55 4.70 4.62 4.39 55 4.25 4.22 4.11
56 4.80 4.72 4.45 56 4.34 4.30 4.17
57 4.91 4.82 4.51 57 4.42 4.38 4.23
58 5.03 4.92 4.58 58 4.52 4.47 4.30
59 5.15 5.03 4.64 59 4.61 4.56 4.37
60 5.28 5.14 4.71 60 4.72 4.66 4.44
61 5.42 5.26 4.78 61 4.83 4.76 4.51
62 5.57 5.39 4.84 62 4.95 4.86 4.58
63 5.74 5.52 4.90 63 5.07 4.98 4.65
64 5.91 5.66 4.96 64 5.21 5.10 4.72
65 6.10 5.81 5.02 65 5.35 5.22 4.79
66 6.29 5.96 5.08 66 5.51 5.36 4.86
67 6.50 6.11 5.13 67 5.67 5.50 4.93
68 6.73 6.28 5.18 68 5.85 5.65 5.00
69 6.97 6.44 5.23 69 6.04 5.80 5.06
70 7.23 6.61 5.27 70 6.25 5.96 5.12
71 7.51 6.78 5.31 71 6.47 6.14 5.18
72 7.80 6.96 5.34 72 6.71 6.31 5.23
73 8.12 7.14 5.37 73 6.97 6.50 5.28
74 8.45 7.32 5.40 74 7.26 6.69 5.32
75 8.82 7.49 5.42 75 7.56 6.89 5.35
</TABLE>
OPTION C
<TABLE>
FEMALE AGE
<S> <C> <C> <C> <C> <C>
50 55 60 65 70
50 3.60 3.75 3.88 3.99 4.08
MALE 55 3.69 3.88 4.06 4.24 4.38
AGE 60 3.76 3.99 4.23 4.49 4.72
65 3.81 4.07 4.38 4.72 5.07
70 3.84 4.14 4.50 4.93 5.40
</TABLE>
13
<PAGE>
Consent of Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 27, 1998 on the financial statements of
Fortis Benefits Insurance Company and our report dated March 27, 1998 on the
financial statements of Fortis Benefits insurance Company Variable Account D
in Post-Effective Amendment No. 18 to the Registration Statement (Form N-4
No. 33-19421) and related Prospectus and Statement of Additional Information
of Fortis Benefits Insurance Company for the registration of flexible premium
deferred combination variable and fixed annuity contracts.
/s/ Ernst & Young
Minneapolis, Minnesota
April 27, 1998
<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, 1997 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:
[(($830,385)) 6
2 * { ----------------------- + 1] - 1} = 7.62%
[((7,743,923 * 17.150))
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, 1997 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1997 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ ------------
$1,041.25 $1,041.25 - $1,000
----------------------- = 4.13%
$1,000
Cumlative total return for five years ended December 31, 1997, is as
follows:
$1,092.73 - $1,000
------------------- = 9.27%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,400 - $1,000
--------------- = 40.00%
$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, 1997:
$1,041.25/$1,000 - 1 = 4.13%
Five years ended December 31, 1997:
1/5
($1,092.73/$1,000) - 1 = 1.79%
Since inception through December 31, 1997:
1/9.67
($1,400.00/$1,000) - 1 = 3.54%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- --------
<S> <C>
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
12/31/97 17.150
</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, 1997 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:
[(($690,603)) 6
2 * { ------------------ + 1] - 1} = 8.60%
[((49,942,498 * 1.963))
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, 1997 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1997 and the total return for the
one year period are as follows:
Ending Value Total Return
---------------- ------------
$1,054.35 $1,054.35 - $1,000
----------------- = 5.43%
$1,000
Cumlative total return for five years ended December 31, 1997, is as
follows:
$1,172.29 - $1,000
------------------- = 17.23%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,648.00 - $1,000
------------------ = 64.80%
$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, 1997:
$1,054.35/$1,000 - 1 = 5.43%
Five years ended December 31, 1997:
1/5
($1,172.29/$1,000) - 1 = 3.23%
Since inception through December 31, 1997:
1/9.67
($1,648.00/$1,000) - 1 = 5.30%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ------
<S> <C>
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
12/31/97 1.963
</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, 1997 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1997 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ -----------------
$1,074.02 $1,074.02 - $1,000
----------------- = 7.40%
$1,000
Cumlative total return for five years ended December 31, 1997, is as
follows:
$1,476.30 - $1,000
------------------ = 47.63%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$2,981.00 - $1,000
------------------ = 198.10%
$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, 1997:
$1,074.02/$1,000 - 1 = 7.40%
Five years ended December 31, 1997:
1/5
($1,476.30/$1,000) - 1 = 8.10%
Since inception through December 31, 1997:
1/9.67
($2,981.00/$1,000) - 1 = 11.96%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ------
<S> <C>
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
12/31/97 3.296
</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, 1997 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1997 and the total return for the
one year period are as follows:
Ending Value Total Return
------------ ------------
$1,151.15 $1,151.15 - $1,000
------------------ = 15.12%
$1,000
Cumlative total return for five years ended December 31, 1997, is as
follows:
$1,512.69 - $1,000
------------------ = 51.27%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$2,495.00 - $1,000
------------------ = 149.50%
$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, 1997:
$1,151.15/$1,000 - 1 = 15.12%
Five years ended December 31, 1997:
1/5
($1,512.69/$1,000) - 1 = 8.63%
Since inception through December 31, 1997:
1/9.67
($2,495.00/$1,000) - 1 = 9.92%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ----------
<S> <C>
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
12/31/97 2.810
</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, 1997 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1997 and the total return for the
one year period are as follows:
Ending Value Total Return
---------------- ------------
$1,018.86 $1,018.86 - $1,000
------------------ = 1.89%
$1,000
Cumlative total return for five years ended December 31, 1997, is as
follows:
$1,600.23 - $1,000
------------------ = 60.02%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,775.80 - $1,000
------------------ = 77.58%
$1,000
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
<PAGE>
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1997:
$1,018.86/$1,000 - 1 = 1.89%
Five years ended December 31, 1997:
1/5
($1,600.23/$1,000) - 1 = 9.86%
Since inception through December 31, 1997:
1/5.67
($1,775.80/$1,000) - 1 = 10.66%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ----------
<S> <C>
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
12/31/97 19.508
</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, 1997 was computed by dividing 1 by the unit price for December 24, 1997,
then multiplying this by the unit price on December 31, 1997 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, 1997
was as follows:
((1 / 1.473420) x 1.474617) -1 = .000812 - Base Period Return
.000812 x (365 / 7) = .0424 or 4.24%
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, 1997 was as follows:
365/7
(.000812 + 1) -1 = .0432 or 4.32%
<TABLE>
<CAPTION>
Date Unit Price
------ ------------
<S> <C>
12/24/97 1.473420
12/31/97 1.474617
</TABLE>
<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, 1997 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1997 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ ------------
$965.60 $965.60 - $1,000
---------------- = -3.44%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,219.10 - $1,000
------------------ = 21.91%
$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, 1997:
$965.60/$1,000 - 1 = -3.44%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1997 is as follows:
1/3.67
($1,219.10/$1,000) - 1 = 5.55%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ----------
<S> <C>
05/01/94 $10.000
12/31/94 9.796
12/31/95 12.461
12/31/96 13.233
12/31/97 13.241
</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, 1997 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1997 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ -----------------
$1,224.96 $1,224.96 - $1,000
----------------- = 22.50%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,843.90 - $1,000
------------------ = 84.39%
$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, 1997:
$1,224.96/$1,000 - 1 = 22.50%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1997 is as follows:
1/3.67
($1,843.90/$1,000) - 1 = 18.14%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ----------
<S> <C>
05/01/94 $10.000
12/31/94 10.069
12/31/95 12.904
12/31/96 15.468
12/31/97 19.489
</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, 1997 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:
[ $306,061 6
2 * { ---------------------- + 1] - 1} = 6.87%
[((4,194,544 * 12.917))
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, 1997 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1997 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ -----------------
$1,047.82 $1,047.82 - $1,000
------------------ = 4.78%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,186.70 - $1,000
------------------ = 18.67%
$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, 1997:
$1,047.82/$1,000 - 1 = 4.78%
Average annual total return since inception of the subaccount through
December 31, 1997 is as follows:
1/3.67
($1,186.70/$1,000) - 1 = 4.77%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ----------
<S> <C>
05/01/94 $10.000
12/31/94 9.452
12/31/95 10.941
12/31/96 11.929
12/31/97 12.917
</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, 1997 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1997 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ -----------------
$1,084.96 $1,084.96 - $1,000
------------------ = 8.50%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,338.40 - $1,000
------------------ = 33.84%
$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, 1997:
$1,084.96/$1,000 - 1 = 8.50%
Average annual total return since inception of the subaccount through
December 31, 1997 is as follows:
1/3
($1,338.40/$1,000) - 1 = 10.20%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ----------
<S> <C>
01/01/95 $10.000
12/31/95 11.590
12/31/96 12.888
12/31/97 14.434
</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, 1997 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1997 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ -----------------
$1,069.88 $1,069.88 - $1,000
----------------- = 6.99%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,297.20 - $1,000
------------------ = 29.72%
$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, 1997:
$1,069.88/$1,000 - 1 = 6.99%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1997 is as follows:
1/3
($1,297.20/$1,000) - 1 = 9.06%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- -------
<S> <C>
01/01/95 $10.000
12/31/95 11.272
12/31/96 12.691
12/31/97 14.022
</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, 1997 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:
[ $41.572 6
2 * { ---------------------- + 1] - 1} = 3.78%
[ ((1,123,401 * 11.837))
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, 1997 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1997 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ -----------------
$954.55 $954.55 - $1,000
------------------ = -4.54%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,078.70 - $1,000
------------------ = 7.87%
$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, 1997:
$954.55/$1,000 - 1 = -4.54%
Average annual total return since inception of the subaccount through
December 31, 1997 is as follows:
1/3
($1,078.70/$1,000) - 1 = 2.56%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ----------
<S> <C>
01/01/95 $10.000
12/31/95 11.743
12/31/96 11.962
12/31/97 11.837
</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 January 1, 1997 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1997 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ -----------------
$1,200.59 $1,200.59 - $1,000
----------------- = 20.06%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,260.20 - $1,000
------------------ = 26.02%
$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, 1997:
$1,200.59/$1,000 - 1 = 20.06%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1997 is as follows:
1/1.67
($1,260.20/$1,000) - 1 = 14.85%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- -------
<S> <C>
05/01/96 $10.000
12/31/96 11.049
12/31/97 13.652
</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 January 1, 1997 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1997 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ -----------------
$1,270.47 $1,270.47 - $1,000
----------------- = 27.05%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,373.70 - $1,000
------------------ = 37.37%
$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, 1997:
$1,270.47/$1,000 - 1 = 27.05%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1997 is as follows:
1/1.67
($1,373.70/$1,000) - 1 = 20.94%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- -------
<S> <C>
05/01/96 $10.000
12/31/96 11.327
12/31/97 14.787
</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 January 1, 1997 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1997 and the cumulative total return since
inception is as follows:
Ending Value Total Return
------------ -----------------
$1,217.52 $1,217.52 - $1,000
----------------- = 21.75%
$1,000
Cumulative total return since inception through December 31, 1997, is as
follows:
$1,337.90 - $1,000
------------------ = 33.79%
$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, 1997:
$1,217.52/$1,000 - 1 = 21.75%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1997 is as follows:
1/1.67
($1,337.90/$1,000) - 1 = 19.04%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ----------
<S> <S>
05/01/96 $10.000
12/31/96 11.520
12/31/97 14.429
</TABLE>
