<PAGE>
As filed with the Securities and Exchange Commission on October 1, 1998.
Registration Nos. 333-______
811-5439
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____
Post-Effective Amendment No. ____
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 57
VARIABLE ACCOUNT D
OF
FORTIS BENEFITS INSURANCE COMPANY
(Exact Name of Registrant)
---------------------------------
FORTIS BENEFITS INSURANCE COMPANY
(Name of Depositor)
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code:
612-738-5000
---------------------------------
RHONDA J. SCHWARTZ, ESQ.
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Name and Address of Agent for Service)
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
-----------------------------------
It is proposed that this filing will be come effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485.
-----
on January 1, 1999 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.
--------------------------------------
The registrant hereby amends this registration statement on such dates as may be
necessary to delay its effective date until the registrant shall file another
amendment which specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until this registration statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
Cross Reference Sheet Showing Location
of Information in Prospectus or
Statement of Additional Information
---------------------------------------
Form N-4 Prospectus Caption
- -------- ------------------
1. Cover Page Cover Page
2. Definitions Special Terms Used in This
Prospectus
3. Synopsis of Highlights Summary of Certificate Features
4. Condensed Financial Further Information About Fortis
Information Benefits
5. General Description of Cover Page; Summary of Certificate
Registrant, Depositor and Features; Fortis Benefits/Fortis
Portfolio Companies Financial Group Member; The Variable
Account; The Portfolios; The Fixed
Account; Further Information about
Fortis Benefits
6. Deductions Summary of Certificate Features;
Charges and Deductions
7. General Description of Accumulation Period; General
Variable Annuity Contracts Provisions
8. Annuity Period The Annuity Period
9. Death Benefit Summary of Certificate Features;
Accumulation Period
10. Purchase and Contract Accumulation Period
Value
11. Redemptions Summary of Certificate Features;
Total and Partial Surrenders
12. Taxes Summary of Certificate Features;
Federal Tax Matters
13. Legal Proceedings None
14. Table of Contents of the Contents of the Statement of
Statement of Additional Additional Information
Information
<PAGE>
Form N-4 Statement of Additional
(cont'd.) Information Caption
- --------- -----------------------
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and Ownership of Securities
History (in Prospectus)
18. Services Services
19. Purchase of Securities Distribution (in Prospectus)
Being Offered
20. Underwriters Services
21. Calculation of Performance Appendix A to Statement of
Data Additional Information
22. Annuity Payments Calculation of Annuity Payments
23. Financial Statements Variable Account
Financial Statements
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE: 1-800-963-9222
P.O. BOX 64273 500 BIELENBERG DRIVE
ST. PAUL WOODBURY
MINNESOTA 55164 MINNESOTA 55125
This prospectus describes interests under flexible premium deferred combination
variable and fixed annuity contracts issued by Fortis Benefits Insurance Company
("Fortis Benefits").
These contracts allow you to accumulate funds on a tax-deferred basis. You may
elect a guaranteed interest accumulation option through a fixed account or a
variable return accumulation option through a variable account or a combination
of these two options. Under the variable return accumulation option, you can
choose among the following investment portfolios:
<TABLE>
<S> <C>
Federated American Leaders Fund II Federated High Income Bond Fund II
Federated Equity Income Fund II Federated International Equity Fund II
Federated Fund for U.S. Government Securities II Federated Prime Money Fund II
Federated Growth Strategies Fund II Federated Utility Fund II
</TABLE>
The accompanying prospectus for these investment
portfolios describes the investment objectives, policies
and risks of each of the portfolios. You can choose among
different guarantee periods under the guaranteed interest
accumulation option, each of which has its own current
interest rate which is guaranteed for the entire
guarantee period. In states where guarantee periods fixed
accounts are not offered, you can choose an interest in a
fixed account which has a minimum interest rate guarantee
and a higher current rate which can be changed from time
to time.
There are two different forms of contract offered by this
prospectus. One form is offered where all of the proposed
owners of the contract are less than 61 years old when
the contract is purchased. A second form is offered where
one or more of the proposed owners are 61 years old, or
older. The differences between the two forms of contracts
are: (1) the death benefit provided; (2) the provision
for withdrawals from the contract without a surrender
charge during the surrender charge period, and (3) the
mortality and expense risk charge imposed. These
provisions are discussed in this prospectus under the
sections entitled (1) Accumulation Period--Benefit
Payable on Death of Owner (or Annuitant); (2) Charges and
Deductions--Surrender Charge--Free Surrenders; and (3)
Charges and Deductions--Charges Against the Variable
Account.
This prospectus gives you information about the contracts
you should know before investing. This prospectus must be
accompanied by a current prospectus of the available
investment portfolios. These prospectuses should be read
carefully and kept for future reference.
A Statement of Additional Information, dated January 1,
1999, about certain aspects of the contracts has been
filed with the Securities and Exchange Commission and is
available without charge from Fortis Benefits at the
address and phone number printed above. The Table of
Contents for the Statement of Additional Information
appears on page 26 of this prospectus.
THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, CREDIT UNION, BROKER-DEALER OR
OTHER FINANCIAL INSTITUTION. THEY ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THEY
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
FORTIS-Registered Trademark- and Fortis-Registered
Trademark- are registered servicemarks of Fortis AMEV
and Fortis AG.
THE
CONSULTANT
VARIABLE
ANNUITY
Contracts Under Flexible
Premium Deferred
Combination Variable and
Fixed Annuity Contracts
PROSPECTUS DATED
January 1, 1999
[LOGO]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Information Concerning Fees and Charges............................... 3
Summary of Contract Features.......................................... 5
Fortis Benefits/Fortis Financial Group Member......................... 6
The Variable Account.................................................. 7
The Portfolios........................................................ 7
The Fixed Account..................................................... 7
- Guarantee Periods Fixed Account................................. 8
- Market Value Adjustment......................................... 8
- General Account Fixed Account................................... 9
- General Account Fixed Account Transfers......................... 9
- Investments by Fortis Benefits.................................. 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
- Telephone Transactions.......................................... 12
- Benefit Payable on Death of Owner (or Annuitant)................ 12
The Annuity Period.................................................... 13
- Annuity Commencement Date....................................... 13
- Commencement of Annuity Payments................................ 13
- Relationship Between Subaccount Investment Performance and
Amount of Variable Annuity Payments............................ 13
- Annuity Forms................................................... 14
- Death of Annuitant or Other Payee............................... 14
Charges and Deductions................................................ 14
- Premium Taxes................................................... 14
- Charges Against the Variable Account............................ 14
- Tax Charge...................................................... 15
- Surrender Charge................................................ 15
- Free Surrenders............................................. 15
- Nursing Care/Hospitalization Waiver of Surrender Charges.... 16
- Miscellaneous................................................... 16
General Provisions.................................................... 16
- The Contracts................................................... 16
- Postponement of Payments........................................ 16
- Misstatement of Age or Sex and Other Errors..................... 16
- Assignment...................................................... 16
- Beneficiary..................................................... 16
- Reports......................................................... 17
Rights Reserved By Fortis Benefits.................................... 17
Distribution.......................................................... 17
Federal Tax Matters................................................... 17
Further Information about Fortis Benefits............................. 20
- General......................................................... 20
- Ownership of Securities......................................... 20
- Selected Financial Data......................................... 20
- Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 20
Voting Privileges..................................................... 22
Legal Matters......................................................... 23
Other Information..................................................... 23
Contents of Statement of Additional Information....................... 23
Fortis Benefits Financial Statements.................................. 23
Special Terms Used in this Prospectus................................. 40
Appendix A--Sample Market Value Adjustment Calculations............... A-1
Appendix B--Explanation of Expense Calculations....................... B-1
Appendix C--Sample Death Benefit Calculations......................... C-1
Appendix D--Participating Portfolios.................................. D-1
Appendix E--Pro Rata Adjustments...................................... E-1
</TABLE>
<PAGE>
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>
INFORMATION CONCERNING FEES AND CHARGES
CONTRACTOWNER TRANSACTION CHARGES
<TABLE>
<S> <C>
Front-End Sales Charge Imposed on
Purchases................................... 0%
Maximum Surrender Charge for Sales
Expenses.................................... 7%
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF YEARS SURRENDER CHARGE AS A
SINCE PURCHASE PERCENTAGE OF PURCHASE
PAYMENT WAS APPLIED PAYMENT
- -------------------- -------------------------
<S> <C>
Less than 3 7%
At least 3 but less
than 4 5%
At least 4 but less
than 5 4%
At least 5 but less
than 6 3%
At least 6 but less
than 7 2%
7 or more 0%
</TABLE>
<TABLE>
<S> <C>
Other Surrender Fees....................... 0%
Exchange Fee............................... 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE............. $0
</TABLE>
<TABLE>
<CAPTION>
ALL CONTRACT ONE OR MORE CONTRACT
OWNERS UNDER 61 OWNERS 61 OR OLDER
--------------- ---------------------
<S> <C> <C>
VARIABLE ACCOUNT ANNUAL CHARGES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge............... 1.10% 1.30%
Variable Account Administrative Charge.......... 0.10% 0.10%
--- ---
Total Variable Account Annual Expenses........ 1.20% 1.40%
</TABLE>
MARKET VALUE ADJUSTMENT WITH RESPECT TO GUARANTEE PERIODS FIXED ACCOUNT
Surrenders and other withdrawals from the Guarantee Periods Fixed Account more
than fifteen days from the end of a guarantee period are subject to a Market
Value Adjustment. The Market Value Adjustment may increase or reduce the Fixed
Account value. It is computed pursuant to a formula that is described in more
detail under "Market Value Adjustment."
PORTFOLIO ANNUAL EXPENSES
The following table illustrates the advisory fees and other expenses applicable
to the Portfolios. Except as noted, the following figures are a percentage of
average net assets and are based on figures for the year ended December 31,
1997. The information set forth in this table was provided to Fortis Benefits by
the Portfolio managers and Fortis Benefits has not independently verified such
information. These expenses are reflected in the Portfolio's net asset value and
are not deducted from a contract's account value.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
OPERATING
INVESTMENT EXPENSES
ADVISORY AND OTHER (AFTER EXPENSE
MANAGEMENT FEE EXPENSES REIMBURSEMENT)(a)
-------------- -------- -----------------
<S> <C> <C> <C>
Federated American Leaders Fund II.......................... 0.66% 0.19% 0.85%
Federated Equity Income Fund II (b)......................... 0.00% 0.85% 0.85%
Federated Fund for U.S. Government Securities II............ 0.15% 0.65% 0.80%
Federated Growth Strategies Fund II......................... 0.08% 0.77% 0.85%
Federated High Income Bond Fund II.......................... 0.51% 0.29% 0.80%
Federated International Equity Fund II...................... 0.02% 1.21% 1.23%
Federated Prime Money Fund II............................... 0.30% 0.50% 0.80%
Federated Utility Fund II................................... 0.48% 0.37% 0.85%
</TABLE>
- ------------------------
(a) The total operating expenses of each of the funds, absent the voluntary
waiver of a portion of the management fee, would have been: 0.94% for the
American Leaders Fund II; 2.29% for the Equity Income Fund II; 1.25% for
the Fund for U.S. Government Securities II; 1.52% for the Growth Strategies
Fund II; 0.89% for the High Income Bond Fund II; 2.21% for the
International Equity Fund II; 1.00% for the Prime Money Fund II; and 1.12%
for the Utility Fund II.
(b) This Portfolio has adopted a Rule 12b-1 distribution plan but has no
present intention of paying or accruing the 12b-1 fee under the plan. If
the Portfolio were paying or accruing the 12b-1 fee, the Portfolio would be
able to pay up to 0.25% of its average daily net Portfolio assets for the
12b-1 fee. See "Distribution of Fund Shares" in the Portfolio prospectus.
3
<PAGE>
EXAMPLES*
A. CONTRACTS/ALL OWNERS UNDER 61
If you 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>
Federated American Leaders Fund II.......................... 84 117 145 234
Federated Equity Income Fund II............................. 84 117 145 234
Federated Fund for U.S. Gov't Securities II................. 83 116 142 229
Federated Growth Strategies Fund II......................... 84 117 145 234
Federated High Income Bond Fund II.......................... 83 116 142 229
Federated International Equity Fund II...................... 87 129 164 273
Federated Prime Money Fund II............................... 83 116 142 229
Federated Utility Fund II................................... 84 117 145 234
</TABLE>
If you COMMENCE AN ANNUITY payment option, or DO NOT SURRENDER your contract,
you would pay the following cumulative expenses on a $1000 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>
Federated American Leaders Fund II.......................... 21 63 109 234
Federated Equity Income Fund II............................. 21 63 109 234
Federated Fund for U.S. Gov't Securities II................. 20 62 106 229
Federated Growth Strategies Fund II......................... 21 63 109 234
Federated High Income Bond Fund II.......................... 20 62 106 229
Federated International Equity Fund II...................... 24 75 128 273
Federated Prime Money Fund II............................... 20 62 106 229
Federated Utility Fund II................................... 21 63 109 234
</TABLE>
B. CONTRACTS/ONE OR MORE OWNERS 61 OR OLDER
If you 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>
Federated American Leaders Fund II.......................... 86 123 155 255
Federated Equity Income Fund II............................. 86 123 155 255
Federated Fund for U.S. Gov't Securities II................. 85 122 152 250
Federated Growth Strategies Fund II......................... 86 123 155 255
Federated High Income Bond Fund II.......................... 85 122 152 250
Federated International Equity Fund II...................... 89 135 174 293
Federated Prime Money Fund II............................... 85 122 152 250
Federated Utility Fund II................................... 86 123 155 255
</TABLE>
If you COMMENCE AN ANNUITY payment option, or DO NOT SURRENDER your contract,
you would pay the following cumulative expenses on a $1000 investment, assuming
a 5% annual return on assets:
<TABLE>
<S> <C> <C> <C> <C>
Federated American Leaders Fund II.......................... 23 69 119 255
Federated Equity Income Fund II............................. 23 69 119 255
Federated Fund for U.S. Gov't Securities II................. 22 68 116 250
Federated Growth Strategies Fund II......................... 23 69 119 255
Federated High Income Bond Fund II.......................... 22 68 116 250
Federated International Equity Fund II...................... 26 81 138 293
Federated Prime Money Fund II............................... 22 68 116 250
Federated Utility Fund II................................... 23 69 119 255
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
------------------------
The foregoing tables and examples are included to assist you in understanding
the transaction and operating expenses imposed directly or indirectly under the
contracts and the Portfolios. Amounts for state premium taxes or similar
assessments will also be deducted, where applicable.
See Appendix C for an explanation of the calculation of the amounts set forth
above.
4
<PAGE>
SUMMARY OF CONTRACT FEATURES
The following summary should be read in conjunction with the detailed
information in this prospectus. Variations from the information appearing in
this prospectus due to requirements particular to your state are described in
supplements which are attached to this prospectus, or in endorsements to the
contract as appropriate.
The contracts are designed to provide individuals with retirement benefits
through the accumulation of purchase payments on a fixed or variable basis, and
by the application of such accumulations to provide fixed or variable annuity
payments.
"We," "our," and "us" mean Fortis Benefits Insurance Company. "You" and "your"
mean a reader of this prospectus who is contemplating making purchase payments
or taking any other action in connection with a contract.
Depending on the state that you live in, the contract that is issued to you may
be as a part of a group contract or as an individual contract. Participation in
a group contract will be evidenced by the issuance of a certificate showing your
interest under the group contract. In other states, an individual contract will
be issued to you. Both the certificate and the contract are referred to as a
"contract" in this prospectus.
FREE LOOK
You have the right to examine a contract during a "free look" period after you
receive the contract and return it for a refund of the amount of the then
current contract value. However, in certain states where required by state law
the refund will be in the amount of all purchase payments that have been made,
without interest or appreciation or depreciation. The "free look" period is
generally 10 days unless a longer time is specified on the face page of your
contract.
PURCHASE PAYMENTS
The initial purchase payment under a contract must be at least $5,000 ($2,000
for a contract which is a part of a qualified plan). Additional purchase
payments under a contract must be at least $500 (or $50 if part of a systematic
investment plan). See "Issuance of a Contract and Purchase Payments."
ALLOCATION OF PURCHASE PAYMENTS
On the date that the contract is issued, except as hereafter explained, the
initial purchase payment is allocated, as specified by you in the contract
application, among one or more of the Portfolios, or to one or more of the
guarantee periods in the Guarantee Periods Fixed Account (or to the General
Account Fixed Account if the owner resides in a state in which the Guaranteed
Periods Fixed Account is not offered), or to a combination thereof. If you
reside in a state requiring a refund of all purchase payments under the "free
look" privilege, the initial purchase payment will be allocated to the Federated
Prime Money Fund II until the following number of days after we mail the
contract to you: (1) the number of days in the "free look" period, plus (2) five
days. After the expiration of the period, the contract value will be allocated
to the fixed account and the Portfolios as directed by you. Subsequent purchase
payments are allocated in the same way, or pursuant to different allocation
percentages that you may subsequently request in writing.
VARIABLE ACCOUNT INVESTMENT OPTIONS
Each of the subaccounts of the Variable Account invests in shares of a
Portfolio. Contract value in each of the subaccounts of the Variable Account
will vary to reflect the investment experience of each of the corresponding
Portfolios, as well as deductions for certain charges.
Each Portfolio has a separate and distinct investment objective. A full
description of the Portfolios and their investment objectives, policies, risks
and expenses can be found in the current prospectus for the Portfolio, which
accompanies this prospectus, and the Statement of Additional Information for the
Portfolio which is available upon request. (See Appendix D which contains a
summary of the investment objectives of each Portfolio.)
FIXED ACCOUNT INVESTMENT OPTIONS
Either a Guarantee Periods Fixed Account or a General Account Fixed Account is
available, depending upon your state of residence.
Any amount allocated by the owner to the Guarantee Periods Fixed Account earns a
guaranteed interest rate. The level of the guaranteed interest rate depends on
the length of the guarantee period selected by the owner. We currently make
available ten different guarantee periods, ranging from one to ten years (less
in some states where required by state limitations). If amounts are transferred,
surrendered or otherwise paid out more than fifteen days before or after the end
of the applicable guarantee period other than the one-year guarantee period, a
Market Value Adjustment will be applied to increase or decrease the amount that
is paid out. Accordingly, the Market Value Adjustment can result in gains or
losses to you.
Any amount allocated to the General Account Fixed Account will accrue interest
at a minimum effective annual rate plus such additional excess interest rate
which we may declare from time-to-time.
For a more complete discussion of the Fixed Accounts investment option and the
Market Value Adjustment, see "The Fixed Account."
TRANSFERS
During the Accumulation Period, you can transfer all or part of your contract
value from one subaccount to another or into the Fixed Account and, subject to
any Market Value Adjustment, from one guarantee period of a Guarantee Periods
Fixed Account to another or into a subaccount. There are limitations on the
frequency and amounts of transfers from the General Account Fixed Account. There
is currently no charge for these transfers. We reserve the right to restrict the
frequency of, or otherwise condition, terminate, or impose charges upon,
transfers from a subaccount during the Accumulation Period. During the Annuity
Period the person receiving annuity payments may make up to four transfers (but
not from a Fixed Annuity Option) during each year of the Annuity Period. For a
description of certain limitations on transfer rights, see "Allocations of
Purchase Payments and Contract Value Transfers."
TOTAL OR PARTIAL SURRENDERS
Subject to certain conditions, all or part of the contract value may be
surrendered by you before the earlier of (1) the Annuity Commencement Date, or
(2) if the owner is a non-natural person, the Annuitant's
5
<PAGE>
death. Amounts surrendered from the Guarantee Periods Fixed Account may be
subject to a Market Value Adjustment. See "Total and Partial Surrenders" and
"Market Value Adjustment." Particular attention should be paid to the tax
implications of any surrender, including possible penalties for premature
distributions. See "Federal Tax Matters."
CHARGES AND DEDUCTIONS
We deduct daily charges at a percentage rate per annum of the value of the
average net assets in the Variable Account for the mortality and expense risks
we assume. The percentage rate for contracts issued where all owners are less
than 61 years old at the time of purchase is 1.20%. The percentage rate for
contracts issued where one or more owner is 61 years old, or older, at the time
of purchase is 1.40%. Also, there may be state premium tax charges deducted from
your contract value. See "Charges and Deductions."
ANNUITY PAYMENTS
The contract provides several types of annuity benefits to you or other persons
you properly designate to receive such payments, including Fixed and Variable
Annuity Options. You have 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 owner, or the Annuitant if the owner is a
non-natural person, prior to the Annuity Commencement Date, a death benefit is
payable. See "Benefit Payable on Death of Owner (or Annuitant)."
LIMITATIONS IMPOSED BY RETIREMENT PLANS AND EMPLOYERS
Certain rights you would otherwise have under a contract may be limited by the
terms of any applicable employee benefit plan. These limitations may restrict
such things as total and partial surrenders, the amount or timing of purchase
payments that may be made, when annuity payments must start and the type of
annuity options that may be selected. Accordingly, you should familiarize
yourself with these and all other aspects of any retirement plan in connection
with which a contract is issued.
The record owner of the group variable annuity contract pursuant to which group
certificates may be issued will be a bank trustee whose sole function is to hold
record ownership of the contract or an employer (or the employer's designee) in
connection with an employee benefit plan. In the latter cases, certain rights
that a owner otherwise would have under a contract may be reserved instead by
the employer.
TAX IMPLICATIONS
The tax implications for you or any other persons who may receive payments under
a contract, and those of any related employee benefit plan can be quite
important. A brief discussion of some of these is set out under "Federal Tax
Matters" in this prospectus and "Taxation Under Certain Retirement Plans" in the
Statement of Additional Information, but such discussion is not comprehensive.
Therefore, you should consider these matters carefully and consult a qualified
tax adviser before making purchase payments or taking any other action in
connection with a contract or any related employee benefit plan. Failure to do
so could result in serious adverse tax consequences which might otherwise have
been avoided.
QUESTIONS AND OTHER COMMUNICATIONS
Any question about procedures of the contract should be directed to your sales
representative, or Fortis Benefits' home office: P.O. Box 64273, St. Paul,
Minnesota, 55164: 1-800-963-9222. Purchase payments and written requests should
be mailed or delivered to the same home office address. All communications
should include the contract number, the owner's name and, if different, the
Annuitant's name. The number for telephone transfers is 1-800-963-9222.
Any purchase payment or other communication, except a free-look cancellation
notice, is deemed received at Fortis Benefit's home office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.
FINANCIAL AND PERFORMANCE INFORMATION
This prospectus contains no Accumulation Unit Information for the applicable
subaccounts of the Variable Account because no contracts have been sold and
therefore no Accumulation Units have been issued.
Audited financial statements of the available subaccounts of the Variable
Account are not included in the Statement of Additional Information because
those subaccounts have not yet commenced operations, have no assets or
liabilities, and have received no income nor incurred any expenses as of the
date of this prospectus.
Advertising and other sales materials may include yield and total return figures
for the subaccounts of the Variable Account. These figures are based on
historical results and are not intended to indicate future performance. "Yield"
is the income generated by an investment in the subaccount over a period of time
specified in the advertisement. This rate of return is assumed to be earned over
a full year and is shown as a percentage of the investment. "Total return" is
the total change in value of an investment in the subaccount over a period of
time specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield and
total return figures do not reflect premium tax charges. This makes the
performance shown more favorable.
Financial information concerning Fortis Benefits is included in this prospectus
under "Additional Information About Fortis Benefits" and "Fortis Benefits
Financial Statements."
FORTIS BENEFITS/FORTIS FINANCIAL GROUP MEMBER
Fortis Benefits Insurance Company, the issuer of the contracts, was founded in
1910. At the end of 1997, Fortis Benefits had approximately
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$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, offering financial products through the management, marketing
and servicing of mutual funds, annuities and life insurance and disability
income products.
Fortis AMEV is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis AMEV and Fortis AG
have merged their operating companies under the trade name of Fortis. The Fortis
group of companies is active in insurance, banking and financial services, and
real estate development in The Netherlands, Belgium, the United States, Western
Europe, and the Pacific Rim. The Fortis group of companies had approximately
$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 Variable Account or to the Fixed Account. None of Fortis
Benefits' affiliated companies has any legal obligation to back Fortis Benefits'
obligations under the contracts.
THE VARIABLE ACCOUNT
The Variable Account, which is a segregated investment account of Fortis
Benefits, was established as Variable Account D by Fortis Benefits pursuant to
the insurance laws of Minnesota as of October 14, 1987. Although the Variable
Account is an integral part of Fortis Benefits, the Variable Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940. Assets in the Variable Account
representing reserves and liabilities under these contracts and other variable
annuity contracts issued by Fortis Benefits will not be chargeable with
liabilities arising out of any other business of Fortis Benefits.
There are a number of subaccounts in the Variable Account. The assets in each
subaccount are invested exclusively in one of the Portfolios listed on page one
of this prospectus. Income and both realized and unrealized gains or losses from
the assets of each subaccount of the Variable Account are credited to or charged
against that subaccount without regard to income, gains or losses from any other
subaccount of the Variable Account or arising out of any other business we may
conduct. New subaccounts may be added as new Portfolios are added and made
available. Correspondingly, if any Portfolios are eliminated, subaccounts may be
eliminated from the Variable Account.
THE PORTFOLIOS
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. (See Appendix D which contains a
summary of the investment objectives of each Portfolio.) Each Portfolio
corresponds to one of the subaccounts of the Variable Account. The assets of
each Portfolio are separate from the others and each Portfolio operates as a
separate investment portfolio whose performance has no effect on the investment
performance of any other Portfolio. More detailed information for each Portfolio
offered, such as its investment policies and restrictions, charges, risks
associated with 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 1-800-963-9222, or writing P.O. Box 64273, St.
Paul, Minnesota 55164.
Fortis Benefits purchases and redeems Portfolios' shares for the Variable
Account at their net asset value without the imposition of any sales or
redemption charges. Any dividend or capital gain distributions attributable to
contracts are automatically reinvested in shares of the Portfolio from which
they are received at the Portfolio's net asset value on the date paid. Such
dividends and distributions will have the effect of reducing the net asset value
of each share of the corresponding Portfolio and increasing, by an equivalent
value, the number of shares outstanding of the Portfolio. However, the value of
your interest in the corresponding subaccount will not change as a result of any
such dividends and distributions.
As indicated, Portfolios may also be available to registered separate accounts
offering variable annuity and variable life products of other participating
insurance companies, as well as to the Variable Account and other separate
accounts of Fortis Benefits. Although Fortis Benefits does not anticipate any
disadvantages to this, there is a possibility that a material conflict may arise
between the interest of the Variable Account and one or more of the other
separate accounts participating in the Portfolios. A conflict may occur due to a
change in law affecting the operations of variable life and variable annuity
separate accounts, differences in the voting instructions of the 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 owners and variable
annuity payees.
THE FIXED ACCOUNT
Interests in either of two different Fixed Accounts are offered by this
prospectus, depending upon the state of residence of the contract applicant: a
Guarantee Periods Fixed Account or a General Account Fixed Account. Both of
these Fixed Accounts are referred to as the Fixed Account elsewhere in this
prospectus where a distinction is not relevant. A Guaranteed Periods Fixed
Account is offered to contract applicants in most states. However, in a limited
number of states, a General Account Fixed Account is offered in lieu of the
Guarantee Periods Fixed Account. Applicants should inquire of Fortis Benefits or
their account representative to determine which Fixed Account is
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available in their state. Charges under the contract are the same as when the
Variable Account is being used, except that the Variable Account charges for
mortality and expense risk and administrative expenses (see Charges and
Deductions--Charges Against the Variable Account) are not imposed on amounts of
Contract Value in the Fixed Account.
GUARANTEE PERIODS FIXED ACCOUNT
Any amount allocated by the owner to the Guarantee Periods Fixed Account earns a
guaranteed interest rate commencing with the date of such allocation. This
guaranteed interest rate continues for a number of years (not to exceed ten)
selected by the owner. At the end of this guarantee period, the owner's contract
value in that guarantee period, including interest accrued thereon, will be
allocated to a new guarantee period of the same length unless Fortis Benefits
has received a written request from the owner to allocate this amount to a
different guarantee period or periods or to one or more of the subaccounts. We
must receive this written request at least three business days prior to the end
of the guarantee period. The first day of the new guarantee period (or other
reallocation) will be the day after the end of the prior guarantee period. We
will notify the owner at least 45 days and not more than 75 days prior to the
end of any guarantee period.
We currently make available ten different guarantee periods, ranging from one to
ten years. All ten of these guarantee periods may not be available in some
states because of state imposed limitations. Each guarantee period has its own
guaranteed interest rate, which may differ from those for other guarantee
periods. From time to time we will, at our discretion, change the guaranteed
interest rate for future guarantee periods of various lengths. These changes
will not affect the guaranteed interest rates being paid on guarantee periods
that have already commenced. Each allocation or transfer of an amount to a
guarantee period commences the running of a new guarantee period with respect to
that amount, which will earn a guaranteed interest rate that will continue
unchanged until the end of that period. The guaranteed interest rate will never
be less than an effective annual rate of 3%.
Fortis Benefits declares the guaranteed interest rates from time to time as
market conditions dictate. Fortis Benefits advises an owner of the guaranteed
interest rate for a chosen guarantee period at the time a purchase payment is
received, a transfer is effectuated or a guarantee period is renewed.
Fortis Benefits has no specific formula for establishing the guaranteed interest
rates for the guarantee periods. The rate may be influenced by, but not
necessarily correspond to, interest rates generally available on the types of
investments acquired with amounts allocated to the guarantee period. See
"Investments by Fortis Benefits." Fortis Benefits in determining guaranteed
interest rates, may also consider, among other factors, the duration of a
guarantee period, regulatory and tax requirements, sales and administrative
expenses borne by Fortis Benefits, risks assumed by Fortis Benefits, Fortis
Benefits' profitability objectives, and general economic trends.
FORTIS BENEFITS' MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED
INTEREST RATES TO BE DECLARED. FORTIS BENEFITS CANNOT PREDICT OR ASSURE THE
LEVEL OF ANY FUTURE GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL
RATE OF 3%.
Information concerning the guaranteed interest rates applicable to the various
guarantee periods at any time may be obtained from our home office or from your
sales representative.
MARKET VALUE ADJUSTMENT
For contracts with allocations to the Guarantee Periods Fixed Account, except as
described below, if any Fixed Account value is surrendered, transferred or
otherwise paid out before the end of the guarantee period in which it is being
held, a Market Value Adjustment will be applied. This generally includes amounts
that are applied to an annuity option and amounts paid as a single sum in lieu
of an annuity. However, NO Market Value Adjustment will be applied to amounts
that are paid out during the period beginning fifteen days before and ending
fifteen days after the end of a guarantee period in which it was being held.
Additionally, no Market Value Adjustment will be applied to amounts that are
withdrawn from a guarantee period and paid out to the owner; or transferred to
the Variable Account, on an automatic periodic basis under a formal Fortis
Benefits program for the withdrawal or transfer of the earnings of the Fixed
Account. (There may be conditions and limitations imposed by Fortis Benefits
associated with such a program. See your sales representative for the
availability of any such program, and the conditions and limitations of such a
program, in your state.) Also, no Market Value Adjustment will be applied to
amounts that are paid out as a death benefit pursuant to the contract or to
amounts withdrawn or transferred from the one-year guarantee period.
The Market Value Adjustment may increase or decrease the amount of Fixed Account
value being withdrawn or transferred. The comparison of two guaranteed interest
rates determines whether the Market Value Adjustment produces an increase or a
decrease. The first rate to compare is the guaranteed interest rate for the
amount being transferred or withdrawn. The second rate is the guaranteed
interest rate then being offered for new guarantee periods of the same duration
as that remaining in the guarantee period from which the funds are being
withdrawn or transferred. If the first rate exceeds the second by more than
1/2%, the Market Value Adjustment produces an increase. If the first rate does
not exceed the second by at least 1/2%, the Market Value Adjustment produces a
decrease. Sample calculations are shown in Appendix A.
The Market Value Adjustment will be determined by multiplying the amount being
withdrawn or transferred from the guarantee period (before deduction of any
applicable surrender charge) by the following factor:
1 + I n / 12
( ----------) - 1
1 + J + .005
where,
- I is the guaranteed interest rate being credited to the amount being
withdrawn from the existing guarantee period,
- J is the guaranteed interest rate then being offered for new guarantee
periods with durations equal to the number of years remaining in the
existing guarantee period (rounded up to the next higher number of years),
and
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- N is the number of months remaining in the existing guarantee period
(rounded up to the next higher number of months).
GENERAL ACCOUNT FIXED ACCOUNT
Accounts allocated to the General Account Fixed Account are held in the general
account of Fortis Benefits. Because of exemptive and exclusionary provisions,
interests in the General Account Fixed Account have not been registered under
the Securities Act of 1933 and the General Account Fixed Account has not been
registered as an investment company under the Investment Company Act of 1940.
Accordingly, neither the General Account Fixed Account nor any interests therein
are subject to the provisions of these acts and, as a result, the staff of the
Securities and Exchange Commission has not reviewed the disclosures in the
prospectus relating to the General Account Fixed Account. Disclosures regarding
the Fixed Account may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses. For contracts with amounts
allocated to the General Account Fixed Account, this prospectus is generally
intended to serve as a disclosure document only for the aspects of the contract
involving the Variable Account and contains only selected information regarding
the General Account Fixed Account. More information regarding the General
Account Fixed Account may be obtained from Fortis Benefits' home office or from
your sales representative.
Fortis Benefits guarantees that the contract value in the General Account Fixed
Account will accrue interest at an effective annual rate of at least 3%,
independent of the actual investment experience of the general account. We may,
at our sole discretion, credit higher rates of interest, although we are not
obligated to credit interest in excess of the guaranteed rate of 3% per year.
Any interest rate in excess of 3% per year with respect to any amount in the
General Account Fixed Account pursuant to a 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 General Account Fixed Account. Once credited, such
interest will be guaranteed and will become part of contract value in the
General Account Fixed Account from which deductions for fees and charges may be
made.
GENERAL ACCOUNT FIXED ACCOUNT TRANSFERS
Transfers out of the General Account Fixed Account have special limitations.
Prior to the Annuity Commencement Date, owners may transfer part or all of the
contract value from the General Account Fixed Account to the Variable Account,
provided that (1) no more than one such transfer is made each contract year, (2)
no more than 50% of the General Account Fixed Account value is transferred at
any time (unless the balance in the General Account Fixed Account after the
transfer would be less than $1,000, in which case up to the entire balance may
be transferred), (3) at least $1,000 is transferred at any one time (or, if
less, the entire amount in the General Account Fixed Account), and (4) you may
not make a transfer into the General Account Fixed Account within six months
after a transfer out of such account. Irrespective of the above, we may in our
discretion permit a continuing request for transfer of lesser specified amounts
automatically on a periodic basis. However, we reserve the right to discontinue
or modify any such arrangements at our discretion. No transfers from the General
Account Fixed Account may be made after the Annuity Commencement Date.
INVESTMENTS BY FORTIS BENEFITS
Our obligations with respect to the Guarantee Periods Fixed Account and the
General Account Fixed Account are legal obligations of Fortis Benefits and are
supported by our general account assets, which also support obligations incurred
by us under other insurance and annuity contracts. Investments purchased with
amounts allocated to both Fixed Accounts are the property of Fortis Benefits and
owners have no legal rights in such investments. Subject to applicable law, we
have sole discretion over the investment of assets in our general account and in
the Fixed Account.
Amounts in the Fortis Benefits' general account and the Fixed Account will be
invested in compliance with applicable state insurance laws and regulations
concerning the nature and quality of investments for the general account. Within
specified limits and subject to certain standards and limitations, these laws
generally permit investment in federal, state and municipal obligations,
preferred and common stocks, corporate bonds, real estate mortgages, real estate
and certain other investments. See Fortis Benefits' Financial Statements" for
information on Fortis Benefits' investments. Investment management for amounts
in the general account and in the Fixed Account is provided to Fortis Benefits
by Fortis Advisers, Inc.
Fortis Benefits intends to consider the return available on the instruments in
which it intends to invest amounts allocated to the Fixed Account when it
establishes guaranteed interest rates. Such return is only one of many factors
considered in establishing the guaranteed interest rates. See "Guarantee Periods
Fixed Account."
Fortis Benefits expects that amounts allocated to the Fixed Account generally
will be invested in debt instruments that approximately match Fortis Benefits'
liabilities with regard to the guarantee periods for purchase payments allocated
to Guarantee Periods Fixed Accounts and with regard to expected holding periods
for purchase payments allocated to the General Account Fixed Account. Fortis
Benefits expects that these will include primarily the following types of debt
instruments: (1) securities issued by the United States Government or its
agencies or instrumentalities, which securities may or may not be guaranteed by
the United States Government; (2) debt securities which have an investment
grade, at the time of purchase, within the four highest grades assigned by
Moody's Investors Services, Inc. ("Moody's") (Aaa, Aa, A or Baa), Standard &
Poor's Corporation ("Standard & Poor's") (AAA, AA, A or BBB), or any other
nationally recognized rating service; (3) other debt instruments including, but
not limited to, issues of or guaranteed by banks or bank holding companies and
corporations, which obligations although not rated by Moody's or Standard &
Poor's, are deemed by Fortis Benefits to have an investment quality comparable
to securities which may be purchased as stated above; and (4) other evidences of
indebtedness secured by mortgages or deeds of trust representing liens upon real
estate. Notwithstanding the foregoing, Fortis Benefits is not obligated to
invest amounts allocated to the Fixed Account according to any particular
strategy, except as may be required by applicable state insurance laws and
regulations. See "Regulation and Reserves."
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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 $5,000 ($2,000 for a contract issued pursuant to a qualified
plan).
The date that the initial purchase payment is applied to the purchase of the
contract is also the contract issue date. The contract issue date is the date
used to determine contract years, regardless of when the contract is delivered.
The crediting of investment experience in the Variable Account, or a fixed rate
of return in the Fixed Account, generally begins as of the contract issue date.
The owner may make additional purchase payments at any time after the contract
issue date and prior to the Annuity Commencement Date, as long as the Annuitant
is living. Purchase payments (together with any required information identifying
the proper contracts and account 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 in good order.
Each additional purchase payment under a contract must be at least $500 (or $50
if part of a systematic investment plan). The total of all purchase payments for
all Fortis Benefits annuities having the same owner or annuitant, may not exceed
$1 million (not more than $500,000 allocated to the Fixed Account) without
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 owner who has completed and returned to us a
special systematic investment authorization form that may be obtained from your
sales representative or from our home office. Arrangements can also be made for
purchase payments by wire transfer, payroll deduction, military allotment,
direct deposit and billing. Purchase payments by check should be made payable to
Fortis Benefits Insurance Company.
If the contract value is less than $1,000, we may cancel the contract on any
Valuation Date. We will notify the owner at least 90 days in advance of our
intention to cancel the contract. Such cancellation would be considered a full
surrender of the contract.
CONTRACT VALUE
Contract value is the total of any Variable Account value in all the subaccounts
of the Variable Account pursuant to the contract, plus any Fixed Account value.
There is no guaranteed minimum Variable Account value. To the extent contract
value is allocated to the Variable Account, you bear the entire investment risk.
DETERMINATION OF VARIABLE ACCOUNT VALUE. A contract's Variable Account value is
based on the number of Accumulation Units and on Accumulation Unit values, which
are determined on each Valuation Date. The value of an Accumulation Unit for a
subaccount on any Valuation Date is equal to the previous value of that
subaccount's Accumulation Unit multiplied by that subaccount's net investment
factor (discussed below) for the Valuation Period ending on that Valuation Date.
At the end of any Valuation Period, a contract's Variable Account value in a
subaccount is equal to the number of Accumulation Units in the subaccount times
the value of one Accumulation Unit for that subaccount.
The number of Accumulation Units in each subaccount is equal to:
- Accumulation Units purchased at the time that any purchase payments or
transferred amounts are allocated to the subaccount; less
- Accumulation Units redeemed to pay for the portion of any transfers from
or partial surrenders allocated to the subaccount; less
- Accumulation Units redeemed to pay charges under the contract.
NET INVESTMENT FACTOR. If a subaccount's net investment factor is greater than
one, the subaccount's Accumulation Unit value has increased. If the net
investment factor is less than one, the subaccount's Accumulation Unit value has
decreased. The net investment factor for a subaccount is determined by dividing
(1) the net asset value per share of the Portfolio shares held by the
subaccount, determined at the end of the current Valuation Period, plus the per
share amount of any dividend or capital gains distribution made with respect to
the Portfolio shares held by the subaccount during the current Valuation Period,
minus a per share charge for the increase, plus a per share credit for the
decrease, in any income taxes assessed which we determine to have resulted from
the investment operation of the subaccount or any other taxes which are
attributable to this 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.
DETERMINATION OF FIXED ACCOUNT VALUE. A contract's Fixed Account value is
guaranteed by Fortis Benefits. Therefore, Fortis Benefits bears the investment
risk with respect to amounts allocated to the Fixed Account, except to the
extent that (a) Fortis Benefits may vary the guaranteed interest rate for future
guarantee periods for Guarantee Periods Fixed Accounts and the current interest
for General Account Fixed Accounts (subject to the 3% effective annual minimum)
and (b) the Market Value Adjustment for Guarantee Periods Fixed Accounts imposes
investment risks on the owner.
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The contract's Fixed Account value on any Valuation Date is equal to the
following amounts, in each case increased by accrued interest:
- The amount of purchase payments or transferred amounts allocated to the
Fixed Account; less
- The amount of any transfers or surrenders out of the Fixed Account.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
ALLOCATION OF PURCHASE PAYMENTS. In the application for a contract, the owner
can allocate purchase payments, or portions thereof, to the available
subaccounts of the Variable Account or to the Fixed Account (and to guarantee
periods within the Fixed Account for contracts issued in states where the
Guarantee Periods Fixed Account is offered), or a combination thereof.
Percentages must be in whole numbers and the total allocation must equal 100%.
The percentage allocations for future purchase payments may be changed, without
charge, at any time by sending a written request to Fortis Benefits' home
office. Changes in the allocation of future purchase payments will be effective
on the date we receive the owner's written request.
TRANSFERS. Transfers of contract value from one available subaccount to another
or into the Fixed Account, or from the Fixed Account to one of the available
subaccounts, or in the case of a Guarantee Periods Fixed Account transfers from
one guarantee period to another guarantee period, can be made by the owner in
written request to Fortis Benefits' home office, or by telephone transfer as
described below. There is currently no charge for any transfer, although
transfers from a guarantee period other than the one-year guarantee period of a
Guarantee Period Fixed Account that are (1) more than 15 days before or after
the expiration thereof, or (2) are not a part of a formal Fortis Benefits
program for the transfer of earnings of the Fixed Account, may be subject to a
Market Value Adjustment. See "Market Value Adjustment." Transfers of contract
value from the general account Fixed Account are restricted in both amount and
timing. See "Fixed Account--General Account Fixed Account--General Account Fixed
Account Transfers."
The minimum transfer from a subaccount or guarantee period is the lesser of
$1,000 or all of the contract value in the subaccount or Fixed Account.
Irrespective of the above we may permit a continuing request for transfers of
lesser specified amounts automatically on a periodic basis. However, we reserve
the right to restrict the frequency of or otherwise condition, terminate or
impose charges (not to exceed $25 per transfer) upon transfers. We will count
all transfers between and among the subaccounts of the Variable Account and the
Fixed Account as one transfer, if all the transfer requests are made at the same
time as part of one request. We will execute the transfers and determine all
values in connection with transfers as of the end of the Valuation Period in
which we receive the transfer request. The amount of any positive or negative
Market Value Adjustment associated with a transfer from a guarantee period of
the Guarantee Periods Fixed Account, respectively, will be added to or deducted
from the transferred amount.
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 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
plus or minus any applicable Market Value Adjustment. See "Market Value
Adjustment."
The written consent of all collateral assignees and irrevocable beneficiaries
must be obtained prior to any total surrender. Surrenders from the Variable
Account will generally be paid within seven days of the date of receipt by
Fortis Benefits' home office of the written request. Postponement of payments
may occur, however, in certain circumstances. See "Postponement of Payment."
The amount paid upon total surrender of the cash surrender value (taking into
account any prior partial surrenders) may be more or less than the total
purchase payments made. After a surrender of the cash surrender value or at any
time the contract value is zero, all rights of the owner, Annuitant, or any
other person will terminate.
PARTIAL SURRENDERS. At any time prior to the Annuity Commencement Date and
during the lifetime of the Annuitant, the owner may surrender a portion of the
Fixed Account value and/or the Variable Account value by sending to Fortis
Benefits' home office a written request. We will not accept a partial surrender
request unless the net proceeds payable to you as a result of the request are at
least $1,000. If the total contract value in both the Variable Account and Fixed
Account would be less than $1,000 after the partial surrender, Fortis Benefits
will surrender the entire cash surrender value under the contract.
In order for a request to be processed, the owner must specify from which
subaccounts of the Variable Account or guarantee periods of the Fixed Account,
if applicable, a partial surrender should be made. If you do not specify, we
take the partial surrender from the subaccounts and the Fixed Account on a pro
rata basis.
We will surrender Accumulation Units from the Variable Account and/ or dollar
amounts from the Fixed Account so that the total amount of the partial surrender
equals the dollar amount of the partial surrender request. The amount payable to
the owner will be reduced by any applicable surrender charge. Additionally, if
the surrender is from a guarantee period, other than the one-year guarantee
period, the amount payable to the owner will be reduced by any applicable
negative Market Value Adjustment, or increased by any positive Market Value
Adjustment unless the surrender is (1) within 15 days before or after the
expiration of a guarantee period, or (2) is a part of a formal Fortis Benefits
program for the transfer of earnings from the Fixed Account. 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."
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The Internal Revenue Code provides that a penalty tax will be imposed on certain
premature surrenders. For a discussion of this and other tax implications of
total and partial surrenders, including withholding requirements, see "Federal
Tax Matters." Also, under tax deferred annuity contracts pursuant to Section
403(b) of the Internal Revenue Code, no distributions of voluntary salary
reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.)
TELEPHONE TRANSACTIONS
You or your representative may make certain requests under the Contract by
telephone if we have a written telephone authorization on file. These include
requests for transfers, withdrawals, changes in purchase payment allocation
instructions, dollar-cost averaging changes, changes in the Portfolio
rebalancing program and systematic withdrawal changes. Our home office will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include, among others, requiring some
form of personal identification such as your address and social security number
prior to acting upon instructions received by telephone, providing written
confirmation of such transactions, and/or tape recording of telephone
instructions. Your request for telephone transactions authorizes us to record
telephone calls. If reasonable procedures are not employed, we may be liable for
any losses due to unauthorized or fraudulent instructions. If reasonable
procedures are employed, we will not be liable for any losses due to
unauthorized or fraudulent instructions. We reserve the right to place limits,
including dollar limits, on telephone transactions.
BENEFIT PAYABLE ON DEATH OF OWNER (OR ANNUITANT)
If the owner dies prior to the Annuity Commencement Date, a death benefit will
be paid. If there is more than one owner, the death benefit will be paid upon
the first death. If the 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 owner unless the 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 owner. If the 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).
The death benefit will be different depending upon whether all of the owners are
less than 61 years old or if one or more of them is 61 years old, or older, when
the contract is purchased.
BENEFIT/ALL OWNERS LESS THAN 61. If all of the owners are less than 61 years
old, the death benefit will be the greatest of (1), (2), or (3), as follows:
(1) The contract value as of the date used for valuing the death benefit.
(2) The highest Anniversary Value on each of the contract's anniversaries prior
to the earlier of: (1) the decedent's death, or (2) the owner's attainment
of age 80.
An Anniversary Value is equal to:
(a) the contract value on the anniversary, plus
(b) any purchase payments made since the anniversary, reduced
by
(c) pro rata adjustments for any withdrawals made since the
anniversary.
(3) If the decedent dies prior to the date the owner reaches age 80, the amount
of the death benefit is the sum of:
(i) the accumulation (without interest) of purchase payments,
reduced by pro rata adjustments for any withdrawals; plus
(ii) an amount equal to interest on such net accumulation value,
as it is adjusted for each applicable purchase payment and pro rata
adjustment, at an effective annual rate of 4.0% (3% for policies issued
in the State of Washington).
The resulting amount will be referred to as the "Roll-up Amount."
If the decedent dies on or after the date the owner reaches age 80, the
amount of the death benefit is equal to:
(a) the "Roll-up Amount" as of the date the owner reached age
80; plus
(b) the accumulation (without interest) of purchase payments
made on or after the date the owner reach age 80; reduced by
(c) pro rata adjustments for any withdrawals made on or after
the date the owner reached age 80.
The pro rata adjustments referred to above are more fully described in
Appendix E at the end of this prospectus.
BENEFIT/ONE OR MORE OWNERS 61. If one or more of the owners is 61 years old, or
older, when the contract is purchased, the death benefit will be the same as
provided above, except that all references to age 80 in (2) and (3) are changed
to age 75.
See Appendix C for sample death benefit calculations.
The value of the death benefit is determined as of the end of the Valuation
Period in which we receive, at our home office, proof of death and the written
request as to the manner of payment. Upon receipt of these items, the death
benefit generally will be paid within seven days. Under certain circumstances,
payment of the death benefit may be
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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 a payee under the
contract. If the Beneficiary desires an annuity option, the election should be
made within 60 days of the date the death benefit becomes payable. Failure to
make a timely election can result in unfavorable tax consequences. For further
information, see "Federal Tax Matters."
We accept any of the following as proof of death: a copy of a certified death
certificate; a copy of a certified decree of a court of competent jurisdiction
as to the finding of death; or a written statement by a medical doctor who
attended the deceased at the time of death.
If an 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 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.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
The owner may specify an Annuity Commencement Date, up to age 110, in the
application. The Annuity Commencement Date marks the beginning of the period
during which an Annuitant or other payee designated by the owner receives
annuity payments under the contract. The Annuity Commencement Date must be at
least 2 years after the date of issue of your contract.
Depending on the type of retirement arrangement involved, amounts that are
distributed either too soon or too late may be subject to penalty taxes under
the Internal Revenue Code. See "Federal Tax Matters." You should consider this
carefully in selecting or changing an Annuity Commencement Date.
In order to advance or defer the Annuity Commencement Date, the 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 $1,000, we may pay the entire contract
value, without the imposition of any charges other than the premium tax charge,
if applicable, in a single sum payment to the Annuitant or other payee chosen by
the owner and cancel the contract.
Otherwise, Fortis Benefits will apply (1) the Fixed Account value to provide a
Fixed Annuity Option and (2) the Variable Account value in any subaccount to
provide a Variable Annuity Option using the same subaccount, unless the owner
has notified us by written request to apply the Fixed Account value and Variable
Account value in different proportions. Any such written request must be
received by us at our home office at least 30 days before the Annuity
Commencement Date.
Annuity payments under a Fixed or Variable Annuity Option will be made on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If more than one person is named as an
Annuitant, the 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
($20 in Texas). There is no right to make any total or partial surrender during
the Annuity Period.
The amount of each annuity payment will depend on the amount of 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 benefits plans, is set forth under "Calculations of Annuity
Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity form
selected. The dollar amount of variable annuity payments varies during the
annuity period based on changes in Annuity Unit Values for the subaccounts that
you choose to use in connection with your payments.
RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS
If a subaccount on which a variable annuity payment is based has an average
effective net investment return higher than 3% per annum during the period
between two such annuity payments, the Annuity Unit Value will increase, and the
second payment will be higher than the first. Conversely, if the subaccount's
average effective net investment return over the period between the annuity
payments is less than 3% per annum, the Annuity Unit Value will decrease, and
the second payment will be lower than the first. "Net investment return," for
this purpose, refers to the subaccount's overall investment performance, net of
the mortality and expense risk and administrative expense charges, (See Charges
and Deductions--Charges Against the Variable Account). We guarantee that the
amount of each variable annuity payment after the first payment will not be
affected by variations in our mortality experience or our expenses.
TRANSFERS. During the Annuity Period, the person receiving annuity payments may
make up to four transfers a year among subaccounts.
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The current procedures for and conditions on these transfers are the same as
described above under "Allocation of Purchase Payments and Contract Value
Transfers." Transfers from a Fixed Annuity Option are not permitted during the
Annuity Period.
ANNUITY FORMS
The 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. 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 TO 20
YEARS. Payments are made as of the first Valuation Date of each monthly period
starting on the Annuity Commencement Date. Payments will continue as long as the
annuitant lives. If the annuitant dies before all of the guaranteed payments
have been made, we will continue installments of the guaranteed payments to the
beneficiary.
OPTION C, JOINT AND FULL SURVIVOR ANNUITY. Payments are made as of the first
Valuation Date of each monthly period starting with the Annuity Commencement
Date. Payments will continue as long as either the annuitant or the joint
annuitant is alive. Payments will stop when both the annuitant and the joint
annuitant have died. It is possible for the payee or payees under this option to
receive only one payment, if both annuitants die before the second payment is
due.
OPTION D, JOINT AND ONE-HALF CONTINGENT SURVIVOR ANNUITY. Payments are made as
of the first Valuation Date of each monthly period starting with the Annuity
Commencement Date. Payments will continue as long as either the annuitant or the
joint annuitant is alive. If the annuitant dies first, payments will continue to
the joint annuitant at one-half the original amount. If the joint annuitant dies
first, payments will continue to the annuitant at the original full amount.
Payments will stop when both the annuitant and the joint annuitant have died. It
is possible for the payee or payees under this option to receive only one
payment if both annuitants die before the second payment is due.
We also have other annuity forms available and information about them can be
obtained from your sales representative or by calling or writing to our home
office.
DEATH OF ANNUITANT OR OTHER PAYEE
Under most annuity forms offered by Fortis Benefits, the amounts, if any,
payable on the death of the annuitant during the Annuity Period are the
continuation of annuity payments for any remaining guarantee period or for the
life of any joint annuitant. In all such cases, the person entitled to receive
payments also receives any rights and privileges under the annuity form in
effect.
Additional rules applicable to such distributions under Non-Qualified contracts
are described under "Federal Tax Matters--Required Distributions for
Non-Qualified contracts." Though the rules there described do not apply to
contracts issued in connection with qualified plans, similar rules apply to the
plans themselves.
CHARGES AND DEDUCTIONS
PREMIUM TAXES
The states of South Dakota and Wyoming impose a premium tax upon the receipt of
a purchase payment. In these states, and in any other state or jurisdiction
where premium taxes or similar assessments are imposed upon the receipt of
purchase payments, Fortis Benefits will pay such taxes on behalf of the owner
and then deduct a charge for these amounts from the contract value upon the
surrender, the payment of a death benefit, 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 Variable Account value in
each subaccount.
Applicable premium tax rates depend upon the owner's then-current place of
residence. Applicable rates are subject to change by legislation, administrative
interpretations or judicial acts.
CHARGES AGAINST THE VARIABLE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. We will assess each subaccount of the
Variable Account with a daily charge for mortality and expense risk at a nominal
annual rate as follows:
- If all of the owners of a contract are less than 61 years old when the
contract is purchased, the rate is 1.10% of the average daily net assets
of the Variable Account.
- If one or more of the owners of the contract is 61 years old, or older,
the rate is 1.30% of the average daily net assets of the Variable Account.
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.
The mortality risk borne by Fortis Benefits arises from its obligation to make
annuity payments (determined in accordance with the annuity
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tables and other provisions contained in the contract) for the full life of all
Annuitants regardless of how long all Annuitants or any individual Annuitant
might live. In addition, Fortis Benefits bears a mortality risk in that it
guarantees to pay a death benefit upon the death of an Annuitant or owner prior
to the Annuity Commencement Date.
The expense risk assumed is that actual expenses incurred in connection with
issuing and administering the contract will exceed the limits on administrative
charges set in the contract.
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
us. Conversely, if the amount deducted proves more than sufficient, the excess
will be profit to us.
ADMINISTRATIVE EXPENSE CHARGE. We will assess each subaccount of the Variable
Account with a daily charge at an annual rate of .10% of the average daily net
assets of the subaccount. This charge is imposed during both the Accumulation
Period and the Annuity Period. 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. 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 the
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 Variable
Account.
The charges against the Variable 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 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 seven years prior to the
surrender date and that have not been previously surrendered;
- Any earnings that have not been previously surrendered;
- In any contract year, up to 10% of the purchase payments received by us
less than seven years prior to the surrender date (whether or not the
purchase payments have been previously surrendered).
For the purpose of calculating the free surrender amount for any given partial
surrender or total surrender, amounts are deemed to be withdrawn in the
following order:
- For contracts issued where all of the owners of the contract were less
than 61 years old when the contract was purchased:
1. purchase payments made more than seven years prior to the
surrender date, and are therefore not subject to a surrender charge.
2. 10% of purchase payments received by us less than seven
years prior to the surrender date.
3. purchase payments received by us less than seven years
prior to the surrender date and that have not been previously
surrendered.
4. earnings.
- For contracts issued where one or more of the owners of the contract was
61 years old, or older, when the contract was purchased:
1. earnings.
2. purchase payments made more than seven years prior to the
surrender date, and are therefore not subject to a surrender charge.
3. 10% of purchase payments received by us less than seven
years prior to the surrender date.
4. purchase payments received by us less than seven years
prior to the surrender date and that have not been previously
surrendered.
No surrender charge is imposed on annuitization (or payment of a single sum
because less than the minimum required contract value is available to provide an
annuity at the Annuity Commencement Date). Nor is the surrender charge deducted
from the payment of any death benefit.
In addition, we have an administrative policy to waive surrender charges for
full surrenders of contracts that have been in force for at least ten years
provided that the amount then subject to the surrender charge is less than 25%
of the contract value. Since the contracts have only been offered since 1999, 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
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under Free Surrenders (that is, if the amount being withdrawn includes purchase
payments made less than seven years prior to the surrender date). The surrender
charges are:
<TABLE>
<CAPTION>
NUMBER OF YEARS SURRENDER CHARGE
SINCE PURCHASE AS A PERCENTAGE OF
PAYMENT WAS APPLIED PURCHASE PAYMENT
- ----------------------- ---------------------
<S> <C>
Less than 3 7%
At least 3 but less
than 4 5%
At least 4 but less
than 5 4%
At least 5 but less
than 6 3%
At least 6 but less
than 7 2%
7 or more 0%
</TABLE>
We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent that the surrender charge is insufficient
to cover the actual costs of distribution, such costs will be paid from our
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.
MISCELLANEOUS
Because the Variable Account invests in shares of the Portfolios, the net assets
of the Variable Account will reflect the investment advisory fees and certain
other expenses incurred by the Portfolios that are described in their
prospectuses.
GENERAL PROVISIONS
THE CONTRACTS
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 an officer 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 an officer of Fortis Benefits. The contracts are non-participating and
do not share in dividends or earnings of Fortis Benefits.
POSTPONEMENT OF PAYMENT
Fortis Benefits may defer for up to 15 days the payment of any amount
attributable to a purchase payment made by check to allow the check reasonable
time to clear. For a description of other circumstances in which amounts payable
out of Variable Account assets could be deferred, see "Postponement of Payments"
in the Statement of Additional Information. Fortis Benefits may also defer
payment of surrender proceeds payable out of the Fixed Account for a period of
up to 6 months.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the age or sex of the Annuitant has been misstated, any amount payable will
be that which the purchase payments paid would have purchased at the correct age
and sex. If we have made any overpayments because of incorrect information about
age or sex, or any other miscalculation, Fortis Benefits will deduct the
overpayment from the next payment or payments due. We add underpayments to the
next payment. The amount of any adjustment will be credited or charged with
interest at the effective annual rate of 3% per year.
ASSIGNMENT
Rights and interests under a Qualified Contract may be assigned only in certain
narrow circumstances referred to in the contract. Owners and other payees may
assign their rights and interests under Non-Qualified Contracts, including their
ownership rights.
We take no responsibility for the validity of any assignment. A change in
ownership rights must be made in writing and a copy must be sent to Fortis
Benefits' home office. The change will be effective on the date it was made,
although we are not bound by a change until the date we record it.
The rights under a contract 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 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 an owner, or the Annuitant if the owner is a
non-natural person, prior to the Annuity Commencement date, the Beneficiary will
be determined as follows:
- If there is any surviving owner, the surviving owner will be the
Beneficiary (this overrides any other beneficiary designation).
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- If there is no surviving owner, the Beneficiary will be the beneficiary
designated by the owner.
- If there is no surviving owner and no surviving beneficiary who has been
designated by the owner, then the estate of the last surviving owner will
be the Beneficiary.
REPORTS
We will mail to the owner (or to the person receiving payments during the
annuity period), at the last known address of record, any reports and
communications required by any applicable law or regulation. You should
therefore give us prompt written notice of any address change. This will include
annual audited financial statements of the Portfolios, but not necessarily of
the Variable Account or Fortis Benefits.
RIGHTS RESERVED BY FORTIS BENEFITS
Fortis Benefits reserves the right to make certain changes if, in its judgment,
they would best serve the interests of owners and Annuitants or would be
appropriate in carrying out the purposes of the contracts. Any changes will be
made only to the extent and in the manner permitted by applicable laws. Also,
when required by law, Fortis Benefits will obtain your approval of the changes
and approval from any appropriate regulatory authority. Such approval may not be
required in all cases, however. Examples of the changes Fortis Benefits may make
include:
- To operate the Variable Account in any form permitted under the Investment
Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any subaccount to another subaccount, or to one
or more separate accounts, or to the Fixed Account; or to add, combine or
remove subaccounts in the Variable Account.
- To substitute, for the Portfolio shares held in any subaccount, the shares
of another Portfolio or the shares of another investment company or any
other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the contract as an
annuity.
- To change the time or time of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the contract in order to
conform with any action the above provisions permit 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
Fortis Investors, Inc. is the principal underwriter of the contracts. 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 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 selling brokers in varying
amounts which under normal circumstances is not expected to exceed 4.75% 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 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,
broker-dealer firms, and exempt firms may be eligible for additional
compensation based upon meeting certain production standards. Fortis Investors
may charge back commissions paid to others if the contract upon which the
commission was paid is surrendered or cancelled within certain specified time
periods.
Fortis Benefits paid a total of $29,918,620, $30,567,607 and $37,024,997 to
Fortis Investors for annuity contract distribution services during 1995, 1996
and 1997, respectively, $3,925,959 of which in 1995, $7,531,629 in 1996 and
$5,091,431 in 1997 was not reallowed to other broker-dealers or exempt firms. In
the distribution agreement, Fortis Benefits has agreed to indemnify Fortis
Investors (and its agents, employees, and controlling persons) for certain
damages and expenses, including those arising under federal securities laws.
See Note 12 to the Notes to Fortis Benefits' Financial Statements as to amounts
it has paid to Fortis, Inc. for various services.
Fortis Investors is an indirect subsidiary of Fortis AMEV and Fortis AG and is
therefore under common control with Fortis Benefits. Fortis Investors' principal
business address is the same as that of our home office. Fortis Investors is not
obligated to sell any specific amount of interests under the contracts. $
of interests in the Guarantee Periods Fixed Account and an indefinite amount of
interests in the Variable Account have been registered with the Securities and
Exchange Commission.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes, which in the opinion of Fortis Benefits are
currently in effect. These rules are based on laws, regulations and
interpretations which are subject to change at any time. This summary is not
comprehensive and is not intended as tax advice. Federal estate and gift tax
considerations, as well as state and local taxes, may also be material. You
should consult a qualified tax adviser as to the tax implications of taking any
action under a 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 owner or any other
person. However, any increase in the
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accumulated value of a Non-Qualified Contract resulting from the investment
performance of the Variable Account or interest credited to the Fixed Account is
generally not taxable to the 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, owners who are not natural persons are taxed
annually on 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 an owner assigns or pledges any part of the value of a contract,
the value so pledged or assigned is taxed to the 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, a person's "investment in the contract" is
the aggregate amount of purchase payments made by him or her. After an
Annuitant's or other payee's "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 that
payment as the "investment in the contract" bears to the total expected value of
the annuity payments for the term of the payments. However, the remainder of
each annuity payment is taxable. The taxable portion of a distribution (in the
form of an annuity or a single sum payment) is taxed as ordinary income.
For purposes of determining the amount of taxable income resulting from
distributions, all contracts and other annuity contracts issued by us or our
affiliates to the 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 owner or other payee reaches age
59 1/2, (2) made to a Beneficiary on or after death of the owner, (3) made upon
the disability of the owner or other payee, or (4) part of a series of
substantially equal annuity payments for the life or life expectancy of the
owner or the owner and Beneficiary. Premature distributions may result, for
example, from an early Annuity Commencement Date, an early surrender, partial
surrender or assignment of a contract or the early death of an Annuitant who is
not also the owner or other person receiving annuity payments under the
contract.
A transfer of ownership of a contract, or designation of an Annuitant or other
payee who is not also the owner, may result in certain income or gift tax
consequences to the owner that are beyond the scope of this discussion. An 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 any
person receiving annuity payments dies on or after the Annuity Commencement Date
but prior to the time the entire interest in the contract has been distributed,
the remaining portion of such interest will be distributed at least as rapidly
as under the method of distribution being used as of the date of the person's
death; and (b) if any 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 person's death or (2) as annuity payments which will begin
within one year of that owner's death and which will be made over the life of
the owner's designated Beneficiary or over a period not extending beyond the
life expectancy of that Beneficiary. However, if the owner's designated
Beneficiary is the surviving spouse of the owner, the contract may be continued
with the surviving spouse deemed to be the new owner. Where the owner or other
person receiving payments is not a natural person, the required distributions
provided by Section 72(A) apply upon the death of the primary Annuitant.
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 contract if necessary to ensure that it complies with the requirements of
Section 72(s) when clarified by regulation or otherwise.
Generally, unless the Beneficiary elects otherwise, the above requirements will
be satisfied where the death occurs prior to the Annuity Commencement Date by
paying the death benefit in a single sum, subject to proof of the 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
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 contracts may be used with several types of tax-qualified plans. The tax
rules applicable to owners, Annuitants and other payees vary according to the
type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a retirement program recognized under the Code on
behalf of an individual are excludable from the individual's gross income for
tax purposes during the Accumulation Period. The portion, if any, of any
purchase payment made by or on behalf of an individual under a 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.
18
<PAGE>
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).
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."
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 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 owners or persons
receiving annuity payments 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 owners or persons receiving
annuity payments to be treated as the owners of Variable Account assets for tax
purposes. Fortis Benefits reserves the right to amend the 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 under the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange from one of these types of
products into a 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
product you exchanged out of.
Because of the complexity of these and other tax aspects in connection with an
exchange, you should consult a tax adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403(B) PLANS
Section 403(b)(12) of the Internal Revenue Code restricts the distribution under
Section 403(b) annuity contracts of:
(1) elective contributions made for years beginning after December 31, 1988;
(2) earnings on those contributions; and
(3) earnings on amounts held as of December 31, 1988.
Distribution of these amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions made after
December 31, 1988 may not be distributed in the case of hardship.
19
<PAGE>
FURTHER INFORMATION ABOUT FORTIS BENEFITS
GENERAL
Fortis Benefits is engaged in the offer and sale of insurance products,
including fixed and variable life insurance policies, fixed and variable annuity
contracts, and group life, accident and health insurance policies. The Company
markets its products to small business and individuals through a national
network of independent agents, brokers, and financial institutions.
OWNERSHIP OF SECURITIES
All of Fortis Benefits' outstanding shares are owned by Fortis Insurance, 515
West Wells, Milwaukee, Wisc. 53201, which is itself wholly owned by Fortis,
Inc., One Chase Manhattan Plaza, New York, N.Y. 10005. Fortis, Inc., in turn is
wholly owned by Fortis International, Inc., which is wholly owned by AMEV/VSB
1990 N.V., both of which share the same address with N.V. AMEV., Archimedeslaan
10, 3584 BA, Utrecht, The Netherlands. AMEV/VSB 1990 N.V. is 50% owned by Fortis
AMEV and 50% owned, through certain subsidiaries, by Fortis AG, Boulevard Emile
Jacqmain 53, 1000 Brussels, Belgium.
SELECTED FINANCIAL DATA
The following is a summary of certain financial data of Fortis Benefits. This
summary has been derived in part from, and should be read in conjunction with,
the financial statements of Fortis Benefits included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
(IN THOUSANDS) 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums and policy charges.............................. $1,238,006 $1,295,878 $1,232,329 $1,022,446 $ 955,053
Net investment income.................................... 228,724 206,023 203,537 162,514 153,657
Net realized gains (losses) on investment................ 41,101 25,731 55,080 (28,815) 73,623
Other income............................................. 36,458 31,725 33,085 35,958 27,100
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES......................................... $1,544,289 $1,559,357 $1,524,031 $1,192,103 $1,209,433
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total benefits and expenses.............................. $1,442,059 $1,470,066 $1,442,270 $1,157,651 $1,100,199
Federal Income taxes..................................... 35,120 31,099 27,891 11,595 31,090
Income before cumulative effect of accounting changes.... 67,110 58,192 53,870 22,857 78,144
Net income............................................... 67,110 58,192 53,870 22,857 81,707
BALANCE SHEET DATA
Total assets............................................. $6,819,484 $5,951,876 $5,143,012 $4,043,914 $3,584,139
Total liabilities........................................ 5,939,378 5,171,203 4,431,914 3,569,717 3,052,231
Total shareholder's equity............................... 880,106 780,673 711,098 474,197 531,908
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1997 COMPARED TO 1996
FINANCIAL POSITION
Total invested assets of Fortis Benefits Insurance Company (the "Company")
increased to $3.3 billion in 1997 compared to $3.1 billion in 1996. As of
December 31, 1997, 96% of the Company's fixed maturity securities consisted of
investment grade bonds. Mortgage loans represent 18.1% of total invested assets
compared to 18.9% in 1996. The Company believes that adequate reserves have been
established for potential delinquencies and foreclosures. The mortgage loan
portfolio consists generally of small loans on commercial properties, dispersed
throughout the United States. The Company's delinquency and foreclosure rate are
well below industry averages.
RESULTS OF OPERATIONS
REVENUES
The Company's major products are group medical, group disability and dental,
group life, and annuity and individual life insurance coverages sold through a
network of independent agents and brokers. Total group medical, group disability
and dental, group life, and annuity and individual life premiums represented
37%, 35%, 21% and 7% respectively of total premium in 1997 and 45%, 30%, 19% and
6% respectively in 1996. The decrease in group medical premium is the result of
a decision in 1996 to discontinue new sales of certain medical products.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1997, 1996, and
1995 resulted in recognition of realized gains and losses.
BENEFITS
Policyholder benefit to premium ratio decreased from 84% in 1996 to 82% in 1997,
as a result of general improved experience. The primary improvement was in the
group life business which experienced these
20
<PAGE>
mortality declines consistently throughout 1997. Annuity and individual life
also experienced lower mortality experience in 1997 in addition to higher
interest crediting on the Company's steadily increasing policy base of interest
sensitive and investment products. Group medical, group disability and dental,
group life, and annuity and individual life benefit to premium ratio was 77%,
82%, 76% and 124% respectively in 1997 and 78%, 84%, 86%, and 131% respectively
in 1996.
EXPENSES
The Company's general and administrative expense to premium ratio has increased
in 1997 to 17.5% from 15.3% in 1996. Enabling the application systems to be Year
2000 compliant and managed dental initiatives are the primary reasons for this
increase. Included in the managed dental initiative expense is an $13.5 million
write-off of the expenses incurred on behalf of a company that provides the
managed care services.
Commission rates have increased from the levels in 1996. This is primarily due
to changes in the mix of business by product lines as well as the change in
first year versus renewal premiums.
YEAR 2000
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 know at this time.
The Company is closely monitoring these entities to avoid any unforeseen
circumstances.
1996 COMPARED TO 1995
REVENUES
Traditional life insurance premiums of Fortis Benefits (the "Company") are
principally composed of group life coverages. Total life premiums increased over
1995 due primarily to group life sales in 1996. Interest sensitive and
investment product policy charges, which consist primarily of cost of insurance
charges, increased 37% from 1995 to 1996. Continued sales of interest sensitive
and investment products has steadily increased the policy base on which these
charges are assessed.
Total accident and health premiums increased in 1996 compared to 1995 due to an
increase in the group disability product sales and strong persistency. Partially
offsetting this increase was a 3% decrease in the group medical products driven
by a decision to roll the fully insured medical business into a common medical
plan and the decision to cease new sales of large group self funded medical
plans, effective January 1, 1996. Beginning April 1, 1996 and continuing into
1997, the groups will gradually be rolled to a third party administrator.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1996, 1995 and
1994 resulted in recognition of realized gains and losses.
BENEFITS
The Company's group life benefits which are included in the traditional life
benefits were higher in 1996 compared to 1995 as a result of increased
mortality. Interest sensitive and investment product benefits for the period
ended December 31, 1996 increased 23% from 1995. This increase was the result of
higher interest crediting on the Company's steadily increasing policy base in
1996 compared to 1995.
The accident and health claims to premium ratio improved from 1995 to 1996 due
primarily to the improved claim closure rates in the group disability lines.
EXPENSES
The commission rates have declined from the levels in 1995. This is primarily
due to change in the mix of business by product lines as well as the change in
the first year versus renewal premiums. Interest sensitive and investment
products commission increased from 1996 compared to 1995; however, the Company
deferred $62.4 million of these commissions in 1996, compared to $52.7 million
in 1995. The additional commission and deferral is the result of an increase in
sales of the company's variable life and variable annuity products. This
increase in deferred commissions more than offset the increase in paid
commissions and lowered the net commission expense for 1996.
In 1996, the Company consolidated the fully insured group medical business
administration processing. This has resulted in expense savings as demonstrated
by the reduction in the general and administrative expenses. Also contributing
to the expense reduction was the decision to discontinue issuing large group
self funded medical business.
21
<PAGE>
CASH FLOW AND LIQUIDITY
The market value of cash, short-term investments and publicly traded bonds and
stocks is at least equal to all policyholder reserves and liabilities. The
Company's portfolio is readily marketable and convertible to cash to a degree
sufficient to provide for short-term needs. The Company expects its operating
activities to continue to meet its capital resource needs. The Company
consistently monitors its liability durations and invests assets accordingly.
The Company has no material commitments or off-balance sheet financing
arrangements which would reduce sources of funds in the upcoming year.
The National Association of Insurance Commissioners' risk-based capital formula
helps to establish guidelines for capital levels. At December 31, 1997, the
Company's capital exceeded the minimum recommended risk-based capital level.
COMPETITION
Fortis Benefits seeks to compete primarily on the basis of customer service,
product design, and, in the case of products funded through Series Fund, the
investment results achieved by Fortis Advisers, Inc. Many other insurance
companies compete with Fortis Benefits in each of its markets, including on the
basis of price. Many of these companies, which include some of the largest and
best known insurance companies, have considerably greater resources than Fortis
Benefits.
REGULATION AND RESERVES
The Company is subject to regulation and supervision by the insurance
departments of the states in which it is licensed to do business. This
regulation covers a variety of areas, including benefit reserve requirements,
adequacy of insurance company capital and surplus, various operational
standards, and accounting and financial reporting procedures. Fortis Benefits'
operations and accounts are subject to periodic examination by insurance
regulatory authorities.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed up to prescribed limits for insurance contract losses,
if covered, incurred by insolvent companies. The amount of any future
assessments of Fortis Benefits under these laws cannot be reasonably estimated.
Most of these laws do provide, however, that an assessment may be excused or
deferred if it would threaten an insurer's own financial strength.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Federal measures that may adversely affect the insurance
business include health care reform, employee benefit regulation, controls on
medicare costs and medical entitlement programs, tax law changes affecting the
taxation of insurance companies or of insurance products, changes in the
relative desirability of various personal investment vehicles, and removal of
impediments on the entry of banking institutions into the business of insurance.
Pursuant to state insurance laws and regulations, Fortis Benefits is obligated
to carry on its books, as liabilities, reserves to meet its obligations under
outstanding insurance contracts. These reserves are based on assumptions about,
among other things, future claims experience and investment returns. Neither the
reserve requirements nor the other aspects of state insurance regulation provide
absolute protection to holders of insurance contracts, including the contracts,
if Fortis Benefits were to incur claims or expenses at rates significantly
higher than expected (due, for example, to acquired immune deficiency syndrome
or other infectious diseases or catastrophes) or significant unexpected losses
on its investments.
EMPLOYEES AND FACILITIES
Fortis Benefits has approximately 2,000 employees and considers its employee
relations to be excellent; Fortis Benefits owns its home office building,
consisting of 295,000 square feet in Woodbury, Minnesota. It also has
administrative offices in Kansas City, Missouri. Fortis Benefits leases a
portion of that building consisting of 297,000 square feet. In addition Fortis
Benefits has several regional claims and sales offices throughout the United
States. Fortis Benefits occupies approximately 100% of its home office and 70%
of its administration building, which it expects will be adequate for its
purposes for the foreseeable future.
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 the Portfolios 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. Owners have the voting interest during the Accumulation Period, persons
receiving annuity payments during the Annuity Period, and Beneficiaries after
the death of the Annuitant or 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 Annuitant or owner,
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.
Fortis Benefits will vote shares for which it has received no timely
instructions, and any shares attributable to excess amounts Fortis Benefits has
accumulated in the related subaccount, in proportion to the voting instructions
which it receives with respect to all 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
22
<PAGE>
for that Portfolio that are received from persons holding the voting interest
with respect to all Fortis Benefits separate accounts participating in that
Portfolio. Shares held by separate accounts other than the Variable Account will
in general be voted in accordance with instructions of participants in such
other separate accounts. This diminishes the relative voting influence of the
contracts.
Each person having a voting interest in a subaccount of the Variable Account
will receive proxy material, reports and other materials relating to the
appropriate Portfolio. Pursuant to the procedures described above, these persons
may give instructions regarding the election of the Board of Directors of the
Portfolios, ratification of the selection of its independent auditors, the
approval of the investment managers of a Portfolio, changes in fundamental
investment policies of a Portfolio and all other matters that are put to a vote
by Portfolio shareholders.
LEGAL MATTERS
The legality of the contracts described in this prospectus has been passed upon
by David A. Peterson, Esquire, Assistant General Counsel with the law department
of Fortis Benefits. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C.,
have advised Fortis Benefits on certain federal securities law matters.
OTHER INFORMATION
Registration Statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
contracts discussed in this prospectus. Not all of the information set forth in
the Registration Statement, amendments and exhibits thereto has been included in
this prospectus. Statements contained in this prospectus concerning the content
of the 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.
A Statement of Additional Information is available upon request. Its contents
are as follows:
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Fortis Benefits and the Variable Account.......
Calculation of Annuity Payments................
Postponement of Payments.......................
Services.......................................
- Safekeeping of Variable Account Assets.....
- Experts....................................
- Principal Underwriter......................
Taxation Under Certain Retirement Plans........
Withholding....................................
Variable Account Financial Statements..........
APPENDIX A--Performance Information............
</TABLE>
FORTIS BENEFITS FINANCIAL STATEMENTS
The financial statements of Fortis Benefits that are included in this prospectus
should be considered primarily as bearing on the ability of Fortis Benefits to
meet its obligations under the contracts. The contracts are not entitled to
participate in earnings, dividends or surplus of Fortis Benefits.
23
<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
24
<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.
25
<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.
26
<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.
27
<PAGE>
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
GAINS GAINS
(LOSSES) (LOSSES) ON
ADDITIONAL ON ASSETS HELD
COMMON PAID-IN RETAINED INVESTMENTS, IN 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.
28
<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.
29
<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.
30
<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).
31
<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.
32
<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>
33
<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.
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
7. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 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.
35
<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.
36
<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.
37
<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.
38
<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.
[UNAUDITED 9/30/98 FORTIS BENEFITS FINANCIAL STATEMENTS TO BE ADDED BY
PRE-EFFECTIVE AMENDMENT]
39
<PAGE>
SPECIAL TERMS USED IN THIS PROSPECTUS
<TABLE>
<S> <C>
Accumulation The time period under a contract between the contract issue date and the Annuity Commencement
Period Date.
Accumulation A unit of measure used to calculate the owners' interest in the Variable Account during the
Unit Accumulation Period.
Annuitant A person during whose life annuity payments are to be made by Fortis Benefits under the
contract. The Annuitant is the person named in the application for the contract. If such
person dies before the Annuity Commencement Date and there is an additional annuitant named in
the application, the additional annuitant shall become the Annuitant. If there is no named
additional annuitant, or the additional annuitant has predeceased the annuitant who is named
in the application, the owner, if he or she is a natural person, shall become the Annuitant.
Annuity The date on which the Annuity Period commences.
Commencement
Date
Annuity Period The time period following the Accumulation Period, during which annuity payments are made by
Fortis Benefits.
Annuity Unit A unit of measurement used to calculate variable annuity payments.
Beneficiary The person entitled to receive the death benefits under the terms of the contract.
Fixed Account The Guarantee Periods Fixed Account or the General Account Fixed Account.
Fixed Annuity An annuity option under which Fortis Benefits promises to pay the Annuitant or any other payee
Option that you designate one or more fixed payments.
General The name of the alternative under which purchase payments are allocated to Fortis Benefits'
Account Fixed general account.
Account
Guarantee The non-unitized separate account that Fortis Benefits uses to account for amounts allocated
Periods Fixed to guarantee periods.
Account
Market Value Positive or negative adjustment in Guarantee Periods Fixed Account value that we make if such
Adjustment value is paid out more than fifteen days before or after the end of a guarantee period in
which it was being held.
Non-Qualified Contracts that do not qualify for the special federal income tax treatment applicable in
Contracts connection with certain retirement plans.
Portfolio Each separate investment portfolio eligible for investment by the Variable Account as set
forth on the cover page of this prospectus.
Qualified Contracts that are qualified for the special federal income tax treatment applicable in
Contracts connection with certain retirement plans.
Valuation Date All business days except, with respect to any subaccount of the Variable Account, days on
which the related Portfolio does not value its shares. Generally, the Portfolios value their
shares on each day the New York Stock Exchange is open.
Valuation The period that starts at the close of regular trading on the New York Stock Exchange on a
Period Valuation Date and ends at the close of regular trading on the exchange on the next succeeding
Valuation Date.
Variable The segregated asset account referred to as Variable Account D of Fortis Benefits Insurance
Account Company established to receive and invest purchase payments under contracts.
Variable An annuity option under which Fortis Benefits promises to pay the Annuitant or any other payee
Annuity Option chosen by you one or more payments which vary in amount in accordance with the net investment
experience of the subaccounts selected by the Annuitant.
</TABLE>
40
<PAGE>
APPENDIX A--SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
The formula which will be used to determine the Market Value Adjustment is:
1 + I n/12
( ---------) - 1
1 + J + .005
Sample Calculation 1: Positive Adjustment
Amount withdrawn or transferred $10,000
Existing guarantee period 7 years
Time of withdrawal or transfer beginning of 3rd year of existing
guarantee period
Guaranteed interest rate (I) 8%*
Guaranteed interest rate for
new 5-year guarantee (J) 7%*
Remaining guarantee period (N) 60 months
Market Value Adjustment
1 + .08 60/12
$10,000 x [( ----------) - 1] = $234.73
1 + .07 + .005
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $10,234.73
Sample Calculation 2: Negative Adjustment
Amount withdrawn or transferred $10,000
Existing guarantee period 7 years
Time of withdrawal or transfer beginning of 3rd year of existing
guarantee period
Guaranteed interest rate (I) 8%*
Guaranteed interest rate for
new 5-year guarantee (J) 9%*
Remaining guarantee period (N) 60 months
Market Value Adjustment:
1 + .08 60/12
$10,000 x [( ----------) - 1] = - $666.42
1 + .09 + .005
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $9,333.58
Sample Calculation 3: Negative Adjustment
Amount withdrawn or transferred $10,000
Guarantee period 7 years
Time of withdrawal or transfer beginning of 3rd year of existing
guarantee period
Guaranteed interest rate (I) 8%*
Guaranteed interest rate for
new 5-year guarantee (J) 7.75%*
Remaining guarantee period (N) 60 months
Market Value Adjustment:
1 + .08 60/12
$10,000 x [( ------------)] - 1] = - $114.94
1 + .0775 + .005
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $9,885.06
- ------------------------
*Assumed for illustrative purposes only.
A-1
<PAGE>
APPENDIX B--EXPLANATION OF EXPENSE CALCULATIONS
The expense for a given year is calculated by multiplying the projected
beginning of the year policy value by the total expense rate. The total expense
rate is the sum of the variable account expense rate plus the total Portfolio
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Federated Prime Money Fund II for a
contract issued when all owners are less than 61 years old at the time of
purchase is calculated as follows:
<TABLE>
<S> <C> <C>
Total Variable Account Annual Expenses 1.20%
+ Total Portfolio Operating Expenses 0.80%
= Total Expense Rate 2.00%
</TABLE>
The Annual Administrative Charge rate is calculated by dividing the total Annual
Contract Charges we collected in 1997 on similar contracts by the average policy
value in force in 1997 on such contracts.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = $1000.00 x 0.0200 = $20.00
Year 2 Beginning Policy Value = $1030.00
Year 2 Expense = $1030.00 x 0.0200 = $20.60
Year 3 Beginning Policy Value = $1060.90
Year 3 Expense = $1060.90 x 0.0200 = $21.22
So the cumulative expenses for years 1-3 for the Federated Prime Money Fund II
are equal to:
$20.00 + $20.60 + $21.22 = $61.82
If the contract is surrendered, the surrender charge is the surrender charge
percentage times the purchase payment minus the 10% free withdrawal amount:
Surrender Charge Percentage x (Initial Premium - 10% Free Withdrawal) =
Surrender Charge
0.07 x ($1000.00 - $100.00) = $63.00
So the total expense if surrendered is $61.82 + $63.00 = $124.82.
B-1
<PAGE>
APPENDIX C--SAMPLE DEATH BENEFIT CALCULATIONS
<TABLE>
<CAPTION>
Date of Death Assumed Premiums and Values: Example 1 Example 2 Example 3
----------- ----------- -----------
<S> <C> <C> <C>
a. Purchase payments made prior to death, accumulated at 4% $ 32,000 $ 32,000 $ 32,000
b. Contract Value on date of death $ 20,000 $ 36,000 $ 25,000
c. One year Ratchet Option Value $ 35,000 $ 36,000 $ 31,000
Death Benefit is Larger of a, b, and c. $ 35,000 $ 36,000 $ 32,000
</TABLE>
C-1
<PAGE>
APPENDIX D--PARTICIPATING PORTFOLIOS
FEDERATED INSURANCE SERIES
Federated Insurance Series is an open-end management investment company. It was
established as a Massachusetts business trust under a Declaration of Trust dated
September 15, 1993. Federated Advisers is the investment adviser for all of its
portfolios other than Federated International Equity Fund II, which is advised
by Federated Global Research Corp.
AMERICAN LEADERS FUND II
INVESTMENT OBJECTIVE: Seeks to achieve long-term growth of capital with a
secondary objective to provide income. It invests, under normal conditions, at
least 65% of its total assets in common stock of "blue-chip" companies.
GROWTH STRATEGIES FUND II
INVESTMENT OBJECTIVE: Capital appreciation. It invests at least 65% of its
assets in equity securities of companies with prospects for above-average growth
in earnings and dividends or companies where significant fundamental changes are
taking place.
UTILITY FUND II
INVESTMENT OBJECTIVE: To achieve high current income and moderate capital
appreciation. It invests primarily in a professionally managed, diversified
portfolio of equity and debt securities of utility companies.
PRIME MONEY FUND II
INVESTMENT OBJECTIVE: To provide current income consistent with stability of
principal and liquidity. It invests exclusively in a portfolio of money market
instruments maturing in 397 days or less.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
INVESTMENT OBJECTIVE: Seeks to provide current income. Under normal
circumstances, it invests at least 65% of the value of its total assets in
securities issued or guaranteed as to payment of principal and interest by the
U.S. Government, its agencies or instrumentalists.
HIGH INCOME BOND FUND II
INVESTMENT OBJECTIVE: To seek high current income. It invests primarily in a
professionally managed, diversified portfolio of fixed income securities. The
fixed income securities in which it invests are lower-rated corporate debt
obligations, which are commonly referred to as "junk bonds."
INTERNATIONAL EQUITY FUND II
INVESTMENT OBJECTIVE: To obtain a total return on its assets. It invests at
least 65% of its assets (and under normal market conditions substantially all of
its assets) in equity securities of issuers located in at least three different
countries outside of the United States.
EQUITY INCOME FUND II
INVESTMENT OBJECTIVE: To provide above average income and capital appreciation.
It invests at least 65% of its assets in income-producing equity securities.
D-1
<PAGE>
APPENDIX E--PRO RATA ADJUSTMENTS
Pro rata adjustments are made for withdrawals in calculating the death benefit
payable under the contract. The benefit is described under the section of this
prospectus entitled Benefit Payable on Death of Owner (or Annuitant).
Under the death benefit set forth as (2) in that section, 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) purchase payments made since the anniversary and before the
withdrawal, plus
(iii) pro rata adjustments for withdrawals made since the anniversary
and before the given withdrawal.
Under the death benefit set forth as (3) in that section, the pro rata
adjustment for a given withdrawal is equal to:
(a) the withdrawn amount; divided by
(b) the contract value immediately before the amount was withdrawn; the
result multiplied by
(c) the quantity equal to:
(i) the Roll-up Amount prior to withdrawal; plus
(ii) any purchase payments made on or after the date the owner
reached age 80 and before the given withdrawal; reduced by
(iii) pro rata adjustments for any withdrawals made on or after the
date the owner reached age 80 and before the given withdrawal.
E-1
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CONTRACTS UNDER
FLEXIBLE PREMIUM DEFERRED
COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
THE CONSULTANT VARIABLE ANNUITY
Issued by
FORTIS BENEFITS INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 1999
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 Contracts under flexible premium deferred combination variable
and fixed annuity contracts ("Contracts"), dated January 1, 1999. A copy of the
Prospectus may be obtained without charge from Fortis Investors, Inc.
1-800-963-9222, mailing address: P.O. Box 64273, St. Paul, MN 55164. You have
the option of receiving benefits under a Contract through Fortis Benefits'
Variable Account D or through Fortis Benefits' Guarantee Periods Fixed Account
or its General Account Fixed Account.
TABLE OF CONTENTS
Fortis Benefits and the Variable Account . . . . . . . . . . . . . . . . .1
Calculation of Annuity Payments. . . . . . . . . . . . . . . . . . . . . .2
Postponement of Payments . . . . . . . . . . . . . . . . . . . . . . . . .3
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
- Safekeeping of Variable Account Assets . . . . . . . . . . . . . . . .3
- Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
- Principal Underwriter . . . . . . . . . . . . . . . . . . . . . . . .4
Taxation Under Certain Retirement Plans. . . . . . . . . . . . . . . . . .4
Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Variable Account 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 Contracts and other matters which may be of
interest to you. Terms used in this Statement of Additional Information have
the same meanings as are defined in the Prospectus under the heading "Special
Terms Used in This Prospectus."
FORTIS BENEFITS AND THE VARIABLE ACCOUNT
Fortis Benefits Life 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 organized
under the laws of Wisconsin, which itself is a wholly-owned subsidiary of
Fortis, Inc. Fortis, Inc. is a corporation based in New York, which manages
the United States operations of Fortis AMEV and Fortis AG.
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Fortis AMEV has been in business since 1847 and is a publicly-traded,
multi-national insurance, real estate, and financial services group
headquartered in The Netherlands. It is one of the largest holding companies in
Europe, with subsidiary companies in twelve countries on four continents.
Fortis AMEV is the third largest insurance company in the Netherlands.
Fortis AG is a multi-national insurance, real estate and financial services firm
that has been in business since 1824. It has subsidiary companies in eight
countries. Fortis AG is one of the largest life insurance companies in Belgium.
Fortis AMEV and Fortis AG have combined assets of approximately $167 billion.
The assets allocated to the Variable Account are the exclusive property of
Fortis Benefits. Registration of the Variable Account under the Investment
Company Act of 1940 does not involve supervision of the management or investment
practices or policies of the Variable Account or of Fortis Benefits by the
Securities and Exchange Commission. Fortis Benefits may accumulate in the
Variable Account proceeds from charges under the Contracts and other amounts in
excess of the Variable Account assets representing reserves and liabilities
under Contracts and other variable annuity contracts issued by Fortis Benefits.
Fortis Benefits may from time to time transfer to its general account any of
such excess amounts.
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, after any Market Value Adjustment, 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 Variable Account into
Annuity Units for each chosen Subaccount at their values determined as of the
end of the Valuation Period which contains the Annuity Commencement Date. As of
such time, any Fixed Account Value to be applied to a Variable Annuity Option is
also converted, after any Market Value Adjustment, to Annuity Units in the
Subaccounts selected based on the then-current Annuity Unit value. The initial
number of Annuity Units in each Subaccount is determined by dividing the amount
of the initial monthly variable annuity payment (see "Variable Annuity Option --
Variable Annuity Payments," below) allocable to that Subaccount by the value of
one Annuity Unit in that Subaccount as of the time of the conversion. The
number of Annuity Units for each Subaccount will remain constant, as long as an
annuity remains in force and the allocation among the Subaccounts has not
changed.
The value of each Subaccount's Annuity Units will vary to reflect the investment
experience of the Subaccount as well as charges deducted from the Subaccount.
The value of each Subaccount's Annuity Units is equal to the prior value of the
Subaccount's Annuity Units multiplied by the net investment factor for that
Subaccount (discussed in the Prospectus
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under "Contract Value") for the Valuation Period ending on that Valuation Date,
with an offset for the 3% assumed interest rate used in the annuity tables of
the Contract.
VARIABLE ANNUITY PAYMENTS. Variable annuity payments start at the end of the
Valuation Period that contains the Annuity Commencement Date, and will vary in
amount as the related Annuity Unit values vary. The amount of the first monthly
payment is shown on the annuity tables contained in the Contract for each $1,000
of Contract Value applied to the Variable Annuity Option selected as of the end
of such Valuation Period. The first variable annuity payment is, in effect,
allocated among the Subaccounts in the same proportion as the Contract Value is
allocated among the Subaccounts upon commencement of annuity payments.
Payments after the first will vary in amount and are determined on the first
Valuation Date of each subsequent monthly period. If the monthly payment under
the annuity form selected is based on the value of Annuity Units of a single
Subaccount, the monthly payment is found by multiplying the number of the
Contract's Annuity Units for the Subaccount by the Annuity Unit value of such
Subaccount as of the first Valuation Date in each monthly period following the
Annuity Commencement Date. If the monthly payment under the Variable Annuity
Option selected is based upon the value of Annuity Units in more than one
Subaccount, this is repeated for each applicable Subaccount. The sum of these
payments is the variable annuity payment.
GENDER OF ANNUITANT
The amount of each annuity payment ordinarily will be higher for a male
Annuitant than for a female Annuitant with an otherwise identical 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, 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.
POSTPONEMENT OF PAYMENTS
With respect to amounts in the Subaccounts of the Variable Account, payment of
any amount due upon a total or partial surrender, death or under an annuity
option will ordinarily be made within seven days after all documents required
for such payment are received by Fortis Benefits at its Home Office. However,
Fortis Benefits may defer the determination, application or payment of any death
benefit, transfer, partial or total surrender or annuity payment, to the extent
dependent on Accumulation or Annuity Unit Values, for any period during which
the New York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted as determined
by the Securities and Exchange Commission, for any period during which any
emergency exists as a result of which it is not reasonably practicable for
Fortis Benefits to determine the investment experience for the Contract, or for
such other periods as the Securities and Exchange Commission may by order permit
for the protection of investors.
SERVICES
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
Title to the assets of the Variable Account is held by Fortis Benefits. The
assets of the Variable Account are kept segregated and held separate and apart
from Fortis Benefits' other assets.
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EXPERTS
The financial statements of Fortis Benefits Insurance Company appearing in the
Prospectus and those of Separate Account D appearing in this Statement of
Additional Information and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon also
appearing in the Prospectus or this Statement of Additional Information,
respectively, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
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. Contracts generally will be issued for
Annuitants from ages zero to ninety in all states.
TAXATION UNDER CERTAIN RETIREMENT PLANS
Federal income tax information concerning the purchase of 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 are taxed as ordinary income to the recipient as described under
"Federal Tax Matters" in the Prospectus. Taxable distributions received before
the employee attains age 59 1/2 generally are subject to a 10% penalty tax in
addition to regular income tax. Certain distributions are excepted from this
penalty tax, including distributions following the employee's death, disability,
separation from service after age 55, separation from service at any age if the
distribution is in the form of an annuity for the life (or life expectancy) of
the employee (or the employee and Beneficiary) and distributions not in excess
of deductible medical expenses. In addition, no distributions of voluntary
salary reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be
limited to the lesser of the amount of the hardship or the amount of salary
reduction contributions, exclusive of earnings thereon.)
REQUIRED DISTRIBUTIONS. Generally, distributions from Section 403(b) annuities
must commence not later than April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2, and such distributions must be
made over a period that does not exceed the life expectancy of the employee (or
the employee and Beneficiary). A penalty tax of 50% would be imposed on any
amount by which the minimum required distribution in any year exceeded the
amount actually distributed in that year. In addition, in the event that the
employee dies before his or her entire interest in the Contract has been
distributed, the employee's entire interest must be distributed in accordance
with rules similar to those applicable upon the death of the Participant or
Payee 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
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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 transfer
of one Section 403(b) annuity for another Section 403(b) annuity, and the IRS
has ruled (Revenue Ruling 90-24) that amounts transferred may qualify as
tax-free transfers under certain circumstances. In addition, Section 403(b)(8)
of the code permits tax-free rollovers from Section 403(b) programs to
individual retirement annuities or other Section 403(b) programs under certain
circumstances.
SECTION 401 QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY PLANS
PURCHASE PAYMENTS. Subject to certain limitations prescribed by the Code,
purchase payments made by an employer (or a self-employed individual) under a
pension, profit-sharing or annuity plan qualified under Section 401 or Section
403(a) of the Code are generally deductible by the employer and excluded from
the taxable income of the employee for federal income tax purposes, whether made
under a salary reduction agreement or directly by employer contributions.
Salary reduction payments are, however, subject to FICA (social security) taxes.
Purchase payments made directly by an employee generally are made on an
after-tax basis.
TAXATION OF DISTRIBUTIONS. Distributions from 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) annuities.
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuities.
TAX-FREE ROLLOVERS. If, within 60 days of receipt, an employee who receives a
single sum distribution transfers all of the taxable amount received to another
plan qualified under Section 401 or 403(a), or to an individual retirement
account or annuity as provided for under the Code, the transferred amount will
not be taxed in the year of distribution. Certain "partial" distributions may
also qualify for tax-free rollover treatment, but only if transferred to an
individual retirement account or annuity. However, income tax may be withheld
from the distribution unless the distribution is transferred directly from the
qualified plan to the individual retirement account or individual retirement
annuity.
INDIVIDUAL RETIREMENT ANNUITIES
PURCHASE PAYMENTS. Individuals may make contributions for individual retirement
annuity ("IRA") Contracts. Deductible contributions for any year may be made up
to the lesser of $2,000 or 100% of compensation for individuals who (1) are not
(and whose spouses are not) active participants in another retirement plan, (2)
are unmarried and have adjusted gross income of $25,000 or less, or (3) are
married and have adjusted gross income of $40,000 or less. An individual may
also establish an IRA for his or her spouse if they file a joint return for the
taxable year and his or her spouse earns less than the individual does for that
year. The annual purchase payments for both spouses' Contracts cannot exceed
the lesser of $4,000 or 100% of the couple's combined earned income, and no more
than $2,000 may be contributed to either spouse's IRA for any year. Individuals
who are active participants in other retirement plans and whose adjusted gross
income (with certain special adjustment) exceed the cut-off point ($25,000 for
unmarried, $40,000 for married persons filing jointly, and $0 for married
persons filing a separate return) by less than $10,000 are entitled to make
deductible IRA contributions in proportionately reduced amounts. For example, a
married individual who is an active participant in another retirement plan and
files a separate tax return is entitled to a partial IRA deduction if the
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individual's adjusted gross income is less than $10,000 and no IRA deduction if
his or her adjusted gross income is equal to or greater than $10,000.
An individual may make non-deductible IRA contributions to the extent of (1) the
lesser of $2,000 ($4,000 in the case of a spousal IRA) or 100% of compensation
over (2) the IRA deductible contribution made with respect to the individual.
An individual may not make any contributions to his/her own IRA for the year in
which he/she reaches age 70 1/2 or for any year thereafter. Contributions to a
spouse's IRA may not be made for any year in which that spouse reaches age
70 1/2 or for any year thereafter.
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) annuities.
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.
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SECTION 408(p) SIMPLE IRA PLANS
PURCHASE PAYMENTS: Under Section 408(p) of the Code, small employers may
establish a type of IRA plan referred to as a Savings Incentive Match Plan for
Employees (SIMPLE Plan). An employee may contribute annually through his or her
employer a pre-tax salary reduction contribution not to exceed the lesser of
$6,000 or 100% of compensation. The employer must annually either (1) match the
employee contribution dollar for dollar up to 3% of pay, or (2) make a 2% of pay
contribution for each eligible employee regardless of whether the employee makes
any salary reduction contribution. In two out of every five years, the employer
has the option to reduce the matching contribution as low as 1% of pay but
advance notice must be provided to employees.
TAXATION OF DISTRIBUTIONS: Generally, distributions from SIMPLE IRA Plans are
subject to the same distribution rules described above for IRAs. However, if an
individual withdraws any amount from his SIMPLE IRA Plan within the first two
years of his or her commencement of participation in the employer's SIMPLE IRA
Plan, the 10% penalty tax for premature distribution, if such tax applies, will
be increased to 25%.
REQUIRED DISTRIBUTIONS: SIMPLE distributions are subject to the same minimum
distribution rules described above for IRAs.
TAX-FREE ROLLOVERS: Generally, rollovers and direct transfers may be made to
and from SIMPLE IRAs in the same manner as described above for IRAs, subject to
the same conditions and limitations. Rollovers or transfers to other IRAs, other
than SIMPLE IRAs, are also possible but only after the second anniversary of
commencement of participation in the employer's SIMPLE IRA 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)
annuities. However, if distributions do not commence before the employee's
death,
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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 transfers must be
with employer consent.
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
PURCHASE PAYMENTS. Private taxable employers may establish unfunded,
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors. Certain
arrangements of tax-exempt employers entered into prior 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.
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 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.
MISCELLANEOUS
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
completed 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.
VARIABLE ACCOUNT FINANCIAL STATEMENTS
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This Statement of Additional Information contains no financial statements for
the Subaccounts of the Variable Account because the available Subaccounts of the
Variable Account have not yet commenced operations, has no assets or
liabilities, and has received no income nor incurred any expenses as of the date
of this Statement of Additional Information.
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENT AND EXHIBITS
a. Financial Statements included in Part A:
With Respect to Fortis Benefits Insurance Company:
Audited Financials:
Report of Independent Auditors.
Balance Sheets for the years ended December 31, 1997 and 1996.
Statements of Income, Statements of Changes in Shareholder's
Equity and Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.
Notes to Financial Statements.
Unaudited Financials:
(To be filed by Pre-Effective Amendment)
Balance Sheet for the nine months ended September 30, 1998.
Statement of Income for the three months ended
September 30, 1998.
Statements of Income and Statements of Cash Flow for the nine
months ended September 30, 1998 and 1997.
Notes to Financial Statements.
Financial Statements included in Part B:
With Respect to Variable Account D of Fortis Benefits Insurance
Company:
None since available subaccounts have not begun operations.
b. Exhibits:
1. Resolution of the Board of Directors of Fortis Benefits Insurance
Company effecting the establishment of Variable Account D
(incorporated by reference from Form N-4 of Fortis Benefits and
its Variable Account D filed on December 31, 1987, File No.
33-19421).
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2. Not applicable.
3. (a) Form of Principal Underwriter and Servicing Agreement
(incorporated by reference from Form N-4 registration
statement filed by Fortis Benefits and its Variable Account
D on January 11, 1994, File No. 33-73986);
(b) Form of Amendment to Principal Underwriting Agreement
(incorporated by reference from Form N-4 Registration
Statement filed by Fortis Benefits and its Variable Account
D on January 11, 1994, File No. 33-73986);
(c) Form of Dealer Sales Agreement -- filed herewith.
4. (a) Form of Combination Fixed and Variable Annuity Contracts to
be issued where all owners are less than 61 years old at
time of purchase -- filed herewith.
(b) Form of Combination Fixed and Variable Annuity Contracts to
be issued where one or more owners are 61 years old at time
of purchase -- filed herewith.
(c) Form of IRA Endorsement (included as part of Pre-effective
Amendment No. 1 to this Form N-4 Registration Statement
filed March 28, 1991);
(d) Form of Section 403(b) Annuity Endorsement (included as part
of Pre-effective Amendment No. 1 to this Form N-4
Registration Statement filed March 28, 1991);
5. Form of Application -- filed herewith.
6. (a) Articles of Incorporation of Fortis Benefits Insurance
Company (incorporated by reference from Form S-6
Registration Statement of Fortis Benefits and its Variable
Account C filed on March 17, 1986, File No. 33-03919);
(b) By-laws of Fortis Benefits Insurance Company (incorporated
by reference from Form S-6 Registration Statement of Fortis
Benefits and its Variable Account C filed on March 17, 1986,
File No. 33-03919);
<PAGE>
(c) Amendment to Articles of Incorporation and Bylaws dated
November 21, 1991 (included as part of Post-Effective
Amendment No. 1 to this Form N-4 Registration Statement
filed March 2, 1992).
7. None.
8. None.
9. Opinion and consent of Douglas R. Lowe, Esq., Assistant General
Counsel of Fortis Benefits Insurance Company, as to the legality
of the securities being registered (included as part of the
original filing of this Form N-4 Registration Statement filed on
November 1, 1990).
10. (a) Consent of Ernst & Young LLP - to be filed by Pre-Effective
Amendment.
(b) Power of Attorney for Messr. Freedman and Clayton
(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--none.
14. Financial Data Schedule - not applicable since financials were
previously filed.
Item 25. DIRECTORS AND OFFICERS OF FORTIS BENEFITS
The directors, executive officers, and, to the extent responsible for
variable insurance product operations, other officers of Fortis Benefits are
listed below.
<TABLE>
<CAPTION>
Name and Principal
Business Address Offices with Depositor
- ------------------ ----------------------
<S> <C>
Officer-Directors
- -----------------
Robert Brian Pollock (4) President and Chief Executive
Officer
<PAGE>
Dean C. Kopperud (1) President - Fortis Financial Group
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 and
Chief Financial Officer
Peggy L. Ettestad (1) Senior Vice President--Life
Operations
Rhonda J. Schwartz (1) Senior 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
</TABLE>
- -------------------------
(1) Address: Fortis Benefits Insurance Company, P.O. Box 64271, St. Paul, MN
55164.
(2) Address: Fortis, Inc., One Chase Manhattan Plaza, New York, NY 10005.
(3) Address: Fortis AMEV, Archmideslaan 10, 3584 BA Utrecht, The Netherlands.
(4) Address: 2323 Grand Avenue, Kansas City, MO 64108.
(5) Address: 515 West Wells, Milwaukee, WI 53201.
Item 26. PERSONS CONTROLLED BY OR UNDER CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
<PAGE>
Variable Accounts C and D of Fortis Benefits Insurance Company are separate
accounts of Fortis Benefits. These separate accounts, certain separate accounts
assumed from St. Paul Life Insurance Company, and Fortis Series Fund, Inc. may
be deemed to be controlled by Fortis Benefits, although Fortis Benefits follows
voting instructions of variable insurance contract owners with respect to voting
on certain important matters in connection with these entities. All of these
entities are created under Minnesota law and are the funding media for variable
life insurance and annuity contracts issued or assumed by Fortis Benefits.
The chart indicating the persons controlled by or under common control with
Fortis Benefits is hereby incorporated by reference from the response to Item 26
in Post-Effective Amendment No. 24 to this Form N-4 registration statement filed
on April 28, 1994. Fortis Benefits has no subsidiaries.
Items 27. NUMBER OF CONTRACT OWNERS
There are no contract owners.
Item 28. INDEMNIFICATION
Pursuant to the Principal Underwriter and Servicing Agreement filed as Exhibit
3(a) and (b) to this Registration Statement and incorporated herein by this
reference, Fortis Benefits has agreed to indemnify Fortis Investors (and its
agents, employees, and controlling persons) for damages and expenses arising out
of certain material misstatements and omissions in connection with the offer and
sale of the Certificates, unless the misstatement or omission was based on
information supplied by Fortis Investors; provided, however, that no such
indemnity will be made to Fortis Investors or its controlling persons for
liabilities to which they would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations under such agreement. This
indemnity could apply to certain directors, officers or controlling persons of
the Separate Account by virtue of the fact that they are also agents, employees
or controlling persons of Fortis Investors. Pursuant to the Principal
Underwriter and Servicing Agreement, Fortis Investors has agreed to indemnify
Variable Account D, Fortis Benefits, and each of its officers, directors and
controlling persons for damages and expenses (1) arising out of certain material
misstatements and omissions in connection with the offer and sale of the
Certificates, if the misstatement or omission was based on information furnished
by Fortis Investors or (2) otherwise arising out of Fortis Investors'
negligence, bad faith, willful misfeasance or reckless disregard of its
responsibilities. Pursuant to its Dealer Sales Agreements, a form of which is
filed as Exhibit 3-C- and (d) to this registration statement and is incorporated
herein by this reference, firms that sell the Certificates agree to indemnify
Fortis Benefits, Fortis Investors, the Separate Account, and their officers,
directors, employees, agents, and controlling persons from liabilities and
expenses arising out of the wrongful conduct or omissions of said selling firm
or its officers, directors, employees, controlling persons or agents.
Also, Fortis Benefit's By-Laws (see Article VI, Section 5 thereof, which is
incorporated herein by reference from Exhibit 6(b) to this Registration
Statement) provide for indemnity and payment of
<PAGE>
expenses of Fortis Benefits's officers, directors and employees in connection
with certain legal proceedings, judgments, and settlements arising by reason of
their service as such, all to the extent and in the manner permitted by law.
Applicable Minnesota law generally permits payment of such indemnification and
expenses if the person seeking indemnification has acted in good faith and in a
manner that he reasonably believed to be in the best interests of the Company
and if such person has received no improper personal benefit, and in a criminal
proceeding, if the person seeking indemnification also has no reasonable cause
to believe his conduct was unlawful.
Insofar as indemnification for any liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of Fortis
Benefits or the Separate Account pursuant to the foregoing provisions, or
otherwise, Fortis Benefits and the Separate Account have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Fortis Benefits of expenses incurred or paid by a director,
officer or controlling person of Fortis Benefits or the Separate Account in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the precedent, submit
to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITERS
(a) Fortis Investors, Inc. is the principal underwriter for Variable
Account D. Fortis Investors, Inc. also acts as the principal
underwriter for the following registered investment companies (in
addition to Variable Account D and Fortis Series Fund, Inc.):
Variable Account C of Fortis Benefits, Variable Account A of First
Fortis Life Insurance Company, Fortis Advantage Portfolios, Inc.,
Fortis Equity Portfolios, Inc., Fortis Fiduciary Fund, Inc., Fortis
Growth Fund, Inc., Fortis Money Portfolios, Inc., Fortis Tax-Free
Portfolios, Inc., Fortis Income Portfolios, Inc., and Special
Portfolios, Inc.
(b) The following table sets forth certain information regarding the
officers and directors of the principal underwriter, Fortis Investors,
Inc.:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Underwriter
- ------------------ ---------------------
<S> <C>
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
<PAGE>
Peter M. Delahanty* Vice President
Tamara L. Fagely* Vice President
Joanne M. Herron* Assistant Treasurer
John E. Hite* Vice President and
Assistant Secretary
Carol M. Houghtby* Vice President, Treasurer and
Director
Dean C. Kopperud* President and Director
Christine D. Pawlenty* Customs Solutions Group Officer
Mary B. Petersen* 2nd Vice President
Scott R. Plummer* Vice President and Associate General
Counsel
</TABLE>
- -------------------------
* 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, 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;
<PAGE>
(b) To include either (1) as part of any application to purchase a
Contract offered by the Prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a
toll-free phone number, postcard, or similar written communication
affixed to or included in the Prospectus that the applicant can call
or remove to send for a Statement of Additional Information;
(c) To deliver a Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
Fortis Benefits Insurance Company represents:
(a) that the fees and charges imposed under the provisions of the Contract
covered by this registration statement, in the aggregate, are
reasonable in relation to the services to be rendered by the
Registrant associated with the Contracts, the expenses to be incurred
by the Registrant associated with the Contracts, and the risks assumed
by the Registrant associated with the Contracts.
The Registrant intends to rely on the no-action response dated November 28, 1988
from Ms. Angela C. Goelzer of the Commission staff to the American Council of
Life Insurance concerning the redeemability of Section 403(b) annuity contracts
and the Registrant has complied with the provisions of paragraphs (1)-(4)
thereof.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this amended Registration Statement to be signed
on its behalf in the City of St. Paul, State of Minnesota on this 25th day of
September, 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
(Depositor)
By: /s/ Robert Brian Pollock
-----------------------------------------------
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 September 28, 1998.
Signature Title With Fortis Benefits
- --------- --------------------------
* Chairman of the Board
--------------------------------
Allen Royal Freedman
* Director
--------------------------------
J. Kerry Clayton
Director
--------------------------------
Arie Aristide Fakkert
/s/ Robert Brian Pollock President and Director
--------------------------------
Robert Brian Pollock (Chief Executive Officer)
/s/ Dean C. Kopperud Director
--------------------------------
Dean C. Kopperud
<PAGE>
/s/ Michael John Peninger Senior Vice President, Controller
-------------------------------- and Treasurer (Principal
Michael John Peninger Accounting Officer and
Principal Financial Officer)
*By: /s/ Robert Brian Pollock
--------------------------------
Robert Brian Pollock
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
3(a) Form of Dealer Sales Agreement
4(a) Form of Annuity Contract
4(b) Form of Annuity Contract
(5) Form of Application
<PAGE>
[LOGO] The Consultant
VARIABLE ANNUITY SUPPLEMENT
TO DEALER SALES AGREEMENT
- --------------------------------------------------------------------------------
1. THE CONTRACTS
The variable annuity contracts offered by Fortis Investors under this Supplement
are issued by Fortis Benefits Insurance Company. See the current variable
annuity Prospectuses for contract features.
2. APPOINTMENT AND AUTHORITY
The Dealer, when appointed by Fortis Benefits Insurance Company (herein called
the "Insurance Company"), is authorized to take applications for variable
annuity contracts offered by Fortis Investors and issued by the Insurance
Company, to collect and send initial premiums to the Insurance Company, and to
deliver and service policies. These duties shall be performed only in states in
which the dealer is properly licensed and the Insurance Company is qualified to
do business.
The Dealer is also authorized by Investors to recruit and nominate others,
hereafter Representatives, who, when duly licensed in any state where they will
be soliciting, will be appointed by the Insurance Company. It is understood and
agreed that such Representatives will be Representatives of the Dealer and that
the Dealer shall be solely responsible for their conduct. Representatives may
accept applications for variable annuity contracts once properly appointed.
Investors and the Insurance Company reserves the right to refuse to appoint any
nominated Representative or, once appointed, to terminate any appointment.
The Dealer or Representative will not make, alter or discharge any contract of
insurance, nor waive any of the provisions of any such contract.
3. RESPONSIBILITIES
The Dealer agrees to comply with all applicable insurance securities laws and
regulations relating to the business of insurance and with all rules and
regulations of the Insurance Company.
4. COMPENSATION
The Dealer will be paid a sale commission on sales of The Consultant Variable
Annuity in accordance with Option A below. However, if the Dealer so elects,
using the election procedures established by Fortis Benefits Insurance Company,
the Dealer may add commission Options B and/or C and/or D as options for the
payment of commissions. If the Dealer makes such an election, the Dealer will
be paid a sales commission in accordance with the commission option as set forth
below which the Dealer's sales representative shall elect, using the election
procedures established by Fortis Benefits, upon submission of the product
application to Fortis Benefits. Should the sales representative fail to make an
election upon submission of the product application, or should the Dealer not
have elected the designated option or should the election not be available
because of the conditions set forth below, the sales commission paid will be
based upon Option A.
<TABLE>
<CAPTION>
OWNER'S COMMISSION (AS A % OF PREMIUM)
AGE ------------------------------
WHEN PREMIUM PAID OPTION A OPTION B OPTION C* OPTION D
- ----------------- -------- -------- --------- --------
<S> <C> <C> <C> <C>
0-80 6.25 3.50 1.00 4.75
81 - 85 3.25 2.00 .85 2.50
86 - 90 1.75 1.00 0.00 1.50
Gross Trail Commission 0% 0.50% 0.85% 0.25%
(yrs. 1-7)
0.40%
(yrs. 8+)
Start of Gross Trail N/A 1st 13th 1st
Commission Month Month Month
</TABLE>
* The premium payments must total $40,000 or more within the first three
months of the policy for this Option C to be available. Sales commissions
will only be paid on premiums received within the first three months from
the date of issue.
The Trail Commission will be paid on a monthly basis and will be equal to
one-twelfth of the above-specified percentage of the policy value at the end of
the month. It will start to be paid for policy values for the policy months set
forth above. In order to qualify for entitlement to payment of Trail
Commissions, the Dealer must be the dealer of record on Fortis Benefits variable
annuity policies having an aggregate policy value of $1 million or more.
Commissions will be paid twice monthly. Irrespective of the above, if the Dealer
becomes entitled to commissions on an annuity contract as a result of a change
of dealer on such contract, the Dealer will receive commissions on such contract
in accordance with the commission option in effect for such contract prior to
the transfer.
GENERAL
Investors reserves the right to revise the compensation payable herein from time
to time, but any such revision will apply only to
purchase payments received after the effective date of such revision.
If an annuity contract is issued as a replacement of another contract, the
commission payable may be other than the commission otherwise provided herein in
accordance with Fortis Investors' policies regarding replacement then in effect.
If the premium on any policy is refunded by the Insurance Company for any
reason, or if the Insurance Company cancels or reduces the amount of a policy
for any cause, either before or after termination of the Agreement, the Dealer
agrees to repay on demand any compensation received on that premium.
Investors will furnish the Dealer with a statement of account, no less
frequently than twice monthly. The compensation payable under this Supplement
will be paid twice monthly as long as this
<PAGE>
agreement remains in effect. In the event of termination of this agreement all
compensation payable under this Supplement shall terminate.
5. GENERAL PROVISIONS
A. FEES, SUPPLIES, SOFTWARE AND RECORDS
The Dealer will pay fees in accordance with published rules and regulations. All
ratebooks, printed material, computer software and other supplies furnished by
the Insurance Company, and all documents and records of any and every
description relating to the Insurance Company's business or the names and
addresses of policyholders and description of their coverages are confidential
information and will not be used by or otherwise disclosed to another party for
any purpose whatsoever and will be delivered to Investors upon demand. Upon any
termination of this Agreement all such confidential information will be returned
to Investors.
B. ASSIGNMENT
No assignment of this Agreement or of any compensation due the Dealer will be
valid unless authorized in advance in writing by an officer of Investors. Any
such assignment will be subject to, and subordinate to, any and all indebtedness
of the Dealer to Investors.
C. AMENDMENT
No modification of the Agreement or Schedule will bind Investors unless it is
made in writing and executed by an officer of Investors.
6. ORDERS
Applications to purchase a variable annuity contract, together with a
remittance for the full amount of the order (made payable to "Fortis Benefits
Insurance Company"), should be sent to CM #9747, Post Office Box 70870, St.
Paul, MN 55170-9747. No telephonic orders will be accepted.
DAP846.dlr
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
St. Paul, Minnesota
A Stock Company
INDIVIDUAL MVA
[PRODUCT NAME HERE]
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.
This contract is issued in consideration of the payment of the Purchase Payment
shown on the contract data page.
Signed for Fortis Benefits Insurance Company on the Contract Issue Date.
10 DAY RIGHT TO CANCEL CONTRACT
You may cancel this contract by delivering or mailing a Written notice or
sending a telegram to The Company and returning this contract before midnight of
the 10th day after the date You received it. Notice given by mail and return of
this 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 this
contract and (b) the cash value of this contract, or if this contract does not
have a cash value, the reserve for this 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
-------------------- ------------------
Dean C. Kopperud Peggy Ettestad
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING. NO DIVIDENDS.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE, MAY INCREASE OR DECREASE AND
ARE NOT GUARANTEED AS TO AMOUNT. THE VARIABLE PROVISIONS OF THIS CONTRACT ARE
FOUND ON PAGE 9.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, WHICH MAY RESULT IN UPWARD AND DOWNWARD ADJUSTMENTS IN
AMOUNTS PAYABLE, INCLUDING SURRENDERS, TRANSFERS, AND AMOUNTS APPLIED TO
PURCHASE AN ANNUITY. THE MARKET VALUE ADJUSTMENT PROVISION IS FOUND ON PAGE 8.
<PAGE>
READ YOUR CONTRACT CAREFULLY.
This contract is a legal contract between the contract owner and Fortis Benefits
Insurance Company.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page #
<S> <C>
Annuitant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Fixed Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Fixed Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Market Value Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Variable Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . . . . .14
</TABLE>
Any contract amendments or endorsements follow the contract data page.
Additional benefits added by rider follow the Optional Annuity Forms Tables.
<PAGE>
CONTRACT DATA PAGE
<TABLE>
<S> <C>
ANNUITANT: John Doe
OWNER: John Doe
CONTRACT NUMBER: 0000000000
BENEFICIARY AT ISSUE: Jane Doe
CONTRACT ISSUE DATE: May 1, 1998
ANNUITY COMMENCEMENT DATE: July 7, 2024
SURRENDER CHARGE: The surrender charge is 7% of each
Purchase Payment for the first three
years and decreases to 5%, 4%, 3%, 2%
in years four through seven,
respectively. Details can be found
on pages 10 and 11.
ANNUAL ADMINISTRATIVE CHARGE: NONE
MAXIMUM ASSET CHARGE FACTOR: 1.20% Annually (or .0032877% Daily)
(For the Variable Account Only)
</TABLE>
<TABLE>
<CAPTION>
CURRENT MAXIMUM
------- -------
<S> <C> <C>
TRANSFER CHARGE: $0.00 $25.00
</TABLE>
INITIAL PURCHASE PAYMENT: $25,000
Amounts withdrawn from the fixed account (including transfers) may be subject to
a Market Value Adjustment. See details on pages 8.
FUTURE ALLOCATION OF NET PURCHASE PAYMENTS
Shown below is the Net Purchase Payment allocation You selected at the contract
Issue Date.
<TABLE>
<CAPTION>
INVESTMENT CHOICE PERCENTAGE
- ----------------- ----------
<S> <C>
[MVA 1 Year] 0%
[MVA 2 Year] 0%
[MVA 3 Year] 0%
[MVA 4 Year] 0%
[MVA 5 Year] 0%
[MVA 6 Year] 0%
[MVA 7 Year] 0%
[MVA 8 Year] 0%
[MVA 9 Year] 0%
[MVA 10 Year] 0%
[Federated International Equity Fund II] 50%
[Federated Growth Strategies Fund II] 20%
[Federated American Leaders Fund II] 0%
[Federated Equity Income Fund II] 30%
[Federated Utility Fund II] 0%
[Federated High Income Bond Fund II] 0%
[Federated Prime Money Fund II] 0%
[Federated Fund for U.S. Government Securities II] 0%
[____________________________]
[____________________________]
[____________________________]
</TABLE>
<PAGE>
DEFINITIONS
WE, US, OUR, THE COMPANY
Fortis Benefits Insurance Company.
YOU, YOUR
The owner of this contract, or after the annuity commencement date, the
Annuitant.
ACCUMULATION UNIT
A unit of measurement used to calculate the value of Your interest in the
Variable Account before the annuity commencement date.
ANNIVERSARY, ANNIVERSARIES
After Contract Issue Date, the same day and month in each subsequent year.
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.
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 this contract in
case of the death of the Annuitant or the contract owner or the joint owner, as
applicable.
CONTRACT ISSUE DATE
The date on which this contract becomes effective as shown on the contract data
page.
CONTRACT VALUE
The total of the fixed account value and the Variable Account value.
CONTRACT YEAR
A period of 12 consecutive months beginning on the Issue Date or any Anniversary
thereafter.
COVERED PERSON
The owner or joint owner of this contract or the owner's spouse if such spouse
is the Annuitant.
DATE OF DEPOSIT
The date We receive any Purchase Payment at Our Home Office.
DESIGNATED BENEFICIARY
The person designated as the Beneficiary by the contract owner.
FIXED ANNUITY OPTION
An annuity option with payments which do not vary as to dollar amount.
FUND
The Fund or Funds are those investment portfolios available under this contract
to which the owner may allocate Net Purchase Payments, each of which is, or is a
series of, a management investment company
2
<PAGE>
registered under the Investment Company Act of 1940.
GUARANTEE PERIOD
The period for which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE
The rate of interest We credit on an effective annual basis during any Guarantee
Period.
HOME OFFICE
Our office at 500 Bielenberg Drive, Woodbury, Minnesota 55125; 1-800-800-2000,
extension 3057; Mailing Address: P.O. Box 64272, St. Paul, Minnesota 55164.
HOSPITAL OR SKILLED HEALTH CARE FACILITY
A facility which: (1) is licensed by an appropriate licensing agency to provide
health services; and (2)provides 24-hour-a-day nursing service; and (3)has a
doctor available for emergency situations; and (4)has a nurse on duty or on call
at all times; and (5) maintains clinical records; and (6) has appropriate
methods for administering drugs.
MARKET VALUE ADJUSTMENT (MVA)
A positive or negative adjustment in the fixed account value that We may make if
such value is paid out before the end of a Guarantee Period in which it was
being held.
NET ASSET VALUE PER SHARE
The net assets of the Fund portfolio divided by the number of shares in the Fund
portfolio.
NET PURCHASE PAYMENT
The gross amount of the Purchase Payment less any applicable premium taxes.
PURCHASE PAYMENT
An amount paid to The Company under this contract as consideration for the
benefits described herein.
SUBACCOUNT
The Subaccounts of the Variable Account to which Contract Value may be
allocated. Each Subaccount invests all of its assets in a portfolio of the Fund
having the same investment policies and objectives as that Subaccount.
VALUATION DATE
All business days except, with respect to any Subaccount, days on which the
related portfolio does not value its shares.
VALUATION PERIOD
The period that starts at the close of the New York Stock Exchange on a
Valuation Date and ends at the close of the Exchange on the next succeeding
Valuation Date.
VARIABLE ACCOUNT
A segregated investment account entitled "Variable Account D", established by Us
pursuant to applicable law. That portion of the assets of the Variable Account
equal to the reserves and other contract liabilities with respect to the
Variable Account shall not be chargeable with liabilities arising out of any
other business We may conduct. Income, gains and losses, whether or not
realized, from assets allocated to the Variable Account, are credited to or
charged against such account without regard to Our other income, gains or
losses.
VARIABLE ANNUITY OPTION
An annuity option under which We promise to pay the Annuitant or other properly
designated payee one or more payments which vary in amount in accordance with
the net investment experience of the applicable Subaccounts selected to measure
the value of the payments.
WRITTEN, IN WRITING
A Written request or notice in acceptable form and content, which is signed,
dated, and received at Our Home Office.
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GENERAL PROVISIONS
THE CONTRACT
This contract is issued in consideration of the payment of the initial Purchase
Payment. All statements made in the Application will be deemed representations
and not warranties, and no statement will void this contract or be used in
defense to a claim unless it is contained in the Application. Only an officer of
The Company can agree to change or waive any provisions of this contract.
INCONTESTABILITY
This contract is incontestable.
MISSTATEMENT OF AGE OR SEX
If any date of birth or sex, or both, has been misstated in the Application, or
elsewhere, the amounts payable under this contract will be the amounts which
would have been provided using the correct age or sex, or both. Any deficiency
in the payments already made by Us will be paid immediately and any excess in
the payments already made by Us will be charged against the benefits falling due
after adjustment. The amount of any adjustment will be credited or charged
interest at the effective annual rate of 3% per year.
GUARANTEES
Subject to the Net investment factor provision, We guarantee that the dollar
amount of variable annuity payments made during the lifetime of the payee(s)
will not be adversely affected by Our actual mortality experience or by the
actual expenses incurred by Us in excess of the expense deductions provided for
in this contract.
SETTLEMENT
All benefits under this contract are payable from Our Home Office.
NON-PARTICIPATING
This contract is non-participating and does not share in Our surplus earnings.
BENEFICIARY
Subject to the rights of an irrevocably Designated Beneficiary, You may change
or revoke the designation of a Beneficiary at any time before the annuity
commencement date while a contract owner and the Annuitant are living. You must
send Us a Written designation or revocation. The change or revocation will not
be binding upon Us until it is received by Us at Our Home Office. When it is so
received, the change or revocation will be effective as of the date on which the
beneficiary designation or revocation was signed, but the change or revocation
will be without prejudice to Us on account of any payment made or any action
taken by Us prior to receiving the change or revocation.
In the event of the death of a contract owner or the Annuitant prior to the
annuity commencement date, the Beneficiary will be as follows: The Beneficiary
shall be the surviving contract owner, if any, notwithstanding that the
Designated Beneficiary may be different. Otherwise, the Beneficiary will be the
Designated Beneficiary. If there is no such Designated Beneficiary in effect or
if such Designated Beneficiary is no longer living, the estate of the last
surviving contract owner will be the Beneficiary.
RIGHTS RESERVED BY US
Upon notice to You, this contract may be modified by Us, but only if such
modification is necessary to:
(1) Operate the Variable Account in any form permitted under the Investment
Company Act of 1940 or in any other form permitted by law.
(2) Transfer any assets in any Subaccount to another Subaccount, or to one or
more separate accounts, or to the fixed account.
(3) Add, combine or remove Subaccounts in the Variable Account.
(4) Substitute for the shares held in any Subaccount, the shares of another
portfolio of the Funds or the shares of another investment company or any
other investment permitted by law.
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(5) Make any changes as required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of this contract as an
annuity.
When required by law, We will obtain Your approval of changes and We will gain
approval from any appropriate regulatory authority.
TERMINATION
This contract remains in force until surrendered for its full value, or all
annuity payments have been made, or the death benefit has been paid.
If the Contract Value is less than $1,000, We may cancel this contract on any
Valuation Date. We will notify You at least 90 days in advance of Our intention
to cancel this contract. Such cancellation would be considered a full surrender
of this contract.
PURCHASE PAYMENTS
PAYMENTS
The initial Purchase Payment is shown on the contract data page. The initial
Purchase Payment must be at least $5,000 ($2,000 for qualified contracts).
Additional Purchase Payments must be at least $500. We reserve the right to
refuse a Purchase Payment for any reason.
ALLOCATION OF PURCHASE PAYMENTS
The future allocation for all Net Purchase Payments is shown on the contract
data page and will remain in effect until changed by Written notice. The
percentage allocation for future Net Purchase Payments may be changed at any
time by Written notice. Changes in the allocation will be effective on the date
We receive Your notice. The allocation may be 100% to any available Subaccount
or Guarantee Period, or may be divided among the accounts in whole percentage
points totaling 100%.
PREMIUM TAXES
Premium taxes, if any, levied by any unit of government will be deducted from
the Contract Value.
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
This contract belongs to the owner. As owner, You will be entitled to exercise
all rights and privileges in connection with this contract. In any case, such
rights and privileges can be exercised without the consent of the Beneficiary
(other than an irrevocably Designated Beneficiary) or any other person. Such
rights and privileges may be exercised only during the lifetime of the Annuitant
and prior to the annuity commencement date, except as otherwise provided in this
contract.
Unless You specify otherwise, the Annuitant becomes the payee on the annuity
commencement date. Thereafter, a Beneficiary becomes the payee on the death of
the Annuitant. Such payees may thereafter exercise such rights and privileges,
if any, of ownership which continue.
CHANGE OF OWNERSHIP
Ownership of a qualified contract and any interest therein evidenced by this
contract, may not be transferred except to:
(1) the Annuitant;
(2) a trustee or successor trustee of a pension or profit sharing trust which
is qualified under Section 401 of the Internal Revenue Code;
(3) the employer of the Annuitant provided that the qualified contract after
transfer is maintained under the terms of a retirement plan qualified under
Section 403(a) of the Internal Revenue Code for the benefit of the
Annuitant;
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(4) the trustee of an individual retirement account plan qualified under
Section 408 of the Internal Revenue Code; or
(5) as otherwise permitted from time to time by laws and regulations governing
the retirement or deferred compensation plans for which a qualified
contract may be issued.
In no other case may a qualified contract be sold, assigned, transferred,
discounted or pledged as collateral.
The owner of a non-qualified contract may change the ownership of this contract.
During the lifetime of the Annuitant and prior to the annuity commencement date,
You may change the ownership interest in Your non-qualified contract.
A change of ownership will not be binding upon Us until We receive Written
notification at Our Home Office. When such notification is so received, the
change will be effective as of the date You signed the request for change, but
the change will be without prejudice to Us on account of any payment made or any
action taken by Us prior to receiving the change.
PERIODIC REPORTS
Prior to the annuity commencement date, We will send You, at least once during
each Contract Year, a statement showing the Contract Value as of a date not more
than two months previous to the date of mailing. We will also send such
statements as may be required by applicable laws, rules and regulations.
FIXED ACCOUNT
FIXED ACCOUNT
The fixed account is a non-unitized separate account that We use to account for
amounts allocated to Guarantee Periods under this contract. All amounts
allocated to a Guarantee Period, whether Net Purchase Payments or transfers,
become part of the fixed account. That portion of the assets of the fixed
account equal to the reserves and other contract liabilities with respect to the
fixed account shall not be chargeable with liabilities arising out of any other
business We may conduct.
FIXED ACCOUNT VALUE
When We receive a Purchase Payment, all or that portion, if any, of the Net
Purchase Payment which is allocated to the fixed account will be allocated to
the Guarantee Period(s) You select. Your fixed account value, if any, for any
Valuation Period is equal to the sum of the values in each of Your Guarantee
Periods.
The value in any one Guarantee Period on a Valuation Date is the accumulated
value of the Net Purchase Payment (or transfer) at the Guaranteed Interest Rate
minus the accumulated value of surrenders and transfers out of that Guarantee
Period at the Guaranteed Interest Rate.
GUARANTEE PERIODS
You may select one or more Guarantee Period(s) from those We make available. The
period(s) selected will determine the Guaranteed Interest Rate(s). The Net
Purchase Payment or the portion thereof (or amount transferred in accordance
with the Transfer Privilege Provision) allocated to a particular Guarantee
Period will earn interest at the Guaranteed Interest Rate during the Guarantee
Period. Guarantee Periods begin on the Date of Deposit or, in the case of a
transfer, on the effective date of the transfer. The Guarantee Period is the
number of years We credit the Guaranteed Interest Rate. The expiration date of
any Guarantee Period is the last day of the Guarantee Period. Subsequent
Guarantee Periods begin on the first day following the expiration date. As a
result of Guarantee Period renewals, additional purchase payments and transfers
of portions of the Contract Value, Guarantee Periods of the same duration may
have different expiration dates and Guaranteed Interest Rates.
We will notify You In Writing at least 45 and no more than 75 days prior to the
expiration date for any Guarantee Period. A new Guarantee Period of the same
duration as the previous Guarantee Period will begin automatically at the end of
the previous Guarantee Period unless We receive Written notice to the contrary
at least 3 business days prior to the end of such Guarantee Period. You may
elect a different Guarantee Period or Subaccount from those We offer at such
time.
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GUARANTEED INTEREST RATES
We will periodically establish an applicable Guaranteed Interest Rate for each
Guarantee Period We offer. These rates will be guaranteed for the duration of
the respective Guarantee Periods.
No Guaranteed Interest Rate shall be less than an effective annual rate of 3%
per year.
MARKET VALUE ADJUSTMENT (MVA)
Withdrawals from the fixed account will be subject to a MVA as follows:
The MVA is applied to any withdrawal from the fixed account and includes the
following:
(1) transfers;
(2) surrenders; or
(3) amounts applied to purchase an annuity.
The MVA does not apply to:
(1) death benefits payable prior to annuity commencement;
(2) withdrawals effective within 15 days of the expiration date of a Guarantee
Period;
(3) withdrawals from a one-year Guarantee Period; or
(4) an Earnings Sweep (as hereafter defined)
An Earning Sweep means an arrangement with Us whereby an amount is withdrawn
from the fixed account or transferred to the Variable Account on an automatic
periodic basis. The amount may not exceed the interest accrued in the fixed
account since the latter of the following: (1) Your election of an Earnings
Sweep; or (2) the last withdrawal or transfer pursuant to an Earnings Sweep then
in effect. We may establish, from time to time, minimums for the amount of each
withdrawal or transfer under the Earnings Sweep program. We may also from time
to time, establish limitations on the frequency of such periodic withdrawals or
transfers and the number of Guarantee Periods which may be subject to such an
arrangement. However, once any such Earnings Sweep has been begun by You, We
will not change any such limitation that would affect You without giving You 30
days advance Written notice.
The MVA may increase or decrease the amount of fixed account value being
withdrawn or transferred. The comparison of two Guaranteed Interest Rates
determines whether the MVA produces an increase or a decrease. The first rate to
compare is the Guaranteed Interest Rate for the amount being transferred or
withdrawn. The second rate is the Guaranteed Interest Rate then being offered
for new Guarantee Periods of the same duration as that remaining in the
Guarantee Period from which the funds are being withdrawn or transferred. If the
first rate exceeds the second by more than 1/2%, the MVA produces an increase.
If the first rate does not exceed the second by at least 1/2%, the MVA produces
a decrease.
The MVA will be determined by multiplying the amount being withdrawn from the
Guarantee Period (before deduction of any applicable surrender charge) by the
following factor:
[ ( 1 + I ) / ( 1 + J + .005 ) ] (N/12) - 1
Where:
- - I is the Guaranteed Interest Rate being credited to the amount being
withdrawn from the existing Guarantee Period,
- - J is the Guaranteed Interest Rate then being offered for new Guarantee
Periods with durations equal to the number of years remaining in the
existing Guarantee Period (rounded up to the next higher number of years),
and
- - N is the number of months remaining in the current Guarantee Period
(rounded up to the next higher number of months).
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VARIABLE ACCOUNT
SUBACCOUNTS
The Variable Account has several Subaccounts, each investing in one of the
corresponding portfolios of the 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 and any transferred amounts to purchase
portfolio shares applicable to the Subaccounts at their net asset value. We will
be the owner of all portfolio shares purchased with the Net Purchase Payment or
transferred amount.
SUBACCOUNT ACCUMULATION UNITS
Net Purchase Payments received under this contract and transferred amounts
allocated to the Variable Account will be credited in the form of Subaccount
Accumulation Units. The number of Subaccount Accumulation Units is found by
dividing the amount of the Net Purchase Payment or transferred amount allocated
to the Subaccount by the Subaccount Accumulation Unit value at the end of the
Valuation Period in which the Purchase Payment or transfer request was received
at the Home Office. The value of each Subaccount Accumulation Unit with respect
to the contracts was arbitrarily set as of the date the Subaccount first
purchased the portfolio shares with respect to the contracts. Subsequent values
on any Valuation Date are equal to the previous Subaccount Accumulation Unit
value times the net investment factor for the Valuation Period ending on that
Valuation Date.
NET INVESTMENT FACTOR
The net investment factor is an index applied to measure the investment
performance of a Subaccount from one Valuation Period to the next. The net
investment factor may be greater or less than or equal to one; therefore, the
value of an Accumulation Unit may increase, decrease or remain the same.
The net investment factor for a Subaccount is determined by dividing (1) by (2),
and then subtracting (3) from the result, where:
(1) is the net result of:
(a) the Net Asset Value Per Share of the portfolio 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 portfolio 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 portfolio shares held in the
Subaccount, determined at the beginning of the current Valuation Period,
and
(3) is a factor representing the mortality risk, expense risk, and
administrative expense charge. We will determine the asset charge factor
annually, but in no event may it exceed the maximum asset charge factor as
specified on the contract data page.
VARIABLE ACCOUNT VALUE
Your Variable Account value for any Valuation Period is the total of Your values
in each Subaccount. Your value for each Subaccount is equal to:
(1) Your number of Subaccount Accumulation Units,
(2) times the Subaccount Accumulation Unit value for the Valuation Period.
Your Variable Account value will vary from Valuation Date to Valuation Date
reflecting Your total value in the
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Subaccounts.
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 Your
Contract Value. Each transfer must be at least $1,000 or the total value of any
Subaccount or Guarantee Period, if less. Transfers from the fixed account may
be subject to a MVA.
No transfers from the fixed account may be made after the annuity commencement
date.
SURRENDERS
GENERAL SURRENDER PROVISIONS
The amount surrendered will normally be paid to You within seven days of:
(1) Our receipt of Your Written request; and
(2) Our receipt of this contract, if required.
We reserve the right to defer payment of surrenders from the fixed account for
up to 6 months from the date We receive Your request.
FULL SURRENDER
At any time prior to the annuity commencement date and during the lifetime of
the Annuitant, You may surrender this contract by sending Us a Written request.
The amount payable on surrender is:
(1) the Contract Value at the end of the Valuation Period in which We receive
Your request,
(2) minus any applicable surrender charge,
(3) plus or minus any applicable MVA.
The amount payable upon surrender will not be less than the amount required by
state law.
Upon payment of the above surrender amount, this contract is terminated and We
have no further obligation under this contract.
All collateral assignees must consent to any surrender. We may require that this
contract be returned to Our Home Office prior to making payment.
PARTIAL SURRENDER
At any time prior to the annuity commencement date and during the lifetime of
the Annuitant, You may surrender a portion of the fixed account value and/or the
Variable Account value. You must send Us a Written request specifying the
accounts from which the surrender is to be made. If You do not so specify, the
partial surrender will be taken from the Subaccounts and the fixed account on a
pro rata basis. Surrenders will be made effective at the end of the Valuation
Period in which We receive Your Written request.
You must surrender an amount equal to at least $500. If the Contract Value
remaining would be less than $1,000, We may treat Your request as a full
surrender.
We will surrender Subaccount Accumulation Units from the Variable Account,
and/or dollar amounts from the fixed account, so that the total amount
surrendered equals the sum of the following:
(1) the amount payable to You,
(2) plus any surrender charges,
(3) plus or minus any applicable MVA.
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SURRENDER CHARGE
A surrender charge is imposed on the withdrawal of any Purchase Payment that is
less than seven years old. The amount of the surrender charge is determined
separately for each Purchase Payment and is expressed as a percentage of the
Purchase Payment as follows:
<TABLE>
<CAPTION>
Number of Years Since Surrender Charge as a
Purchase Payment was Credited Percentage of Purchase Payment
----------------------------- ------------------------------
<S> <C> <C>
Less than 3 7%
At least 3 but less than 4 5%
At least 4 but less than 5 4%
At least 5 but less than 6 3%
At least 6 but less than 7 2%
7 or more 0%
</TABLE>
These percentages apply to any full or partial surrender of Purchase Payments
that are not eligible for a free surrender.
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 seven 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 available after all Purchase Payments have been surrendered.
SURRENDER CHARGES AT DEATH OR ANNUITIZATION
No surrender charge is imposed upon amounts applied to purchase an annuity or
upon payment of a death benefit.
WAIVER OF SURRENDER CHARGE FOR HOSPITAL OR SKILLED HEALTH CARE FACILITY
CONFINEMENT
Surrender charges under this contract that are normally assessed upon total or
partial surrender will not apply if the following requirements are met:
(1) We receive satisfactory Written proof that a Covered Person is confined in
a Hospital or Skilled Health Care Facility; and
(2) Such confinement has lasted for 60 consecutive days and the Covered Person
continues to be confined in the Hospital or Skilled Health Facility when
the request for total or partial surrender is made; and
(3) Such confinement began after the Contract Issue Date.
-or-
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(1) The request for total or partial surrender is received 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; and
(2) Such confinement began after the Contract Issue Date.
Surrender charges will not be waived when a confinement is due to substance
abuse or mental or personality disorders without a demonstrable organic nature.
A degenerative brain disease such as Alzheimer's Disease is considered organic
in nature.
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 current 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.
This section 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 negative MVAs 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 highest Anniversary value of each of the contract's Anniversaries prior
to the earlier of: (a) the date of the decedent's death, or (b) Your
attainment of age 80.
An Anniversary value is determined for each applicable 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
(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.
(3) If the decedent dies prior to the date You reach age 80, the amount of the
death benefit is the lesser of (a) and (b), as follows:
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(a) the sum of:
I. the accumulation (without interest) of Net Purchase Payments,
reduced by Pro Rata Adjustments for any withdrawals; plus
II. an amount equal to interest on such net accumulation value, as it
is adjusted for each applicable Net Purchase Payment and Pro Rata
Adjustment, at an effective annual rate of 4%; or
(b) 200% of (a)I.
The resulting amount (the lesser of (a) and (b)) will be referred to as the
"Roll-up Amount."
If the decedent dies on or after the date You reach age 80, the amount of
the death benefit is equal to:
(a) The "Roll-up Amount" as of the date You reached age 80; plus
(b) the accumulation (without interest) of Net Purchase Payments made on
or after the date You reached age 80; reduced by
(c) Pro Rata Adjustments for any withdrawals made on or after the date You
reached age 80.
The Pro Rata Adjustment for a given withdrawal is equal to:
(a) the withdrawn amount; divided by
(b) the Contract Value immediately before the amount was withdrawn; the
result multiplied by
(c) the quantity equal to:
I. the Roll-up Amount prior to the withdrawal; plus
II. any Net Purchase Payments made on or after the date You reached
age 80 and before the given withdrawal; reduced by
III. Pro Rata Adjustments for any withdrawals made on or after the
date You reached age 80 and before the given withdrawal.
If a positive MVA would otherwise apply, the death benefit may be less than the
amount payable on a full surrender on the date used to value the death benefit.
The death benefit will be paid when We receive:
(1) proof of the decedent's death; and
(2) a Written request from the Beneficiary for either a single sum or payment
under an annuity form.
We will pay a single sum to the Beneficiary unless an annuity option is chosen.
DEATH BENEFIT ON OR AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies on or after the annuity commencement date, the Beneficiary
will receive the death benefit, if any, as provided by the annuity form in
effect.
DISTRIBUTION OF PROCEEDS AT DEATH OF CONTRACT OWNER
If the owner under a non-qualified contract dies prior to the Annuitant and
before the annuity commencement date, the death benefit must be distributed to
the Beneficiary, if then alive, either (1) within five years after the date of
death of the contract owner, or (2) over some period not greater than the life
or expected life of the Beneficiary, with annuity payments beginning within one
year after the date of death of the contract owner. The person named as Your
Beneficiary in the Application shall be considered the Designated Beneficiary
for the purposes of Section 72(s) of the Internal Revenue Code and if no person
then living has been so named, then the Annuitant will automatically be the
Designated Beneficiary for this purpose. In all cases, any such Designated
Beneficiary will not be entitled to exercise any rights prohibited by applicable
federal income tax law.
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These mandatory distribution requirements will not apply when the Designated
Beneficiary is the spouse of the deceased contract owner, if the spouse elects
to continue this contract in the spouse's own name, as owner. When the deceased
owner was also the Annuitant, the surviving spouse (if the Designated
Beneficiary) may elect to be named as both contract owner and Annuitant and
continue this contract.
If the payee dies after the annuity commencement date and before all of the
payments under the annuity form have been distributed, the remaining amount
payable, if any, must be distributed at least as rapidly as the method of
distribution then in effect.
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, adjusted by the MVA, will
be applied, as specified by the contract owner, to provide payments to the
Annuitant under one or more of the annuity options provided in this contract or
under such other settlement options as may be agreed to by The Company. If more
than one person is named as Annuitant, due to the designation of multiple
Annuitants, the contract owner may elect to name one of such persons to be the
sole Annuitant as of the annuity commencement date.
APPLICATION OF CONTRACT VALUE
Unless directed otherwise, We will apply the fixed account value to provide a
fixed annuity, and the Variable Account value to provide a variable annuity. You
must tell Us In Writing at least 30 days prior to the annuity commencement date
if You want Us to apply fixed and Variable Account values in different
proportions.
ANNUITY COMMENCEMENT DATE
The annuity commencement date is selected by You and stated in the Application.
You may change the annuity commencement date at any time if We receive Written
notice at least 30 days before both the current annuity commencement date and
the new annuity commencement date.
If the annuity commencement date does not occur on a Valuation Date that is at
least two years after the Contract 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 Contract Issue Date.
FREQUENCY AND AMOUNT OF PAYMENTS
Annuity payments will be made monthly unless We agree to a different payment
schedule. We reserve the right to change the frequency of either a fixed annuity
payment or a variable annuity payment so that each payment will be at least $50
($20 in Texas).
FIXED ANNUITY PAYMENTS
Fixed annuity payments start on the end of the Valuation Period that contains
the annuity commencement date. The amount of a first monthly payment for the
annuity form selected will be at least as favorable as that produced by the
annuity tables of this contract for each $1,000 of Contract Value applied as of
the end of such Valuation Period.
The dollar amount of any payments after the first payment are specified during
the entire period of annuity payments, according to the provisions of the
annuity form selected.
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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 Accumulation Units remains
constant as long as an annuity remains in force and allocation among the
Subaccounts has not changed.
Each Subaccount Annuity Unit value was arbitrarily set when the Subaccount first
converted Subaccount Accumulation Units into Annuity Units. Subsequent values on
any Valuation Date are equal to the previous Subaccount Annuity Unit value times
the Net investment factor for that Subaccount for the Valuation Period ending on
that Valuation Date, with an offset for the 3% assumed interest rate used in the
annuity tables of this contract.
Variable annuity payments start on the end of the Valuation Period that contains
the annuity commencement date. The amount of a first monthly payment for the
illustrated annuity forms is shown on the annuity tables of this contract for
each $1,000 of Contract Value applied as of the end of such Valuation Period.
Payments after the first payment will vary in amount and are determined on the
first Valuation Date of each subsequent 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.
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 are alive. Payments will
stop when both the Annuitant and the joint Annuitant have died.
We also have other annuity forms available and information about them can be
obtained by Writing to Us.
The annuity tables show the amount of the first annuity payment, for each $1,000
of Contract Value applied under Options A, B, and C.
14
<PAGE>
OPTION TABLES
Installments shown are for an initial monthly payment for each $1,000 of
Contract Value applied under an option. Age, as used in these tables, is age as
of nearest birthday on the annuity commencement date. Rates for monthly payments
for ages and periods certain not shown, if allowed by Us, will be computed on an
actuarially equivalent basis.
ACTUARIAL BASIS
Installments shown in these tables are based on the 1983 Table a (20/80
Male/Female) and with compound interest at the effective rate of 3% per year.
OPTIONS A AND B
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Age Life Only 10 Year Period 20 Year Period
Certain and Life Certain and Life
- -------------------------------------------------------------------------
<S> <C> <C> <C>
50 3.97 3.95 3.87
51 4.04 4.01 3.93
52 4.10 4.08 3.98
53 4.18 4.14 4.04
54 4.25 4.22 4.10
55 4.33 4.29 4.16
56 4.42 4.37 4.22
57 4.51 4.46 4.28
58 4.61 4.55 4.35
59 4.71 4.64 4.42
60 4.82 4.74 4.49
61 4.93 4.85 4.56
62 5.06 4.96 4.63
63 5.19 5.07 4.70
64 5.33 5.20 4.77
65 5.48 5.32 4.83
66 5.64 5.46 4.90
67 5.81 5.60 4.97
68 6.00 5.75 5.03
69 6.19 5.91 5.09
70 6.41 6.07 5.15
71 6.64 6.24 5.20
72 6.88 6.42 5.25
73 7.15 6.60 5.29
74 7.44 6.79 5.33
75 7.76 6.99 5.37
- ------------------------------------------------------------------------------
</TABLE>
OPTION C
<TABLE>
<CAPTION>
----------------------------------------------------------
JOINT ANNUITANT AGE
- -------------------------------------------------------------------------------
50 55 60 65 70
<S> <C> <C> <C> <C> <C>
50 3.55 3.66 3.75 3.82 3.87
ANNUITANT 55 3.66 3.81 3.95 4.07 4.16
AGE 60 3.75 3.95 4.15 4.34 4.49
65 3.82 4.07 4.34 4.61 4.87
70 3.87 4.16 4.49 4.87 5.25
- -------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
St. Paul, Minnesota
A Stock Company
INDIVIDUAL MVA
[PRODUCT NAME HERE]
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.
This contract is issued in consideration of the payment of the Purchase Payment
shown on the contract data page.
Signed for Fortis Benefits Insurance Company on the Contract Issue Date.
10 DAY RIGHT TO CANCEL CONTRACT
You may cancel this contract by delivering or mailing a Written notice or
sending a telegram to The Company and returning this contract before midnight of
the 10th day after the date You received it. Notice given by mail and return of
this 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 this
contract and (b) the cash value of this contract, or if this contract does not
have a cash value, the reserve for this 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
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING. NO DIVIDENDS.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE VARIABLE ACCOUNT ARE VARIABLE, MAY INCREASE OR DECREASE AND
ARE NOT GUARANTEED AS TO AMOUNT. THE VARIABLE PROVISIONS OF THIS CONTRACT ARE
FOUND ON PAGE 9.
PAYMENTS AND VALUES BASED ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE
ADJUSTMENT FORMULA, WHICH MAY RESULT IN UPWARD AND DOWNWARD ADJUSTMENTS IN
AMOUNTS PAYABLE, INCLUDING SURRENDERS, TRANSFERS, AND AMOUNTS APPLIED TO
PURCHASE AN ANNUITY. THE MARKET VALUE ADJUSTMENT PROVISION IS FOUND ON PAGE 8.
<PAGE>
READ YOUR CONTRACT CAREFULLY.
This contract is a legal contract between the contract owner and Fortis Benefits
Insurance Company.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page #
<S> <C>
Annuitant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Fixed Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Fixed Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . .14
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Market Value Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Variable Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . . . .13
</TABLE>
Any contract amendments or endorsements follow the contract data page.
Additional benefits added by rider follow the Optional Annuity Forms Tables.
<PAGE>
CONTRACT DATA PAGE
<TABLE>
<S> <C>
ANNUITANT: John Doe
OWNER: John Doe
CONTRACT NUMBER: 0000000000
BENEFICIARY AT ISSUE: Jane Doe
CONTRACT ISSUE DATE: May 1, 1998
ANNUITY COMMENCEMENT DATE: July 7, 2024
SURRENDER CHARGE: The surrender charge is 7% of each
Purchase Payment for the first three
years and decreases to 5%, 4%, 3%, 2% in
years four through seven, respectively.
Details can be found on pages 10 and 11.
ANNUAL ADMINISTRATIVE CHARGE: NONE
MAXIMUM ASSET CHARGE FACTOR: 1.40% Annually (or .0038356% Daily)
(For the Variable Account Only)
<CAPTION>
CURRENT MAXIMUM
------- -------
<S> <C> <C>
TRANSFER CHARGE: $0.00 $25.00
INITIAL PURCHASE PAYMENT: $25,000
</TABLE>
Amounts withdrawn from the fixed account (including transfers) may be subject to
a Market Value Adjustment. See details on page 8.
FUTURE ALLOCATION OF NET PURCHASE PAYMENTS
Shown below is the Net Purchase Payment allocation You selected at the contract
Issue Date.
<TABLE>
<CAPTION>
INVESTMENT CHOICE PERCENTAGE
- ----------------- ----------
<S> <C>
[MVA 1 Year] 0%
[MVA 2 Year] 0%
[MVA 3 Year] 0%
[MVA 4 Year] 0%
[MVA 5 Year] 0%
[MVA 6 Year] 0%
[MVA 7 Year] 0%
[MVA 8 Year] 0%
[MVA 9 Year] 0%
[MVA 10 Year] 0%
[Federated International Equity Fund II] 50%
[Federated Growth Strategies Fund II] 20%
[Federated American Leaders Fund II] 0%
[Federated Equity Income Fund II] 30%
[Federated Utility Fund II] 0%
[Federated High Income Bond Fund II] 0%
[Federated Prime Money Fund II] 0%
[Federated Fund for U.S. Government Securities II] 0%
[____________________________]
[____________________________]
[____________________________]
</TABLE>
<PAGE>
DEFINITIONS
WE, US, OUR, THE COMPANY
Fortis Benefits Insurance Company.
YOU, YOUR
The owner of this contract, or after the annuity commencement date, the
Annuitant.
ACCUMULATION UNIT
A unit of measurement used to calculate the value of Your interest in the
Variable Account before the annuity commencement date.
ANNIVERSARY, ANNIVERSARIES
After Contract Issue Date, the same day and month in each subsequent year.
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.
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 this contract in
case of the death of the Annuitant or the contract owner or the joint owner, as
applicable.
CONTRACT ISSUE DATE
The date on which this contract becomes effective as shown on the contract data
page.
CONTRACT VALUE
The total of the fixed account value and the Variable Account value.
CONTRACT YEAR
A period of 12 consecutive months beginning on the Issue Date or any Anniversary
thereafter.
COVERED PERSON
The owner or joint owner of this contract or the owner's spouse if such spouse
is the Annuitant.
DATE OF DEPOSIT
The date We receive any Purchase Payment at Our Home Office.
DESIGNATED BENEFICIARY
The person designated as the Beneficiary by the contract owner.
FIXED ANNUITY OPTION
An annuity option with payments which do not vary as to dollar amount.
FUND
The Fund or Funds are those investment portfolios available under this contract
to which the owner may allocate Net Purchase Payments, each of which is, or is a
series of, a management investment company
2
<PAGE>
registered under the Investment Company Act of 1940.
GUARANTEE PERIOD
The period for which a Guaranteed Interest Rate is credited.
GUARANTEED INTEREST RATE
The rate of interest We credit on an effective annual basis during any Guarantee
Period.
HOME OFFICE
Our office at 500 Bielenberg Drive, Woodbury, Minnesota 55125; 1-800-800-2000,
extension 3057; Mailing Address: P.O. Box 64272, St. Paul, Minnesota 55164.
HOSPITAL OR SKILLED HEALTH CARE FACILITY
A facility which: (1) is licensed by an appropriate licensing agency to provide
health services; and (2)provides 24-hour-a-day nursing service; and (3)has a
doctor available for emergency situations; and (4)has a nurse on duty or on call
at all times; and (5) maintains clinical records; and (6) has appropriate
methods for administering drugs.
MARKET VALUE ADJUSTMENT (MVA)
A positive or negative adjustment in the fixed account value that We may make if
such value is paid out before the end of a Guarantee Period in which it was
being held.
NET ASSET VALUE PER SHARE
The net assets of the Fund portfolio divided by the number of shares in the Fund
portfolio.
NET PURCHASE PAYMENT
The gross amount of the Purchase Payment less any applicable premium taxes.
PURCHASE PAYMENT
An amount paid to The Company under this contract as consideration for the
benefits described herein.
SUBACCOUNT
The Subaccounts of the Variable Account to which Contract Value may be
allocated. Each Subaccount invests all of its assets in a portfolio of the Fund
having the same investment policies and objectives as that Subaccount.
VALUATION DATE
All business days except, with respect to any Subaccount, days on which the
related portfolio does not value its shares.
VALUATION PERIOD
The period that starts at the close of the New York Stock Exchange on a
Valuation Date and ends at the close of the Exchange on the next succeeding
Valuation Date.
VARIABLE ACCOUNT
A segregated investment account entitled "Variable Account D", established by Us
pursuant to applicable law. That portion of the assets of the Variable Account
equal to the reserves and other contract liabilities with respect to the
Variable Account shall not be chargeable with liabilities arising out of any
other business We may conduct. Income, gains and losses, whether or not
realized, from assets allocated to the Variable Account, are credited to or
charged against such account without regard to Our other income, gains or
losses.
VARIABLE ANNUITY OPTION
An annuity option under which We promise to pay the Annuitant or other properly
designated payee one or more payments which vary in amount in accordance with
the net investment experience of the applicable Subaccounts selected to measure
the value of the payments.
WRITTEN, IN WRITING
A Written request or notice in acceptable form and content, which is signed,
dated, and received at Our Home Office.
3
<PAGE>
GENERAL PROVISIONS
THE CONTRACT
This contract is issued in consideration of the payment of the initial Purchase
Payment. All statements made in the Application will be deemed representations
and not warranties, and no statement will void this contract or be used in
defense to a claim unless it is contained in the Application. Only an officer of
The Company can agree to change or waive any provisions of this contract.
INCONTESTABILITY
This contract is incontestable.
MISSTATEMENT OF AGE OR SEX
If any date of birth or sex, or both, has been misstated in the Application, or
elsewhere, the amounts payable under this contract will be the amounts which
would have been provided using the correct age or sex, or both. Any deficiency
in the payments already made by Us will be paid immediately and any excess in
the payments already made by Us will be charged against the benefits falling due
after adjustment. The amount of any adjustment will be credited or charged
interest at the effective annual rate of 3% per year.
GUARANTEES
Subject to the Net investment factor provision, We guarantee that the dollar
amount of variable annuity payments made during the lifetime of the payee(s)
will not be adversely affected by Our actual mortality experience or by the
actual expenses incurred by Us in excess of the expense deductions provided for
in this contract.
SETTLEMENT
All benefits under this contract are payable from Our Home Office.
NON-PARTICIPATING
This contract is non-participating and does not share in Our surplus earnings.
BENEFICIARY
Subject to the rights of an irrevocably Designated Beneficiary, You may change
or revoke the designation of a Beneficiary at any time before the annuity
commencement date while a contract owner and the Annuitant are living. You must
send Us a Written beneficiary designation or revocation. The change or
revocation will not be binding upon Us until it is received by Us at Our Home
Office. When it is so received, the change or revocation will be effective as of
the date on which the beneficiary designation or revocation was signed, but the
change or revocation will be without prejudice to Us on account of any payment
made or any action taken by Us prior to receiving the change or revocation.
In the event of the death of a contract owner or the Annuitant prior to the
annuity commencement date, the Beneficiary will be as follows: The Beneficiary
shall be the surviving contract owner, if any, notwithstanding that the
Designated Beneficiary may be different. Otherwise, the Beneficiary will be the
Designated Beneficiary. If there is no such Designated Beneficiary in effect or
if such Designated Beneficiary is no longer living, the estate of the last
surviving contract owner will be the Beneficiary.
RIGHTS RESERVED BY US
Upon notice to You, this contract may be modified by Us, but only if such
modification is necessary to:
(1) Operate the Variable Account in any form permitted under the Investment
Company Act of 1940 or in any other form permitted by law.
(2) Transfer any assets in any Subaccount to another Subaccount, or to one or
more separate accounts, or to the fixed account.
(3) Add, combine or remove Subaccounts in the Variable Account.
(4) Substitute for the shares held in any Subaccount, the shares of another
portfolio of the Funds or the shares of another investment company or any
other investment permitted by law.
4
<PAGE>
(5) Make any changes as required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of this contract as an
annuity.
When required by law, We will obtain Your approval of changes and We will gain
approval from any appropriate regulatory authority.
TERMINATION
This contract remains in force until surrendered for its full value, or all
annuity payments have been made, or the death benefit has been paid.
If the Contract Value is less than $1,000, We may cancel this contract on any
Valuation Date. We will notify You at least 90 days in advance of Our intention
to cancel this contract. Such cancellation would be considered a full surrender
of this contract.
PURCHASE PAYMENTS
PAYMENTS
The initial Purchase Payment is shown on the contract data page. The initial
Purchase Payment must be at least $5,000 ($2,000 for qualified contracts).
Additional Purchase Payments must be at least $500. We reserve the right to
refuse a Purchase Payment for any reason.
ALLOCATION OF PURCHASE PAYMENTS
The future allocation for all Net Purchase Payments is shown on the contract
data page and will remain in effect until changed by Written notice. The
percentage allocation for future Net Purchase Payments may be changed at any
time by Written notice. Changes in the allocation will be effective on the date
We receive Your notice. The allocation may be 100% to any available Subaccount
or Guarantee Period, or may be divided among the accounts in whole percentage
points totaling 100%.
PREMIUM TAXES
Premium taxes, if any, levied by any unit of government will be deducted from
the Contract Value.
OWNERSHIP PROVISIONS
EXERCISE OF CONTRACT RIGHTS
This contract belongs to the owner. As owner, You will be entitled to exercise
all rights and privileges in connection with this contract. In any case, such
rights and privileges can be exercised without the consent of the Beneficiary
(other than an irrevocably Designated Beneficiary) or any other person. Such
rights and privileges may be exercised only during the lifetime of the Annuitant
and prior to the annuity commencement date, except as otherwise provided in this
contract.
Unless You specify otherwise, the Annuitant becomes the payee on the annuity
commencement date. Thereafter, a Beneficiary becomes the payee on the death of
the Annuitant. Such payees may thereafter exercise such rights and privileges,
if any, of ownership which continue.
CHANGE OF OWNERSHIP
Ownership of a qualified contract and any interest therein evidenced by this
contract, may not be transferred except to:
(1) the Annuitant;
(2) a trustee or successor trustee of a pension or profit sharing trust which
is qualified under Section 401 of the Internal Revenue Code;
(3) the employer of the Annuitant provided that the qualified contract after
transfer is maintained under the terms of a retirement plan qualified under
Section 403(a) of the Internal Revenue Code for the benefit of the
Annuitant;
5
<PAGE>
(4) the trustee of an individual retirement account plan qualified under
Section 408 of the Internal Revenue Code; or
(5) as otherwise permitted from time to time by laws and regulations governing
the retirement or deferred compensation plans for which a qualified
contract may be issued.
In no other case may a qualified contract be sold, assigned, transferred,
discounted or pledged as collateral.
The owner of a non-qualified contract may change the ownership of this contract.
During the lifetime of the Annuitant and prior to the annuity commencement date,
You may change the ownership interest in Your non-qualified contract.
A change of ownership will not be binding upon Us until We receive Written
notification at Our Home Office. When such notification is so received, the
change will be effective as of the date You signed the request for change, but
the change will be without prejudice to Us on account of any payment made or any
action taken by Us prior to receiving the change.
PERIODIC REPORTS
Prior to the annuity commencement date, We will send You, at least once during
each Contract Year, a statement showing the Contract Value as of a date not more
than two months previous to the date of mailing. We will also send such
statements as may be required by applicable laws, rules and regulations.
FIXED ACCOUNT
FIXED ACCOUNT
The fixed account is a non-unitized separate account that We use to account for
amounts allocated to Guarantee Periods under this contract. All amounts
allocated to a Guarantee Period, whether Net Purchase Payments or transfers,
become part of the fixed account. That portion of the assets of the fixed
account equal to the reserves and other contract liabilities with respect to the
fixed account shall not be chargeable with liabilities arising out of any other
business We may conduct.
FIXED ACCOUNT VALUE
When We receive a Purchase Payment, all or that portion, if any, of the Net
Purchase Payment which is allocated to the fixed account will be allocated to
the Guarantee Period(s) You select. Your fixed account value, if any, for any
Valuation Period is equal to the sum of the values in each of Your Guarantee
Periods.
The value in any one Guarantee Period on a Valuation Date is the accumulated
value of the Net Purchase Payment (or transfer) at the Guaranteed Interest Rate
minus the accumulated value of surrenders and transfers out of that Guarantee
Period at the Guaranteed Interest Rate.
GUARANTEE PERIODS
You may select one or more Guarantee Period(s) from those We make available. The
period(s) selected will determine the Guaranteed Interest Rate(s). The Net
Purchase Payment or the portion thereof (or amount transferred in accordance
with the Transfer Privilege Provision) allocated to a particular Guarantee
Period will earn interest at the Guaranteed Interest Rate during the Guarantee
Period. Guarantee Periods begin on the Date of Deposit or, in the case of a
transfer, on the effective date of the transfer. The Guarantee Period is the
number of years We credit the Guaranteed Interest Rate. The expiration date of
any Guarantee Period is the last day of the Guarantee Period. Subsequent
Guarantee Periods begin on the first day following the expiration date. As a
result of Guarantee Period renewals, additional purchase payments and transfers
of portions of the Contract Value, Guarantee Periods of the same duration may
have different expiration dates and Guaranteed Interest Rates.
We will notify You In Writing at least 45 and no more than 75 days prior to the
expiration date for any Guarantee Period. A new Guarantee Period of the same
duration as the previous Guarantee Period will begin automatically at the end of
the previous Guarantee Period unless We receive Written notice to the contrary
at least 3 business days prior to the end of such Guarantee Period. You may
elect a different Guarantee Period or Subaccount from those We offer at such
time.
6
<PAGE>
GUARANTEED INTEREST RATES
We will periodically establish an applicable Guaranteed Interest Rate for each
Guarantee Period We offer. These rates will be guaranteed for the duration of
the respective Guarantee Periods.
No Guaranteed Interest Rate shall be less than an effective annual rate of 3%
per year.
MARKET VALUE ADJUSTMENT (MVA)
Withdrawals from the fixed account will be subject to a MVA as follows:
The MVA is applied to any withdrawal from the fixed account and includes the
following:
(1) transfers;
(2) surrenders; or
(3) amounts applied to purchase an annuity.
The MVA does not apply to:
(1) death benefits payable prior to annuity commencement;
(2) withdrawals effective within 15 days of the expiration date of a Guarantee
Period;
(3) withdrawals from a one-year Guarantee Period; or
(4) an Earnings Sweep (as hereafter defined)
An Earning Sweep means an arrangement with Us whereby an amount is withdrawn
from the fixed account or transferred to the Variable Account on an automatic
periodic basis. The amount may not exceed the interest accrued in the fixed
account since the latter of the following: (1) Your election of an Earnings
Sweep; or (2) the last withdrawal or transfer pursuant to an Earnings Sweep then
in effect. We may establish, from time to time, minimums for the amount of each
withdrawal or transfer under the Earnings Sweep program. We may also from time
to time, establish limitations on the frequency of such periodic withdrawals or
transfers and the number of Guarantee Periods which may be subject to such an
arrangement. However, once any such Earnings Sweep has been begun by You, We
will not change any such limitation that would affect You without giving You 30
days advance Written notice.
The MVA may increase or decrease the amount of fixed account value being
withdrawn or transferred. The comparison of two Guaranteed Interest Rates
determines whether the MVA produces an increase or a decrease. The first rate to
compare is the Guaranteed Interest Rate for the amount being transferred or
withdrawn. The second rate is the Guaranteed Interest Rate then being offered
for new Guarantee Periods of the same duration as that remaining in the
Guarantee Period from which the funds are being withdrawn or transferred. If the
first rate exceeds the second by more than 1/2%, the MVA produces an increase.
If the first rate does not exceed the second by at least 1/2%, the MVA produces
a decrease.
The MVA will be determined by multiplying the amount being withdrawn from the
Guarantee Period (before deduction of any applicable surrender charge) by the
following factor:
(N/12)
[ ( 1 + I ) / ( 1 + J + .005 ) ] - 1
Where:
- - I is the Guaranteed Interest Rate being credited to the amount being
withdrawn from the existing Guarantee Period,
- - J is the Guaranteed Interest Rate then being offered for new Guarantee
Periods with durations equal to the number of years remaining in the
existing Guarantee Period (rounded up to the next higher number of years),
and
- - N is the number of months remaining in the current Guarantee Period
(rounded up to the next higher number of months).
7
<PAGE>
VARIABLE ACCOUNT
SUBACCOUNTS
The Variable Account has several Subaccounts, each investing in one of the
corresponding portfolios of the 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 and any transferred amounts to purchase
portfolio shares applicable to the Subaccounts at their net asset value. We will
be the owner of all portfolio shares purchased with the Net Purchase Payment or
transferred amount.
SUBACCOUNT ACCUMULATION UNITS
Net Purchase Payments received under this contract and transferred amounts
allocated to the Variable Account will be credited in the form of Subaccount
Accumulation Units. The number of Subaccount Accumulation Units is found by
dividing the amount of the Net Purchase Payment or transferred amount allocated
to the Subaccount by the Subaccount Accumulation Unit value at the end of the
Valuation Period in which the Purchase Payment or transfer request was received
at the Home Office. The value of each Subaccount Accumulation Unit with respect
to the contracts was arbitrarily set as of the date the Subaccount first
purchased the portfolio shares with respect to the contracts. Subsequent values
on any Valuation Date are equal to the previous Subaccount Accumulation Unit
value times the net investment factor for the Valuation Period ending on that
Valuation Date.
NET INVESTMENT FACTOR
The net investment factor is an index applied to measure the investment
performance of a Subaccount from one Valuation Period to the next. The net
investment factor may be greater or less than or equal to one; therefore, the
value of an Accumulation Unit may increase, decrease or remain the same.
The net investment factor for a Subaccount is determined by dividing (1) by (2),
and then subtracting (3) from the result, where:
(1) is the net result of:
(a) the Net Asset Value Per Share of the portfolio 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 portfolio 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 portfolio shares held in the
Subaccount, determined at the beginning of the current Valuation Period,
and
(3) is a factor representing the mortality risk, expense risk, and
administrative expense charge. We will determine the asset charge factor
annually, but in no event may it exceed the maximum asset charge factor as
specified on the contract data page.
VARIABLE ACCOUNT VALUE
Your Variable Account value for any Valuation Period is the total of Your values
in each Subaccount. Your value for each Subaccount is equal to:
(1) Your number of Subaccount Accumulation Units,
(2) times the Subaccount Accumulation Unit value for the Valuation Period.
Your Variable Account value will vary from Valuation Date to Valuation Date
reflecting Your total value in the
8
<PAGE>
Subaccounts.
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 Your
Contract Value. Each transfer must be at least $1,000 or the total value of any
Subaccount or Guarantee Period, if less. Transfers from the fixed account may
be subject to a MVA.
No transfers from the fixed account may be made after the annuity commencement
date.
SURRENDERS
GENERAL SURRENDER PROVISIONS
The amount surrendered will normally be paid to You within seven days of:
(1) Our receipt of Your Written request; and
(2) Our receipt of this contract, if required.
We reserve the right to defer payment of surrenders from the fixed account for
up to 6 months from the date We receive Your request.
FULL SURRENDER
At any time prior to the annuity commencement date and during the lifetime of
the Annuitant, You may surrender this contract by sending Us a Written request.
The amount payable on surrender is:
(1) the Contract Value at the end of the Valuation Period in which We receive
Your request,
(2) minus any applicable surrender charge,
(3) plus or minus any applicable MVA.
The amount payable upon surrender will not be less than the amount required by
state law.
Upon payment of the above surrender amount, this contract is terminated and We
have no further obligation under this contract.
All collateral assignees must consent to any surrender. We may require that this
contract be returned to Our Home Office prior to making payment.
PARTIAL SURRENDER
At any time prior to the annuity commencement date and during the lifetime of
the Annuitant, You may surrender a portion of the fixed account value and/or the
Variable Account value. You must send Us a Written request specifying the
accounts from which the surrender is to be made. If You do not so specify, the
partial surrender will be taken from the Subaccounts and the fixed account on a
pro rata basis. Surrenders will be made effective at the end of the Valuation
Period in which We receive Your Written request.
You must surrender an amount equal to at least $500. If the Contract Value
remaining would be less than $1,000, We may treat Your request as a full
surrender.
We will surrender Subaccount Accumulation Units from the Variable Account,
and/or dollar amounts from the fixed account, so that the total amount
surrendered equals the sum of the following:
(1) the amount payable to You,
(2) plus any surrender charges,
(3) plus or minus any applicable MVA.
9
<PAGE>
SURRENDER CHARGE
A surrender charge is imposed on the withdrawal of any Purchase Payment that is
less than seven years old. The amount of the surrender charge is determined
separately for each Purchase Payment and is expressed as a percentage of the
Purchase Payment as follows:
<TABLE>
<CAPTION>
NUMBER OF YEARS SINCE SURRENDER CHARGE AS A
PURCHASE PAYMENT WAS CREDITED PERCENTAGE OF PURCHASE PAYMENT
------------------------------ ------------------------------
<S> <C>
Less than 3 7%
At least 3 but less than 4 5%
At least 4 but less than 5 4%
At least 5 but less than 6 3%
At least 6 but less than 7 2%
7 or more 0%
</TABLE>
These percentages apply to any full or partial surrender of Purchase Payments
that are not eligible for a free surrender.
FREE SURRENDER
You may withdraw the following amounts without a surrender charge:
(1) Any earnings on the Contract Value not previously surrendered, as of the
Valuation Date on which We receive Your request.
(2) Purchase Payments that are more than seven years old and not previously
surrendered.
(3) Each Contract Year, 10% of Purchase Payments that are less than seven years
old.
Amounts withdrawn will be deemed to be withdrawn in the order listed above,
followed by the remaining amounts of Purchase Payments that are less than seven
years old.
SURRENDER CHARGES AT DEATH OR ANNUITIZATION
No surrender charge is imposed upon amounts applied to purchase an annuity or
upon payment of a death benefit.
WAIVER OF SURRENDER CHARGE FOR HOSPITAL OR SKILLED HEALTH CARE FACILITY
CONFINEMENT
Surrender charges under this contract that are normally assessed upon total or
partial surrender will not apply if the following requirements are met:
(1) We receive satisfactory Written proof that a Covered Person is confined in
a Hospital or Skilled Health Care Facility; and
(2) Such confinement has lasted for 60 consecutive days and the Covered Person
continues to be confined in the Hospital or Skilled Health Facility when
the request for total or partial surrender is made; and
(3) Such confinement began after the Contract Issue Date.
-or-
(1) The request for total or partial surrender is received 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; and
(2) Such confinement began after the Contract Issue Date.
Surrender charges will not be waived when a confinement is due to substance
abuse or mental or personality disorders without a demonstrable organic nature.
A degenerative brain disease such as Alzheimer's Disease is considered organic
in nature.
10
<PAGE>
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 current 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.
This section 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 negative MVAs 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 highest Anniversary value of each of the contract's Anniversaries prior
to the earlier of: (a) the date of the decedent's death, or (b) Your
attainment of age 75.
An Anniversary value is determined for each applicable 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
(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.
(3) If the decedent dies prior to the date You reach age 75, the amount of the
death benefit is the lesser of (a) and (b), as follows:
(a) the sum of:
I. the accumulation (without interest) of Net Purchase Payments,
reduced by Pro Rata Adjustments for any withdrawals; plus
II. an amount equal to interest on such net accumulation value, as
it is adjusted for each applicable Net Purchase Payment and Pro
Rata Adjustment, at an effective annual rate of 4%; or
(b) 200% of (a)I.
11
<PAGE>
The resulting amount (the lesser of (a) and (b)) will be referred to as the
"Roll-up Amount."
If the decedent dies on or after the date You reach age 75, the amount of
the death benefit is equal to:
(a) The "Roll-up Amount" as of the date You reached age 75; plus
(b) the accumulation (without interest) of Net Purchase Payments made on
or after the date You reached age 75; reduced by
(c) Pro Rata Adjustments for any withdrawals made on or after the date You
reached age 75.
The Pro Rata Adjustment for a given withdrawal is equal to:
(a) the withdrawn amount; divided by
(b) the Contract Value immediately before the amount was withdrawn; the
result multiplied by
(c) the quantity equal to:
I. the Roll-up Amount prior to the withdrawal; plus
II. any Net Purchase Payments made on or after the date You reached
age 75 and before the given withdrawal; reduced by
III. Pro Rata Adjustments for any withdrawals made on or after the
date You reached age 75 and before the given withdrawal.
If a positive MVA would otherwise apply, the death benefit may be less than the
amount payable on a full surrender on the date used to value the death benefit.
The death benefit will be paid when We receive:
(1) proof of the decedent's death; and
(2) a Written request from the Beneficiary for either a single sum or payment
under an annuity form.
We will pay a single sum to the Beneficiary unless an annuity option is chosen.
DEATH BENEFIT ON OR AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies on or after the annuity commencement date, the Beneficiary
will receive the death benefit, if any, as provided by the annuity form in
effect.
DISTRIBUTION OF PROCEEDS AT DEATH OF CONTRACT OWNER
If the owner under a non-qualified contract dies prior to the Annuitant and
before the annuity commencement date, the death benefit must be distributed to
the Beneficiary, if then alive, either (1) within five years after the date of
death of the contract owner, or (2) over some period not greater than the life
or expected life of the Beneficiary, with annuity payments beginning within one
year after the date of death of the contract owner. The person named as Your
Beneficiary in the Application shall be considered the Designated Beneficiary
for the purposes of Section 72(s) of the Internal Revenue Code and if no person
then living has been so named, then the Annuitant will automatically be the
Designated Beneficiary for this purpose. In all cases, any such Designated
Beneficiary will not be entitled to exercise any rights prohibited by applicable
federal income tax law.
These mandatory distribution requirements will not apply when the Designated
Beneficiary is the spouse of the deceased contract owner, if the spouse elects
to continue this contract in the spouse's own name, as owner. When the deceased
owner was also the Annuitant, the surviving spouse (if the Designated
Beneficiary) may elect to be named as both contract owner and Annuitant and
continue this contract.
If the payee dies after the annuity commencement date and before all of the
payments under the annuity form have been distributed, the remaining amount
payable, if any, must be distributed at least as rapidly as the method of
distribution then in effect.
12
<PAGE>
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, adjusted by the MVA, will
be applied, as specified by the contract owner, to provide payments to the
Annuitant under one or more of the annuity options provided in this contract or
under such other settlement options as may be agreed to by The Company. If more
than one person is named as Annuitant, due to the designation of multiple
Annuitants, the contract owner may elect to name one of such persons to be the
sole Annuitant as of the annuity commencement date.
APPLICATION OF CONTRACT VALUE
Unless directed otherwise, We will apply the fixed account value to provide a
fixed annuity, and the Variable Account value to provide a variable annuity. You
must tell Us In Writing at least 30 days prior to the annuity commencement date
if You want Us to apply fixed and Variable Account values in different
proportions.
ANNUITY COMMENCEMENT DATE
The annuity commencement date is selected by You and stated in the Application.
You may change the annuity commencement date at any time if We receive Written
notice at least 30 days before both the current annuity commencement date and
the new annuity commencement date.
If the annuity commencement date does not occur on a Valuation Date that is at
least two years after the Contract 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 Contract Issue Date.
FREQUENCY AND AMOUNT OF PAYMENTS
Annuity payments will be made monthly unless We agree to a different payment
schedule. We reserve the right to change the frequency of either a fixed annuity
payment or a variable annuity payment so that each payment will be at least $50
($20 in Texas).
FIXED ANNUITY PAYMENTS
Fixed annuity payments start on the end of the Valuation Period that contains
the annuity commencement date. The amount of a first monthly payment for the
annuity form selected will be at least as favorable as that produced by the
annuity tables of this contract for each $1,000 of Contract Value applied as of
the end of such Valuation Period.
The dollar amount of any payments after the first payment are specified during
the entire period of annuity payments, according to the provisions of the
annuity form selected.
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 Accumulation Units remains
constant as long as an annuity remains in force and allocation among the
Subaccounts has not changed.
Each Subaccount Annuity Unit value was arbitrarily set when the Subaccount first
converted Subaccount Accumulation Units into Annuity Units. Subsequent values on
any Valuation Date are equal to the previous Subaccount Annuity Unit value times
the Net investment factor for that Subaccount for the Valuation Period
13
<PAGE>
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 on the annuity tables of this contract for
each $1,000 of Contract Value applied as of the end of such Valuation Period.
Payments after the first payment will vary in amount and are determined on the
first Valuation Date of each subsequent 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.
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 are alive. Payments will
stop when both the Annuitant and the joint Annuitant have died.
We also have other annuity forms available and information about them can be
obtained by Writing to Us.
The annuity tables show the amount of the first annuity payment, for each $1,000
of Contract Value applied under Options A, B, and C.
14
<PAGE>
OPTION TABLES
Installments shown are for an initial monthly payment for each $1,000 of
Contract Value applied under an option. Age, as used in these tables, is age as
of nearest birthday on the annuity commencement date. Rates for monthly payments
for ages and periods certain not shown, if allowed by Us, will be computed on an
actuarially equivalent basis.
ACTUARIAL BASIS
Installments shown in these tables are based on the 1983 Table a (20/80
Male/Female) and with compound interest at the effective rate of 3% per year.
OPTIONS A AND B
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
10 Year Period 20 Year Period
Age Life Only Certain and Life Certain and Life
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
50 3.97 3.95 3.87
51 4.04 4.01 3.93
52 4.10 4.08 3.98
53 4.18 4.14 4.04
54 4.25 4.22 4.10
55 4.33 4.29 4.16
56 4.42 4.37 4.22
57 4.51 4.46 4.28
58 4.61 4.55 4.35
59 4.71 4.64 4.42
60 4.82 4.74 4.49
61 4.93 4.85 4.56
62 5.06 4.96 4.63
63 5.19 5.07 4.70
64 5.33 5.20 4.77
65 5.48 5.32 4.83
66 5.64 5.46 4.90
67 5.81 5.60 4.97
68 6.00 5.75 5.03
69 6.19 5.91 5.09
70 6.41 6.07 5.15
71 6.64 6.24 5.20
72 6.88 6.42 5.25
73 7.15 6.60 5.29
74 7.44 6.79 5.33
75 7.76 6.99 5.37
</TABLE>
OPTION C
<TABLE>
<CAPTION>
------------------------------------------------------------------
JOINT ANNUITANT AGE
------------------------------------------------------------------
50 55 60 65 70
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
50 3.55 3.66 3.75 3.82 3.87
ANNUITANT 55 3.66 3.81 3.95 4.07 4.16
AGE 60 3.75 3.95 4.15 4.34 4.49
65 3.82 4.07 4.34 4.61 4.87
70 3.87 4.16 4.49 4.87 5.25
- ----------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
1. OWNER
- --------------------------------------------------------------------------------
Name
----------------------------------------------------------------------
Last First Middle
Address
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
Phone Soc. Sec. #
----------------------------------- -----------------------
DATE OF BIRTH / / Citizen of U.S.
-------------------------------------- / / Resident Alien
Sex: / / Male / / Female of U.S.
/ / Other
-------------
- --------------------------------------------------------------------------------
2. CO-OWNER (optional)
- --------------------------------------------------------------------------------
Name
----------------------------------------------------------------------
Last First Middle
Address
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
Phone Soc. Sec. #
----------------------------------- -----------------------
DATE OF BIRTH / / Citizen of U.S.
-------------------------------------- / / Resident Alien
Sex: / / Male / / Female of U.S.
/ / Other
-------------
- --------------------------------------------------------------------------------
3. ANNUITANT (If other than Owner)
- --------------------------------------------------------------------------------
Name
----------------------------------------------------------------------
Last First Middle
Address
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
Phone Soc. Sec. #
----------------------------------- -----------------------
DATE OF BIRTH / / Citizen of U.S.
-------------------------------------- / / Resident Alien
Sex: / / Male / / Female of U.S.
/ / Other
-------------
- --------------------------------------------------------------------------------
4. ADDITIONAL ANNUITANT
- --------------------------------------------------------------------------------
Name
----------------------------------------------------------------------
Last First Middle
Address
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
Phone Soc. Sec. #
----------------------------------- -----------------------
DATE OF BIRTH / / Citizen of U.S.
-------------------------------------- / / Resident Alien
Sex: / / Male / / Female of U.S.
/ / Other
-------------
- --------------------------------------------------------------------------------
5. BENEFICIARY
- --------------------------------------------------------------------------------
PRIMARY
Name
----------------------------------------------------------------------
Last First Middle
Address
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
Date of Birth
-------------------------------------------- --------------------
Relationship SS # (Optional)
CONTINGENT
Name
----------------------------------------------------------------------
Last First Middle
Address
----------------------------------------------------------------------
Street
----------------------------------------------------------------------
City State Zip
Date of Birth
-------------------------------------------- --------------------
Relationship SS # (Optional)
/ / ADDITIONAL BENEFICIARY INFORMATION ATTACHED.
- --------------------------------------------------------------------------------
6. TYPE OF PLAN REQUESTED
- --------------------------------------------------------------------------------
For annual IRA contributions, indicate on the check the year for which the
contribution is made.
/ / NON-QUALIFIED
/ / QUALIFIED (check appropriate box)
/ / Traditional IRA / / Roth IRA
/ / Direct Transfer / / Direct Transfer
/ / Rollover / / Rollover
/ / Direct Rollover ___ Tax Year
(IRA Rollover from Employer Plan)
/ / SEP-IRA (including SARSEP)
/ / 403(b) (TDA, TSA)
/ / SIMPLE IRA
/ / Other Employer Qualified Plan
(Employer's Name)
------------------------------------------------------
/ / Other
(Employer's Name)
------------------------------------------------------
- --------------------------------------------------------------------------------
7. ANNUITIZATION
- --------------------------------------------------------------------------------
The age of the Annuitant at which
lifetime income payments begin:
-------------------------------------
- --------------------------------------------------------------------------------
8. TELEPHONE TRANSFER AUTHORIZATION
- --------------------------------------------------------------------------------
/ / I have read the telephone transfer authorization terms in the prospectus and
elect telephone transfers. (If this box is checked it is not necessary to
complete the telephone transfer section of the Variable Annuity Service
Request Form.)
- --------------------------------------------------------------------------------
9. REPLACEMENT
- --------------------------------------------------------------------------------
Will this annuity replace or change any existing life insurance or annuity in
this or any other company?
/ / Yes / / No If yes, list insurance company.
- --------------------------------------------------------------------------------
42411 APPLICATION CONTINUES
<PAGE>
- --------------------------------------------------------------------------------
10. PURCHASE PAYMENT/PAYMENT ALLOCATION
- --------------------------------------------------------------------------------
/ / Single Purchase Payment $
---------------------------------------------------
PAYMENT ALLOCATION: USE WHOLE %. MUST TOTAL 100%
% Federated International Equity Fund II
- -----
% Federated Growth Strategies Fund II
- -----
% Federated American Leaders Fund II
- -----
% Federated Equity Income Fund II
- -----
% Federated Utility Fund II
- -----
% Federated High Income Bond Fund II
- -----
% Federated Prime Money Fund II
- -----
% Federated Fund for U.S. Government Securities II
- -----% -------------------------
- -----% -------------------------
- -----% -------------------------
% Other
- -----% -------------------------
MVA FIXED ACCOUNT
GUARANTEE PERIODS:
% 1 Year % 5 Year % 9 Year
- ----- ------ -----
% 2 Year % 6 Year % 10 Year
- ----- ------ -----
% 3 Year % 7 Year 100 % TOTAL %
- ----- ------ -----
% 4 Year % 8 Year (Includes all columns.)
- ----- ------
(If no allocations are indicated, the total purchase payment will be
allocated to the Money Market Subaccount.)
- --------------------------------------------------------------------------------
11. SPECIAL REQUESTS
- --------------------------------------------------------------------------------
/ / Check if additional forms are attached.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12. REGISTERED REPRESENTATIVE STATEMENTS
Will this annuity replace or change any existing life insurance or annuity in
this or any other company?
/ /Yes / / No
If yes, please attach a Client Replacement Disclosure Letter with any other
necessary transfer paperwork and state replacement form, if required.
- --------------------------------------------------------------------------------
/ / Please check if:
The Owner qualifies for exemption from the surrender charge because they
are included in one of the categories listed under the exemption terms in
the prospectus; and you waive commissions on this annuity.
- --------------------------------------------------------------------------------
13. SIGNATURES
- --------------------------------------------------------------------------------
(FOR MINNESOTA RESIDENTS) I HEREBY ACKNOWLEDGE RECEIPT OF THE MINNESOTA GUARANTY
ASSOCIATION DISCLOSURE NOTICE.
- --------------------------------------------------------------------------------
Owner(s) Date
- --------------------------------------------------------------------------------
Owner(s) Date
- --------------------------------------------------------------------------------
Annuitant(s) Date
- --------------------------------------------------------------------------------
Annuitant(s) Date
- --------------------------------------------------------------------------------
State in which application is signed
- --------------------------------------------------------------------------------
14. DEALER/REPRESENTATIVE INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Representative's name (please print)
- --------------------------------------------------------------------------------
Name of Broker/Dealer
- --------------------------------------------------------------------------------
Branch Office address
- --------------------------------------------------------------------------------
Representative's signature Representative's number
- --------------------------------------------------------------------------------
Representative's phone number (In Florida, also present a Florida license
I.D. #)
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF BROKER/DEALER
- --------------------------------------------------------------------------------
15. MAIL APPLICATION TO:
- --------------------------------------------------------------------------------
APPLICATIONS WITH PAYMENT:
Fortis Benefits Insurance Company
CM-9747
PO Box 70870
St. Paul, Minnesota 55107-9747
APPLICATIONS WITHOUT PAYMENT:
Fortis Benefits Insurance Company
P.O. Box 64273
St. Paul, Minnesota 55164
FOR OVERNIGHT DELIVERY:
Fortis Benefits Insurance Company
500 Bielenberg Drive
Woodbury, Minnesota 55125
Attn: Annuities
- --------------------------------------------------------------------------------
I HEREBY REPRESENT MY ANSWERS TO THE ABOVE QUESTIONS TO BE TRUE TO THE BEST OF
MY KNOWLEDGE. I UNDERSTAND THAT ANNUITY PAYMENTS AND CONTRACT VALUES UNDER THE
VARIABLE ACCOUNT PROVISIONS OF THE CONTRACT BEING APPLIED FOR ARE VARIABLE, AND
ARE NOT GUARANTEED AS TO THE DOLLAR AMOUNT. RECEIPT OF A PROSPECTUS FOR THE
ANNUITY PRODUCT HEREBY APPLIED FOR IS ACKNOWLEDGED. ALL PAYMENTS AND VALUE BASED
ON THE FIXED ACCOUNT ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA, WHICH MAY
RESULT IN UPWARD AND DOWNWARD ADJUSTMENTS IN AMOUNTS PAYABLE.
IF I LIVE IN A COMMUNITY PROPERTY STATE, I MAY NEED MY SPOUSE'S WRITTEN CONSENT
WHENEVER I NAME A PERSON OTHER THAN MY SPOUSE AS MY BENEFICIARY. I AM
RESPONSIBLE TO KNOW IF CONSENT IS NEEDED AND TO OBTAIN CONSENT IF REQUIRED.
42411
