<PAGE> 1
PROSPECTUS SUPPLEMENT DATED SEPTEMBER 1, 2000
This Supplement updates certain information contained in the following
prospectuses for products issued by Fortis Benefits Insurance Company.
- Fortis Wall Street Series VUL dated May 1, 2000
- Fortis Wall Street Series Survivor VUL dated May 1, 2000
- Fortis Wall Street Series VUL 220 dated May 1, 1999 as subsequently
supplemented
- Fortis Wall Street Series VUL 500 dated May 1, 1999 as subsequently
supplemented
- Harmony Investment Life VUL dated May 1, 1995 as subsequently
supplemented
- Fortis Opportunity Variable Annuity dated May 1, 2000
- Fortis Masters Variable Annuity dated May 1, 2000
- Fortis Opportunity+ Variable Annuity dated May 1, 2000
- Fortis Masters+ Variable Annuity dated May 1, 2000
- Fortis Income Preferred Variable Annuity dated May 1, 2000
- Fortis Empower Variable Annuity dated May 1, 2000
Please read this Supplement carefully. You should attach this Supplement to the
applicable product prospectus referred to above and retain it for future
reference.
FORTIS SERIES FUND
One of the subaccounts available for investment is the Global Asset Allocation
Series of the Fortis Series Fund, Inc. Effective September 1, 2000 the following
changes to the Global Asset Allocation Series will take place:
- The sub-adviser retained by Fortis Advisers, Inc. will no longer be
Morgan Stanley Dean Witter Investment Management Limited. The new
sub-adviser retained by Fortis Advisers, Inc. will be T. Rowe Price
Associates, Inc.
- The name of the series will change from Global Asset Allocation Series to
International Stock Series II.
For further information on how the International Stock Series II will be
managed, please refer to the September 1, 2000 Supplement to the Fortis Series
Fund prospectus dated May 1, 2000.
<PAGE> 2
FORTIS
INCOME
(SM)
PREFERRED
VARIABLE
ANNUITY
Individual Flexible
Premium Deferred
Variable Annuity Contract
PROSPECTUS DATED
September 1, 2000
[FORTIS SOLID PARTNERS, FLEXIBLE SOLUTIONS(SM) LOGO]
100045 (09/00)
FORTIS BENEFITS INSURANCE COMPANY
<TABLE>
<S> <C> <C>
MAILING ADDRESS: STREET ADDRESS: PHONE:
P.O. BOX 64272 500 BIELENBERG 1-800-800-2000
ST. PAUL, MN 55164 DRIVE (EXTENSION 3057)
WOODBURY, MN 55125
</TABLE>
This prospectus describes an individual flexible premium deferred variable
annuity contract issued by Fortis Benefits Insurance Company ("Fortis
Benefits").
The 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 of Fortis Series Fund, Inc.
(those portfolios which have a non-Fortis subadvisor include the name of the
subadvisor at the beginning of the portfolio name):
<TABLE>
<S> <C>
Money Market Series T. Rowe Price -- Blue Chip Stock
U.S. Government Securities Series Series
Diversified Income Series AIM -- Blue Chip Stock Series II
AIM -- Multisector Bond Series Lazard Frerres -- International Stock
High Yield Series Series
T. Rowe Price -- International Stock Dreyfus -- Mid Cap Stock Series
Series II Berger -- Small Cap Value Series
Asset Allocation Series Global Growth Series
Federated -- American Leaders Series MFS -- Global Equity Series
Value Series Alliance -- Large Cap Growth Series
MFS -- Capital Opportunities Series MFS -- Investors Growth Series
Growth & Income Series Growth Stock Series
Dreyfus -- S&P 500 Index Series Aggressive Growth Series
</TABLE>
The accompanying prospectus for these investment portfolios describes the
investment objectives, policies and risks of each portfolio.
This prospectus gives you information about the contract that you should know
before investing. This prospectus must be accompanied by a current prospectus
for the portfolios. All of the prospectuses should be read carefully and kept
for future reference.
A Statement of Additional Information, dated May 1, 2000, about the contracts
has been filed with the Securities and Exchange Commission and is available
without charge from Fortis Benefits at the address and phone number printed
above. The Table of Contents for the Statement of Additional Information appears
on page 21 of this prospectus.
THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK,
CREDIT UNION, BROKER-DEALER OR OTHER FINANCIAL INSTITUTION. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. 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.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms Used in this Prospectus....................... 3
Information Concerning Fees and Charges..................... 4
Summary..................................................... 7
Fortis Benefits and the Separate Account.................... 9
- Fortis Benefits/Fortis Financial Group Member........ 9
- The Separate Account................................. 9
- The Portfolios....................................... 9
Accumulation Period......................................... 10
- Issuance of a Contract and Purchase Payments......... 10
- Contract Value....................................... 10
- Allocation of Purchase Payments and Contract Value... 11
- Total and Partial Surrenders......................... 11
- Telephone Transactions............................... 12
- Fortis Guaranteed PayoutPlan Benefit................. 12
- Benefit Payable on Death of Contract Owner (or
Annuitant)............................................ 13
The Annuity Period.......................................... 14
- Annuity Commencement Date............................ 14
- Commencement of Annuity Payments..................... 14
- Relationship Between Subaccount Investment
Performance and Amount of Variable Annuity Payments... 14
- Annuity Options...................................... 14
- Death of Annuitant or Other Payee.................... 15
Charges and Deductions...................................... 15
- Premium Taxes........................................ 15
- Charges Against the Separate Account................. 15
- Surrender Charge..................................... 16
- Nursing Care/Hospitalization Waiver of Surrender
Charges............................................... 16
- Disability Waiver of Surrender Charges............... 16
- Miscellaneous........................................ 17
- Reduction of Charges................................. 17
Fixed Account............................................... 17
- General Description.................................. 17
- Fixed Account Value.................................. 17
- Fixed Account Transfers, Total and Partial
Surrenders............................................ 18
General Provisions.......................................... 18
- The Contract......................................... 18
- Postponement of Payments............................. 18
- Misstatement of Age or Sex and Other Errors.......... 18
- Assignment and Ownership Rights...................... 18
- Beneficiary.......................................... 18
- Reports.............................................. 19
Rights Reserved by Fortis Benefits.......................... 19
Distribution................................................ 19
Federal Tax Matters......................................... 19
Voting Privileges........................................... 21
State Regulation............................................ 22
Legal Matters............................................... 22
Contents of Statement of Additional Information............. 22
Appendix A--Sample Death Benefit Calculations............... A-1
Appendix B--Explanation of Expense Calculations............. B-1
Appendix C--Pro Rata Adjustments............................ C-1
</TABLE>
THE CONTRACTS ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. FORTIS BENEFITS DOES NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS WHICH IS NOT
INCLUDED IN THIS PROSPECTUS, THE RELATED STATEMENT OF ADDITIONAL INFORMATION, OR
ANY SUPPLEMENTS THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY
FORTIS BENEFITS.
<PAGE> 4
SPECIAL TERMS USED IN THIS PROSPECTUS
Accumulation PeriodThe time period under a contract between the contract date
and the Annuity Period.
Accumulation Unit A unit of measure used to calculate the interest of the
contract owner in the Separate Account during the
Accumulation Period.
Annuitant A person during whose life annuity payments are to be made by
us under the contract. The Annuitant is the person named in
the application for the contract. If that person dies before
the annuity commencement date and there is an additional
annuitant named in the application, the additional annuitant
will become the Annuitant. If there is no named additional
annuitant, or the additional annuitant has died before the
annuitant who is named in the application, the contract
owner, if he or she is a natural person, will become the
Annuitant.
Annuity Period The time period following the Accumulation Period, during
which annuity payments are made by us.
Annuity Unit A unit of measurement used to calculate variable annuity
payments.
Fixed Annuity Option
An annuity option under which we promise to pay the Annuitant
or any other properly designated payee one or more fixed
payments.
Non-Qualified Contracts
Contracts that do not qualify for the special federal income
tax treatment applicable in connection with certain
retirement plans.
Qualified ContractsContracts that are qualified for the special federal income
tax treatment applicable in connection with certain
retirement plans.
Separate Account The segregated asset account referred to as Variable Account
D of Fortis Benefits Insurance Company established to receive
and invest purchase payments made under contracts.
Valuation Date Each business day of Fortis Benefits except, with respect to
any subaccount, days on which the related portfolio does not
value its shares. Generally, the portfolios value their
shares on each day the New York Stock Exchange is open.
Valuation Period The period that starts at the close of regular trading on the
New York Stock Exchange on a Valuation Date and ends at the
close of regular trading on the exchange on the next
succeeding Valuation Date.
Variable Annuity Option
An annuity option under which we promise to pay the
Annuitant, or any other properly designated payee, one or
more payments which vary in amount in accordance with the net
investment experience of the subaccounts selected by the
Annuitant.
3
<PAGE> 5
INFORMATION CONCERNING FEES AND CHARGES
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C>
Front End Sales Charge Imposed on Purchases................. 0%
Maximum Surrender Charge for Sales Expenses (as a percentage
of purchase payments)....................................... 8% (1)
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF YEARS SINCE SURRENDER CHARGE AS A
PURCHASE PAYMENT WAS PERCENTAGE OF
CREDITED PURCHASE PAYMENT
--------------------- ---------------------
<S> <C>
Less than 2 8%
At least 2 but less than 4 7%
At least 4 but less than 5 6%
At least 5 but less than 6 5%
At least 6 but less than 7 3%
At least 7 but less than 8 2%
At least 8 but less than 9 1%
9 or more 0%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Other Surrender Fees........................................ 0%
Exchange Fee................................................ 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE............................ $0
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge........................... 1.40%
Fortis Guaranteed PayoutPlan Benefit Expense Charge......... .35%
Separate Account Administrative Charge...................... .10%
-----
Total Other Account Fees.................................... .45%
Total Separate Account Annual Expenses...................... 1.85%
</TABLE>
------------------------------
(1) This charge does not apply in certain cases such as partial surrenders each
year of up to 10% of "new purchase payments" as defined under the heading
"Surrender Charge" or, payment of a death benefit.
PORTFOLIO ANNUAL EXPENSES(A)
<TABLE>
<CAPTION>
MONEY U.S. GOVERNMENT DIVERSIFIED INTERNATIONAL ASSET AMERICAN
MARKET SECURITIES INCOME MULTI SECTOR HIGH YIELD STOCK ALLOCATION LEADERS
FBIC AND FIRST FORTIS SERIES SERIES SERIES BOND SERIES SERIES SERIES II SERIES SERIES
--------------------- ------ --------------- ----------- ------------ ---------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory
and Management
Fee................ 0.30% 0.47% 0.47% 0.75% 0.50% 0.90% 0.47% 0.90%
Other Expenses....... 0.05% 0.05% 0.07% 0.15% 0.07% 0.12% 0.05% 0.35%
Total Series Fund
Operating
Expenses........... 0.35% 0.52% 0.54% 0.90% 0.57% 1.02% 0.52% 1.25%
<CAPTION>
CAPITAL GROWTH &
VALUE OPPORTUNITIES INCOME S&P 500
FBIC AND FIRST FORTIS SERIES SERIES SERIES INDEX SERIES
--------------------- ------ ------------- -------- ------------
<S> <C> <C> <C> <C>
Investment Advisory
and Management
Fee................ 0.70% 0.90% 0.63% 0.40%
Other Expenses....... 0.08% 0.35% 0.06% 0.06%
Total Series Fund
Operating
Expenses........... 0.78% 1.25% 0.69% 0.46%
</TABLE>
<TABLE>
<CAPTION>
BLUE CHIP BLUE CHIP GLOBAL GLOBAL LARGE CAP
STOCK STOCK INTERNATIONAL MIDCAP SMALL CAP GROWTH EQUITY GROWTH
SERIES SERIES II STOCK SERIES STOCK SERIES VALUE SERIES SERIES SERIES SERIES
--------- --------- ------------- ------------ ------------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee....... 0.87% 0.95% 0.84% 0.90% 0.90% 0.70% 1.00% 0.90%
Other Expenses......... 0.05% 0.35% 0.10% 0.28% 0.14% 0.07% 0.35% 0.07%
Total Series Fund
Operating Expenses... 0.92% 1.30% 0.94% 1.18% 1.04% 0.77% 1.35% 0.97%
<CAPTION>
INVESTORS AGGRESSIVE
GROWTH GROWTH STOCK GROWTH
SERIES SERIES SERIES
--------- ------------ ----------
<S> <C> <C> <C>
Investment Advisory and
Management Fee....... 0.90% 0.61% 0.66%
Other Expenses......... 0.35% 0.05% 0.06%
Total Series Fund
Operating Expenses... 1.25% 0.66% 0.72%
</TABLE>
------------------------------
(a) As a percentage of portfolio average net assets based on 1999 historical
data, except that for American Leaders, Capital Opportunities, Blue Chip
Stock Series II, Global Equity and Investors Growth, these amounts are based
upon estimates after reimbursement for the current fiscal year. The
estimated expenses for these portfolios prior to reimbursement is as
follows; Global Equity 1.40%, Investors Growth 1.30%, Capital Opportunities
1.30%, American Leaders 1.30% and Blue Chip II 1.30%.
4
<PAGE> 6
EXAMPLES
If you surrender your contract in full on the last day of any of the time
periods shown below, you would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market................................................ $ 94 $131 $161 $250
U.S. Government Securities.................................. 96 136 170 267
Diversified Income.......................................... 96 137 171 269
Multisector Bond............................................ 100 147 189 305
High Yield.................................................. 96 137 172 272
International Stock II...................................... 101 151 195 316
Asset Allocation............................................ 96 136 170 267
American Leaders............................................ 103 158 206 338
Value....................................................... 98 144 183 293
Capital Opportunities....................................... 103 158 206 338
Growth & Income............................................. 97 141 178 284
S&P 500 Index............................................... 95 134 167 261
Blue Chip Stock............................................. 100 148 190 307
Blue Chip Stock II.......................................... 104 159 208 343
International Stock......................................... 100 149 191 308
Mid Cap Stock Series........................................ 102 156 203 331
Small Cap Value Series...................................... 101 152 196 318
Global Growth............................................... 98 143 182 292
Global Equity............................................... 104 161 211 347
Large Cap Growth Series..................................... 100 149 192 311
Investors Growth Series..................................... 103 158 206 338
Growth Stock................................................ 97 140 177 281
Aggressive Growth........................................... 98 142 180 287
</TABLE>
If you do not surrender your contract, you would pay the following cumulative
expenses on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market................................................ $22 $68 $116 $250
U.S. Government Securities.................................. 24 73 125 267
Diversified Income.......................................... 24 73 125 267
Multisector Bond............................................ 28 84 144 305
High Yield.................................................. 24 74 127 272
International Stock II...................................... 29 88 150 316
Asset Allocation............................................ 24 73 125 267
American Leaders............................................ 31 95 161 338
Value....................................................... 26 81 138 293
Capital Opportunities....................................... 31 95 161 338
Growth & Income............................................. 25 78 133 284
S&P 500 Index............................................... 23 71 122 261
Blue Chip Stock............................................. 28 85 145 307
Blue Chip Stock II.......................................... 32 96 163 343
International Stock......................................... 28 86 146 308
Mid Cap Stock Series........................................ 30 93 158 331
Small Cap Value Series...................................... 29 89 151 318
Global Growth............................................... 26 80 137 292
Global Equity............................................... 32 98 166 347
Large Cap Growth Series..................................... 28 86 147 311
Investors Growth Series..................................... 31 95 161 338
Growth Stock................................................ 25 77 132 281
Aggressive Growth........................................... 26 79 135 287
</TABLE>
5
<PAGE> 7
If you commence an annuity payment option, you would pay the following expenses
on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market................................................ $17 $53 $ 91 $198
U.S. Government Securities.................................. 19 58 100 216
Diversified Income.......................................... 19 58 101 218
Multisector Bond............................................ 23 69 119 255
High Yield.................................................. 19 59 102 221
International Stock II...................................... 24 73 125 267
Asset Allocation............................................ 19 58 100 216
American Leaders............................................ 26 80 136 290
Value....................................................... 21 66 113 243
Capital Opportunities....................................... 26 80 136 290
Growth & Income............................................. 20 63 108 233
S&P 500 Index............................................... 18 56 96 209
Blue Chip Stock............................................. 23 70 120 257
Blue Chip Stock II.......................................... 27 81 139 295
International Stock......................................... 23 71 121 259
Mid Cap Stock Series........................................ 25 78 133 283
Small Cap Value Series...................................... 24 74 126 269
Global Growth............................................... 21 65 112 242
Global Equity............................................... 27 83 141 300
Large Cap Growth Series..................................... 23 71 122 262
Investors Growth Series..................................... 26 80 136 290
Growth Stock................................................ 20 62 107 230
Aggressive Growth........................................... 21 64 110 237
</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, prescribed by the SEC, are included to assist
contract owners in understanding the transaction and operating expenses imposed
directly or indirectly under the contracts and the portfolios. Amounts for state
premium taxes or similar assessments will also be deducted, where applicable.
See Appendix B for an explanation of the calculation set forth above.
6
<PAGE> 8
SUMMARY
The following summary should be read in conjunction with the detailed
information in this prospectus. This prospectus generally describes only the
portion of the contract involving the Separate Account. For a brief description
of Fortis Benefits' fixed account, please refer to the heading "Fixed Account"
in this prospectus. Variations from the information appearing in this prospectus
due to requirements particular to your state are described in supplements which
are attached to this prospectus, or in endorsements to the contract, as
appropriate.
The contract is designed to provide individuals with retirement benefits through
the accumulation of purchase payments on a fixed or variable basis, and by the
application of such accumulations to provide fixed or variable annuity payments.
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 $25,000 ($10,000
for a contract which is part of a qualified plan). Additional purchase payments
must be at least $50. For contracts issued in the states of Washington and
Oregon, a single purchase payment, only, may be made and no further purchase
payments can be accepted. See "Issuance of a Contract and Purchase Payments."
ALLOCATION OF PURCHASE PAYMENTS
The initial purchase payment is allocated on the contract date, as specified by
you in the contract application, among one or more of the available investment
portfolios, or to the fixed account, or to both. Subsequent purchase payments
are allocated in the same way or pursuant to different allocation percentages
that you may subsequently request.
SEPARATE ACCOUNT INVESTMENT OPTIONS
Each of the subaccounts of the Separate Account invests in shares of a
corresponding investment portfolio. The investment objective of each of the
subaccounts of the Separate Account and that of the corresponding portfolio is
the same.
Contract value in each of the subaccounts of the Separate Account will vary to
reflect the investment experience of each of the corresponding portfolios, as
well as deductions for certain charges.
Each portfolio has a separate and distinct investment objective and is managed
by Fortis Advisers, Inc. or a subadviser of Fortis Advisers, Inc. For providing
investment management services to the portfolios, Fortis Advisers, Inc. receives
fees from Fortis Series based on the average daily net assets of each portfolio.
The portfolios also bear most of their other expenses. A full description of the
portfolios and their investment objectives, policies, and risks can be found in
the current prospectus for the portfolios, which accompanies this prospectus,
and the portfolios' Statement of Additional Information, which is available upon
request from Fortis Benefits at the address and phone number on the cover of
this prospectus.
TRANSFERS
During the Accumulation Period, you can transfer all or part of your contract
value from one subaccount to another or into the fixed account. Additionally,
during the Accumulation Period we may, in our discretion, permit a continuing
request for transfers of specified amounts automatically on a periodic basis.
There is currently no charge for any of these transfers. We reserve the right to
restrict the frequency of or otherwise condition, terminate, or impose charges
upon, transfers from a subaccount during the Accumulation Period. During the
Annuity Period, the person receiving annuity payments may make up to four
transfers (but not from a Fixed Annuity Option) during each year of the Annuity
Period. For a description of certain limitations on transfer rights, see
"Allocations of Purchase Payments and Contract Values--Transfers."
TOTAL OR PARTIAL SURRENDERS
All or part of the contract value of a contract may be surrendered by you before
the earlier of the Annuitant's death or the annuity commencement date. Amounts
surrendered may be subject to a surrender charge. See "Total and Partial
Surrenders," and "Surrender Charge." 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 rate of 1.40% per annum of the value of the average
net assets in the Separate Account for the mortality and expense risks we
assume, .35% per annum for the investment market risk we assume associated with
the Fortis Guaranteed PayoutPlan benefit, and .10% per annum of the value of the
average net assets in the Separate Account to cover certain administrative
expenses. See "Mortality and Expense Risk Charge", "Investment Risk Expense
Charge" and "Administrative Expense Charge" under the heading "Charges Against
the Separate Account."
In order to permit investment of the entire purchase payment, we do not deduct
sales charges at the time of investment. However, a surrender charge is imposed
on certain total or partial surrenders of the contract to help defray expenses
relating to the sale of the contract, including commissions to registered
representatives and other promotional expenses. Certain amounts may be
surrendered without the imposition of any surrender charge. The amount of such
charge-free surrender depends on how much is being withdrawn and how recently
the purchase payments to which the surrender relates were made. The maximum
surrender charge is 8% of the purchase payment and reduces to zero over the nine
year period after the purchase payment is made. See "Charges and
Deductions--Surrender Charge."
Certain states and other jurisdictions impose premium taxes or similar
assessments upon us, either at the time purchase payments are made or when
contract value is applied to an annuity option. Where such taxes or assessments
are imposed by your state or other jurisdiction upon receipt of purchase
payments, we
7
<PAGE> 9
will deduct a charge for these amounts from the contract value upon surrender,
payment of a death benefit, reduction of the benefit under the Fortis Guaranteed
PayoutPlan or annuitization of the contract. In jurisdictions where such taxes
or assessments are imposed at the time of annuitization, we will deduct a charge
for such amounts at that time.
FORTIS GUARANTEED PAYOUTPLAN BENEFIT
The contracts have a living benefit referred to as the Fortis Guaranteed
PayoutPlan. This benefit guarantees that you can, with certain limitations, make
withdrawals over the life of the contract up to the amount of your purchase
payments regardless of whether your contract value is less. (See "Accumulation
Period--Fortis Guaranteed PayoutPlan Benefit").
ANNUITY PAYMENTS
The contract provides several types of annuity benefits to Annuitants or their
beneficiaries, 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 Options" and "Federal Tax
Matters" in this prospectus and "Taxation Under Certain Retirement Plans" in the
Statement of Additional Information.
DEATH BENEFIT
In the event of the death of the contract owner, or the Annuitant if the
contract owner is a non-natural person, prior to the annuity commencement date,
a death benefit is payable to the beneficiary of the contract. See "Benefit
Payable on Death of Contract Owner (or Annuitant)."
LIMITATIONS IMPOSED BY RETIREMENT PLANS
Certain rights a contract owner would otherwise have under a contract may be
limited by the terms of any employee benefit plan in connection with which the
contract is issued. These limitations may restrict such things as total and
partial surrenders, the amount or timing of purchase payments that may be made,
when annuity payments must start and the type of annuity options that may be
selected. Accordingly, you should familiarize yourself with these and all other
aspects of any retirement plan in connection with which a contract is issued.
TAX IMPLICATIONS
The tax implications for contract owners, Annuitants and beneficiaries, and
those of any related employee benefit plan can be quite important. A brief
discussion of some of these is set out under "Federal Tax Matters" in this
prospectus and "Taxation Under Certain Retirement Plans" in the Statement of
Additional Information, but such discussion is not comprehensive. Therefore, you
should consider these matters carefully and consult a qualified tax adviser
before making purchase payments or taking any other action in connection with a
contract or any related employee benefit plan. Failure to do so could result in
serious adverse tax consequences which might otherwise have been avoided.
QUESTIONS AND OTHER COMMUNICATIONS
Any question about procedures or the contract should be directed to your sales
representative, or Fortis Benefits' home office: P.O. Box 64272, St. Paul,
Minnesota 55164; 1-800-800-2000 (Ext. 3057). For certain current information
relating to contract values such as subaccount unit values, interest rates in
the fixed account, and your contract value, call 1-800-800-2000 (ext. 5448).
Purchase payments and written requests should be mailed or delivered to the same
home office address. All communications should include the contract number, the
contract owner's name and, if different, the Annuitant's name. The number for
telephone transfers is 1-800-800-2000 (Ext. 3057).
Any purchase payment or other communication, except a 10-day cancellation
notice, is deemed received at our 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
The information presented below reflects the Accumulation Unit information for
subaccounts of the Separate Account through December 31, 1999. Accumulation
Units have been rounded to the nearest whole unit.
<TABLE>
<CAPTION>
MONEY U.S. GOV'T DIVERSIFIED MULTISECTOR HIGH ASSET INTERNATIONAL
MARKET SECURITIES INCOME BOND YIELD ALLOCATION STOCK II
------ ---------- ----------- ----------- ----- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
Accumulation Unit in
Force................ 14,764 37,891 3,304 3,687 13,200 68,511 4,019
Accumulation Unit
Values............... $10.087 $ 9.943 $10.020 $ 9.766 $10. 212 $11.784 $10.082
October 1, 1999
Accumulation Unit
Values............... $10.000 $10.000 $10.000 $10.000 $10. 000 $10.000 $10.000
<CAPTION>
GROWTH &
VALUE INCOME
----- --------
<S> <C> <C>
December 31, 1999
Accumulation Unit in
Force................ 8,805 8,420
Accumulation Unit
Values............... $11.036 $11.292
October 1, 1999
Accumulation Unit
Values............... $10.000 $10.000
</TABLE>
<TABLE>
<CAPTION>
BLUE GLOBAL GROWTH INTERNATIONAL AGGRESSIVE MID CAP LARGE CAP
S&P 500 CHIP GROWTH STOCK STOCK GROWTH STOCK GROWTH
------- ---- ------ ------ ------------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
Accumulation Unit in
Force.................. 76,647 47,632 8,058 22,741 30,461 23,323 1,889 36,732
Accumulation Unit
Values................. $11.418 $11.603 $13.803 $14.369 $10. 991 $16.170 $11.470 $11.660
October 1, 1999
Accumulation Unit
Values................. $10.000 $10.000 $10.000 $10.000 $10. 000 $10.000 $10.000 $10.000
<CAPTION>
SMALL CAP
VALUE
---------
<S> <C>
December 31, 1999
Accumulation Unit in
Force.................. 7,351
Accumulation Unit
Values................. $10.637
October 1, 1999
Accumulation Unit
Values................. $10.000
</TABLE>
8
<PAGE> 10
Audited financial statements of the Separate Account and Fortis benefits are
included in the Statement of Additional Information.
Advertising and other sales materials may include yield and total return figures
for the subaccounts of the Separate Account. These figures are based on
historical results and are not intended to indicate future performance. "Yield"
is the income generated by an investment in the subaccount over a period of time
specified in the advertisement. This rate of return is assumed to be earned over
a full year and is shown as a percentage of the investment. "Total Return" is
the total change in value of an investment in the subaccount over 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 figures
do not reflect the surrender charge and yield and total return figures do not
reflect premium tax charges. This makes the performance shown more favorable.
FORTIS BENEFITS AND THE SEPARATE ACCOUNT
FORTIS BENEFITS/FORTIS FINANCIAL GROUP MEMBER
Fortis Benefits Insurance Company is the issuer of the contracts. At the end of
1999, Fortis Benefits had approximately $101 billion of total life insurance in
force. Fortis Benefits is a Minnesota corporation founded in 1910. It 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 (NL)N.V. and 50% by Fortis (B). Fortis, Inc. manages the United States
operations for these two companies.
Fortis Benefits is a member of the Fortis Financial Group. This Group is a joint
effort by Fortis Benefits, Fortis Advisers, Inc., Fortis Investors, Inc. and
Fortis Insurance Company (formerly Time Insurance Company) to offer financial
products through the management, marketing and servicing of mutual funds,
annuities, life insurance and disability income products.
Fortis (NL)N.V. is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
(B) is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis (NL)N.V. and
Fortis (B) have merged their operating companies under the trade name of Fortis.
The Fortis group of companies is active in insurance, banking, 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 $406 billion in assets at the end of 1999.
All of the guarantees and commitments under the contracts are general
obligations of Fortis Benefits, regardless of whether you have allocated the
contract value to the Separate Account or to the fixed account. None of Fortis
Benefits' affiliated companies has any legal obligation to back Fortis Benefits'
obligations under the contracts.
THE SEPARATE ACCOUNT
The Separate Account is a segregated investment account of Fortis Benefits.
Fortis Benefits established Variable Account D under Minnesota insurance law as
of October 14, 1987. The assets allocated to the Separate Account are the
exclusive property of Fortis Benefits. The Separate Account is an integral part
of Fortis Benefits. However, the Separate Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. Registration does not involve supervision of the
management, or investment practices, or policies of the Separate Account or of
Fortis Benefits by the Securities and Exchange Commission.
All income, gains and losses, whether or not realized, from assets allocated to
the Separate Account are credited to or charged against the Separate Account
without regard to other income, gains or losses of Fortis Benefits. Assets in
the Separate Account representing reserves and liabilities will not be
chargeable with liabilities arising out of any other business of Fortis
Benefits. Fortis Benefits may accumulate in the Separate Account proceeds from
charges under variable annuity contracts and other amounts in excess of the
Separate Account assets representing reserves and liabilities. Fortis Benefits
may from time to time transfer to its general account any of such excess
amounts.
The Separate Account has subaccounts. The assets in each subaccount are invested
exclusively in a distinct class (or series) of stock issued by the portfolios,
each of which represents a separate investment portfolio within the Separate
Account. Income and both realized and unrealized gains or losses from the assets
of each subaccount of the Separate Account are credited to or charged against
that subaccount without regard to income, gains or losses, from any other
subaccount of the Separate Account or arising out of any other business we may
conduct. We may add or eliminate new subaccounts as new portfolios are added or
are eliminated.
THE PORTFOLIOS
You may choose from among a number of different portfolios. Each portfolio is a
mutual fund available for purchase only as a funding vehicle for benefits under
variable life insurance and variable annuity products. These variable life
insurance and variable annuity products are issued by Fortis Benefits and by
other life insurance companies. Each portfolio corresponds to one of the
subaccounts of the Separate Account. The assets of each portfolio are separate
from the assets of other portfolios. In addition, each portfolio operates as a
separate investment portfolio whose investment performance has no effect on the
investment performance of any other portfolio. More detailed information for
each investment portfolio is available to you. This information includes the
investment policies, investment restrictions, charges, and risks attendant to
investing in each portfolio is available to you. This information also includes
other aspects of each portfolio's operations. You can find this information in
the current prospectus for each portfolio. These portfolio prospectuses must
accompany this prospectus, and you should read them in conjunction with it. You
can obtain a copy of each prospectus from us, free of charge, by calling
1-800-800-2000, ext. 3057, or by writing P.O. Box 64272, St. Paul, Minnesota
55164.
As noted, the investment portfolios may be available to registered separate
accounts of other participating insurance companies. These portfolios may also
be available to the Separate Account and other separate accounts of Fortis
Benefits. Although Fortis Benefits does not anticipate any disadvantages to
this, there is a possibility that a material conflict may arise between the
interest of the Separate Account and one or more of the other separate accounts
participating in the portfolios. For
9
<PAGE> 11
example, a conflict may occur due to (1) a change in law affecting the
operations of variable life and variable annuity separate accounts, (2)
differences in the voting instructions of the contract owners and those of other
companies, or (3) some other reason. In the event of conflict, Fortis Benefits
will take any steps necessary to protect the contract owners and variable
annuity payees.
We purchase and redeem portfolio shares for the Separate Account at their net
asset value without any sales or redemption charges. We automatically reinvest
dividends or capital gain distributions attributable to contracts in shares of
the portfolio from which they are received at that portfolio's net asset value
on the date paid. These dividends and distributions will have the effect of
reducing the net asset value of each share of the corresponding portfolio and
increasing, by an equivalent value, the number of shares outstanding of that
portfolio. However, the value of the interests of contract owners, Annuitants
and beneficiaries in the corresponding subaccount will not change as a result of
any these dividends and distributions.
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
We reserve the right to reject any application for a contract or any purchase
payment for any reason. If we accept your issuing instructions in the form
received, we will credit the initial purchase payment within two Valuation Dates
after the later of (1) receipt of the issuing instructions or (2) receipt of the
initial purchase payment at our home office. If we cannot apply the initial
purchase payment within five Valuation Dates after receipt because the issuing
instructions are incomplete, we will return the initial purchase payment unless
you consent to our retaining the initial purchase payment and applying it as of
the end of the Valuation Period in which the necessary requirements are
fulfilled. The initial purchase payment must be at least $25,000 ($10,000 for a
contract issued as a part of a qualified plan).
The date that we apply the initial purchase payment to the purchase of the
contract is the contract date. The contract date is the date used to determine
contract years, regardless of when we deliver the contract. Our crediting of
investment experience in the Separate Account, or a fixed rate of return in the
fixed account, begins as of the contract date, even if that date is delayed due
to an incomplete application.
Except for contracts issued in the states of Washington and Oregon, we will
accept additional purchase payments at any time after the contract date and
prior to the annuity commencement date, as long as the Annuitant is living. You
must transmit purchase payments (together with any required information
identifying the proper contracts and accounts to be credited with purchase
payments) to our home office. We will apply additional purchase payments to the
contract, and add to the contract value as of the end of the Valuation Period in
which we receive the payments. For contracts issued in the states of Washington
and Oregon, a single purchase payment, only, may be made and no further purchase
payments can be accepted.
Each additional purchase payment must be at least $50. The total of all purchase
payments for all contracts having the same owner or annuitant may not exceed $1
million (not more than $500,000 allocated to the fixed account) without our
prior approval. We reserve the right to modify this limitation at any time.
You may make purchase payments in excess of the initial minimum by monthly draft
against a bank account if you have completed and returned to us a special
authorization form. You may get the form from your sales representative or from
our home office. We can also arrange for you to make purchase payments by wire
transfer, payroll deduction, military allotment, direct deposit and billing.
Purchase payments by check should be made payable to Fortis Benefits Insurance
Company.
We may cancel any contract with a contract value of less than $1,000. We will
provide the contract owner with 90 days' written notice so that additional
purchase payments may be made in order to raise the contract value above the
applicable minimum. Otherwise, we may cancel the contract as of the end of the
Valuation Period which includes the next anniversary of the contract date. We
will consider this a surrender of the contract and impose the same charges we
would impose upon a surrender. See "Total and Partial Surrenders." So long as
the contract value remains above $1,000, no additional purchase payments under a
contract are ever required.
CONTRACT VALUE
Contract value is the total of any Separate Account value in all the subaccounts
of the Separate Account, plus any fixed account value. For a discussion of how
fixed account value is calculated, see "The Fixed Account."
The contract does not guarantee a minimum Separate Account value. The Separate
Account value will reflect the investment experience of the chosen subaccounts
of the Separate Account, all purchase payments made, any partial surrenders, and
all charges assessed in connection with the contract. Therefore, the Separate
Account value changes from Valuation Period to Valuation Period. Subject to the
exception provided under the Fortis Guaranteed PayoutPlan benefit (see
"Accumulation Period--Fortis Guaranteed PayoutPlan Benefit"), you bear the
entire investment risk for the contract value that you allocate to the Separate
Account.
Determination of Separate Account Value. A contract's Separate Account value is
based on Accumulation Unit values, that we determine on each Valuation Date. The
value of an Accumulation Unit for a subaccount on any Valuation Date is equal to
the previous value of that subaccount's Accumulation Unit multiplied by that
subaccount's net investment factor (discussed directly below) for the Valuation
Period ending on that Valuation Date. Purchase payments applied to a given
subaccount will be used to purchase Accumulation Units at the unit value of that
subaccount next determined after receipt of a purchase payment. See "Allocation
of Purchase Payments and Contract Value--Allocation of Purchase Payments."
At the end of any Valuation Period, a contract's Separate Account value in a
subaccount is equal to:
- The number of Accumulation Units in the subaccount; times
- The value of one Accumulation Unit for that subaccount.
The number of Accumulation Units in each subaccount is equal to:
- The initial Accumulation Units purchased on the contract date; plus
10
<PAGE> 12
- Accumulation Units purchased at the time that additional purchase
payments are allocated to the subaccount; plus
- Accumulation Units purchased through transfers from another subaccount or
from the fixed account; less
- Accumulation Units redeemed to pay for the portion of any partial
surrenders allocated to the subaccount; less
- Accumulation Units redeemed as part of a transfer to another subaccount
or to the fixed account; less
- Accumulation Units redeemed to pay charges under the contract.
Net Investment Factor. The net investment factor for a subaccount is determined
by dividing (1) the net asset value per share of the portfolio shares held by
the subaccount, determined at the end of the current Valuation Period, plus the
per share amount of any dividend or capital gains distribution made with respect
to the portfolio shares held by the subaccount during the current Valuation
Period, minus a per share charge for the increase, plus a per share credit for
the decrease, in any income taxes assessed which we determine to have resulted
from the investment operations of the subaccount or any other taxes which are
attributable to the contract, by (2) the net asset value per share of the
portfolio shares held in the subaccount as determined at the end of the previous
Valuation Period, and subtracting from that result a factor representing the
mortality risk, expense risk and administrative expense charge.
A subaccount's net investment factor for a Valuation Period is an index number
that reflects certain charges to a contract and the investment performance of
the subaccount during the Valuation Period. If the net investment factor is
greater than one, the subaccount's Accumulation Unit value has increased. If the
net investment factor is less than one, the subaccount's Accumulation Unit value
has decreased.
Determination of Fixed Account Value. We guarantee a contract's fixed account
value. Therefore, we bear the investment risk for amounts allocated to the fixed
account, except to the extent that we may vary the current interest rate
(subject to the 3% effective annual minimum).
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 your application for a contract, you may
allocate purchase payments, or portions of payments, to the:
- available subaccounts of the Separate Account, or
- to the fixed account, or
- to both
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 our home office. Changes in
the allocation of future purchase payments will be effective on the date we
receive your written request.
Transfers. You may transfer contract value:
- from one available subaccount to another, or
- into the fixed account.
You may request transfers by either (1) a written request sent to our home
office, or by (2) a telephone transfer as described below. Currently, we do not
charge for any transfer.
All or part of the contract value in one or more subaccounts of the Separate
Account may be transferred at one time. We may permit a continuing request for
transfers automatically and on a periodic basis. However, we reserve the right
to restrict the frequency of transfers or to otherwise condition, terminate, or
impose charges (not to exceed $25 per transfer) upon transfers out of a
subaccount during the Accumulation Period. Currently, our only restriction on
the frequency of transfers is a prohibition of making transfers into the fixed
account within six months of a transfer out of the fixed account. We restrict
transfers of contract value from the fixed account in both amount and timing.
See "Fixed Account--Fixed Account Transfers, Total and Partial Surrenders." We
will count all transfers between and among the subaccounts of the Separate
Account and the fixed account as one transfer if all the transfer requests are
made at the same time as part of one request. We will execute the transfers and
determine all values in connection with transfers as of the end of the Valuation
Period in which we receive the transfer request.
Certain restrictions on very substantial allocations to any one subaccount are
set forth under "Limitations on Allocations" in the Statement of Additional
Information.
TOTAL AND PARTIAL SURRENDERS
Total Surrenders. You may surrender all of the cash surrender value at any time
prior to the annuity commencement date. You must request total surrender 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 we
receive the written request for the total surrender at our home office,
less
- any applicable surrender charge.
For a discussion of these charges and the circumstances under which they apply,
see "Surrender Charge."
We must receive written consent of all collateral assignees and irrevocable
beneficiaries prior to any total surrender. We will generally pay surrenders
from the Separate Account within seven days of the date of receipt by our home
office of the written request. However, we may postpone payments in certain
circumstances. See "Postponement of Payment."
Since the contract owner assumes the investment risk with respect to amounts
allocated to the Separate Account, and because certain surrenders are subject to
a surrender charge, the amount we pay upon total surrender of the cash surrender
value (taking
11
<PAGE> 13
into account any prior partial surrenders) may be more or less than the total
purchase payments you made. After a surrender of the cash surrender value or at
any time the contract value is zero, (unless at such time the contract is still
in Living Benefit Status--see "Accumulation Period--Fortis Guaranteed PayoutPlan
Benefit.") all rights of the contract owner, Annuitant, and any beneficiary,
will terminate.
Partial Surrenders. At any time during the life of the Annuitant and prior to
the commencement date, you may surrender a portion of the fixed account and/or
the Separate Account. You must request partial surrender by a written request to
our home office. The minimum partial surrender amount is $500, including any
surrender charge. We will surrender the entire cash surrender value under the
contract if the total contract value in both the Separate Account and fixed
account would be less than $1,000 after the partial surrender.
You should specify the subaccounts of the Separate Account or the fixed account
that you wish to partially surrender. 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 Separate Account and/or dollar
amounts from the fixed account so that the total amount of the partial surrender
equals the dollar amount of the partial surrender request. We will reduce the
partial surrender by the amount of any applicable surrender charge. The partial
surrender will be effective at the end of the Valuation Period in which we
receive the written request for partial surrender at our home office. Payments
will generally be made within seven days of the effective date of such request,
although certain delays are permitted. See "Postponement of Payment."
The Internal Revenue Code provides that a penalty tax will be imposed on certain
premature surrenders. For a discussion of this and other tax implications of
total and partial surrenders, including withholding requirements, see "Federal
Tax Matters." Also, under tax deferred annuity contracts pursuant to Section
403(b) of the Internal Revenue Code, no distributions of voluntary salary
reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.) This restriction does not apply
to amounts transferred to another investment alternative permitted under a
Section 403(b) retirement arrangement or to amounts attributable to premium
payments received prior to January 1, 1989.
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 (1) transfers, (2) withdrawals, and (3) changes in purchase payment
allocation instructions, dollar-cost averaging, portfolio rebalancing programs,
and systematic withdrawals. Our home office will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures may include, among others, (1) requiring some form of personal
identification such as your address and social security number prior to acting
upon instructions received by telephone, (2) providing written confirmation of
such transactions, and/or (3) tape recording of telephone instructions. Your
request for telephone transactions authorizes us to record telephone calls. We
may be liable for any losses due to unauthorized or fraudulent instructions if
we do not employ reasonable procedures. If we do employ reasonable procedures,
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.
FORTIS GUARANTEED PAYOUT PLAN BENEFIT
The contract provides a living benefit referred to as the Fortis Guaranteed
PayoutPlan benefit. This benefit guarantees that your available withdrawals over
the life of your contract will be no less than the amount of your purchase
payments, regardless of your contract value, so long as your contract remains in
Living Benefit Status. The maximum withdrawal which you may make at any time
under this living benefit is the lesser of:
- 7% of your purchase payments less the sum of prior withdrawals during the
current contract year.
- the sum of your purchase payments less the sum of prior withdrawals. This
amount is referred to as your Guaranteed Remaining Benefit Amount.
Your contract remains in Living Benefit Status if the following conditions are
met:
- you have not made withdrawals in any contract year totalling more than 7%
of your purchase payments, and
- your Guaranteed Remaining Benefit Amount is greater than zero.
If either limitation is exceeded, your contract is no longer in Living Benefit
Status and this status cannot be regained. So long as your contract is in Living
Benefit Status, it will not terminate by reason of withdrawals under this
benefit reducing the contract value to zero or less. However, in such case the
provisions described below relating to Automatic Periodic Benefit Payments
apply.
For contracts which are issued in states that have approved it, your Guaranteed
Remaining Benefit Amount may increase at the beginning of your policy's tenth
year (the policy's nine year anniversary) and on each nine year anniversary
thereafter. In such states, the Guaranteed Remaining Benefit Amount as of each
of such dates will be the greater of (1) the then current Guaranteed Remaining
Benefit Amount, or (2) the value of your Contract as of such date. The resulting
Guaranteed Remaining Benefit Amount is then subject to increase and/or decrease
subsequent to such dates, and before the next such anniversary, for subsequent
purchase payments and withdrawals. Also, the maximum withdrawal which you may
make may increase. On each of such dates, this maximum withdrawal amount will
become the greater of (1) the maximum amount immediately before the anniversary
date, or (2) 7% of the value of your contract on such anniversary. This maximum
will be increased by an amount equal to 7% of any purchase payments made after
such anniversary date. Please check with us or your sales representative to
determine whether this feature is available in your state.
If your contract remains in Living Benefit Status, as described above, but your
contract value declines to $1000 or less, we will pay you any remaining living
benefit on a periodic basis. No further purchase payments may be made. The
frequency of such payments may be among those then offered by us, which will
include at least annual payments. These periodic payments will continue until
your withdrawals, including Automatic Periodic Benefit Payments, reduces your
Guaranteed Remaining Benefit Amount to zero. While Automatic Benefit Payments
are being
12
<PAGE> 14
made, any death benefit otherwise payable under your contract will continue to
apply.
Qualified Plan Contracts. If your Contract is part of a tax qualified retirement
plan that subjects you to minimum distributions under the provisions of the
Internal Revenue Code the 7% annual withdrawal limitation is subject to increase
this maximum withdrawal limitation becomes, as of the beginning of the calendar
year in which you reach the age that subjects you to such minimum distribution
requirement, the greater of (1) such 7% limitation or (2) the amount of any such
required minimum distribution. At that time, the measurement period for such
limitation changes to a calendar year rather than your Contract year.
BENEFIT PAYABLE ON DEATH OF CONTRACT OWNER (OR ANNUITANT)
If the owner dies prior to the annuity commencement date, we will pay a death
benefit to the beneficiary. If the contract owner is a non-natural person, then
we will pay a death benefit upon the death of the Annuitant prior to the annuity
commencement date. In such case, if more than one Annuitant has been named, we
will pay the death benefit payable upon the death of an Annuitant only upon the
death of the last survivor of the persons so named.
The term "decedent" in the death benefit description below refers to the death
of the contract owner unless the contract owner is a non-natural person, in
which case it refers to the death of the Annuitant. Also, the death benefit
description refers to the age of the contract owner. If the contract owner is a
non-natural person, the relevant age will instead be that of the Annuitant.
Additionally, the death benefit description makes reference to "Pro Rata
Adjustments." A pro rata adjustment is calculated separately for each
withdrawal, creating a decrease in the death benefit proportional to the
decrease the withdrawal makes in the contract value. Pro rata adjustments are
made for amounts withdrawn for partial surrenders and any associated surrender
charge (which is deemed to be an amount withdrawn), but not for any contract
fee-related surrenders.
The death benefit will equal the greatest of (1), (2) or (3):
(1) The contract value as of the date used for valuing the death benefit.
(2) The sum or all purchase payments made, reduced by any prior withdrawals and
previously imposed surrender charges.
(3) If the decedent dies prior to the date the owner reaches age 86, the amount
of the death benefit is the less of (a) and (b), as follows:
(a) 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 5.0%
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 the owner reaches age 86, the
amount of the death benefit is equal to:
(a) the "Roll-Up Amount" as of the date the owner reached age 86, plus
(b) the accumulation (without interest) of purchase payments made on or
after the date the owner reached age 86, reduced by
(c) pro rata adjustments for any withdrawals made on or after the date the
owner reached age 86.
There is a limit on the amount of the death benefit that we will pay in excess
of the contract value. The excess payable by us upon the death of any one person
on all annuity policies issued by us will not be more than $500,000. If there
are multiple annuity contracts providing a death benefit upon the death of an
individual and the other contracts do not contain a similar limitation, the
reduction of the death benefit by the amount of any such excess over $500,000
will be subtracted entirely from the death benefit payable under the contract
offered by this prospectus. If there are multiple contracts and the other
contracts do contain a similar limitation, the death benefit on all of such
contracts will be reduced, each being reduced by a proportionate amount of any
such excess.
The pro rata adjustments referred to above are more fully described in Appendix
C at the end of this prospectus.
See also Appendix A for sample death benefit calculation.
The death benefit may be reduced by premium taxes where such taxes were imposed
upon receipt of purchase payments and were paid by us in behalf of the contract
owner. For further information, see "Charges and Deductions--Premium Taxes."
The value of the death benefit is determined as of the end of the Valuation
Period in which we receive, at our home office, proof of death and the written
request as to the manner of payment. Upon receipt of these items, the death
benefit generally will be paid within seven days. Under certain circumstances,
payment of the death benefit may be postponed. See "Postponement of Payment." If
we do not receive a written request for a settlement method, we will pay the
death benefit in a single sum, based on values determined at that time.
The beneficiary may (1) receive a single sum payment which terminates the
contract, or (2) select an annuity option. If the beneficiary selects an annuity
option, he or she will have all the rights and privileges of an Annuitant under
the contract. If the beneficiary desires an annuity option, the election should
be made within 60 days of the date the death benefit becomes payable. Failure to
make a timely election can result in unfavorable tax consequences. For further
information, see "Federal Tax Matters."
We accept any of the following as proof of death: (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.
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The Internal Revenue Code requires that a Non-Qualified Contract contain certain
provisions about an owner's death. We discuss these provisions below under
"Federal Tax Matters--Required Distributions for Non-Qualified Contracts." It is
imperative that written notice of the death of the contract owner be promptly
transmitted to us at our home office, so that we can make arrangements 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 with possible adverse tax consequences.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
You may specify an annuity commencement date in your application. The annuity
commencement date marks the beginning of the period during which an Annuitant
receives annuity payments under the contract. Except for contracts issued in
connection with life insurance policies issued by Fortis Benefits, the annuity
commencement date must be at least two years after the contract date.
The Internal Revenue Code may impose penalty taxes on amounts distributed either
too soon or too late depending on the type of retirement arrangement involved.
See "Federal Tax Matters." You should consider this carefully in selecting or
changing an annuity commencement date.
You must submit a written request to us in order to advance or defer the annuity
commencement date. We must receive the request 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 we receive the written
request. You have no right to make any total or partial surrender during the
Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
We may pay the entire contract value, rather than apply the amount to an annuity
option if the contract value at the end of the Valuation Period that contains
the annuity commencement date is less than $5,000. We would make the payment in
a single sum to the Annuitant or other properly designated payee and cancel the
contract. We would not impose any charge other than the premium tax charge.
Otherwise, we will apply (1) the fixed account value to provide a Fixed Annuity
Option and (2) the Separate Account value in any subaccount to provide a
Variable Annuity Option using the same subaccount, unless you have notified us
by written request to apply the fixed account value and Separate Account value
in different proportions. We must receive written request at our home office at
least 30 days before the annuity commencement date.
We will make annuity payments under a Fixed or Variable Annuity Option on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If you name more than one person as an
Annuitant, you 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.
The amount of each annuity payment will depend on (1) the amount of contract
value applied to an annuity option, (2) the form of annuity selected and (3) the
age of the Annuitant. For information concerning the relationship between the
Annuitant's sex and the amount of annuity payments, including special
requirements in connection with employee benefit plans, see "Calculation of
Annuity Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity option
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
The amount of an annuity payment depends on the average effective net investment
return of a subaccount during the period since the preceding payment as follows:
- if the return is higher than 3% annually, the Annuity Unit value will
increase, and the second payment will be higher than the first; and
- if the return is lower than 3% annually, 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, after deduction of the mortality and expense risk,
investment risk and administrative expense charges, which are assessed at an
annual rate of 1.35%.
We guarantee that the amount of each variable annuity payment after the first
payment will not be affected by variations in our mortality experience or our
expenses.
Transfers. A person receiving annuity payments may make up to four transfers a
year among subaccounts or from subaccounts to the fixed account. The current
procedures for these transfers are the same as we describe above under
"Allocation of Purchase Payments and Contract Value--Transfers." We do not
permit transfers out of the fixed account during the Annuity Period.
ANNUITY OPTIONS
You may select an annuity option or change a previous selection by written
request. We must receive your request at least 30 days before the annuity
commencement date. You may select one annuity form, although payments under that
form may be on a combination fixed and variable basis. If no annuity form
selection is in effect on the annuity commencement date, we usually
automatically apply Option B (described below), with payments guaranteed for ten
years. However, federal pension law may require that we make default payments
under certain retirement plans 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.
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Your contract offers the following options for fixed and variable annuity
payments. Under each of the options, we make payments as of the first Valuation
Date of each monthly period, starting with the annuity commencement date.
Option A, Life Annuity. We make no payments after the annuitant dies. It is
possible for the annuitant to receive only one payment under this option if the
annuitant dies before the second payment is due.
Option B, Life Annuity with Payments Guaranteed for 10 Years or 20 Years. We
continue payments as long as the annuitant lives. If the annuitant dies before
we have made all of the guaranteed payments, we continue installments of the
guaranteed payments to the beneficiary.
Option C, Joint and Full Survivor Annuity. We continue payments as long as
either the annuitant or the joint annuitant is alive. We stop payments when both
the annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
Option D, Joint and One-Half Contingent Survivor Annuity. We continue payments
as long as either the annuitant or the joint annuitant is alive. If the
annuitant dies first, we continue payments to the joint annuitant at one-half
the original amount. If the joint annuitant dies first, we continue payments to
the annuitant at the original full amount. We stop payments when both the
annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
We also have other annuity options available. You can get information about
these from your sales representative or by calling or writing to our home
office.
DEATH OF ANNUITANT OR OTHER PAYEE
Under most annuity options offered by us, the amounts, if any, payable on the
death of the annuitant during the Annuity Period are the continuation of annuity
payments for any remaining guarantee period or for the life of any joint
annuitant. In all cases, the person entitled to receive payments also receives
any rights and privileges under the annuity form in effect.
Additional rules applicable to such distributions under Non-Qualified Contracts
are described under "Federal Tax Matters--Required Distributions for
Non-Qualified Contracts". Though the rules there described do not apply to
contracts issued in connection with qualified plans, similar rules apply to the
plans themselves.
CHARGES AND DEDUCTIONS
PREMIUM TAXES
We deduct state premium taxes as follows:
- when imposed on purchase payments, we pay the amount on your behalf and
deduct the amount from your contract value upon (1) our payment of
surrender proceeds or death benefit or (2) annuitization of a contract;
or (3) reduction of the benefit under the Fortis Guaranteed PayoutPlan
benefit or
- when imposed at the time annuity payments begin, we deduct the amount
from your contract value.
Applicable premium tax rates depend upon your place of residence. Currently,
premium taxes and similar assessments range from 0% to 3.5% of purchase payments
or the amount annuitized. Rates can change by legislation, administrative
interpretations, or judicial acts.
CHARGES AGAINST THE SEPARATE ACCOUNT
We will assess certain charges against the Separate Account. These charges will
be assessed as a percentage of the net assets of the Separate Account. These
charges compensate us for contract risks and for administrative expenses.
Mortality and Expense Risk Charge. We assess each subaccount of the Separate
Account with a daily charge for mortality and expense risk. This charge is a
nominal annual rate of 1.40% of the average daily net assets of the Separate
Account. We guarantee not to increase this charge for the duration of the
contract. We assess this charge daily when we determine the value of an
Accumulation Unit. This charge is assessed during both the Accumulation Period
and the Annuity Period, but is reduced to 1.25% during the Annuity Period.
The mortality risk we bear arises from our obligation to make annuity payments
(determined in accordance with the annuity tables and other provisions contained
in the contract) for the full life of all Annuitants regardless of how long all
Annuitants or any individual Annuitant might live. This assures that neither an
Annuitant's own longevity, nor an improvement in life expectancy generally, will
have an adverse effect on the annuity payments the Annuitant will receive under
the contract. This relieves the Annuitant from the risk that he or she will
outlive the funds accumulated for retirement.
In addition, we bear a mortality risk in that we guarantee to pay a death
benefit in a single sum (which may also be taken in the form of an annuity
option) upon the death of the contract owner prior to the annuity commencement
date. We do not impose a surrender charge upon payment of a death benefit. This
places a further mortality risk on us.
The expense risk we assume is that actual expenses incurred in connection with
issuing and administering the contracts will exceed the limits on administrative
charges set in the contracts.
We bear the loss if the administrative charges and the mortality and expense
risk charge are insufficient to cover the expenses and costs assumed.
Conversely, we profit if the amount deducted proves more than sufficient.
Investment Risk Charge. We bear an investment market risk associated with the
Fortis Guaranteed PayoutPlan benefit. With this benefit, we bear the risk that
the investment performance is insufficient to cover the guarantee of the return
of your purchase payments. We assess each subaccount of the Separate Account
with a daily charge for this risk at a nominal annual rate of .35% of the
average daily net assets of the Separate Account. This charge is only assessed
in the Accumulation Period and not in the Annuity Period.
Administrative Expense Charge. We assess each subaccount of the Separate Account
with a daily charge at a nominal annual rate of .10% of the average daily net
assets of the subaccount. We assess this charge during both the Accumulation
Period and the
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Annuity Period. The daily administrative expense charge helps cover
administrative expenses such as:
- issuing contracts,
- establishing and maintaining 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.
The daily administrative expense charge is designed to defray expenses incurred.
There is no necessary relationship between the amount of administrative charges
assessed on a given contract and the amount of expenses actually incurred for
that contract. This charge is assessed during both the Accumulation Period and
the Annuity Period.
Tax Charge. We currently impose no charge for taxes payable by us in connection
with this contract, other than for applicable premium taxes. We reserve the
right to impose a charge for any other taxes that may become payable by us in
the future for the contracts or the Separate Account.
The charges against the Separate Account described above are for the purposes
described. We may receive a profit as a result of these charges.
SURRENDER CHARGE
We do not deduct a sales charge from purchase payments. We deduct surrender
charges on certain total or partial surrenders. We use the revenue from
surrender charges to partially pay our expenses in the sale of the contracts,
including (1) commissions (2) promotional, distribution, and marketing expenses,
and (3) costs of printing and distribution of prospectuses and sales material.
Free Surrenders. You can withdraw the following amounts from the contract
without a surrender charge:
- Any purchase payments that we received more than nine years before the
surrender date and that you have not previously surrendered;
- In any contract year, up to 10% of the purchase payments that we received
less than nine years before the surrender date (whether or not you have
previously surrendered the purchase payments).
Surrender charges do not apply to contract earnings. Therefore, we deem purchase
payments not subject to a surrender charge as withdrawn first. If all purchase
payments have been withdrawn, the remaining earnings can be withdrawn without a
surrender charge. We assume that all purchase payments are withdrawn before
earnings are withdrawn. However, for federal income tax purposes, certain
partial surrenders will be deemed to come first from earnings. See "Federal Tax
Matters."
We do not impose a surrender charge on (1) annuitization or (2) payment of a
single sum because the contract value is less than the minimum required to
provide an annuity on the annuity commencement date or (3) 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 if
the amount then subject to the surrender charge is less than 25% of the contract
value. We have offered these contracts since 1999. Therefore, we have made no
waivers. 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. We only apply surrender charges if the amount being
withdrawn exceeds the sum of the amounts listed above under Free Surrenders. The
surrender charges are:
<TABLE>
<CAPTION>
NUMBER OF YEARS SURRENDER CHARGE
SINCE PURCHASE AS A PERCENTAGE OF
PAYMENT WAS CREDITED PURCHASE PAYMENT
-------------------- ------------------
<S> <C>
Less than 2 8%
At least 2 but less than 4 7%
At least 4 but less than 5 6%
At least 5 but less than 6 5%
At least 6 but less than 7 3%
At least 7 but less than 8 2%
At least 8 but less than 9 1%
9 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,
we will pay such costs from our general account assets. Those assets will
include any profit that we derive from the mortality and expense risk charge.
Nursing Care/Hospitalization Waiver of Surrender Charges. We do not deduct
surrender charges for a total or partial withdrawal:
- 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
- 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 the spouse is the Annuitant. We will not waive surrender charges when a
confinement is due to (1) substance abuse, (2) mental or personality disorders
without a demonstrable organic disease. We consider a degenerative brain disease
such as Alzheimer's Disease an organic disease.
We provide this nursing care/hospitalization waiver of surrender charges by
means of a rider to the contract. This rider has not been approved in all
states. When you apply for a contract you should check with your Fortis Benefits
representative to determine if this rider is available in your state.
Disability Waiver of Surrender Charges. We will waive surrender charges on total
or partial surrenders under the following circumstances:
(1) if you become totally disabled after the contract is issued, or
(2) if the owner is a non-natural person and the Annuitant becomes totally
disabled after the contract is issued.
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However, waivers of surrender charges are subject to the following conditions:
(1) We will only waive surrender charges on total or partial surrenders of
purchase payments that were made prior to the owner's or the Annuitant's
total disability, and
(2) the owner's or the Annuitant's total disability must have begun before the
owner or the Annuitant has reached age 64, and
(3) the owner's or the Annuitant's total disability must have been continuous
for a period of twelve months or more.
This benefit terminates on the 65th birthday of the owner, or the 65th birthday
of the Annuitant if the owner is a non-natural person.
"Total Disability" means:
- the inability to engage in an occupation for compensation or profit.
"Occupation" has one of two definitions. The applicable definition depends on
the length of the disability. "Occupation" is defined as:
(1) the owner's or the Annuitant's regular occupation during the first twelve
months of disability, and
(2) any job suited to the owner's or the Annuitant's education, training, or
experience after the first twelve months of disability.
We provide this "Disability Waiver of Surrender Charges" by attaching a rider to
the contract. This rider has not been approved in all states. You should check
with your sales representative to determine if this rider is available in your
state.
MISCELLANEOUS
The Separate Account invests in shares of the portfolios. Therefore, the net
assets of the Separate Account will reflect the investment advisory fees and
certain other expenses incurred by the portfolios and described in their
prospectuses.
REDUCTION OF CHARGES
We will not impose a surrender charge under any contract owned by:
(A) Fortis, Inc. or its subsidiaries, and the following persons associated with
such companies, if at the contract issue date they are:
(1) officers and directors;
(2) employees; or
(3) spouses of any such persons or any of such persons' children,
grandchildren, parents, grandparents, or siblings--or spouses of any of
these persons;
(B) Series Fund directors, officers, or their spouses (or such persons'
children, grandchildren, parents or grandparents or spouses of any such
persons); and
(C) representatives or employees (or their spouses) of Fortis Investors
(including agencies) or of other broker-dealers having a sales agreement
with Fortis Investors (or such persons' children, grandchildren, parents, or
grandparents--or spouses of any such persons).
FIXED ACCOUNT
You may allocate purchase payments and transfer contract value to the fixed
account. In this case, purchase payments and transfers of contract value are
held in our general account.
Because of exemptive and exclusionary provisions, interests in the fixed account
have not been registered under the Securities Act of 1933, and the fixed account
has not been registered as an investment company under the Investment Company
Act of 1940. Accordingly, neither the fixed account, nor any interests therein,
are subject to the provisions of these acts. As a result, the staff of the
Securities and Exchange Commission has not reviewed the disclosures in this
prospectus relating to the fixed account.
Disclosures regarding the fixed account may, however, be subject to certain
generally applicable provisions of federal securities law relating to the
accuracy and completeness of statements made in prospectuses. This prospectus is
generally intended to serve as a disclosure document only for the aspects of the
contract involving the Separate Account and contains only selected information
regarding the fixed account. More information regarding the fixed account may be
obtained from our home office or from your sales representative.
GENERAL DESCRIPTION
Our obligations with respect to the fixed account are supported by our general
account. Subject to applicable law, we have sole discretion over the investment
of assets in our general account.
Fortis Benefits guarantees that contract value in the fixed account will accrue
interest at an effective annual rate of at least 3%, independent of the actual
investment experience of the general account. We may, at our sole discretion,
credit higher rates of interest, although we are not obligated to credit
interest in excess of the guaranteed annual rate of 3%. Any interest rate in
excess of 3% per year with respect to any amount in the fixed account pursuant
to a contract will not be modified more than once each calendar year. Any higher
rate of interest will be quoted at an effective annual rate. The rate of any
excess interest initially or subsequently credited to any amount can vary. This
will depend on when the amount was originally allocated to the fixed account.
Once credited, excess interest will be guaranteed and will be added to the
contract value in the fixed account (from which deductions for fees and charges
may be made).
Charges under the contract are the same as those applied to the Separate
Account. However, the 1.85% annual charge for mortality and expense risk,
investment expense risk and for administrative expenses is not imposed on
amounts of contract value in the fixed account.
FIXED ACCOUNT VALUE
The contract's fixed account value on any Valuation Date is the sum of the:
- purchase payments allocated to the fixed account, plus
- any transfers from the Separate Account, plus
- interest credited to the fixed account, less
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- any surrenders, surrender charges or transfers to the Separate Account.
FIXED ACCOUNT TRANSFERS, TOTAL AND PARTIAL SURRENDERS
With respect to total and partial surrenders, amounts in the fixed account are
generally subject to the same rights and limitations as amounts allocated to the
subaccounts of the Separate Account. Therefore, with respect to total and
partial surrenders, amounts in the fixed account are also subject to the same
charges as amounts allocated to the subaccounts of the Separate Account. See
"Fortis Benefits and The Separate Account--Total and Partial Surrenders."
Transfers out of the fixed account have special limitations. Prior to the
annuity commencement date, you may transfer part or all of the contract value
from the fixed account to the Separate Account, provided that (1) no more than
one transfer is made each contract year, (2) no more than 50% of the fixed
account value is transferred at any time (unless the balance in the fixed
account after the transfer would be less than $1,000, in which case up to the
entire balance may be transferred) and (3) at least $500 is transferred at any
one time (or, if less, the entire amount in the fixed account). However, we may
permit a continuing request for transfer of lesser specified amounts
automatically on a periodic basis. We reserve the right to discontinue or modify
any such arrangements at our discretion.
No transfers from the fixed account may be made after the annuity commencement
date.
GENERAL PROVISIONS
THE CONTRACT
The entire contract includes any application, amendment, rider, endorsement and
revised contract pages. Only the President, Secretary and Registrar of Fortis
Benefits can agree to change or waive any provision of a contract. Any change or
waiver must be in writing and signed by one of these representatives of Fortis
Benefits.
The contracts are non-participating and do not share in dividends or earnings of
Fortis Benefits.
POSTPONEMENT OF PAYMENTS
With respect to amounts in the subaccounts of the Separate Account, payment of
any amount due upon a total or partial surrender, death or under an annuity
option will ordinarily be made within seven days after all documents required
for such payment are received by us at our home office.
However, we may defer the determination, application or payment of any death
benefit, partial or total surrender or annuity payment, to the extent dependent
on Accumulation or Annuity Unit values as follows: (1) 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, (2) for any period during
which any emergency exists as a result of which it is not reasonably practicable
for us to determine the investment experience for the contract, or (3) for such
other periods as the Securities and Exchange Commission may by order permit for
the protection of investors.
Additionally, we 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. We 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 Annuitant's age or sex was misstated, we pay the amount that the purchase
payments paid would have purchased at the correct age and sex. If we make any
overpayment because of incorrect information about age or sex, or any other
miscalculation, we deduct the overpayment from the next payment due. We add
underpayments to the next payment. We will credit or charge the amount of any
adjustment with interest at the rate of 3% annually.
ASSIGNMENT AND OWNERSHIP RIGHTS
Owners and payees may assign their rights and interests under a Qualified
Contract only in certain narrow circumstances referred to in the contract.
Contract owners and other payees may assign their rights and interests under
Non-Qualified Contracts, including their ownership rights.
We take no responsibility for the validity of any assignment. Owners and payees
must make a change in ownership rights in writing and send it to our home
office. The change will be effective on the date 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 our home
office. An assignment or pledge of a contract may have adverse tax consequences.
See below under "Federal Tax Matters."
BENEFICIARY
You may name or change a beneficiary or a contingent beneficiary before the
annuity commencement date. You must send a written request of the change to
Fortis Benefits. Certain retirement programs may require spousal consent to name
or change a beneficiary. Applicable tax laws and regulations may limit the right
to name a beneficiary other than the spouse. 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 payment 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.
Upon the death of a contract owner, or the Annuitant if the contract owner is an
non-natural person, prior to the annuity commencement date the beneficiary will
be deemed to be as follows:
- If there is any surviving contract owner, the surviving contract owner
will be the beneficiary (this overrides any other beneficiary
designation).
- If there is no surviving contract owner, the beneficiary will be the
beneficiary designated by the contract owner.
- If there is no surviving contract owner and no surviving beneficiary who
has been designated by the contract owner, the estate of the last
surviving contract owner will be the beneficiary.
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REPORTS
We will mail to the contract owner, at the last known address of record, any
report required by applicable law or regulation. You should therefore give us
prompt written notice of any address change. Each contract owner will also be
sent an annual and a semi-annual report for the portfolios and a list of the
portfolio securities held in each portfolio. All reports will be mailed to the
person receiving payments during the Annuity Period, rather than to the contract
owner.
RIGHTS RESERVED BY FORTIS BENEFITS
We reserve the right to make certain changes if, in our judgement, they would
best serve the interests of contract owners and Annuitants or would be
appropriate in carrying out the purposes of the contract. We will make any
change only as permitted by applicable laws. We will obtain your approval of the
changes and approval from any appropriate regulatory authority if required by
law. Examples of the changes we may make include:
- To operate the Separate Account in any form permitted under the
Investment Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any subaccount to another subaccount, or to one
or more separate accounts, or to the fixed account; or to add, combine or
remove subaccounts in the Separate Account.
- To substitute, for the portfolio shares held in any subaccount, the
shares of another portfolio or the shares of another investment company
or any other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the contract as an
annuity.
- To change the time or times of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the contract in order to
conform with any action the above provisions permit us to take, including
to change the way us assess charges, but without increasing, as to any
then outstanding contract, the aggregate amount of the types of charges
that we have guaranteed.
DISTRIBUTION
Fortis Investors, Inc. ("Fortis Investors") is the principal underwriter of the
contracts. The contracts will be sold by individuals who are licensed by state
insurance authorities to sell the contracts of Fortis Benefits and (1) are
registered representatives of Fortis Investors or (2) are registered
representatives of other broker-dealer firms, or (3) are representatives of
other firms that are exempt from broker-dealer regulation. Fortis Investors and
any other broker-dealer firms are (1) registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934 as broker-dealers
and (2) members of the National Association of Securities Dealers, Inc.
Fortis Investors will pay an allowance to its registered representatives and
selling brokers in varying amounts. Fortis Investors does not expect the
allowances under normal circumstances to exceed 6.25% of purchase payments plus
a servicing fee of .25% of contract value per year, starting in the first
contract year.
Fortis Investors may, under certain flexible compensation arrangements, pay
lesser or greater selling allowances and larger or smaller service fees to its
registered representatives and other broker dealer firms than as set forth
above. However, in such case, such flexible compensation arrangements will have
actuarial present values that are approximately equivalent to the amounts of the
selling allowances and service fees set forth above. Additionally, registered
representatives, broker-dealer firms and exempt firms may qualify for additional
compensation based upon meeting certain production standards. Fortis Investors
may "chargeback" commissions paid to others if the contract upon which the
commission was paid is surrendered or canceled within certain specified time
periods.
Fortis Benefits or Fortis Investors may also provide additional compensation to
broker-dealers in connection with sales of contracts. Compensation may include
financial assistance to broker-dealers in connection with (1) conferences, (2)
sales or training programs for their employees, (3) seminars for the public, (4)
advertising, (5) sales campaigns regarding contracts, and (6) other
broker-dealer sponsored programs or events. Compensation may also include trips
taken by invited sales representatives and their family members to locations
within or without the United States for business meetings or seminars. Fortis
Benefits or Fortis Investors may pay travel expenses that arise from these
trips.
Fortis Investors is an indirect subsidiary of Fortis (NL)N.V. and Fortis (B).
Fortis Investors is under common control with Fortis Benefits. Fortis Investors'
principal business address is the same as that of our home office.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes. These rules are based on laws, regulations and
interpretations that are subject to change at any time. This summary is not
comprehensive. We do not intend it 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 (the "Code") governs the taxation of
annuities in general. Neither you nor any other person may exclude or deduct
purchase payments under Non-Qualified Contracts from gross income. However, you
are not currently taxed, until receipt, on any increase in the accumulated value
of a Non-Qualified Contract that results from (1) the investment performance of
the Separate Account or (2) interest credited to the fixed account. Contract
owners who are not natural persons ARE taxed annually for any increase in the
contract value subject to certain exceptions. 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 you assign or pledge any
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<PAGE> 21
part of the contract value, you pay on the value so pledged or assigned to the
same extent as a partial withdrawal.
With respect to annuity payment options, 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, "investment in the contract" is the aggregate amount
of purchase payments made. After recovery of the "investment in the contract",
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 the amount of
the payment less the nontaxable portion. The nontaxable portion of each payment
is the "investment in the contract" divided 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 that bears the same
ratio to such payment that the "investment in the contract" bears to the total
expected return under the contract. The remainder of each annuity payment is
taxable. The taxable portion of a distribution (in the form of an annuity or a
single sum payment) is taxed as ordinary income.
For purposes of determining the amount of taxable income resulting from
distributions, all contracts, and other annuity contracts, we or our affiliates
issue to you within the same calendar year will be treated as if they were a
single contract.
You, or any other payee, will pay a 10% penalty on the taxable portion of a
"premature distribution." Generally, an amount is a "premature distribution"
unless the distribution is:
- made on or after you or another payee reach age 59 1/2, or is
- made to a beneficiary on or after your death, or is
- made upon your disability or that of another payee, or is
- part of a series of substantially equal annuity payments for your life or
life expectancy, or the life or life expectancy of you or your
beneficiary
Premature distributions may result, for example, from:
- an early annuity commencement date
- an early surrender or partial surrender of a contract
- an assignment of a contract
- the early death of an annuitant other than you or another person
receiving annuity payments under the contract
If you transfer ownership of a contract, or designate an Annuitant or a payee
other than yourself, you may have certain income or gift tax consequences that
are beyond the scope of this discussion. If you are contemplating any transfer
or assignment of a contract, you should contact a competent tax adviser.
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:
- 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
- if you die prior to the annuity commencement date, the entire interest in
the contract will be distributed:
- within five years after your death, or
- as annuity payments that will begin within one year of your death and
will be made over your designated beneficiary's life or over a period
not extending beyond the life expectancy of that beneficiary.
However, if the contract owner's designated beneficiary is the surviving spouse,
the surviving spouse may continue the contract as the new contract owner. Where
the contract owner or other person receiving payments is not a natural person,
the required distributions under Section 72(s) apply on the death of the primary
Annuitant.
The Internal Revenue Service has not issued regulations interpreting the
requirements of Section 72(s). However, it has issued proposed regulations
interpreting similar requirements for qualified plans. We intend 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, the above requirements will be satisfied with a single sum payment
where the death occurs prior to the annuity commencement date. A single sum
payment will be subject to proof of the contract owner's death. The beneficiary,
however, may elect by written request to receive an annuity option instead of a
lump sum payment. However, if the election is not made within 60 days of the
date the single sum death benefit otherwise becomes payable, the IRS may
disregard the election for tax purposes and tax the beneficiary as if a single
sum payment had been made.
QUALIFIED CONTRACTS
The contract may be used with several types of tax-qualified plans. The tax
rules applicable to contract owners, Annuitants and other payees vary according
to the type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a tax qualified plan on your behalf are excludible
from your gross income during the Accumulation Period. The portion, if any, of
any purchase payment that is not excluded from your gross income during the
Accumulation Period constitutes your "investment in the contract".
When annuity payments begin, you will receive back your "investment in the
contract," if any, as a tax-free return of capital. The Code provides which
portion of each payment is taxable and which portion is tax free. These rules
may vary depending on the type of tax qualified plan.
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<PAGE> 22
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 education 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); and
- Section 457 unfunded deferred compensation plans of tax-exempt
organizations and private employer unfunded deferred compensation 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.
Despite the recipient's election, the Code may require withholding from certain
payments outside the United States. The Code may also require withholding from
certain distributions from certain types of qualified retirement plans unless
the proceeds are transferred directly from the qualified retirement plan to
another qualified retirement plan. Moreover, special "backup withholding" rules
may require that we disregard the recipient's election if the recipient fails to
supply us with a "TIN" or taxpayer identification number (social security number
for individuals), or if the Internal Revenue Service notifies us 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 that set forth diversification requirements for the
investments underlying the Non-Qualified Contracts. We believe that the
investments will satisfy these requirements. Failure to do so would result in
immediate taxation to you or another person of all income credited to Non-
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 you or another person to be treated as the
owners of Separate Account assets for tax purposes. We reserve the right to
amend the contracts in any way necessary to avoid any such result. The Treasury
Department has stated that it expects to establish standards in this regard
through regulations or rulings. Such standards may apply only prospectively,
although retroactive application is possible if the Treasury Department
considered such standards not to embody a new position.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized upon the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange pursuant to the special
annuity contract exchange form we provide for this purpose is not generally a
taxable event under the Code. Moreover, your investment in the contract will be
the same as your investment in the contract you exchanged out of. However, an
exchange from an investment that is not a life insurance or annuity contract may
be a taxable event.
Various provisions of the tax laws may "grandfather" certain annuity contracts.
For example, certain annuity contracts issued before January 19, 1985 may not be
subject to the distribution rules of Code Section 72(s), and certain
distributions from contracts issued before the same date may not be subject to
the 10% penalty tax for premature distributions. In addition, if a contract
contained principal on August 13, 1982, that principal may generally be
withdrawn in a partial distribution before the withdrawal of any taxable gain in
the contract. These provisions may be lost if a grandfathered contract is
exchanged for a non-grandfathered contract.
Certain contract exchanges are subject to Code Section 1035. Where an exchange
is subject to this Code Section, certain grandfathered provisions may be
preserved. If your exchange is subject to Section 1035, we may be able to assist
you in preserving grandfathered provisions by "tracking" amounts accumulated
through past purchase payments. Payments made before or after the effective date
of the Tax Equity and Fiscal Responsibility Act of 1982 may have different tax
consequences. Therefore, you must provide us with an accurate history of your
past purchase payments.
TAX LAW RESTRICTIONS AFFECTING SECTION 403(B) PLANS
Section 403(b)(11) of the Internal Revenue Code restricts the distribution under
Section 403(b) annuity contracts of:
(1) elective contributions made for years beginning after December 31, 1988;
(2) earnings on those contributions; and
(3) earnings on amounts held as of December 31, 1988.
Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, we may not distribute income attributable to elective
contributions which accrues after December 31, 1988.
VOTING PRIVILEGES
In accordance with our view of current applicable law, we will vote shares of
each of the portfolios attributable to a contract at regular and special
meetings of the shareholders of a portfolio. We will vote those shares in
proportion to instructions we receive from the persons having the voting
interest in the contract as of the record date for the corresponding portfolio
shareholders meeting. Contract owners have the voting interest during the
Accumulation Period. Persons receiving annuity payments have the voting interest
during the Annuity Period, and beneficiaries have the voting interest after the
death of the Annuitant or contract owner. However, if the Investment Company Act
of 1940 or any rules thereunder should be amended or if the present
interpretation thereof should change, and as a result we determine that we are
permitted to vote shares of the portfolios in our own right, we may elect to do
so.
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We determine the number of shares of a portfolio attributable to a contract as
follows:
- During the Accumulation Period, we divide the amount of contract value in
a subaccount by the net asset value of one share of the portfolio
corresponding to that subaccount. We make this calculation as of the
record date for the applicable portfolio.
- During the Annuity Period, or after the death of the Annuitant or owner,
we make a similar calculation. However, for subaccount value we use the
liability for future variable annuity payments allocable to that
subaccount as of the record date for the applicable portfolio. We
calculate the liability for future variable annuity payments on the basis
of the following on the record date:
- mortality assumptions,
- the assumed interest rate used in determining the number of Annuity
Units under the contract, and
- the applicable Annuity Unit value.
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.
Under certain contracts, we will vote portfolio shares according to instructions
we receive from the contract owner. However, we adjust this policy where the
Annuitant or payee is not the contract owner. Under this circumstance, the
Annuitant or payee may instruct the contract owner who, in turn, relays this
instruction to us. We will vote those portfolio shares that we can attribute to
the purchase payments of the Annuitant or payee in accordance with the
instruction relayed to us. In addition, in certain circumstances such as an
employee benefit plan, we allow the Annuitant or payee to direct how we vote
additional shares beyond those that we can attribute to the purchase payments of
the Annuitant or payee. However, we do so only to the extent authorized by the
contract. We compute the number of shares that may be attributed to the
Annuitant of payee on a basis consistent with that for attributing portfolio
shares to contract owners, as described above.
Contract owners are to instruct Fortis Benefits to vote in accordance with such
directions from Annuitants and payees. Furthermore, contract owners are to
instruct us to vote shares of any portfolio for which directions could have been
but were not received from Annuitants and other payees in the same proportion as
other shares in that portfolio attributable to the contract owner which are to
be voted in accordance with directions received from Annuitants and other
payees. The contract owner may instruct us as to the voting of any other shares
attributable to contracts as the contract owner may determine. The Separate
Account and Fortis Benefits do not have any obligation to determine whether or
not voting directions are requested or received by a contract owner or whether
or not a contract owner has instructed us in accordance with directions given by
Annuitants and other payees.
We will vote shares for which we have not received timely instructions, and any
shares attributable to excess amounts we have accumulated in the related
subaccount, in proportion to the voting instructions which we receive for all
contracts and other variable annuity contracts participating in a portfolio. To
the extent that we or any affiliated company holds any shares of a portfolio,
those shares will be voted in the same proportion as instructions for that
portfolio from all our policy owners holding voting interests in that portfolio.
Shares held by separate accounts other than the Separate Account will in general
be voted in accordance with instructions of participants in such other separate
accounts. This diminishes the relative voting influence of the contracts.
Each person having a voting interest in a subaccount of the Separate Account
will receive proxy material, reports and other materials relating to the
appropriate portfolio. Under 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 a portfolio's 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 of portfolio shareholders
STATE REGULATION
We are subject to regulation and supervision by the Commerce Department of the
State of Minnesota, which periodically examines our affairs. We are also subject
to the insurance laws and regulations of all jurisdictions where we are
authorized to do business. We intend to satisfy the necessary requirements to
sell contracts in the District of Columbia and in all states other than New York
as soon as possible.
LEGAL MATTERS
David A. Peterson, Esquire, Vice President and Assistant General Counsel with
our legal department has passed on the legality of the contracts described in
this prospectus. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have
advised Fortis Benefits on certain federal securities law matters.
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Fortis Benefits................................
Calculation of Annuity Payments................
Services.......................................
Safekeeping of Separate Account Assets.........
Principal Underwriter..........................
Limitation On Allocations......................
Change of Investment Adviser or Investment
Policy.......................................
Taxation Under Certain Retirement Plans........
Other Information..............................
Financial Statements...........................
APPENDIX A--Performance Information............
</TABLE>
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APPENDIX A--SAMPLE DEATH BENEFIT CALCULATIONS
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2
DATE OF DEATH IS THE 3RD CONTRACT ANNIVERSARY: --------- ---------
<S> <C> <C>
a. Purchase Payments Made Prior to Date of Death.......... $30,000 $30,000
b. Purchase Payments Made Prior to Date of Death,
accumulated at 5%...................................... $34,729 $34,729
c. Contract Value on Date of Death........................ $25,000 $37,000
Death Benefit is the larger of a, b, and c.................. $34,729 $37,000
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2
DATE OF DEATH IS THE 5TH CONTRACT ANNIVERSARY: --------- ---------
<S> <C> <C>
a. Purchase Payments Made Prior to Date of Death.......... $30,000 $30,000
b. Purchase Payments Made Prior to Date of Death,
accumulated at 5%...................................... $38,288 $38,288
c. Contract Value on Date of Death........................ $40,000 $45,000
Death Benefit is larger of a, b, and c...................... $40,000 $45,000
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2
DATE OF DEATH IS THE 10TH CONTRACT ANNIVERSARY: --------- ---------
<S> <C> <C>
a. Purchase Payments Made Prior to Date of Death.......... $30,000 $30,000
b. Purchase Payments Made Prior to Date of Death,
accumulated at 5%...................................... $48,867 $48,867
c. Contract Value on Date of Death........................ $25,000 $60,000
Death Benefit is the larger of a, b, and c.................. $48,867 $60,000
</TABLE>
A-1
<PAGE> 25
APPENDIX B--EXPLANATION OF EXPENSE CALCULATIONS
The expense for a given year is calculated by multiplying the projected
beginning of the year policy value by the total expense rate. The total expense
rate is the sum of the variable account expense rate plus the total portfolio
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Growth Stock Series, is calculated as
follows:
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Total Variable Account Annual Expenses 1.85%
--------------------------------------------------------------------------------
+ Total Series Fund Operating Expenses .66%
--------------------------------------------------------------------------------
= Total Expense Rate 2.51%
--------------------------------------------------------------------------------
</TABLE>
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = 1000.00 X .0251 = $25.10
Year 2 Beginning Policy Value = $1025.00
Year 2 Expense = 1024.90 X .0251 = $25.72
Year 3 Beginning Policy Value = $1050.62
Year 3 Expense = 1050.43 X .0251 = $26.37
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to
$25.10 + $25.72 + $26.37 = $77.19
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 $77.19 + $63.00 = $140.19
B-1
<PAGE> 26
APPENDIX C--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 Contract Owner (or Annuitant).
Under the death benefit set forth as (3) in "Benefit Payable on Death of
Contract Owner (or Annuitant)", 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 purchase payments made on or after the date either the
contract owner first reaches his or her 86th birthday and before
the given withdrawal, reduced by
(iii) pro rata adjustments for any withdrawals made on or after the date
either the contract owner first reaches his or her 86th birthday
and before the given withdrawal.
C-1
