<PAGE> 1
As filed with the Securities and Exchange Commission on April 28, 2000
Registration Nos. 33-73986
811-5439
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 9
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 69
VARIABLE ACCOUNT D
OF
FORTIS BENEFITS INSURANCE COMPANY
(Exact Name of Registrant)
---------------------------------
FORTIS BENEFITS INSURANCE COMPANY
(Name of Depositor)
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, Including Area Code:
651-738-4000
---------------------------------
RHONDA J. SCHWARTZ, ESQ.
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: as soon as practicable after
the effective date of this registration statement.
---------------------------------
It is proposed that this filing will be come effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485.
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X on May 1, 2000 pursuant to paragraph (b) of Rule 485.
-----
60 days after filing pursuant to paragraph (a)(1) of Rule 485.
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On pursuant to paragraph (a)(1) of Rule 485
-----
If appropriate, check the following box:
This post effective amendment designates a new effective date
----- for a previously filed post effective amendment.
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<PAGE> 2
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
Cross Reference Sheet Showing Location
of Information in Prospectus or
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Form N-4 Prospectus Caption
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<S> <C>
1. Cover Page Cover Page
2. Definitions Special Terms Used in This Prospectus
3. Synopsis of Highlights Summary; Information Concerning
Fees and Charges
4. Condensed Financial Not applicable
Information
5. General Description of Summary--Separate Account Investment
Registrant, Depositor and Options; Fortis Benefits and the
Portfolio Companies Separate Account; Fixed Account
6. Deductions Summary--Charges and Deductions; Charges
and Deductions
7. General Description of Variable Accumulation Period; General Provisions
Annuity Contracts
8. Annuity Period The Annuity Period
9. Death Benefit Summary--Death Benefit; Accumulation
Period -- Benefit Payable on Death of
Annuitant or Contract Owner
10. Purchases and Contract Value Accumulation Period -- Issuance of a
Contract and Purchase Payments-- Contract
Value
11. Redemptions Summary--Total or Partial Surrenders;
Accumulation Period -- Total and Partial
Surrenders
12. Taxes Summary--Tax Implications; Federal Tax
Matters
13. Legal Proceedings None
14. Table of Contents of the Contents of Statement of Additional
Statement of Additional Information
Information
<CAPTION>
Statement of Additional
Form N-4 Information Caption
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<S> <C>
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History Fortis Benefits
18. Services Services
19. Purchases of Securities Being * Reduction in Charges
Offered
20. Underwriters Services
21. Calculation of Performance Data None
22. Annuity Payments Calculation of Annuity Payments
23. Financial Statements Financial Statements
- --------------------------
</TABLE>
*All required information is included in the Prospectus.
<PAGE> 3
WELLS FARGO
PASSAGE
VARIABLE
ANNUITY
Individual Flexible
Premium Deferred
Variable Annuity Contract
PROSPECTUS DATED
May 1, 2000
[FORTIS SOLID PARTNERS, FLEXIBLE SOLUTIONS(SM) LOGO]
FORTIS BENEFITS INSURANCE COMPANY
<TABLE>
<S> <C> <C>
MAILING ADDRESS: STREET ADDRESS: PHONE: 1-800-780-7743
P.O. BOX 64272 500 BIELENBERG DRIVE
ST. PAUL, MN 55164 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 may
choose among the following investment alternatives:
- three portfolios of Fortis Series Fund, Inc.:
- Global Growth Series,
- Growth Stock Series, and
- Money Market Series
- seven portfolios of the Wells Fargo Variable Trust:
- Corporate Bond Fund
- Small Cap Growth Fund
- Large Company Growth Fund
- Equity Income Fund
- Asset Allocation Fund
- Equity Value Fund
- Growth Fund
- two portfolios of the MFS Variable Insurance Trust:
- Emerging Growth Series, and
- High Income Series
- two portfolios of the AIM Variable Insurance Funds, Inc.:
- AIM V.I. International Equity Fund, and
- AIM V.I. Value Fund
It is anticipated that on additional portfolio, the Wells Fargo International
Equity Fund, will be available to you on or about July 1, 2000. See your
representative for its current availability.
Class A shares of the Scudder Variable Life Investment Fund ("Scudder Series")
were available for contracts purchased prior to May 1, 1998. If you had contract
value allocated to the Scudder Series as of May 1, 1998, you may continue making
allocations to the Scudder Series. You may allocate subsequent purchase payments
to the Scudder Series, and you may make subsequent transfers of contract value
to the Scudder Series.
The accompanying prospectuses for these portfolios describe the investment
objectives, policies, and risks of each of the portfolios.
This prospectus gives prospective 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 22 of this prospectus.
THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK,
CREDIT UNION, BROKER-DEALER OR OTHER FINANCIAL INSTITUTION. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. THEY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[FORTIS LOGO]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms Used in this Prospectus....................... 3
Information Concerning Fees and Charges..................... 4
Summary..................................................... 6
Fortis Benefits and the Separate Account.................... 9
- Fortis Benefits/Fortis Financial Group Member........ 9
- The Separate Account................................. 9
- The Series Funds..................................... 9
Accumulation Period......................................... 10
- Issuance of a Contract and Purchase Payments......... 10
- Contract Value....................................... 10
- Allocation of Purchase Payments and Contract Value... 11
- Total and Partial Surrenders......................... 11
- Telephone Transactions............................... 12
- Benefit Payable on Death of Annuitant or Contract
Owner................................................. 12
- Contract Loans (Section 403(b) Qualified Contracts
Only)................................................. 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... 15
- Annuity Options...................................... 15
- Death of Annuitant or Other Payee.................... 15
Charges and Deductions...................................... 16
- Premium Taxes........................................ 16
- Annual Administrative Charge......................... 16
- Charges Against the Separate Account................. 16
- Surrender Charge..................................... 17
- Miscellaneous........................................ 17
- Reduction of Charges................................. 17
Fixed Account............................................... 17
- General Description.................................. 17
- Fixed Account Value.................................. 18
- 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.......................................... 19
- Reports.............................................. 19
Rights Reserved by Fortis Benefits.......................... 19
Distribution................................................ 19
Federal Tax Matters......................................... 20
Voting Privileges........................................... 22
State Regulation............................................ 22
Legal Matters............................................... 22
Contents of Statement of Additional Information............. 23
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> 5
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.
AIM Series AIM Variable Insurance Funds, Inc., a diversified open-end
management investment company in which the Separate Account
invests.
Annuitant A person during whose life annuity payments are to be made by
Fortis Benefits under the contract.
Annuity Period The time period following the Accumulation Period, during
which annuity payments are made by Fortis Benefits.
Annuity Unit A unit of measurement used to calculate variable annuity
payments.
Five Year Anniversary
The fifth anniversary of a contract date, and each subsequent
fifth anniversary of that date.
Fixed Annuity Option
An annuity option under which Fortis Benefits promises to pay
the Annuitant or any other properly designated payee one or
more fixed payments.
Fortis Series Fortis Series Fund, Inc., a diversified, open-end management
investment company in which the Separate Account invests.
MFS Series MFS Variable Insurance Trust, a diversified open-end
management investment company in which the Separate Account
invests.
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.
Scudder Series Scudder Variable Life Investment Fund, a diversified,
open-end management investment company in which the Separate
Account invests.
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 Fortis Benefits promises to pay
the Annuitant or any other properly designated payee one or
more payments which vary in amount in accordance with the net
investment experience of the subaccounts selected by the
Annuitant.
Wells Fargo Series Wells Fargo Variable Trust, a diversified, open-end
management investment company in which the Separate Account
invests.
3
<PAGE> 6
INFORMATION CONCERNING FEES AND CHARGES
CONTRACT OWNER TRANSACTION CHARGES
<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)....................................... 5 %(1)
</TABLE>
<TABLE>
<CAPTION>
YEARS SINCE
DATE OF PAYMENT AMOUNT OF CHARGE
- --------------- ----------------
<S> <C>
Less than 5 5%
5 or more 0%
</TABLE>
<TABLE>
<S> <C> <C> <C>
Other Surrender Fees........................................ 0 %
Transfer Fee................................................ 0 %
Charge for Each 403(b) Contract Loan........................ $100
ANNUAL CONTRACT ADMINISTRATION CHARGE............................ $30 (2)
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE).....................
Mortality and Expense Risk Charge........................... 1.25 %
Separate Account Administrative Charge...................... .15 %
-----
Total Separate Account Annual Expenses...................... 1.40 %
</TABLE>
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(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, in the case where the owner or Annuitant dies prior
to the contract being surrendered.
(2) This charge, which is otherwise applied at each contract anniversary and
total surrender of the contract, will not be charged during the Accumulation
Period if the contract value as of such anniversary or surrender is $25,000
or more. Currently, Fortis Benefits waives this charge during the Annuity
Period. This charge is also subject to any applicable limitations under the
law of any state.
PORTFOLIO ANNUAL EXPENSES (a)
The information set forth in this table was provided to Fortis Benefits by the
portfolio managers and Fortis Benefits has not independently verified such
information for those portfolios other than the Fortis Series portfolios.
<TABLE>
<CAPTION>
TOTAL OPERATING
EXPENSES
INVESTMENT (AFTER EXPENSE
ADVISORY AND OTHER REIMBURSEMENTS
MANAGEMENT FEE EXPENSES AND WAIVERS)(b)(c)
-------------- -------- ------------------
<S> <C> <C> <C>
Wells Fargo Corporate Bond Fund............................. 0.10% 0.80% 0.90%
Wells Fargo Small Cap Growth Fund........................... 0.00% 0.95% 0.95%
Wells Fargo Large Company Growth Fund....................... 0.12% 0.88% 1.00%
Wells Fargo Equity Income Fund.............................. 0.46% 0.40% 0.86%
Wells Fargo Asset Allocation Fund........................... 0.39% 0.58% 0.97%
Wells Fargo Equity Value Fund............................... 0.12% 0.94% 1.06%
Wells Fargo Growth Fund..................................... 0.39% 0.68% 1.07%
Wells Fargo International Equity Fund....................... 0.75% 0.25% 1.00%
Fortis Global Growth Series................................. 0.70% 0.07% 0.77%
Fortis Growth Stock Series.................................. 0.61% 0.05% 0.66%
Fortis Money Market Series.................................. 0.30% 0.05% 0.35%
Scudder International Fund Class A Shares................... 0.85% 0.18% 1.03%
MFS Emerging Growth Series.................................. 0.75% 0.09% 0.84%
MFS High Income Series...................................... 0.75% 0.15% 0.90%
AIM V.I. Value Fund......................................... 0.61% 0.15% 0.76%
AIM V.I. International Equity Fund.......................... 0.75% 0.22% 0.97%
</TABLE>
- ------------------------------
(a) As a percentage of portfolio average net assets based on 1999 historical
data except for the Wells Fargo International Equity Fund portfolio, which
is based upon estimates for 2000.
(b) In the absence of expense reimbursements and waivers, Total Operating
Expenses for the Wells Fargo portfolios would be as follows: Corporate Bond
Fund--1.25%; Small Cap Growth Fund--1.94%; Large Company Growth Fund--1.43%;
Equity Income Fund--1.12%; Asset Allocation Fund--1.17%; Equity Value
Fund--1.53%; and Growth Fund--1.27%; and Money Market--1.07%. In the absence
of expense reimbursements and receivables, Total Operating Expenses for the
MFS High Income portfolio would have been .97% and it is estimated that
Wells Fargo International Equity Fund would be 1.40% for 2000. There was no
reimbursement for the other MFS portfolio or the Fortis, AIM and Scudder
portfolios.
(c) Certain of the unaffiliated investment advisers of the Portfolios reimburse
Fortis Benefits for costs incurred in connection with administering the
Portfolios as variable funding by payment of an amount based on assets in
the Portfolios attributable to the contracts. These amounts are not charged
to the Portfolios or Contract holders.
4
<PAGE> 7
EXAMPLES*
If you surrender your contract in full at the end of any of the time periods
shown below, you would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Wells Fargo Corporate Bond Fund............................. $68 $117 $168 $264
Wells Fargo Small Cap Growth Fund........................... 69 119 171 269
Wells Fargo Large Company Growth Fund....................... 69 120 173 274
Wells Fargo Equity Income Fund.............................. 68 116 166 260
Wells Fargo Asset Allocation Fund........................... 69 119 172 271
Wells Fargo Equity Value Fund............................... 70 122 176 280
Wells Fargo Growth Fund..................................... 70 122 177 281
Wells Fargo International Equity Fund....................... 69 120 173 274
Fortis Global Growth Series................................. 67 113 162 251
Fortis Growth Stock Series.................................. 66 110 156 240
Fortis Money Market Series.................................. 63 100 140 207
Scudder International Portfolio--Class A.................... 69 119 172 271
MFS Emerging Growth Series.................................. 68 115 165 258
MFS High Income Series...................................... 68 117 168 264
AIM V.I. Value Fund......................................... 67 113 161 250
AIM V.I. International Equity Fund.......................... 69 119 172 271
</TABLE>
If you commence an annuity payment option, or do not surrender your contract,
you would pay the following cumulative expenses on a $1,000 investment, assuming
a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Wells Fargo Corporate Bond Fund............................. $23 $72 $123 $264
Wells Fargo Small Cap Growth Fund........................... 24 74 126 269
Wells Fargo Large Company Growth Fund....................... 24 75 128 274
Wells Fargo Equity Income Fund.............................. 23 71 121 260
Wells Fargo Asset Allocation Fund........................... 24 74 127 271
Wells Fargo Equity Value Fund............................... 25 77 131 280
Wells Fargo Growth Fund..................................... 25 77 132 281
Wells Fargo International Equity Fund....................... 24 75 128 274
Fortis Global Growth Series................................. 22 68 117 251
Fortis Growth Stock Series.................................. 21 65 111 240
Fortis Money Market Series.................................. 18 55 95 207
Scudder International Portfolio--Class A.................... 24 74 127 271
MFS Emerging Growth Series.................................. 23 70 120 258
MFS High Income Series...................................... 23 72 123 264
AIM V.I. Value Fund......................................... 22 68 116 250
AIM V.I. International Equity Fund.......................... 24 74 127 271
</TABLE>
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*For purposes of these examples, the effect of the annual contract
administration charge has been computed based on the average total contract
value of all outstanding contracts during the year ended December 31, 1999 and
the total actual amount of annual contract administration charges collected
during the year. For the purpose of these examples, portfolio annual expenses
are assumed to continue at the rates set forth in the table above.
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 Charges and Deductions--Premium Taxes.)
See Appendix B for an explanation of the calculations of the amounts set forth
above.
5
<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.
PURCHASE PAYMENTS
The initial purchase payment must be at least $5,000 ($2,000 for Qualified
Contracts). An initial purchase payment of $50 is acceptable if payments are
being made on a systematic basis such as payroll deduction or automatic
deduction from a savings or checking account. Additional payments must be at
least $1,000 each unless they are being made on a systematic basis such as a
payroll deduction or automatic deduction from a savings or checking account. $50
is the minimum additional payment on a systematic basis. For contracts issued in
the states of Oregon and Washington, only a single purchase payment may be made
and no further purchase payments can be accepted.
On the contract date, the initial purchase payment is allocated, as specified by
the contract owner in the contract application, among one or more of the
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 the contract owner may subsequently request.
SEPARATE ACCOUNT INVESTMENT OPTIONS
Each of the available subaccounts of the Separate Account invests in shares of a
corresponding portfolio of Fortis Series, Wells Fargo Series, AIM Series, MFS
Series or Scudder Series. The investment objective of each of the subaccounts of
the Separate Account and that of the corresponding portfolio of Fortis Series,
Wells Fargo Series, AIM Series, MFS Series or Scudder Series is the same.
Contract value in each of the subaccounts of the Separate Account will vary to
reflect the investment experience of each of the corresponding portfolios, as
well as deductions for certain charges.
Each portfolio has a separate and distinct investment objective. The portfolios
of Fortis Series are managed by Fortis Advisers, Inc. The portfolios of Wells
Fargo Series are managed by Wells Fargo Bank, N.A. The portfolios of Scudder
Series are managed by Scudder, Stevens & Clark, Inc. The portfolios of MFS
Series and AIM Series are managed by Massachusetts Financial Services Company
and A.I.M. Advisors, Inc., respectively. The individual portfolios of these
Series may have sub-advisors. See the prospectuses for the Series which
accompany this prospectus for further information as to any sub-advisors for any
given portfolio.
For providing investment management services to these portfolios, the managers
receive fees from the applicable Series based on the average daily net assets of
the portfolios. The portfolios also bear most of their other expenses. Full
descriptions of the portfolios and their investment objectives, policies, and
risks can be found in the current prospectuses for each Series which accompany
this prospectus. Additional information on each Series is also available in the
Statement of Additional Information for each Series. These Statements of
Additional Information are 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 Value--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 and total surrenders may not be
made without application of the annual administrative charge if the contract
value is less than $25,000. See "Total and Partial Surrenders," "Surrender
Charge" and "Annual Administrative Charge." Particular attention should be paid
to the tax implications of any surrender, including possible penalties for
premature distributions. See "Federal Tax Matters."
LOANS UNDER CERTAIN QUALIFIED CONTRACTS
If a contract is qualified under Section 403(b) of the Internal Revenue Code,
you may take out loans from Fortis Benefits during the Accumulation Period.
There are limits on the amount of such loans, and the loan will be secured by
the contract. Principal and interest on a loan must in most cases be paid over a
five year period, and failure to make these payments may have adverse tax
consequences. For a more detailed discussion of these and other terms and
conditions of contract loans, see "Accumulation Period--Contract Loans (Section
403(b) Qualified Contracts Only)."
CHARGES AND DEDUCTIONS
We deduct daily charges at a rate of 1.25% per annum of the value of the average
net assets in the Separate Account for the mortality and expense risks we assume
and .15% per annum of the value of the average net assets in the Separate
Account to cover certain administrative expenses. See "Mortality and Expense
Risk Charge," and "Administrative Expense Charge" under the heading "Charges
Against the Separate Account."
6
<PAGE> 9
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 recently the purchase payments to which the
surrender relates were made. The aggregate surrender charges will never exceed
5% of the purchase payments made to date.
There is also an annual administrative charge each year for contract
administration and maintenance. This charge is $30 per year (subject to any
applicable state law limitations) and is deducted on each anniversary of the
contract date and upon total surrender of the contract. Currently, this charge
is not deducted during the Annuity Period. This charge will be waived during the
Accumulation Period if the contract value at the end of the contract year (or
upon total surrender) is $25,000 or more.
Certain states and other jurisdictions impose premium taxes or similar
assessments upon 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 will deduct a charge for these amounts from the contract value upon
surrender, death of the Annuitant or contract owner, or annuitization of the
contract. In jurisdictions where such taxes or assessments are imposed at the
time of annuitization, we will deduct a charge for such amounts at that time.
ANNUITY PAYMENTS
The contract provides several types of annuity benefits to Annuitants or their
beneficiaries, including Fixed and Variable Annuity Options. The contract owner
has considerable flexibility in choosing the annuity commencement date. However,
the tax implications of an annuity commencement date must be carefully
considered, including the possibility of penalties for commencing benefits
either too soon or too late. See "Annuity Commencement Date," "Annuity 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 that the Annuitant or contract owner dies prior to the annuity
commencement date, a death benefit is payable to the beneficiary of the
contract. See "Benefit Payable on Death of Annuitant or Contract Owner."
RIGHT TO EXAMINE THE CONTRACT
You have a right to examine the contract. You can cancel the contract by
delivering or mailing it, together with a written request, to our home office or
to the sales representative through whom it was purchased, before the close of
business on the tenth day after receipt of the contract. If these items are sent
by mail, properly addressed and postage prepaid, they will be deemed to be
received by us on the date postmarked. We will return to you the contract value
without application of any sales, surrender, or administrative charges (except
that in those states that so require, you will receive the amount of your
purchase payments).
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; 1-800-780-7743. For certain current information relating to
contract values such as subaccount unit values, interest rates in the fixed
account, and your contract value, call 1-800-780-7743. 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
1-800-780-7743.
Any purchase payment or other communication, except a 10-day cancellation
notice, is deemed received at Fortis Benefits' home office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on the New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.
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<PAGE> 10
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>
WFVT WFVT
FORTIS FORTIS FORTIS LARGE WFVT SMALL WFVT WFVT
GROWTH GLOBAL MONEY COMPANY CORPORATE CAP EQUITY ASSET
STOCK GROWTH MARKET GROWTH BOND GROWTH INCOME ALLOCATION
------ ------ ------ ------- --------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
Accumulation Units in Force......... 818,934 511,824 495,962 1,954,176 2,448,465 870,214 7,465,448 116,844
Accumulation Unit Values............ $28.617 $26.813 $12.308 $24.940 $12.659 $22.338 $16.941 $10.473
December 31, 1998
Accumulation Units in Force......... 771,903 566,608 369,045 1,814,817 1,663,176 975,631 5,406,120 --
Accumulation Unit Values............ $18.703 $17.244 $11.893 $19.700 $13.322 $13.624 $15.919 --
December 31, 1997
Accumulation Units in Force......... 581,893 494,683 200,352 1,260,231 740,788 611,312 2,920,566 --
Accumulation Unit Values............ $15.935 $15.702 $11.451 $17.193 $12.379 $16.153 $13.632 --
December 31, 1996
Accumulation Units in Force......... 377,146 279,692 331,319 744,037 519,750 306,790 877,957 --
Accumulation Unit Values............ $14.374 $14.907 $11.023 $14.104 $11.508 $14.893 $10.891 --
December 31, 1995
Accumulation Units in Force......... 181,812 76,993 44,328 399,783 268,586 75,968 --
Accumulation Unit Values............ $12.522 $12.694 $10.630 $11.900 $11.403 $11.478 --
May 1, 1995
Accumulation Units Values........... -- -- -- -- -- $10.000 --
December 31, 1994
Accumulation Units in Force......... 53,402 26,014 22,318 138,880 69,444 -- --
Accumulation Unit Value............. $9.946 $9.864 $10.196 $9.719 $9.876 -- --
<CAPTION>
WFVT SCUDDER AIM MFS MFS
WFVT EQUITY INTERNATIONAL AIM INTERNATIONAL EMERGING HIGH
GROWTH VALUE CLASS A VALUE EQUITY GROWTH INCOME
------ ------ ------------- ----- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
Accumulation Units in Force......... 5,570 10,275 441,802 1,716,853 390,247 907,184 691,316
Accumulation Unit Values............ $10.978 $9.908 $25.187 $17.752 $14.941 $19.406 $9.950
December 31, 1998
Accumulation Units in Force......... -- -- 507,370 431,724 161,048 316,002 289,844
Accumulation Unit Values............ -- -- $16.530 $11.520 $9.776 $11.136 $9.479
December 31, 1997
Accumulation Units in Force......... -- -- 437,666 -- -- -- --
Accumulation Unit Values............ -- -- $14.124 -- -- -- --
December 31, 1996
Accumulation Units in Force......... -- -- 260,708 -- -- -- --
Accumulation Unit Values............ -- -- $13.134 -- -- -- --
December 31, 1995
Accumulation Units in Force......... -- -- 155,817 -- -- -- --
Accumulation Unit Values............ -- -- $11.605 -- -- -- --
May 1, 1995
Accumulation Units Values........... -- -- -- -- -- -- --
December 31, 1994
Accumulation Units in Force......... -- -- 92,377 -- -- -- --
Accumulation Unit Value............. -- -- $10.591 -- -- -- --
</TABLE>
8
<PAGE> 11
Audited financial statements of the available subaccounts of the Separate
Account are included in the Statement of Additional Information. Audited
financial statements of 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. Advertising and other sales
literature may simultaneously show performance for the underlying portfolios
that does not take into account Separate Account charges. These figures are
based on historical results and are not intended to indicate future performance.
"Yield" is the income generated by an investment in the subaccount over a period
of time specified in the advertisement. This rate of return is assumed to be
earned over a full year and is shown as a percentage of the investment. "Total
Return" is the total change in value of an investment in the subaccount over
period of time specified in the advertisement. The rate of return shown would
produce that change in value over the specified period, if compounded annually.
Yield figures do not reflect the surrender charge and yield and total return
figures do not reflect premium tax charges. This makes the performance shown
more favorable.
FORTIS BENEFITS AND THE SEPARATE ACCOUNT
FORTIS BENEFITS/FORTIS FINANCIAL GROUP MEMBER
Fortis Benefits Insurance Company 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, Inc. to offer financial products through the
management, marketing and servicing of mutual funds, annuities and 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, and financial
services, and real estate development in the Netherlands, Belgium, the United
States, Western Europe, and the Pacific Rim. The Fortis group of companies had
approximately $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 under Fortis Benefits
variable contracts 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 one of the
portfolios listed on page 1 of this prospectus. 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 eliminated.
THE SERIES FUNDS
You may choose from among a number of the different portfolios which are listed
on the cover of this prospectus. The portfolios are "series" type mutual funds
which are registered with the Securities and Exchange Commission as diversified,
open-end, management investment companies under the Investment Company Act of
1940. The available portfolios of these mutual funds have served as the
investment media for the corresponding subaccounts of the Separate Account since
each subaccount began operations. Each portfolio is, or may be, an investment
medium for these:
- contracts,
- variable life insurance policies, or
- other variable annuity contracts
Such contracts and policies may be issued by Fortis Benefits or by other
insurance companies. These other insurance companies may or may not be
affiliated with Fortis Benefits.
We do not foresee any conflict between your interests and the interests of these
other contract and policy owners. The boards of directors or boards of trustees
of the available portfolios have undertaken to monitor for any material,
irreconcilable conflicts that may develop between your interests and the
interests of other variable annuity contract owners and variable life insur-
9
<PAGE> 12
ance policy owners. These respective boards of directors or boards of trustees
will determine what action, if any, should be taken in response to such
material, irreconcilable conflicts. If it becomes necessary for any separate
account to replace shares of any portfolio with another investment, that
portfolio may have to liquidate securities on a disadvantageous basis.
Fortis Benefits purchases and redeems portfolio shares for the Separate Account
at their net asset values without the any sales or redemption charges. These
shares are interests in the portfolios that are used in connection with the
contracts. Shares in these portfolios are acquired for investment by the
subaccounts of the Separate Account which are available under the contracts.
Each portfolio corresponds to one of those subaccounts of the Separate Account.
The assets of each portfolio are managed separately 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
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 of these dividends and distributions.
The portfolios available for investment are listed on the cover page of this
prospectus.
A full description of the portfolios which are available under the contracts,
their investment policies and restrictions, their charges, the risks attendant
to investing in them, and other aspects of their operations is contained in
their prospectuses accompanying this prospectus and in their Statement of
Additional Information. Additional copies of these documents may be obtained
from your sales representative or from our home office.
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
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 $5,000 ($2,000 for a
Qualified Contract).
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.
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.
Each additional purchase payment must be at least $1,000, except that if
payments are being made on a systematic basis, each payment must be at least
$50. The total of all purchase payments for all contracts having the same owner
or annuitant may not exceed $1,000,000 (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. For contracts issued in the states of Oregon and
Washington only a single purchase payment may be made and no further purchase
payments can be accepted.
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 $500. (Under our
current administrative procedures, however, we will not cancel a contract during
the first contract year.) We will provide the contract owner with 90 days'
written notice so that additional purchase payments may be made in order to
raise the contract value above the applicable minimum. Otherwise, we may cancel
the contract as of the end of the Valuation Period which includes the next
anniversary of the contract date. We will consider this a surrender of the
contract and impose the same charges we would impose upon a surrender. See
"Total and Partial Surrenders." So long as the contract value remains above
$500, 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 guarantees no 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. 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 determined on each Valuation Date.
The value of an Accumulation Unit for a subaccount on any Valuation Date is
equal to the
10
<PAGE> 13
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
- 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.
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 Fortis Benefits' 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 investments in any one subaccount are
set forth under "Limitation 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
during the life of the Annuitant and 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, and less
11
<PAGE> 14
- any applicable administrative charge, and less
- any applicable premium tax charge
For a discussion of these charges and the circumstances under which they apply,
see "Annual Administrative Charge," "Surrender Charge," and "Premium Taxes".
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 Payments"
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 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, 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
Fortis Benefits' 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 $500 after the partial surrender.
However, under our current administrative procedures, we will honor a surrender
request during the first two contract years without regard to the remaining
contract value.
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 Payments."
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.
BENEFIT PAYABLE ON DEATH OF ANNUITANT OR CONTRACT OWNER
If the owner or Annuitant dies prior to the annuity commencement date, we will
pay a death benefit to the beneficiary. 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.
If the contract is issued on or after May 1, 1998 and in a state that has
approved the Enhanced Death Benefit Rider (check with your representative as to
its availability in your state), the death benefit will be equal to the greatest
of (1), (2), (3), (4), or (5) as follows:
(1) the sum of all purchase payments made, less all prior surrenders (other than
any automatic surrenders made to pay the annual administrative charge) and
previously-imposed surrender charges,
(2) the contract value as of the date used for valuing the death benefit, or
(3) the contract value (less the amount of any subsequent surrenders and
surrender charges) as of the contract's Five Year Anniversary immediately
preceding the earlier of (a) the date of death of either the contract owner
or the Annuitant, or (b) the date either first reaches his or her 75th
birthday. (See Appendix A for sample death benefit calculations.)
(4) The highest Anniversary Value of each of the contract's anniversaries prior
to the earlier of (1) the decedent's death, or (2) the date either the owner
or the Annuitant first reaches his or her 75th birthday.
An Anniversary Value is equal to:
(a) the contract value on the anniversary, plus
(b) any purchase payments made since the anniversary, reduced by
12
<PAGE> 15
(c) pro rata adjustments for any withdrawals made since the anniversary.
(5) If the decedent dies prior to the date either the contract owner or
Annuitant first reaches his or her 75th birthday, the amount of the death
benefit is the lesser of (a) and (b), as follows:
(a) the sum of:
(i) the accumulation (without interest) of 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% (4.0% in the state
of Washington); 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 either the contract owner or
Annuitant first reaches his or her 75th birthday, the amount of the death
benefit is equal to:
(a) The "Roll-Up Amount" as of the date either the contract owner or
Annuitant first reaches his or her 75th birthday; plus
(b) the accumulation (without interest) of purchase payments made on or
after the date either the contract owner or Annuitant first reaches his
or her 75th birthday; reduced by
(c) pro rata adjustments for any withdrawals made on or after the date
either the contract owner or Annuitant first reaches his or her 75th
birthday.
We describe the pro rata adjustments referred to above more fully in
Appendix C at the end of this prospectus.
See also Appendix A for sample death benefit calculations.
If the contract is issued prior to May 1, 1998, or on or after that date in a
state that has not approved the Enhanced Death Benefit Rider, the death benefit
will be the greatest of (1), (2), or (3) above.
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 Payments."
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.
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.
CONTRACT LOANS (SECTION 403(b) QUALIFIED CONTRACTS ONLY)
During the Accumulation Period, you may request a loan from the contract value.
If the loan meets the amount and repayment requirements described below, we will
not report the loan to the Internal Revenue Service as a taxable distribution.
We will provide you with forms which you must use if you wish to apply for a
loan. You can obtain these forms from our home office.
Any loan will be secured by a security interest in the contract. We will hold an
amount equal to the loan in the fixed account, where we will credit it with a
fixed account interest rate equal to the contract guaranteed rate until the loan
is repaid. If necessary, we will transfer this amount from the subaccounts to
the fixed account. In this case, unless you select specific subaccounts, we will
transfer the amount proportionately from existing subaccount balances. The loan
and any related transfers will be effective at the end of the Valuation Period
in which we receive at our home office all necessary documentation in connection
with the loan request. We will forward loan proceeds to you within seven days
after we receive your request.
There is a loan administrative fee of $100 for each loan. The fee will be
deducted from the loan proceeds unless it is submitted along with the loan
application. We do not expect that the revenues from these fees will exceed our
costs in establishing and administering your contract loan.
We allow you only one outstanding loan at a time. On the date of the loan, the
loan may not exceed the lesser of:
(1) 50% of the contract value, or
(2) $50,000 reduced by the highest outstanding loan balance of the previous 12
months.
Certain plans impose additional loan limitations. If your plan is part of:
- a governmental employer plan,
- a church plan, or
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- a Section 403(b) salary reduction contribution plan (that satisfies the
diversification requirements of the Employee Retirement Income Securities
Act of 1974),
then you are subject to additional loan limitations. Under these plans, if a
loan is equal to 50% of the contract value and is an amount less than $10,000,
then the loan is subject to distinct limitations. Specifically, the loan may not
exceed the lesser of:
(1) $10,000, or
(2) the contract value less one year's interest on the loan.
In addition, if you are a member of one of these plans, and you are also a
member of additional plans offered by your employer, then the Internal Revenue
Service may limit the amount of any loans you may take out under additional
plans. In these cases, loan amounts may again be limited to the lesser of:
(1) $10,000, or
(2) the contract value less one year's interest on the loan.
Your loan may have either a variable rate, or a fixed rate that is fixed for the
life of the loan. If we have mailed you an endorsement to your contract
specifying a fixed rate, and if you have accepted this endorsement, then your
loan will have a fixed rate. Otherwise, your loan will have a variable rate.
Loan interest rates are set on August 1st each year and are applicable to all
loans made during the 12 months following this date.
For variable rate loans, the loan interest rate is reset every August 1st. The
rate is equal to the greater of (1) the published monthly average of Moody's
Corporate Bond Yield Average--Monthly Average Corporates for the preceding
April, or (2) the weighted average fixed account interest rate being credited to
the contracts as of the preceding July 1st plus 1%.
For fixed rate loans, the loan interest rate is equal to the greater of (1) the
published monthly average of Moody's Corporate Bond Yield Average-Monthly
Average Corporates for the preceding April, or (2) the minimum guaranteed fixed
account interest rate specified on the contract.
Principal and interest must be repaid within five years of the loan date.
However, if a loan is taken to purchase the Annuitant's principal residence, a
longer repayment period applies. In this case, the loan must be repaid within 1
to 30 years of the loan date. Regardless of the loan purpose, interest paid on
Qualified Loans subject to Section 403(b) is defined by the Internal Revenue
Code as "personal interest".
The loan must be repaid in quarterly installments of principal and interest and
may be prepaid at any time. At least 30 days prior to the first installment due
date, we will provide you with a repayment schedule. The schedule will list the
installment due dates and the installment amounts.
You must make loan payments in a timely manner. If you fail to make loan
payments when due, we will place the loan in default, and the entire outstanding
loan balance will be due. Unpaid accrued interest will be added to the loan
balance. Interest will continue to accrue on the loan balance until you repay it
or until we recover the loan balance from the contract when we are permitted to
do so by the Internal Revenue Code.
If loan payments are not made when due, the entire loan balance may become
immediately taxable. In this case, premature distribution taxes as well as
ordinary income taxes may be due. Interest accruing on a loan in default may be
taxable each year that the loan remains unpaid.
If any loan amount is outstanding on the annuity commencement date, you may not
apply the amount held as security for the loan to an annuity settlement. If the
Annuitant or contract owner dies before the annuity commencement date, we
reserve the right to deduct any amount owed to us from the death benefit.
Transfers from the fixed account of the amount held as security for the loan
balance are restricted while a contract loan is outstanding.
Withdrawals from the contract are also restricted while a loan is outstanding.
The minimum contract value remaining after any surrender must be at least
$1,000, plus 105% of the sum of the outstanding loan, plus any unpaid accrued
interest.
When the loan balance is fully repaid, amounts held in the fixed account can be
transferred and amounts held in the contract may be withdrawn, subject to
otherwise generally applicable terms and conditions for such transfers or
withdrawals.
Contract loans are subject to conditions and requirements under the Internal
Revenue Code and, where applicable, ERISA. In addition, if a contract has been
acquired in connection with a retirement plan, contract loans are also subject
to the terms of the plan. The tax and ERISA rules relating to contract loans are
complex and in many cases unclear. For these reasons and because the rules vary
depending on the individual circumstances of each contract, Fortis Benefits
cautions that employers and contract owners should take particular care to
consult with qualified advisers before taking action with respect to contract
loans.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
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. 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. You must submit a written request during the Annuitant's
lifetime. 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
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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 4% annually, the Annuity Unit value will
increase and the second payment will be higher than the first; and
- if the return is lower than 4% 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 and
administrative expense charges, which are assessed at an annual rate of 1.40%.
We guarantee that the amount of each variable annuity payment after the first
payment will not be affected by variations in our mortality experience or our
expenses, except to the extent that we reserve the right to impose the $30
annual administrative expense charge during the Annuity Period just as we do
during the Accumulation Period.
Transfers. 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.
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.
We also have other annuity options available. You can get information about them
from your sales representative or by calling or writing to our home office.
DEATH OF ANNUITANT OR OTHER PAYEE
Under most annuity forms offered by 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
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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
- when imposed at the time annuity payments begin, we deduct the amount
from your contract value at that time
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.
ANNUAL ADMINISTRATIVE CHARGE
A $30 annual administrative charge is deducted from the contract value on each
anniversary of the contract date. Some states require a lower administration
charge. Therefore, your annual administrative charge may be lower. This charge
helps to cover administrative costs incurred in:
- 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.
We will initially waive this charge during the Annuity Period, although we
reserve the right to reinstitute it at any time. In addition, we will waive this
charge during the Accumulation Period if the contract value is $25,000 or more
at the end of the contract year. We will also waive this charge upon total
surrender.
We will deduct the annual administrative charge by redeeming Accumulation Units
from each subaccount of the Separate Account and by redeeming Accumulation Units
from the fixed account. Contract value is the total value of the Separate
Account and the fixed account. We will redeem Accumulation Units in proportion
to the allocation of contract value among both:
- the subaccounts of the Separate Account, and
- the fixed account
If you totally surrender the contract and the contract value is less than
$25,000, we will deduct the full annual administration charge at the time of
surrender.
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 1.25% of the average daily net assets of the Separate
Account. It consists of approximately .8% for mortality risk and approximately
.45% for expense risk. 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.
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 an Annuitant or 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.
Administrative Expense Charge. We assess each subaccount of the Separate Account
with a daily charge at a nominal annual rate of .15% of the average daily net
assets of the subaccount. We assess this charge during both the Accumulation
Period and the Annuity Period. The daily administrative expense charge helps
cover administrative expenses such as those described above under "Annual
Administrative Charge." The daily administrative expense charge, like the annual
administrative charge, is designed to defray expenses 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.
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 annual administrative charge and charges against the Separate Account
described above are for the purposes described. We may receive a profit as a
result of these charges.
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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 five years before the
surrender date and that you have not previously surrendered;
- Any contract earnings that you have not previously surrendered;
- In any contract year, up to 10% of the purchase payments that we received
less than five years before the surrender date (whether or not you have
previously surrendered purchase payments).
Earnings are deemed to be withdrawn first. After all earnings have been
withdrawn, all purchase payments not subject to a surrender charge are deemed to
be withdrawn. After all purchase payments not subject to a surrender charge have
been withdrawn, all purchase payments subject to a surrender charge are deemed
to be withdrawn.
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 1994. 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 charge is 5% of the purchase payments withdrawn which we received less
than five years before the surrender date.
We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent that the surrender charge is insufficient,
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 deduct no 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.
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. The expenses of these portfolios are not fixed and are not
specified under the terms of the contracts.
REDUCTION OF CHARGES
We may reduce or waive our annual administrative charge when we sell a contract
to an individual or to a group in a manner that results in savings or in
reduction of administrative expense. We will not reduce or eliminate the annual
administrative charge where such reduction or elimination would be unfairly
discriminatory to any person.
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 4%, independent of the actual
investment experience of the general account. We may, at our sole discretion,
credit higher rates of interest, although we are not obligated to credit
interest in excess of the guaranteed annual rate of 4%. Any interest rate in
excess of 4% per year with respect to any amount in the fixed account pursuant
to a contract will not be modified more than
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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 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 1.35% annual charge for mortality and 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
- any surrenders, surrender charges or annual administrative charges
allocated to the fixed account or transfers to the Separate Account.
FIXED ACCOUNT TRANSFERS, TOTAL AND PARTIAL SURRENDERS
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
"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.
Currently, we impose a $500,000 limit on amounts allocated to the fixed account
which have the same owner or Annuitant. Therefore, unless we give prior
approval, you may not allocate purchase payments, or transfers, to the fixed
account if the total amount allocated would then exceed our $500,000 limit. We
reserve the right to modify this provision at any time.
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 4% 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 do not take 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."
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BENEFICIARY
You may name or change a beneficiary or a contingent beneficiary before the
Annuity Commencement Date and while the Annuitant is living. 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 Annuitant prior to the annuity
commencement date, the beneficiary will be deemed as follows:
- If there is any surviving contract owner the surviving contract owners
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.
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
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 portfolios shares held in any subaccount, the
shares of another portfolio of Fortis Series, Norwest Series, Scudder
Series, or the shares of another investment company or any other
investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the contract as an
annuity.
- To change the time or times of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the contract in order to
conform with any action the above provisions permit us to take, including
to change the way we 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 Norwest Investment Services, Inc., or (3) are registered
representatives of other broker-dealer firms, or (4) are representatives of
other firms that are exempt from broker-dealer regulation as agreed to by Forum
Financial Services, Inc. and Fortis Investors. Fortis Investors, Norwest
Investment Services, Inc., 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.
As compensation for distributing the contracts, Fortis Investors pays an
allowance to other broker-dealer firms or exempt firms who sell the contracts.
Fortis Investors does not expect this allowance to exceed 7.0% of purchase
payments.
Fortis Investors may, under certain flexible compensation arrangements, pay
lesser selling allowances and service fees to its registered representatives and
other broker-dealer firms. However, in these cases, such flexible compensation
arrangements will have actuarially present values that are not in excess of the
amounts of the selling allowances set forth above. Additionally, registered
representatives, broker-dealer firms and exempt firms 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.
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<PAGE> 22
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 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.
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
20
<PAGE> 23
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.
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 a Fortis Group Fund or other 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.
Because of the complexity of these matters, you should consult a qualified tax
adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403(b) PLANS
Section 403(b)(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.
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<PAGE> 24
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 the portfolios. 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
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.
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 or 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, the portfolios 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 that subaccount.
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, for each of the
series available under the contracts, 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 the contracts in the District of Columbia and in approximately twenty
states.
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,
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<PAGE> 25
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 Policy...................
Taxation Under Certain Retirement Plans.......
Other Information.............................
Financial Statements..........................
APPENDIX A--Performance Information........... A-1
</TABLE>
23
<PAGE> 26
APPENDIX A--SAMPLE DEATH BENEFIT CALCULATIONS (FOR CONTRACTS ISSUED ON AND AFTER
MAY 1, 1998)
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
DATE OF DEATH IS THE 3RD CONTRACT ANNIVERSARY: --------- --------- ---------
<S> <C> <C> <C>
a. Purchase Payments Made Prior to Date of Death,
accumulated at 5% $31,000 $31,000 $33,000
b. Contract Value on Date of Death $32,000 $23,000 $31,000
c. 1 Year Ratchet Option Value $32,000 $40,000 $32,000
Death Benefit is larger of a, b, and c $32,000 $40,000 $33,000
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3 EXAMPLE 4
DATE OF DEATH IS THE 5TH CONTRACT ANNIVERSARY: --------- --------- --------- ---------
<S> <C> <C> <C> <C>
a. Purchase Payments Made Prior to Date of Death,
accumulated at 5% $32,000 $32,000 $32,000 $32,000
b. Contract Value on Date of Death $40,000 $31,000 $36,000 $34,000
c. 5 Year Reset Contract Value on 5th Contract Anniversary $40,000 $31,000 $36,000 $34,000
d. 1 Year Ratchet Option Value $40,000 $31,000 $38,000 $34,000
Death Benefit is larger of a, b, c and d $40,000 $32,000 $38,000 $34,000
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3 EXAMPLE 4
DATE OF DEATH IS THE 8TH CONTRACT ANNIVERSARY: --------- --------- --------- ---------
<S> <C> <C> <C> <C>
a. Purchase Payments Made Prior to Date of Death,
accumulated at 5% $33,000 $33,000 $33,000 $33,000
b. Contract Value on Date of Death $40,000 $35,000 $31,000 $30,000
c. 5th Year Reset Contract Value on 5th Contract
Anniversary $32,000 $40,000 $34,000 $31,000
d. 1 Year Ratchet Option Value $40,000 $40,000 $35,000 $32,000
Death Benefit is larger of a, b, c and d $40,000 $40,000 $35,000 $33,000
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3 EXAMPLE 4
DATE OF DEATH IS THE 13TH CONTRACT ANNIVERSARY: --------- --------- --------- ---------
<S> <C> <C> <C> <C>
a. Purchase Payments Made Prior to Date of Death,
accumulated at 5% $35,000 $35,000 $35,000 $36,000
b. Contract Value on Date of Death $40,000 $25,000 $34,000 $31,000
c. 5 Year Reset Contract Value on 10th Contract
Anniversary $34,000 $38,000 $40,000 $33,000
d. 1 Year Ratchet Option Value $40,000 $38,000 $42,000 $34,000
Death Benefit is larger of a, b, c and d $40,000 $38,000 $42,000 $36,000
</TABLE>
A-1
<PAGE> 27
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 Fortis Growth Stock Series, is
calculated as follows:
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Total Variable Account Annual Expenses 1.40%
- --------------------------------------------------------------------------------
+ Total Portfolio Operating Expenses .66%
- --------------------------------------------------------------------------------
/ Annual Administrative Charge Rate (See Below) .04%
- --------------------------------------------------------------------------------
= Total Expense Rate 2.10%
- --------------------------------------------------------------------------------
</TABLE>
The Annual Administrative Charge Rate is calculated by dividing the total annual
contract charges Fortis Benefits collected in 1999 by the average contract value
in force in 1999.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = $1000.00 X .0210 = $21.00
Year 2 Beginning Policy Value = $1029.00
Year 2 Expense = $1029.00 X .0210 = $21.61
Year 3 Beginning Policy Value = $1058.84
Year 3 Expense = $1058.84 X .0210 = $22.24
So the cumulative expenses for years 1-3 for the Fortis Growth Stock Series are
equal to $21.10 + $21.61 + $22.24 = $64.85.
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
0.05 X ($1000.00 - $100.00) = $45.00
So the total expense if surrendered is $64.85 + $45.00 = $109.85.
B-1
<PAGE> 28
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 Annuitant or Contract Owner.
A pro rata adjustment is calculated separately for each withdrawal, creating a
decrease in the death benefit proportional to the decrease the withdrawal makes
in the contract value. Pro rata adjustments are made for amounts withdrawn for
partial surrenders and surrender charges, but not for any contract fee-related
surrenders.
Under the death benefit set forth as (4) in Benefit Payable on Death of
Annuitant or Contract Owner, the pro rata adjustment for a given withdrawal is
equal to:
(a) the withdrawn amount, divided by
(b) the contract value immediately before the amount was withdrawn, the
result multiplied by
(c) the quantity equal to:
(i) the contract value on the anniversary, plus
(ii) purchase payments made since the anniversary and before the
withdrawal, minus
(iii) pro rata adjustments for withdrawals made since the anniversary
and before the given withdrawal.
Under the death benefit set forth as (5) in Benefit Payable on Death of
Annuitant or Contract Owner, 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 or Annuitant first reaches his or her 75th 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 or Annuitant first reaches his or her
75th birthday and before the given withdrawal.
C-1
<PAGE> 29
Individual Flexible Premium Deferred Variable Annuity Contracts
(Wells Fargo Passage)
Issued by
FORTIS BENEFITS INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
This Statement of Additional Information is not a Prospectus. It is
intended that this Statement of Additional information be read in conjunction
with the Prospectus for a flexible premium deferred variable annuity contract
("Contract"), dated May 1, 2000. A copy of the Prospectus may be obtained
without charge from Fortis Investors, Inc. 1-800-780-7743; mailing address: P.O.
Box 64272, St. Paul, MN 55164. The Contracts are issued by Fortis Benefits
through its Variable Account D (the "Separate Account").
TABLE OF CONTENTS
PAGE
Fortis Benefits...............................................................2
Calculation of Annuity Payments...............................................2
Services
o Safekeeping of Separate Account Assets....................................3
o Principal Underwriter ....................................................3
Limitation on Allocations.....................................................3
Change of Investment Policy...................................................4
Taxation Under Certain Retirement Plans.......................................4
Other Information.............................................................8
Financial Statements..........................................................8
Appendix A - Performance Information........................................A-1
In order to supplement the description in the Prospectus, the following provides
additional information about the Contract and other matters which may be of
interest to Contract Owners, Annuitants and Beneficiaries. Terms used in this
Statement of Additional Information have the same meanings as are defined in the
Prospectus under the heading "Special Terms Used in This Prospectus."
1
<PAGE> 30
FORTIS BENEFITS
Fortis Benefits Insurance Company, the issuer of the Contracts, is a Minnesota
corporation qualified to sell life insurance and annuity contracts in the
District of Columbia and in all states except New York. Fortis Benefits is a
wholly-owned subsidiary of Interfinancial, Inc., a stock company originated
under the laws of Georgia, which itself is a wholly-owned subsidiary of Fortis,
Inc. Fortis, Inc. is a corporation based in New York, which manages the United
States operations of Fortis (NL) N.V. and Fortis (B) Fortis, Inc. is
wholly-owned by AMEV/VSB 1990. The latter is 50% owned by Fortis (NL) N.V. and
50% owned, through certain subsidiaries, by Fortis (B).
Fortis (NL) N.V. is a publicly-traded, multi-national insurance and financial
services group headquartered in The Netherlands. Fortis (NL) N.V. is an
international financial services firm that has been in business since 1847. It
is one of the largest holding companies in Europe with forty subsidiary
companies in twelve countries on four continents. Fortis (NL) N.V. is the third
largest life insurance company in the Netherlands. Fortis (B) is a
multi-national insurance, real estate and financial services firm that has been
in business since 1824. It has eighty subsidiary companies in eight countries.
Fortis (B) is the largest life insurance company in Belgium. Fortis (NL) N.V.
and Fortis (B) have combined assets of approximately $167 billion.
Best's Insurance Reports has assigned Fortis Benefits a rating of A (Excellent)
for financial position and operating performance. Fortis Benefits has a rating
of AA- from Standard & Poor's. As defined by Standard & Poor's, insurers rated
AA- offer "very strong financial security." These ratings represent such rating
agencies' independent opinion of Fortis Benefits' financial strength and ability
to meet policy holder obligations, but have no relevance to the performance and
quality of the assets in Subaccounts of the Variable Account.
CALCULATION OF ANNUITY PAYMENTS
FIXED ANNUITY OPTION
The amount of each annuity payment under a Fixed Annuity Option is fixed and
guaranteed by Fortis Benefits. Monthly fixed annuity payments will start as of
the end of the Valuation Period that contains the Annuity Commencement Date. At
that time, the Contract Value of the Contract is computed and that portion of
the Contract Value which will be applied to the Fixed Annuity Option selected is
determined. The amount of the first monthly payment under the Fixed Annuity
Option selected will be at least as large as would result from using the annuity
tables contained in the Contract to apply such amount of Contract Value to the
annuity form selected. The dollar amounts of any fixed annuity payments after
the first are specified during the entire period of annuity payments according
to the provisions of the annuity form selected.
VARIABLE ANNUITY OPTION
Annuity Units. To the extent a Variable Annuity Option has been selected, we
convert the Accumulation Units for each Subaccount of the Separate Account into
Annuity Units for each Subaccount at their values determined as of the end of
the Valuation Period which contains the Annuity Commencement Date. As of such
time, any Fixed Account Value to be applied to a Variable Annuity Option is also
converted to Annuity Units in the Subaccounts selected based on the then-current
Annuity Unit value. The initial number of Annuity Units in each Subaccount is
determined by dividing the amount of the initial monthly variable annuity
payment (see "Variable Annuity Option--Variable Annuity Payments," below)
allocable to that Subaccount by the value of one Annuity Unit in that Subaccount
as of the time of the conversion. The number of Annuity Units for each
Subaccount will remain constant, as long as an annuity remains in force and the
allocation among the Subaccounts has not changed.
The value of each Subaccount's Annuity Units will vary to reflect the investment
experience of that Subaccount as well as charges deducted from the Subaccount.
The value of each Subaccount's Annuity Units is equal to the prior value of the
Subaccount's Annuity Units multiplied by the net investment factor for that
Subaccount (discussed in the Prospectus
under "Contract Value") for the Valuation Period ending on that Valuation Date,
with an offset for the 4% assumed interest rate used in the annuity tables of
the Contract.
2
<PAGE> 31
Variable Annuity Payments. Variable annuity payments start at the end of the
Valuation Period that contains the Annuity Commencement Date, and will vary in
amount as the related Annuity Unit values vary. The amount of the first monthly
payment is shown on the annuity tables contained in the Contract for each $1,000
of Contract Value applied to the Variable Annuity Option selected as of the end
of such Valuation Period. The first variable annuity payment is, in effect,
allocated among the Subaccounts in the same proportion as the Contract Value is
allocated among the Subaccounts upon commencement of annuity payments.
Payments after the first will vary in amount and are determined on the first
Valuation Date of each subsequent monthly period. If the monthly payment under
the annuity form selected is based on the value of Annuity Units of a single
Subaccount, the monthly payment is found by multiplying the number of the
Contract"s Annuity Units for that Subaccount by the Annuity Unit value of such
Subaccount as of the first Valuation Date in each monthly period following the
Annuity Commencement Date. If the monthly payment under the Variable Annuity
Option selected is based upon the value of Annuity Units in more than one
Subaccount, this is repeated for each applicable Subaccount. The sum of these
payments is the variable annuity payment.
GENDER OF ANNUITANT
The amount of each annuity payment ordinarily will be higher for a male
Annuitant than for a female Annuitant of the same age with an otherwise
identical Contract. This is because, statistically, females tend to have longer
life expectancies than males. However, there will be no differences between male
and female Annuitants in any jurisdiction, including Montana and Massachusetts,
where such differences are not permitted. We will also make available Contracts
with no such differences in connection with certain employer-sponsored benefit
plans. Employers should be aware that, under most such plans, Contracts that
make distinctions based on gender are prohibited by law.
SERVICES
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
Title to assets in the Separate Account is held by Fortis Benefits. The assets
of the Separate Account are kept segregated and held separate and apart from
Fortis Benefits' other assets. All of the Portfolios shares held by Fortis
Benefits for the Separate Account are held by it in book entry rather than
certificated form.
PRINCIPAL UNDERWRITER
Fortis Investors, Inc. ("Fortis Investors"), the principal underwriter of the
Contracts, is a Minnesota corporation and a member of the Securities Investors
Protection Corporation. The offering of the Contracts is continuous, and Fortis
Investors does not anticipate discontinuing the offering of the Contracts,
although it reserves the right to do so. Fortis Benefits paid a total of
$30,705,769, $32,874,801 and $48,774,402 to Fortis Investors for distribution
services associated with the Contracts during 1997, 1998, and 1999,
respectively. Of this total, the sums of $5,091,431, $5,389,151 and $7,643,966
for the years 1997, 1998, and 1999, respectively, was not reallowed to other
broker-dealers. Contracts will be issued for Annuitants from ages zero to ninety
in all states where the Contracts are available. Contracts are currently
available in Arizona, Colorado, Idaho, Illinois, Indiana, Iowa, Kansas,
Minnesota, Missouri, Montana, Nebraska, New Mexico, North Carolina, North
Dakota, Ohio, Oregon, South Dakota, Texas, Utah, Wisconsin and Wyoming.
LIMITATION ON ALLOCATIONS
Under the Contract, Fortis Benefits reserves the right to control the amount of
any assets in any investment alternative. Pursuant to this authority, Fortis
Benefits has established the following administrative procedures for the
protection of the interests of all investors participating in Fortis Series'
Portfolios: a Contract Owner may not invest, allocate, transfer or exchange
Contract Value into any Subaccount investing in Fortis Series, if the value
allocated to that Subaccount under the Contract (and under any other insurance
or annuity contracts directly or indirectly controlled by the same person,
jointly or
3
<PAGE> 32
individually) would immediately thereafter equal 25% or more of the related
Fortis Series Portfolio's net assets. Fortis Benefits reserves the right to
modify these procedures at any time.
CHANGE OF INVESTMENT POLICY
If required, approval of or change of any investment objective of the
Subaccounts will be filed with the Insurance Department of each state where
Contracts have been delivered. The Contract Owner (or, after annuity payments
start, the Annuitant) will be notified of any material investment policy change
which has been approved. Notification of an investment policy change will be
provided to Contract Owners prior to its implementation by the Separate Account
if Contract Owner comment or vote is required for such change.
TAXATION UNDER CERTAIN RETIREMENT PLANS
Federal income tax information concerning the purchase of Contracts for specific
types of retirement plans is set forth below. You should also refer to "Federal
Tax Matters - Qualified Contracts" in the Prospectus. The tax information
provided is not comprehensive, and you should consult a qualified tax adviser
before taking any action in connection with a retirement plan.
SECTION 403(B) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS OR
PUBLIC EDUCATIONAL INSTITUTIONS
Purchase Payments. Under Section 403(b) of the Internal Revenue Code ("Code"),
payments made by certain employers (i.e., tax-exempt organizations meeting the
requirements of Section 501(c)(3) of the Code, or public educational
institutions) to purchase Contracts for their employees are excludible from the
gross income of employees to the extent that such aggregate purchase payments do
not exceed certain limitations prescribed by the Code. This is the case whether
the purchase payments are a result of voluntary salary reduction amounts or
employer contributions. Salary reduction payments are, however, subject to FICA
(social security) taxes.
Taxation of Distributions. Distributions from a Section 403(b) tax-deferred
annuity contract are taxed as ordinary income to the recipient as described
under "Federal Tax Matters - Qualified Contracts" in the Prospectus. Taxable
distributions received before the employee attains age 59 1/2 generally are
subject to a 10% penalty tax in addition to regular income tax. Certain
distributions are excepted from this penalty tax, including distributions
following the employee's death, disability, separation from service after age
55, separation from service at any age if the distribution is in the form of an
annuity for the life (or life expectancy) of the employee (or the employee and
Beneficiary) and distributions not in excess of deductible medical expenses. In
addition, no distributions of voluntary salary reduction amounts made for years
after December 31, 1988 (plus earnings thereon and earnings on Contract values
as of December 31, 1988) will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.)
Required Distributions. Generally, distributions from Section 403(b) annuities
must commence not later than April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2, and such distributions must be
made over a period that does not exceed the life expectancy of the employee (or
the employee and Beneficiary). A penalty tax of 50% would be imposed on any
amount by which the minimum required distribution in any year exceeded the
amount actually distributed in that year. In addition, in the event that the
employee dies before his or her entire interest in the Contract has been
distributed, the employee's entire interest must be distributed in accordance
with rules similar to those applicable upon the death of the Contract Owner in
the case of a Non-Qualified Contract, as described in the Prospectus. Certain of
these and other provisions are incorporated in a special endorsement attached to
Contracts that are intended to qualify under Section 403(b), and reference
should be made to that endorsement for its complete terms.
Tax Free Exchanges and Rollovers. The Code provides for the tax-free exchange of
one Section 403(b) annuity contract for another Section 403(b) annuity contract,
and the IRS has ruled (Revenue Ruling 90-24) that amounts transferred may
qualify as tax-free transfers under certain circumstances. In addition, Section
403(b)(8) of the Code permits tax-free rollovers from Section 403(b) programs to
individual retirement annuities or other Section 403(b) programs under certain
circumstances.
4
<PAGE> 33
SECTION 401 QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY PLANS
Purchase Payments. Subject to certain limitations prescribed by the Code,
purchase payments made by an employer (or a self-employed individual) under a
pension, profit-sharing or annuity plan qualified under Section 401 or Section
403(a) of the Code are generally deductible by the employer and excluded from
the taxable income of the employee for federal income tax purposes, whether made
under a salary reduction agreement or directly by employer contributions. Salary
reduction payments are, however, subject to FICA (social security) taxes.
Purchase payments made directly by an employee generally are made on an
after-tax basis.
Taxation of Distributions. Distributions from Contracts purchased under these
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions, as described under "Federal Tax
Matters--Qualified Contracts," in the Prospectus. However, if an employee or
other payee receives a "lump sum" distribution, as defined in the Code, from an
exempt employees' trust, the taxable portion of the distribution may be subject
to special tax treatment. For most individuals receiving lump sum distributions
after attaining age 59 1/2, the rate of tax may be determined under a special
5-year income averaging provision. Those who attained age 50 by January 1, 1986
may instead elect to use a 10-year income averaging provision based on the
income tax rates in effect for 1986. Taxable distributions received prior to
attainment of age 59 1/2 under a Contract purchased under a qualified plan are
subject to the same 10% penalty tax (and the same exceptions) as described above
with respect to Section 403(b) annuity contracts.
Required Distributions. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuity contracts.
Tax-Free Rollovers. If, within 60 days of receipt, an employee who receives a
single sum distribution transfers all of the taxable amount received to another
plan qualified under Section 401 or 403(a), or to an individual retirement
account or annuity as provided for under the Code, the transferred amount will
not be taxed in the year of distribution. Certain "partial" distributions may
also qualify for tax-free rollover treatment, but only if transferred to an
individual retirement account or annuity. However, income tax may be required to
be withheld from the distribution unless the distribution is transferred
directly from the qualified plan to an individual retirement account or annuity.
INDIVIDUAL RETIREMENT ANNUITIES
Purchase Payments. Individuals may make contributions for individual retirement
annuity ("IRA") Contracts. Deductible contributions for any year may be made up
to the lesser of $2,000 or 100% of compensation for individuals who (1) are not
(and whose spouses are not) active participants in another retirement plan, (2)
are unmarried and have adjusted gross income of $25,000 or less, or (3) are
married and have adjusted gross income of $40,000 or less. An individual may
also establish an IRA for his or her spouse if they file a joint return for the
taxable year and his or her spouse earns less than the individual does for that
year. The annual purchase payments for both spouses' Contracts cannot exceed the
lesser of $4,000 or 100% of the couple's combined earned income, and no more
than $2,000 may be contributed to either spouse's IRA for any year. Individuals
who are active participants in other retirement plans and whose adjusted gross
income (with certain special adjustment) exceed the cut-off point ($25,000 for
unmarried, $40,000 for married persons filing jointly, and $0 for married
persons filing a separate return) by less than $10,000 are entitled to make
deductible IRA contributions in proportionately reduced amounts. For example, a
married individual who is an active participant in another retirement plan and
files a separate tax return is entitled to a partial IRA deduction if the
individual's adjusted gross income is less than $10,000 and no IRA deduction if
his or her adjusted gross income is equal to or greater than $10,000.
An individual may make non-deductible IRA contributions to the extent of (1) the
lesser of $2,000 ($4,000 in the case of a spousal IRA) or 100% of compensation
over (2) the IRA deductible contribution made with respect to the individual.
An individual may not make any contributions to his/her own IRA for the year in
which he/she reaches age 70 1/2 or for any year thereafter. Contributions to
a spouse's IRA may not be made for any year in which that spouse reaches
age 70 1/2 or for any year thereafter.
Taxation of Distributions. Distributions from IRA Contracts are taxed as
ordinary income to the recipient, although special rules exist for the tax-free
return of non-deductible contributions. In addition, taxable distributions
received under an IRA
5
<PAGE> 34
Contract prior to age 59 1/2 are subject to a 10% penalty tax in addition to
regular income tax. Certain distributions are exempted from this penalty tax
including distributions following the owner's death or disability or
distribution in the form of an annuity for the life (or life expectancy) of the
owner (or the owner and beneficiary), or distributions not in excess of
deductible medical expenses or certain distributions to pay health insurance
premiums after an extended period of unemployment.
Required Distributions. The minimum distribution requirements for IRAs are
generally the same as described above with respect to Section 403(b) annuity
contracts. Certain of these and other provisions are incorporated in a special
endorsement attached to IRA Contracts, and reference should be made to that
endorsement for its complete terms.
Tax-Free Rollovers. The Code permits funds to be transferred in a tax-free
rollover from a qualified employer pension, profit-sharing, annuity, bond
purchase or tax-deferred annuity plan to an IRA Contract if certain conditions
ARE met, and if the rollover of assets is completed within 60 days after the
distribution from the qualified plan is received. In addition, not more
frequently than once every twelve months, amounts may be rolled over tax-free
from one IRA to another, subject to the 60-day limitation and other
requirements. The once-per-year limitation on rollovers does not apply to direct
transfers of funds between IRA custodians or trustees.
SIMPLIFIED EMPLOYEE PENSION PLANS
Purchase Payments. Under Section 408(k) of the Code, employers may establish a
type of IRA plan referred to as a simplified employee pension plan (SEP).
Employer contributions to a SEP cannot exceed the lesser of $24,000 or 15% of
the employee's earned income. Employees of certain small employers may have
contributions made to a special kind of SEP (SARSEP) on their behalf on a salary
reduction basis if the SARSEP plan was in effect on December 31, 1996. These
salary reduction contributions may not exceed $9,500 in 1997, which is indexed
for inflation. Employees of tax-exempt organizations and state or local
government agencies have never been eligible for the salary reduction type of
SEP.
Taxation of Distributions. Generally, distribution payments from SEPs are
subject to the same distribution rules described above for IRAs.
Required Distributions. SEP distributions are subject to the same minimum
required distribution rules described above for IRAs.
Tax-Free Rollovers. Generally, rollovers and direct transfers may be made to and
from SEPs in the same manner as described above for IRAs, subject to the same
conditions and limitations. Rollovers to other IRAs, excluding SIMPLE IRAs are
also possible. Special rules apply if the rollover is from a SARSEP IRA.
SECTION 408(P) SIMPLE IRA PLANS
Purchase Payments: Under Section 408(p) of the Code, small employers may
establish a type of IRA plan referred to as a Savings Incentive Match Plan for
Employees (SIMPLE Plan). An employee may contribute annually through his or her
employer a pre-tax salary reduction contribution not to exceed the lesser of
$6,000 or 100% of compensation. The employer must annually either (1) match the
employee contribution dollar for dollar up to 3% of pay, or (2) make a 2% of pay
contribution for each eligible employee regardless of whether the employee makes
any salary reduction contribution. In two out of every five years, the employer
has the option to reduce the matching contribution as low as 1% of pay but
advance notice must be provided to employees.
Taxation of Distributions: Generally, distributions from SIMPLE IRA Plans are
subject to the same distribution rules described above for IRAs. However, if an
individual withdraws any amount from his SIMPLE IRA Plan within the first two
years of his or her commencement of participation in the employer"s SIMPLE IRA
Plan, the 10% penalty tax for premature distribution, if such tax applies, will
be increased to 25%.
6
<PAGE> 35
Required Distributions: SIMPLE distributions are subject to the same minimum
distribution rules described above for IRAs.
Tax-Free Rollovers: Generally, rollovers and direct transfers may be made to and
from SIMPLE IRAs in the same manner as described above for IRAs, subject to the
same conditions and limitations. Rollovers or transfers to other IRAs, other
than SIMPLE IRAs, are also possible but only after the second anniversary of
commencement of participation in the employer"s SIMPLE IRA Plan.
SECTION 457 UNFUNDED DEFERRED COMPENSATION PLANS OF PUBLIC EMPLOYERS AND
TAX-EXEMPT ORGANIZATIONS
Purchase Payments. Under Section 457 of the Code, all individuals who perform
services for a state or local government or governmental agency may participate
in a deferred compensation program. Other tax-exempt employers may establish
unfunded deferred compensation plans under Section 457 for employees and/or
independent contractors.
Though not actually a qualified plan as that term is normally used, this type of
program allows individuals to defer the receipt of compensation that otherwise
would be currently payable and therefore to defer the payment of federal income
taxes on such amounts. Assuming that the program meets the requirements to be
considered an eligible deferred compensation plan (an "EDCP"), an individual may
contribute (and thereby defer from current income for tax purposes) the lesser
of $7,500 or 33-1/3% of the individual's includible compensation. (Includible
compensation means compensation from the employer which would be currently
includible in gross income for federal tax purposes.) In addition, during the
last three years before an individual attains normal retirement age, additional
"catch-up" deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Contracts offered by this Prospectus. The Contract is owned by the employer and
is subject to the claims of the employer's creditors. The employee has no rights
or interest in the Contract and is entitled only to payment in accordance with
the EDCP provisions.
Taxation of Distributions. Amounts received by an individual from an EDCP are
includible in gross income for the taxable year in which such amounts are paid
or otherwise made available.
Distributions Before Separation from Service. Distributions generally are not
permitted under an EDCP prior to separation from service or reaching age 70",
except in cases of severe financial hardship. Hardship distributions are
includible in the gross income of the individual in the year in which paid.
Required Distributions. The distribution requirements for these qualified plans
are generally the same as described above with respect to Section 403(b) annuity
contracts. However, if distributions do not commence before the employee's
death, the entire interest in the Contract must be distributed within 15 years
if the beneficiary is not the employee's surviving spouse.
Tax-Free Transfers. The Code permits the tax-free direct transfer of EDCP
amounts to another EDCP, subject to certain conditions. Any transfer must be
with employer consent.
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
Purchase Payments. Private taxable employers may establish unfunded,
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors. Certain
arrangements of tax-exempt employers entered into prior to August 16, 1986, and
not subsequently modified, are also subject to the rules for private taxable
employer deferred compensation plans discussed below. (Unfunded deferred
compensation plans of other tax-exempt employers are generally subject to the
requirements of Section 457.)
These types of programs allow individuals to defer receipt of up to 100% of
compensation which would otherwise be includible in income and therefore to
defer the payment of federal income taxes on such amounts. Purchase payments
made by the employer, however are not immediately deductible by the employer,
and the employer is currently taxed on any increase in Contract Value.
7
<PAGE> 36
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Contract is owned
by the employer and is subject to the claims of the employer's creditors. The
individual has no right or interest in the Contract and is entitled only to
payment from the employer's general assets in accordance with plan provisions.
Taxation of Distributions. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
Fortis Benefits relies upon on SEC No-action letter dated December 22, 19988
providing relief from certain restrictions provided in the Investment company
Act of 1940 relative to restrictions on redemptions and it complies with its
conditions.
FINANCIAL STATEMENTS
The financial statements of Fortis Benefits that are included in this Statement
of Additional Information should be considered only as bearing on the ability of
Fortis Benefits to meet its obligations under the Contracts.
8
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheets of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL)
N.V., as of December 31, 1999 and 1998, and the related statements of income,
changes in shareholder's equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company at December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
[/s/ ERNST & YOUNG]
February 17, 2000
Minneapolis, Minnesota
F-1
<PAGE> 38
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
1999--$2,802,697; 1998--$2,315,904).................... $2,706,372 $2,402,343
Equity securities, at fair value (cost 1999--$81,554;
1998--$141,947)........................................ 85,021 157,851
Mortgage loans on real estate, less allowance for possible
losses (1999 and 1998--$11,085)........................ 754,514 610,131
Policy loans.............................................. 83,439 74,950
Short-term investments.................................... 115,527 31,868
Real estate and other investments......................... 47,502 36,156
---------- ----------
3,792,375 3,313,299
Cash and cash equivalents................................... 18,670 668
Receivables:
Uncollected premiums...................................... 62,938 61,883
Reinsurance recoverable on unpaid and paid losses......... 23,471 14,853
Other..................................................... 19,406 17,641
---------- ----------
105,815 94,377
Accrued investment income................................... 55,464 42,831
Deferred policy acquisition costs........................... 430,192 331,938
Property and equipment at cost, less accumulated
depreciation.............................................. 25,118 30,712
Deferred federal income taxes............................... 52,467 17,904
Other assets................................................ 1,582 3,923
Due from affiliates......................................... 8,304 --
Assets held in separate accounts............................ 5,120,152 3,742,403
---------- ----------
Total assets................................................ $9,610,139 $7,578,055
========== ==========
</TABLE>
F-2
<PAGE> 39
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance................ $1,106,269 $ 450,776
Interest sensitive and investment products............. 1,147,657 1,238,125
Accident and health.................................... 940,865 861,334
---------- ----------
3,194,791 2,550,235
Unearned revenues......................................... 28,673 13,393
Other policy claims and benefits payable.................. 265,486 255,350
Policyholder dividends payable............................ 7,939 8,189
---------- ----------
3,496,889 2,827,167
Accrued expenses.......................................... 59,409 57,860
Current income taxes payable.............................. 1,838 4,168
Other liabilities......................................... 120,110 86,226
Due to affiliates......................................... -- 9,479
Liabilities related to separate accounts.................. 5,082,341 3,707,687
---------- ----------
Total policy reserves and liabilities....................... 8,760,587 6,692,587
Commitments and contingencies
Shareholder's equity:
Common Stock, $5 par value:
Authorized, issued and outstanding shares--1,000,000... 5,000 5,000
Additional paid-in capital................................ 468,000 468,000
Retained earnings......................................... 427,811 344,605
Accumulated other comprehensive (loss) income............. (51,259) 67,863
---------- ----------
Total shareholder's equity.................................. 849,552 885,468
---------- ----------
Total policy reserves, liabilities and shareholder's
equity.................................................... $9,610,139 $7,578,055
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 40
STATEMENTS OF INCOME
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Insurance operations:
Traditional life insurance premiums....................... $ 301,377 $ 260,567 $ 269,540
Interest sensitive and investment product policy
charges................................................ 99,047 85,551 77,429
Accident and health insurance premiums.................... 1,002,867 953,652 891,037
---------- ---------- ----------
1,403,291 1,299,770 1,238,006
Net investment income....................................... 238,698 234,043 228,724
Net realized gains on investments........................... 25,962 52,404 41,101
Other income................................................ 53,848 44,671 36,458
---------- ---------- ----------
Total revenues.............................................. 1,721,799 1,630,888 1,544,289
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance................................ 218,993 189,337 204,497
Interest sensitive investment products.................... 93,668 96,178 103,077
Accident and health claims................................ 812,149 798,036 707,113
---------- ---------- ----------
1,124,810 1,083,551 1,014,687
Policyholder dividends...................................... 3,114 3,486 2,935
Amortization of deferred policy acquisition costs........... 43,078 33,365 43,931
Insurance commissions....................................... 124,601 118,710 107,378
General and administrative expenses......................... 302,663 299,492 273,128
---------- ---------- ----------
Total benefits and expenses................................. 1,598,266 1,538,604 1,442,059
---------- ---------- ----------
Income before federal income taxes.......................... 123,533 92,284 102,230
Federal income taxes........................................ 40,327 30,402 35,120
---------- ---------- ----------
Net income.................................................. $ 83,206 $ 61,882 $ 67,110
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 41
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
TOTAL STOCK CAPITAL EARNINGS (LOSS) INCOME
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997.................. $ 780,673 $5,000 $468,000 $265,613 $ 42,060
Comprehensive income:
Net income........................... 67,110 -- -- 67,110 --
Change in unrealized gains (losses)
on investments, net................ 32,323 -- -- -- 32,323
---------
Total Comprehensive income.............. 99,433
--------- ------ -------- -------- ---------
Balance, December 31, 1997................ 880,106 5,000 468,000 332,723 74,383
Comprehensive income:
Net income........................... 61,882 -- -- 61,882 --
Change in unrealized gains (losses)
on investments, net................ (6,520) -- -- -- (6,520)
---------
Total Comprehensive income.............. 55,362
Dividend................................ (50,000) -- -- (50,000) --
--------- ------ -------- -------- ---------
Balance, December 31, 1998................ 885,468 5,000 468,000 344,605 67,863
Comprehensive income:
Net income........................... 83,206 -- -- 83,206 --
Change in unrealized gains (losses)
on investments, net................ (119,122) -- -- -- (119,122)
---------
Total Comprehensive income.............. (35,916)
--------- ------ -------- -------- ---------
Balance, December 31, 1999................ $ 849,552 $5,000 $468,000 $427,811 $ (51,259)
========= ====== ======== ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 42
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 83,206 $ 61,882 $ 67,110
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase (decrease) in future policy benefit
reserves for traditional, interest sensitive and
accident and health policies...................... 97,931 106,135 (2,496)
Increase (decrease) in other policy claims and
benefits and policyholder dividends payable....... 5,012 (2,514) 68,070
Provision for deferred federal income taxes......... 29,454 417 (6,449)
Decrease in income taxes payable.................... (2,330) (6,381) (6,875)
Amortization of deferred policy acquisition costs... 43,078 33,365 43,931
Policy acquisition costs deferred................... (96,308) (73,147) (69,694)
Provision for mortgage loan losses.................. -- -- 1,388
Provision for depreciation.......................... 12,807 12,409 14,351
Write-off of investment............................. -- -- 3,000
Amortization of investment (discounts) premiums,
net............................................... 1,930 (3,200) (466)
Change in receivables, accrued investment income,
unearned premiums, accrued expenses and other
liabilities....................................... 27,227 (4,455) (2,720)
Net realized gains on sold investments.............. (25,962) (52,404) (41,101)
Other............................................... -- 169 (12,496)
----------- ----------- -----------
Net cash provided by operating activities................ 176,045 72,276 55,553
INVESTING ACTIVITIES
Purchases of fixed maturity investments.................. (1,654,104) (2,380,511) (3,611,770)
Sales and repayments of fixed maturity investments....... 1,675,488 2,428,207 3,378,898
(Increase) decrease in short-term investments............ (83,659) 38,669 112,280
Purchases of other investments........................... (305,889) (408,998) (209,771)
Sales of other investments............................... 353,267 352,873 205,084
Purchases of property and equipment...................... (7,213) (356) (4,242)
Cash received pursuant to reinsurance assumption
agreement.............................................. 3,374 -- --
Other.................................................... -- -- (617)
----------- ----------- -----------
Net cash (used in) provided by investing activities...... (18,736) 29,884 (130,138)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received................................ 237,375 215,693 200,760
Surrenders and death benefits.......................... (416,537) (326,457) (190,361)
Interest credited to policyholders..................... 39,855 49,371 53,613
Dividend................................................. -- (50,000) --
----------- ----------- -----------
Net cash (used in) provided by financing activities...... (139,307) (111,393) 64,012
Increase (decrease) in cash and cash equivalents......... 18,002 (9,233) (10,573)
Cash and cash equivalents at beginning of year........... 668 9,901 20,474
----------- ----------- -----------
Cash and cash equivalents at end of year................. $ 18,670 $ 668 $ 9,901
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 43
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Assets and liabilities transferred in reinsurance transactions (Note 8):
<TABLE>
<S> <C>
Non-Cash Assets Received:
Fixed maturities.......................................... $ 517,091
Other Investments......................................... 121,696
Other Assets.............................................. 12,763
Deferred Acquisition Costs................................ 35,882
---------
Total value of assets received.............................. $ 687,432
=========
Non-Cash Liabilities Assumed:
Future policy benefit reserves............................ $(685,932)
Claim reserves............................................ (4,874)
---------
Total Liabilities Assumed................................... $(690,806)
=========
</TABLE>
F-7
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Fortis Benefits Insurance Company (the Company) is an indirect wholly-owned
subsidiary of Fortis, Inc. (Fortis), which itself is an indirect, wholly-owned
subsidiary of Fortis (B) and Fortis (NL) N.V. The Company is incorporated in
Minnesota and distributes its products in all states except New York. The
Company's revenues are derived principally from group employee benefits products
and from individual life and annuity products.
Effective October 1, 1999, the Company assumed pre-need life insurance business
from an affiliate on a 100% co-insurance basis. These life insurance and annuity
products are marketed in connection with the advance funding of funeral
expenses. (See Note 8 "Reinsurance" for more information on this reinsurance
transaction.)
BASIS OF STATEMENT PRESENTATION
During 1998, the Company adopted Statement of Financial Accounting Standards
Board (SFAS) 130, Reporting Comprehensive Income. SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this SFAS had no impact on the Company's net income or
shareholder's equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were reported
separately in shareholder's equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
Effective January 1, 1999, the Company adopted SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP 97-3
requires the estimation and recording of certain insurance-related assessments.
Because the Company previously recorded insurance-related assessments on this
basis, the adoption of SOP 97-3 had no impact on the results of operations or
financial position.
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FAS 133", which deferred to January 1, 2001 the effective date
of the accounting and reporting requirements of SFAS 133. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The adoption of SFAS 133 is not expected to have a material effect on the
Company's results of operations or financial position.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company follows accounting principles generally accepted in the United
States which differ in certain respects from statutory accounting practices
prescribed or permitted by regulatory authorities. The more significant of these
principles are set forth below:
REVENUE RECOGNITION AND FUTURE POLICY BENEFIT RESERVES
Premiums for traditional life insurance and pre-need life products are
recognized as revenues when due over the premium-paying period. Reserves for
future policy benefits are computed using the net level method and include
investment yield, mortality, withdrawal, and other assumptions based on the
Company's experience, modified as necessary to reflect anticipated trends and to
include provisions for possible unfavorable deviations.
Revenues for interest sensitive and investment products consist of charges
assessed against policy account balances during the period for the cost of
insurance, policy administration, and surrender charges. Future policy benefit
reserves are computed under the retrospective deposit method and consist of
policy account balances before applicable surrender charges. Policy benefits
charged to expense during the period include amounts paid in excess of policy
account balances and interest credited to policy account balances. Interest
crediting rates for universal life and investment products ranged from 3.5% to
12% in 1999, and 2.5% to 8.75% in 1998 and 1997.
F-8
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
A portion of the Company's pre-need life products provide an increasing future
benefit tied typically to the U.S. Consumer Price Index or a targeted growth
rate established at management's discretion. All pre-need life products that
have death benefit increases made at management's discretion are accounted for
as interest-sensitive life products.
Premiums for accident and health insurance products, including medical, long and
short-term disability and dental insurance products, are recognized as revenues
ratably over the contract period in proportion to the risk insured. Reserves for
future disability benefits are based on the 1987 Commissioners Group Disability
Table. The valuation interest rate is the Single Premium Immediate Annuity
valuation rate less 100 basis points. Claims in the first five years' are
modified based on the Company's actual experience.
CLAIMS AND BENEFITS PAYABLE
Other policy claims and benefits payable for reported and incurred but not
reported claims and related claims adjustment expenses are determined using
case-basis estimates and past experience. The methods of making such estimates
and establishing the related liabilities are continually reviewed and updated.
Any adjustments resulting therefrom are reflected in income currently.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, which vary with and are directly related to
the production of new business, are deferred to the extent recoverable and
amortized. For traditional and pre-need life insurance and long-term care
products (included as accident and health products), such costs are amortized
over the premium paying period. For interest sensitive and investment products,
such costs are amortized in relation to expected future gross profits.
Estimation of future gross profits requires significant management judgment and
are reviewed periodically. As excess amounts of deferred costs over future
premiums or gross profits are identified, such excess amounts are expensed.
INVESTMENTS
The Company's investment strategy is developed based on many factors including
insurance liability matching, rate of return, maturity, credit risk, tax
considerations and regulatory requirements.
All fixed maturity investments and all marketable equity securities are
classified as available-for-sale and carried at fair value.
Changes in fair values of available for sale securities, after related deferred
income taxes and after adjustment for the changes in the pattern of amortization
of deferred policy acquisition costs and participating policyholder dividends,
are reported directly in shareholder's equity as accumulated other comprehensive
income and, accordingly, have no effect on net income. The unrealized
appreciation or depreciation is net of deferred policy acquisition cost
amortization and taxes that would have been required as a charge or credit to
income had such unrealized amounts been realized.
Mortgage loans constitute first liens on commercial real estate and other income
producing properties. The insurance statutes in Minnesota generally require that
the initial principal loaned not exceed 80% of the appraised value of the
property securing the loan. The Company's policy fully complies with this
statute. Mortgage loans on real estate are reported at amortized cost, less
allowance for possible losses. The change in the allowance for possible losses
is recorded with realized gains and losses on investments.
Policy loans are reported at their unpaid balance. Short term investments are at
cost which approximates fair value.
Real estate and other investments consist principally of property acquired in
satisfaction of debt and limited partnerships, respectively. Real estate is
recorded at cost less allowances for depreciation. The Company provides for
depreciation on a straight-line basis over the estimated useful lives. Other
investments are accounted for using the equity method of accounting.
Realized gains and losses on sales of investments, and declines in value judged
to be other-than-temporary, are recognized on the specific identification basis.
Investment income is recorded as earned.
F-9
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. The
Company provides for depreciation principally on the straight-line method over
the estimated useful lives of the related property. Depreciation expense was
$12,807,000, $12,409,000 and $14,351,000 for the year ended December 31, 1999,
1998 and 1997, respectively.
INCOME TAXES
Income taxes have been provided using the liability method. Deferred tax assets
and liabilities are determined based on the temporary differences between the
financial reporting and the tax bases and are measured using the enacted tax
rates.
SEPARATE ACCOUNTS
Revenues and expenses related to the separate account assets and liabilities are
excluded from the amounts reported in the accompanying statements of income.
Assets and liabilities associated with the separate accounts relate to deposits
and annuity considerations for variable life and variable annuity products for
which the contract holder, rather than the Company, bears the investment risk.
Separate account assets are reported at fair value and represent funds held for
the exclusive benefit of the variable annuity and variable life insurance
contract owners.
The Company receives mortality and expense risk fees from the separate accounts.
The Company also deducts monthly cost of insurance charges, and receives minimum
death benefit guarantee fees and issue and administrative fees from the variable
life insurance separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
GUARANTY FUND ASSESSMENTS
There are a number of insurance companies that are currently under regulatory
supervision. This may result in future assessments by state guaranty fund
associations to cover losses to policyholders of insolvent or rehabilitated
companies. These assessments can be partially recovered through a reduction in
future premium taxes in some states. The Company believes it has adequately
provided for the impact of future assessments relating to current insolvencies.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost which approximates fair value.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive income
which includes unrealized gains and losses on securities classified as
available-for-sale, net of the effect on deferred policy acquisition costs,
taxes and reclassification adjustment.
F-10
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 financial statements have been reclassified
to conform to the 1999 presentation.
2. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Fixed maturities:
Governments................................ $ 309,402 $ 46 $ 8,934 $ 300,514
Public utilities........................... 237,579 341 10,375 227,545
Industrial and miscellaneous............... 2,208,281 7,020 81,412 2,133,889
Other...................................... 47,435 184 3,195 44,424
---------- -------- -------- ----------
Total fixed maturities....................... 2,802,697 7,591 103,916 2,706,372
Equity securities............................ 81,554 5,825 2,358 85,021
---------- -------- -------- ----------
Total........................................ $2,884,251 $ 13,416 $106,274 $2,791,393
========== ======== ======== ==========
DECEMBER 31, 1998
Fixed maturities:
Governments................................ $ 321,047 $ 5,994 $ 436 $ 326,605
Public utilities........................... 190,792 7,769 1,704 196,857
Industrial and miscellaneous............... 1,723,183 79,137 6,451 1,795,869
Other...................................... 80,882 2,181 51 83,012
---------- -------- -------- ----------
Total fixed maturities....................... 2,315,904 95,081 8,642 2,402,343
Equity securities............................ 141,947 18,238 2,334 157,851
---------- -------- -------- ----------
Total........................................ $2,457,851 $113,319 $ 10,976 $2,560,194
========== ======== ======== ==========
</TABLE>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1999, by contractual maturity, are shown below (in
thousands).
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 62,675 $ 62,547
Due after one year through five years....................... 681,595 671,472
Due after five years through ten years...................... 912,713 881,953
Due after ten years......................................... 1,145,714 1,090,400
---------- ----------
Total....................................................... $2,802,697 $2,706,372
========== ==========
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
F-11
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. INVESTMENTS (CONTINUED)
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 38% and 36% of outstanding principal
is concentrated in the states of New York, California and Florida, at December
31, 1999 and 1998, respectively. Loan commitments outstanding totaled
$12,350,000 at December 31, 1999.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $17,061,000 and $19,978,000 at
December 31, 1999 and 1998, respectively, on deposit with various governmental
authorities as required by law.
INVESTMENT IN MANAGED DENTAL INITIATIVE
In 1997, the Company acquired a 99% ownership in a managed dental initiative
called Dental Health Alliance, Inc. (DHA). Based on an analysis of future DHA
profitability, the entire investment of $8,132,000 was written-off at December
31, 1997.
NET UNREALIZED GAINS (LOSSES)
The adjusted net unrealized gains (losses) on investments recorded in
accumulated other comprehensive income for the year ended December 31, are set
forth below (in thousands):
<TABLE>
<CAPTION>
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1999
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $(168,542) $ 58,990 $(109,552)
Decrease in amortization of deferred policy acquisition
costs................................................. 9,142 (3,200) 5,942
Reclassification adjustment for gains (losses) realized
in net income......................................... (23,864) 8,352 (15,512)
--------- -------- ---------
Other comprehensive loss................................... $(183,264) $ 64,142 $(119,122)
========= ======== =========
DECEMBER 31, 1998
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 32,614 $(11,562) $ 21,052
Decrease in amortization of deferred policy acquisition
costs................................................. 414 (145) 269
Reclassification adjustment for gains (losses) realized
in net income......................................... (42,832) 14,991 (27,841)
--------- -------- ---------
Other comprehensive loss................................... $ (9,804) $ 3,284 $ (6,520)
========= ======== =========
DECEMBER 31, 1997
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 93,826 $(33,796) $ 60,030
Increase in amortization of deferred policy acquisition
costs................................................. (2,096) 771 (1,325)
Reclassification adjustment for gains (losses) realized
in net income......................................... (40,587) 14,205 (26,382)
--------- -------- ---------
Other comprehensive income................................. $ 51,143 $(18,820) $ 32,323
========= ======== =========
</TABLE>
F-12
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Major categories of net investment income and realized gains (losses) on
investments for each year were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities............................................ $167,027 $160,163 $160,444
Equity securities........................................... 7,320 8,656 9,306
Mortgage loans on real estate............................... 57,684 57,031 54,662
Policy loans................................................ 5,272 4,653 4,144
Short-term investments...................................... 844 1,701 2,851
Real estate and other investments........................... 6,375 8,194 4,635
-------- -------- --------
244,522 240,398 236,042
Expenses.................................................... (5,824) (6,355) (7,318)
-------- -------- --------
$238,698 $234,043 $228,724
======== ======== ========
NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Fixed maturities............................................ $ (9,750) $ 34,320 $ 13,827
Equity securities........................................... 33,613 8,512 26,760
Mortgage loans on real estate............................... -- (198) 301
Short-term investments...................................... -- 5 --
Real estate and other investments........................... 2,099 9,765 213
-------- -------- --------
$ 25,962 $ 52,404 $ 41,101
======== ======== ========
</TABLE>
Proceeds from sales of investments in fixed maturities were $1,627,450,000,
$2,460,316,000 and $3,360,682,000 in 1999, 1998 and 1997, respectively. Gross
gains of $11,996,000, $44,360,000 and $30,860,000 and gross losses of
$21,746,000, $10,040,000 and $17,033,000 were realized on the sales in 1999,
1998 and 1997, respectively.
F-13
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows (in
thousands):
<TABLE>
<CAPTION>
INTEREST
TRADITIONAL SENSITIVE AND
AND PRE-NEED INVESTMENT ACCIDENT AND
LIFE PRODUCTS HEALTH TOTAL
------------ ------------- ------------ --------
<S> <C> <C> <C> <C>
Balance, January 1, 1998.................... $22,169 $264,383 $ 5,190 $291,742
Acquisition costs deferred................ -- 69,921 3,226 73,147
Acquisition costs amortized............... (7,609) (20,256) (5,500) (33,365)
Decreased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities....... -- 414 -- 414
------- -------- ------- --------
Balance, December 31, 1998.................. 14,560 314,462 2,916 331,938
Acquisition costs deferred................ 33,783 81,016 17,391 132,190
Acquisition costs amortized............... (2,438) (38,831) (1,809) (43,078)
Decreased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities....... -- 9,142 -- 9,142
------- -------- ------- --------
Balance, December 31, 1999.................. $45,905 $365,789 $18,498 $430,192
======= ======== ======= ========
</TABLE>
Included in total policy acquisition costs deferred in 1999 is $35,882,000 of
present value of future profits (PVP) and $1,416,000 of subsequent acquisition
costs resulting from the reinsurance assumption agreement with United Family
Life Insurance Company, an affiliate, which became effective October 1, 1999.
PVP is being amortized against the expected premium revenue of the pre-need life
insurance business assumed. See Note 8 "Reinsurance" for more information on
this reinsurance transaction.
During 1999, 1998 and 1997, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized net capital gains resulted in increased (decreased) amortization of
deferred acquisition costs of $(224,000), $3,357,000 and $732,000, respectively.
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land........................................................ $ 1,900 $ 1,900
Building and improvements................................... 26,383 24,319
Furniture and equipment..................................... 76,604 87,714
-------- --------
104,887 113,933
Less accumulated depreciation............................... (79,769) (83,221)
-------- --------
Net property and equipment.................................. $ 25,118 $ 30,712
======== ========
</TABLE>
F-14
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
5. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables.... $1,061,883 $ 988,036 $947,711
Add: Incurred losses related to:
Current year.............................................. 824,949 826,009 773,316
Prior years............................................... (12,800) (27,973) (59,634)
---------- ---------- --------
Total incurred losses....................................... 812,149 798,036 713,682
Deduct: Paid losses related to:
Current year.............................................. 468,404 469,881 437,405
Prior years............................................... 266,025 254,308 235,952
---------- ---------- --------
Total paid losses........................................... 734,429 724,189 673,357
---------- ---------- --------
Balance as of December 31, net of reinsurance
recoverables.............................................. $1,139,603 $1,061,883 $988,036
========== ========== ========
</TABLE>
The table above compares to the amounts reported on the balance sheet in the
following respects: (1) the table above is presented net of ceded reinsurance
and the accident and health reserves reported on the balance sheet are gross of
ceded reinsurance; and (2) the table above includes accident and health benefits
payable which are included with other policy claims and benefits payable
reported on the balance sheet.
In each of the years presented above, the accident and health insurance line of
business experienced overall favorable development on claims reserves
established as of the previous year end. The favorable development was a result
of lower medical costs and a reduction of loss reserves due to lower than
anticipated inflation in medical costs.
The liability for unpaid accident and health claims includes $994,651,000,
$915,368,000 and $854,940,000 of total disability income reserves as of December
31, 1999, 1998 and 1997, respectively, which were discounted for anticipated
interest earnings using a rate which varies by incurral year.
6. FEDERAL INCOME TAXES
The Company reports its taxable income in a consolidated federal income tax
return along with other affiliated subsidiaries of Fortis. Income tax expense or
credits are allocated among the affiliated subsidiaries by applying corporate
income tax rates to taxable income or loss determined on a separate return basis
according to a Tax Allocation Agreement.
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial statement purposes and
for income tax purposes.
F-15
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
6. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Separate account assets/liabilities....................... $ 60,716 $ 87,300
Reserves.................................................. 35,843 27,586
Claims and benefits payable............................... 7,964 8,089
Accrued liabilities....................................... 6,973 10,113
Unrealized Losses......................................... 32,500 --
Investments............................................... 4,549 3,861
Other..................................................... 6,755 2,723
-------- --------
Total deferred tax assets................................... 155,300 139,672
Deferred tax liabilities:
Deferred policy acquisition costs......................... 98,539 82,031
Unrealized gains.......................................... -- 35,591
Fixed assets.............................................. 2,963 3,150
Investments............................................... 1,171 982
Other..................................................... 160 14
-------- --------
Total deferred tax liabilities.............................. 102,833 121,768
-------- --------
Net deferred tax asset...................................... $ 52,467 $ 17,904
======== ========
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets, and, therefore, no such valuation
allowance has been established.
The Company's tax expense (benefit) for the year ended December 31 is shown as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current..................................................... $10,873 $30,232 $41,569
Deferred.................................................... 29,454 170 (6,449)
------- ------- -------
$40,327 $30,402 $35,120
======= ======= =======
</TABLE>
Federal income tax payments and refunds resulted in net payments of $13,203,000,
$36,367,000 and $58,859,000 in 1999, 1998 and 1997, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate................................... 35.0% 35.0% 35.0%
Other, net.................................................. (2.4) (2.1) (.6)
---- ---- ----
32.6% 32.9% 34.4%
==== ==== ====
</TABLE>
F-16
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
7. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Premium and annuity considerations for the variable annuity
products and variable universal life products for which
the contract holder, rather than the Company, bears the
investment risk........................................... $5,082,341 $3,707,687
Assets of the separate accounts owned by the Company, at
fair value................................................ 37,811 34,716
---------- ----------
$5,120,152 $3,742,403
========== ==========
</TABLE>
8. REINSURANCE
In the second quarter of 1996, First Fortis Life Insurance Company (First
Fortis), an affiliate, received approval from the New York State Insurance
Department for a reinsurance agreement with the Company. The agreement, which
became effective as of January 1, 1996, decreased First Fortis' long-term
disability reinsurance retention from a $10,000 net monthly benefit to a $2,000
net monthly benefit for claims incurred on and after January 1, 1996. The
Company has assumed $6,580,000, $5,601,000 and $5,742,000 of premium from First
Fortis in 1999, 1998 and 1997, respectively. The Company has assumed
$11,047,000, $9,315,000 and $5,452,000 of reserves in 1999, 1998 and 1997,
respectively, from First Fortis.
In the fourth quarter of 1999, United Family Life Insurance Company (UFL), an
affiliate, received approval from the state of Georgia for a reinsurance
agreement with the Company. The agreement, which became effective October 1,
1999, provided for the cession of substantially all of UFL's pre-need life
insurance business on a 100% co-insurance basis. The Company assumed
approximately $690,806,000 of reserves and received approximately $654,924,000
of cash, investments (primarily fixed maturities and mortgages) and other assets
as of October 1, 1999. The $35,882,000 ceding commission was capitalized as an
acquisition cost (as described in Note 3). During the period October 1, 1999 to
December 31, 1999, the Company assumed $31,523,000 of premium under the
contract.
The maximum amount that the Company retains on any one life is $1,000,000 of
life insurance including accidental death. Amounts in excess of $1,000,000 are
reinsured with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums for the year ended December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Life insurance.............................................. $ 6,246 $ 6,983 $ 8,159
Accident and health insurance............................... 17,803 13,862 13,712
------- ------- -------
$24,049 $20,845 $21,871
======= ======= =======
</TABLE>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Life insurance.............................................. $ 478 $ 4,549 $ 2,973
Accident and health insurance............................... 13,669 9,465 14,781
------- ------- -------
$14,147 $14,014 $17,754
======= ======= =======
</TABLE>
Reinsurance ceded would become a liability of the Company in the event the
reinsurers are unable to meet the obligations assumed under the reinsurance
agreement. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities or economic characteristics of the reinsurers.
F-17
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
9. DIVIDEND RESTRICTIONS
Dividend distributions to the parent are restricted as to the amount by state
regulatory requirements. The Company had $49,286,000 free from such restrictions
as of December 31, 1999. Distributions in excess of this amount would require
regulatory approval.
10. REGULATORY ACCOUNTING REQUIREMENTS
Statutory-basis financial statements are prepared in accordance with accounting
practices prescribed or permitted by the Minnesota Department of Commerce.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners ("NAIC"), as well as state
laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed; such
practices may differ from state to state, may differ from company to company
within a state, and may change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification requires adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Minnesota has adopted Codification
effective January 1, 2001. Management has not yet determined the impact of
Codification to the Company's statutory-basis financial statements.
Insurance enterprises are required by State Insurance Departments to adhere to
minimum risk-based capital ("RBC") requirements developed by the NAIC. The
Company exceeds the minimum RBC requirements.
Reconciliations of net income and shareholder's equity on the basis of statutory
accounting to the related amounts presented in the accompanying statements were
as follows (in thousands):
<TABLE>
<CAPTION>
SHAREHOLDER'S
NET INCOME EQUITY
----------------------------- ---------------------
1999 1998 1997 1999 1998
-------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices........... $ 9,387 $14,841 $ 62,593 $ 497,858 $ 478,405
Deferred policy acquisition costs................. 54,049 39,782 25,763 430,192 331,938
Investment valuation differences.................. 953 745 (497) (103,361) 100,165
Deferred and uncollected premiums................. (4,637) 511 2,064 (13,188) (7,246)
Policy reserves................................... (20,070) (7,041) (19,363) (127,766) (156,889)
Commissions....................................... 79,067 -- (3,171) -- --
Current income taxes payable...................... (8,882) 925 6,450 (9,000) (10,920)
Deferred income taxes............................. (18,650) (417) 6,449 52,467 17,904
Realized gains on investments..................... 9 356 251 -- --
Realized gains (losses) transferred to the
Interest Maintenance Reserve (IMR), net of
tax............................................. (6,163) 22,748 9,644 -- --
Amortization of IMR, net of tax................... (8,565) (7,128) (6,315) -- --
Write-off of investment........................... -- (11,705) -- --
Pension expense................................... (1,475) 81 (4,153) (8,235) (6,440)
Property and equipment............................ -- -- -- 591 5,951
Interest maintenance reserve...................... -- -- -- 55,117 68,968
Asset valuation reserve........................... -- -- -- 72,940 90,986
Mortgage loans on real estate..................... -- -- -- -- (20,141)
Other, net........................................ 8,183 (3,521) (900) 1,937 (7,213)
-------- ------- -------- --------- ---------
As reported herein................................ $ 83,206 $61,882 $ 67,110 $ 849,552 $ 885,468
======== ======= ======== ========= =========
</TABLE>
F-18
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
11. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company receives various services from Fortis and its affiliates. These
services include assistance in benefit plan administration, corporate insurance,
accounting, tax, auditing, investment and other administrative functions. The
fees paid to Fortis, Inc. for these services for years ended December 31, 1999,
1998 and 1997, were $11,661,000, $13,077,000 and $12,015,000, respectively.
During 1997, Fortis, Inc. began providing information technology services to the
Company. Information technology expenses were $59,390,000, $55,910,000 and
$28,525,000 for years ended December 31, 1999, 1998 and 1997, respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $79,413,000, $72,638,000 and $72,105,000 in commissions to its affiliate,
Fortis Investors, Inc., for the years ended December 31, 1999, 1998 and 1997,
respectively.
Administrative expenses allocated for the Company may be greater or less than
the expenses that would be incurred if the Company were operating on a separate
company basis.
12. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS
The fair values for fixed maturity securities and equity securities are based on
quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
Mortgage loans are reported at unpaid principal balance less allowances for
possible losses. The fair values of mortgage loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Mortgage loans with
similar characteristics are aggregated for purposes of the calculations. The
carrying amount of policy loans reported in the Balance Sheet approximates fair
value. For short-term investments, the carrying amount is a reasonable estimate
of fair value. The fair values for the Company's policy reserves under the
investment products are determined using cash surrender value. Separate account
assets and liabilities are reported at their estimated fair values in the
Balance Sheet.
The fair values under all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk, such that the Company's
exposure to changing interest rates is minimized through the matching of
investment maturities with amounts due under insurance contracts.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities.............................. $2,706,372 $2,706,372 $2,402,343 $2,402,343
Equity securities............................. 85,021 85,021 157,851 157,851
Mortgage loans on real estate...................... 754,514 741,397 610,131 662,984
Policy loans....................................... 83,439 83,439 74,950 74,950
Short-term investments............................. 115,527 115,527 31,868 31,868
Assets held in separate accounts................... 5,120,152 5,120,152 3,742,403 3,742,403
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal)....................... $ 789,002 $ 763,861 $ 923,102 $ 894,019
Liabilities related to Separate Accounts........... 5,082,341 5,082,341 3,707,687 3,707,687
</TABLE>
F-19
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.
14. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company is an indirect wholly-owned subsidiary of Fortis, which sponsors a
defined benefit pension plan covering employees and certain agents who meet
eligibility requirements as to age and length of service. The benefits are based
on years of service and career compensation. Fortis Inc.'s funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes, and to charge each subsidiary an allocable amount based on its
employee census. Pension cost allocated to the Company amounted to approximately
$2,225,000, $1,627,000 and $1,594,000 for 1999, 1998 and 1997, respectively.
The Company participates in a contributory profit sharing plan, sponsored by
Fortis, covering employees and certain agents who meet eligibility requirements
as to age and length of service. Benefits are payable to participants on
retirement or disability and to the beneficiaries of participants in the event
of death. The first three percent of an employee's contribution is matched 200%
by the Company. The amount expensed was approximately $3,711,000, $3,610,000 and
$3,926,000 for 1999, 1998 and 1997, respectively.
In addition to retirement benefits, the Company participates in other health
care and life insurance benefit plans ("postretirement benefits") for retired
employees, sponsored by Fortis. Health care benefits, either through a Fortis
sponsored retiree plan for retirees under age 65 or through a cost offset for
individually purchased Medigap policies for retirees over age 65, are available
to employees who retire on or after January 1, 1993, at age 55 or older, with 15
years or more service. Life insurance, on a retiree pay all basis, is available
to those who retire on or after January 1, 1993.
There were no net postretirement benefit costs allocated to the Company for the
years ended December 31, 1999 and 1998. Costs allocated to the Company for the
year ended December 31, 1997 were $304,000, which includes the expected cost of
such benefits for newly eligible or vested employees, interest cost, gains and
losses arising from differences between actuarial assumptions and actual
experience, and amortization of the transition obligation. The Company made
contributions to the plans of approximately $19,000, $(5,200) and $20,000 in
1999, 1998 and 1997, respectively, as claims were incurred.
15. YEAR 2000 (UNAUDITED)
The Company utilizes Fortis and its computer systems to process Company
businesses. Fortis created a Year 2000 Project Office which was dedicated to
ensuring that all of the systems for Fortis and its subsidiaries and affiliates
were ready for year 2000. The estimated total cost of the Fortis Year 2000
Project was approximately $85 million. This cost reflects the total cost to the
Fortis U.S. companies (excluding the recent American Bankers Insurance Group
acquisition). The cost of the Company's portion is estimated at $26.9 million.
Approximately, $11.4 million was expensed by the Company in 1999.
As of December 20, 1999, 100% of the Mission Critical and non-Mission Critical
computer system lines of code that had been identified were renovated and tested
and were ready for year 2000. Although there have been several minor matters, as
of the date of this publication, no significant disruptions resulting from the
century date change have been detected in any of the mission critical systems.
The Company will continue to monitor the status of and exposure to any potential
Year 2000 issues.
F-20
<PAGE> 57
Report of Independent Auditors
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying individual and combined statement of net assets
of the segregated subaccounts of Fortis Benefits Insurance Company Variable
Account D (comprised of, respectively, the Fortis Series Fund, Inc.'s Growth
Stock, U.S. Government Securities, Money Market, Asset Allocation, Diversified
Income, Global Growth, Aggressive Growth, Growth & Income, High Yield, Global
Asset Allocation, Global Bond, International Stock, Value, S & P 500, Blue Chip
Stock, Mid Cap Stock, Large Cap Growth and Small Cap Value Subaccounts; the
Wells Fargo Variable Trust's Large Cap (formerly Norwest ValuGrowth), Corporate
Bond (formerly Norwest Income), Small Cap Stock (formerly Norwest Small Company
Stock), Income Equity (formerly Norwest Income Equity), Growth, Equity Value,
and Asset Allocation Subaccounts; the Scudder Variable Life Investment Fund's
International Subaccount; the AIM Variable Insurance Funds, Inc.'s V.I. Value
and V.I. International Equity Subaccounts; the Alliance Variable Product Series'
Money Market, International and Premier Growth Subaccounts; the SAFECO Resource
Series' Growth and Equity Subaccounts; the Federated Insurance Series' U.S.
Government Securities II, High Income Bond Fund II, Utility II and American
Leaders II, Equity Income, Growth Strategies, International Equity, Money Fund,
Strategic Income and Small Cap Strategies Subaccounts; the Lexington Funds,
Inc.'s Natural Resources Trust and Emerging Markets Subaccounts; the MFS
Variable Insurance Trusts' Emerging Growth, High Income and World Government
Subaccounts; the Montgomery Variable Fund's Emerging Markets and Growth
Subaccounts; the Strong Variable Insurance Funds' Discovery II and International
II Subaccounts; the American Century Investments' VP Balanced and VP Growth
Subaccounts; the Van Eck Worldwide Insurance Trust's Worldwide Bond Fund and
Worldwide Hard Assets Fund Subaccounts; the Neuberger & Berman, Inc.'s AMT
Limited Maturity Bond and AMT Partners Subaccounts; and INVESCO, Inc.'s Health &
Sciences, Industrial Income and Technology Subaccounts) as of December 31, 1999,
and the related statements of changes in net assets for each of the two years in
the period indicated therein. These financial statements are the responsibility
of the management of Fortis Benefits Insurance Company. Our responsibility is to
express an opinion on these financial statements based on our audits.
1
<PAGE> 58
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each individual and combined
portfolio subaccounts of Fortis Benefits Insurance Company Variable Account D at
December 31, 1999, and the changes in their net assets for the periods described
in the first paragraph, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 29, 2000
2
<PAGE> 59
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets
December 31, 1999
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
------ ---- ------------ -------
<S> <C> <C> <C> <C>
Investments in Fortis Series Fund, Inc.:
Growth Stock 15,672,161 $ 406,002,966 $ 707,418,737 $ -
U.S. Government Securities 12,737,718 136,773,169 128,984,676 -
Money Market 9,538,854 106,396,795 106,849,478 -
Asset Allocation 26,682,308 425,490,477 607,857,655 -
Diversified Income 8,600,239 100,510,063 93,808,829 -
Global Growth 9,706,559 147,811,043 337,030,166 -
Aggressive Growth 6,319,174 92,702,665 213,523,620 -
Growth & Income 12,021,236 183,252,188 263,748,319 -
High Yield 6,735,712 67,699,350 61,249,180 -
Global Asset Allocation 4,324,442 54,275,326 56,954,204 3,940,809
Global Bond 2,237,913 24,325,958 22,968,150 5,321,709
International Stock 6,073,337 81,846,610 108,925,301 -
Value 4,893,678 64,346,791 76,592,910 -
S & P 500 14,784,128 246,758,049 335,023,114 -
Blue Chip Stock 10,256,993 161,163,763 224,955,877 7,504,950
Mid Cap Stock 1,945,774 18,209,316 20,783,004 4,432,968
Large Cap Growth 4,680,799 59,003,601 70,461,944 6,251,291
Small Cap Value 3,225,681 31,077,238 32,919,462 4,238,029
Investments in Wells Fargo Variable Trust:
Large Cap 4,050,545 40,739,690 48,728,059 -
Corporate Bond 3,156,263 34,258,453 30,994,498 -
Small Cap Stock 1,074,572 13,693,860 19,439,003 -
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE ANNUITY
VARIABLE UNITS CONTRACTS PER
ANNUITY CONTRACTS OUTSTANDING ACCUMULATION UNIT
----------------- ----------- -----------------
<S> <C> <C> <C>
Investments in Fortis Series Fund, Inc.:
Growth Stock $ 707,418,737 115,971,002 $ 6.10
U.S. Government Securities 128,984,676 7,442,096 17.33
Money Market 106,849,478 60,650,301 1.76
Asset Allocation 607,857,655 153,473,653 3.96
Diversified Income 93,808,830 46,409,349 2.02
Global Growth 337,030,166 10,278,210 32.79
Aggressive Growth 213,523,620 6,619,343 32.26
Growth & Income 263,748,319 11,205,593 23.54
High Yield 61,249,180 4,807,835 12.74
Global Asset Allocation 53,013,395 3,314,093 16.00
Global Bond 17,646,441 1,471,112 12.00
International Stock 108,925,301 5,644,969 19.30
Value 76,592,910 4,866,469 15.74
S & P 500 335,023,114 15,543,266 21.55
Blue Chip Stock 217,450,927 10,354,811 21.00
Mid Cap Stock 16,350,036 1,551,246 10.54
Large Cap Growth 64,210,653 4,359,013 14.73
Small Cap Value 28,681,433 2,690,372 10.66
Investments in Wells Fargo Variable Trust:
Large Cap 48,728,059 1,954,176 24.94
Corporate Bond 30,994,498 2,448,465 12.66
Small Cap Stock 19,439,003 870,214 22.34
</TABLE>
See accompanying notes.
3
<PAGE> 60
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
------ ---- ------------ -------
<S> <C> <C> <C> <C>
Investments in Wells Fargo Variable Trust
(continued):
Income Equity 7,400,237 $ 107,406,245 $ 126,470,04 $ -
Growth 2,539 56,265 61,191 -
Equity Value 11,023 100,121 101,743 -
Asset Allocation 84,861 1,186,936 1,223,699 -
Investments in Scudder Variable Life:
International 547,080 7,253,523 11,127,614 -
Investment in AIM Variable Insurance Funds, Inc.:
AIM V.I. Value 756,044 21,147,149 25,327,469 -
AIM V.I. International Equity 199,073 4,158,238 5,830,853 -
Investments in Alliance Variable Product Series:
Money Market 16,161,244 16,160,538 16,161,244 -
International 88,927 1,832,465 1,936,820 -
Premier Growth 205,736 6,838,663 8,322,024 -
Investments in SAFECO Resource Series:
Growth 183,868 3,925,516 4,137,039 -
Equity 109,268 3,267,025 3,389,495 -
Investments in Federated Insurance Series:
U.S. Government Securities II 455,093 4,814,185 4,805,781 -
High Income Bond Fund II 845,175 8,655,518 8,654,583 -
Utility II 461,922 6,595,434 6,628,581 -
American Leaders II 1,870,730 38,660,395 38,948,608 -
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE ANNUITY
VARIABLE UNITS CONTRACTS PER
ANNUITY CONTRACTS OUTSTANDING ACCUMULATION UNIT
----------------- ----------- -----------------
<S> <C> <C> <C>
Investments in Wells Fargo Variable Trust
(continued):
Income Equity $ 126,470,048 7,465,448 $16.94
Growth 61,191 5,570 10.99
Equity Value 101,743 10,275 9.90
Asset Allocation 1,223,699 116,844 10.47
Investments in Scudder Variable Life:
International 11,127,614 441,802 25.19
Investment in AIM Variable Insurance Funds, Inc.:
AIM V.I. Value 25,327,469 1,716,853 14.75
AIM V.I. International Equity 5,830,853 390,247 14.94
Investments in Alliance Variable Product Series:
Money Market 16,161,244 1,365,755 11.83
International 1,936,820 113,961 17.00
Premier Growth 8,322,024 272,720 30.51
Investments in SAFECO Resource Series:
Growth 4,137,039 258,197 16.02
Equity 3,389,495 206,128 16.44
Investments in Federated Insurance Series:
U.S. Government Securities II 4,805,781 465,254 10.33
High Income Bond Fund II 8,654,583 791,527 10.93
Utility II 6,628,581 629,267 10.53
American Leaders II 38,948,608 3,613,302 10.78
</TABLE>
See accompanying notes.
4
<PAGE> 61
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
------ ---- ------------ -------
<S> <C> <C> <C> <C>
Investments in Federated Insurance Series
(continued):
Equity Income 1,474,421 $ 22,067,348 $ 24,003,571 $ -
Growth Strategies 792,112 18,089,489 24,460,416 -
International Equity 374,338 6,926,572 10,346,692 -
Money Fund 1,277,722 1,277,722 1,277,722 -
Strategic Income 58,027 585,569 601,736 -
Small Cap Strategies 85,827 1,018,538 1,193,860 -
Investments In Lexington Funds Inc.:
Natural Resources Trust 73,363 948,113 917,767 -
Emerging Markets 10,269 95,712 131,543 -
Investments in MFS Variable Insurance Trust:
Emerging Growth 589,180 13,640,689 22,353,487 -
High Income 714,393 8,281,282 8,208,374 -
World Government 2,769 27,894 27,774 -
Investments in Montgomery Variable Funds:
Emerging Markets 94,425 946,072 1,025,458 -
Growth 25,820 442,230 474,822 -
Investments in Strong Variable Insurance Funds:
Discovery II 24,189 229,073 275,276 -
International II 165,232 2,307,910 2,704,840 -
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE ANNUITY
VARIABLE UNITS CONTRACTS PER
ANNUITY CONTRACTS OUTSTANDING ACCUMULATION UNIT
----------------- ----------- -----------------
<S> <C> <C> <C>
Investments in Federated Insurance Series
(continued):
Equity Income $ 24,003,571 2,050,104 $11.71
Growth Strategies 24,460,416 1,428,283 17.13
International Equity 10,346,692 588,884 17.57
Money Fund 1,277,722 123,772 10.32
Strategic Income 601,736 58,402 10.30
Small Cap Strategies 1,193,859 86,287 13.84
Investments In Lexington Funds Inc.:
Natural Resources Trust 917,767 78,556 11.68
Emerging Markets 131,543 9,772 13.46
Investments in MFS Variable Insurance Trust:
Emerging Growth 22,353,487 1,054,087 21.21
High Income 8,208,374 793,575 10.34
World Government 27,774 2,600 10.68
Investments in Montgomery Variable Funds:
Emerging Markets 1,025,458 95,471 10.74
Growth 474,822 23,740 20.00
Investments in Strong Variable Insurance Funds:
Discovery II 275,276 22,093 12.46
International II 2,704,840 169,164 15.99
</TABLE>
See accompanying notes.
5
<PAGE> 62
Fortis Benefits Insurance Company
Variable Account D
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
------ ---- ------------ -------
<S> <C> <C> <C> <C>
Investments in American Century Investments:
VP Balanced 190,403 $ 1,469,932 $ 1,483,239 $ -
VP Growth 50,032 588,549 742,475 -
Investments in Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 28,945 316,891 309,419 -
Worldwide Hard Assets Fund 74,633 800,476 817,979 -
Investments in Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 41,132 548,565 544,591 -
AMT Partners 31,884 622,336 626,209 -
Investments in INVESCO, Inc.:
Health & Sciences 126,669 1,884,155 2,029,234 -
Industrial Income 41,089 821,665 863,284 -
Technology 343,137 9,743,408 12,740,687 -
-------------- -------------- -----------
Totals $2,822,075,777 $3,950,503,433 $31,689,756
============== ============== ===========
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE ANNUITY
VARIABLE UNITS CONTRACTS PER
ANNUITY CONTRACTS OUTSTANDING ACCUMULATION UNIT
----------------- ----------- -----------------
<S> <C> <C> <C>
Investments in American Century Investments:
VP Balanced $ 1,483,239 92,929 $15.96
VP Growth 742,475 51,363 14.46
Investments in Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 309,419 28,632 10.81
Worldwide Hard Assets Fund 817,979 100,885 8.11
Investments in Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 544,591 49,413 11.02
AMT Partners 626,209 45,246 13.84
Investments in INVESCO, Inc.:
Health & Sciences 2,029,234 124,157 16.34
Industrial Income 863,284 54,213 15.92
Technology 12,740,687 345,121 36.92
-------------- -----------
Totals $3,918,813,677 497,265,487
============== ===========
</TABLE>
See accompanying notes.
6
<PAGE> 63
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets
Year ended December 31, 1999
<TABLE>
<CAPTION>
FORTIS U.S.
FORTIS GROWTH GOVERNMENT FORTIS MONEY FORTIS ASSET
STOCK SECURITIES MARKET ALLOCATION
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 156,278,060 $ 7,341,601 $ 2,857,701 $ 52,954,375
Mortality and expense and administrative charges (7,253,321) (1,829,055) (1,055,231) (7,448,244)
Net realized gain (loss) on investments 38,796,330 (473,995) 417,343 15,517,181
Net unrealized appreciation (depreciation) of investments
during the year 64,391,185 (9,573,286) 566,889 32,399,647
-------------- -------------- ------------- -------------
Net increase (decrease) in net assets resulting from
operations 252,212,254 (4,534,735) 2,786,702 93,422,959
CAPITAL TRANSACTIONS
Purchase of Variable Account units 5,164,180 12,588,731 100,156,439 29,210,874
Redemption of Variable Account units (98,848,155) (22,667,841) (64,268,081) (58,609,370)
Redemptions for mortality and expense and administrative
charges 7,253,321 1,829,055 1,055,231 7,448,244
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
-------------- -------------- ------------- -------------
Net increase (decrease) from capital transactions (86,430,654) (8,250,055) 36,943,589 (21,950,252)
Net assets at beginning of year 541,637,137 141,769,466 67,119,187 536,384,948
-------------- -------------- ------------- -------------
Net assets at end of year $ 707,418,737 $ 128,984,676 $ 106,849,478 $ 607,857,655
============== ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
FORTIS FORTIS
DIVERSIFIED FORTIS GLOBAL AGGRESSIVE
INCOME GROWTH GROWTH
------------ -------------- --------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 6,588,253 $ 6,231,012 $ 4,272,056
Mortality and expense and administrative charges (1,347,702) (3,494,668) (1,633,787)
Net realized gain (loss) on investments (450,747) 27,458,315 8,003,910
Net unrealized appreciation (depreciation) of investments
during the year (7,886,977) 93,670,078 97,554,749
------------ -------------- --------------
Net increase (decrease) in net assets resulting from
operations (3,097,173) 123,864,737 108,196,928
CAPITAL TRANSACTIONS
Purchase of Variable Account units 6,766,415 13,910,010 24,360,173
Redemption of Variable Account units (17,836,999) (66,121,442) (18,643,812)
Redemptions for mortality and expense and administrative
charges 1,347,702 3,494,668 1,633,787
Dividend income distribution to Fortis Benefits Insurance
Company - - -
------------ -------------- --------------
Net increase (decrease) from capital transactions (9,722,882) (48,716,764) 7,350,148
Net assets at beginning of year 106,628,884 261,882,193 97,976,544
------------ -------------- --------------
Net assets at end of year $ 93,808,829 $ 337,030,166 $ 213,523,620
============ ============== ==============
</TABLE>
See accompanying notes.
7
<PAGE> 64
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
FORTIS GLOBAL
FORTIS GROWTH & FORTIS HIGH ASSET FORTIS GLOBAL
INCOME YIELD ALLOCATION BOND
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 16,740,826 $ 5,638,326 $ 4,151,122 $ 934,589
Mortality and expense and administrative charges (3,525,734) (852,587) (725,621) (233,375)
Net realized gain (loss) on investments 10,556,035 (540,865) 797,158 (163,594)
Net unrealized appreciation (depreciation) of investments
during the year (944,596) (4,416,777) (5,443,279) (2,534,224)
------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 22,826,531 (171,903) (1,220,620) (1,996,604)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 6,731,588 7,450,001 5,772,394 6,930,636
Redemption of Variable Account units (35,318,719) (11,427,963) (7,483,000) (4,592,843)
Redemptions for mortality and expense and administrative
charges 3,525,734 852,587 725,621 233,375
Dividend income distribution to Fortis Benefits Insurance
Company - - (310,930) (224,878)
------------- ------------ ------------ ------------
Net increase (decrease) from capital transactions (25,061,397) (3,125,375) (1,295,915) 2,346,290
Net assets at beginning of year 265,983,185 64,546,458 59,470,739 22,618,464
------------- ------------ ------------ ------------
Net assets at end of year $ 263,748,319 $ 61,249,180 $ 56,954,204 $ 22,968,150
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FORTIS
INTERNATIONAL FORTIS
STOCK FORTIS VALUE S & P 500
------------- ----------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 118,653 $ 55,659 $ 47,291
Mortality and expense and administrative charges (1,171,613) (1,000,548) (3,567,274)
Net realized gain (loss) on investments 2,066,505 1,028,902 2,830,868
Net unrealized appreciation (depreciation) of investments
during the year 17,734,463 5,071,121 47,715,826
------------- ----------- ------------
Net increase (decrease) in net assets resulting from operations 18,748,008 5,155,134 47,026,711
CAPITAL TRANSACTIONS
Purchase of Variable Account units 24,277,772 6,767,673 125,498,102
Redemption of Variable Account units (12,675,634) (8,924,070) (41,233,954)
Redemptions for mortality and expense and administrative
charges 1,171,613 1,000,548 3,567,274
Dividend income distribution to Fortis Benefits Insurance
Company - - -
------------- ----------- ------------
Net increase (decrease) from capital transactions 12,773,751 (1,155,849) 87,831,422
Net assets at beginning of year 77,403,542 72,593,625 200,164,981
------------- ----------- ------------
Net assets at end of year $ 108,925,301 $76,592,910 $335,023,114
============= =========== ============
</TABLE>
See accompanying notes.
8
<PAGE> 65
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
FORTIS BLUE FORTIS MID FORTIS LARGE FORTIS SMALL
CHIP STOCK CAP STOCK CAP GROWTH CAP VALUE
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 3,230,163 $ 21,642 $ 1,132,189 $ 1,423,506
Mortality and expense and administrative charges (2,402,586) (152,523) (451,055) (251,882)
Net realized gain (loss) on investments 1,198,634 87,767 109,210 114,238
Net unrealized appreciation (depreciation) of investments
during the year 30,746,993 2,028,045 9,195,175 1,783,939
------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from 32,773,204 1,984,931 9,985,519 3,069,801
operations
CAPITAL TRANSACTIONS
Purchase of Variable Account units 49,470,137 8,507,383 45,928,848 17,798,817
Redemption of Variable Account units (5,494,982) (1,224,101) (706,824) (2,200,370)
Redemptions for mortality and expense and administrative
charges 2,402,586 152,523 451,055 251,882
Dividend income distribution to Fortis Benefits Insurance
Company (109,184) (4,648) (105,952) (139,251)
------------- ------------ ------------ ------------
Net increase (decrease) from capital transactions 46,268,557 7,431,157 45,567,127 15,711,078
Net assets at beginning of year 145,914,116 11,366,916 14,909,298 14,138,583
------------- ------------ ------------ ------------
Net assets at end of year $ 224,955,877 $ 20,783,004 $ 70,461,944 $ 32,919,462
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
WELLS FARGO WELLS FARGO WELLS FARGO
LARGE CAP CORPORATE BOND SMALL CAP
(FORMERLY (FORMERLY (FORMERLY
NORWEST NORWEST INCOME NORWEST SMALL
VALUGROWTH) EQUITY) COMPANY STOCK)
----------- ------------ ------------
OPERATIONS
<S> <C> <C> <C>
Dividend income $11,571,999 $ 1,501,450 $ -
Mortality and expense and administrative charges (531,353) (370,235) (177,088)
Net realized gain (loss) on investments 879,862 (183,430) (410,559)
Net unrealized appreciation (depreciation) of investments
during the year (1,863,822) (2,049,455) 8,208,680
----------- ------------ ------------
Net increase (decrease) in net assets resulting from 10,056,686 (1,101,670) 7,621,033
operations
CAPITAL TRANSACTIONS
Purchase of Variable Account units 6,308,101 12,059,360 1,380,420
Redemption of Variable Account units (3,919,806) (2,490,066) (3,031,763)
Redemptions for mortality and expense and administrative
charges 531,353 370,235 177,088
Dividend income distribution to Fortis Benefits Insurance
Company - - -
----------- ------------ ------------
Net increase (decrease) from capital transactions 2,919,648 9,939,529 (1,474,255)
Net assets at beginning of year 35,751,725 22,156,639 13,292,225
----------- ------------ ------------
Net assets at end of year $48,728,059 $ 30,994,498 $ 19,439,003
=========== ============ ============
</TABLE>
See accompanying notes.
9
<PAGE> 66
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
WELLS FARGO EQUITY
INCOME (FORMERLY WELLS FARGO
NORWEST INCOME WELLS FARGO WELLS FARGO ASSET
EQUITY) GROWTH * EQUITY VALUE * ALLOCATION *
-------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 1,270,864 $ 7 $ 207 $ 8,345
Mortality and expense and administrative charges (1,528,635) (128) (253) (2,723)
Net realized gain (loss) on investments 558,248 - - 87
Net unrealized appreciation (depreciation) of investments
during the year 5,205,012 4,926 1,622 36,841
------------ ------- -------- ----------
Net increase (decrease) in net assets resulting from
operations 5,505,489 4,805 1,576 42,550
CAPITAL TRANSACTIONS
Purchase of Variable Account units 36,840,158 56,259 99,914 1,182,701
Redemption of Variable Account units (3,461,257) (1) - (4,275)
Redemptions for mortality and expense and administrative
charges 1,528,635 128 253 2,723
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
------------ ------- -------- ----------
Net increase (decrease) from capital transactions 34,907,536 56,386 100,167 1,181,149
Net assets at beginning of year 86,057,023 - - -
------------ ------- -------- ----------
Net assets at end of year $126,470,048 $61,191 $101,743 $1,223,699
============ ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
AIM V.I.
SCUDDER AIM V.I. INTERNATIONAL
INTERNATIONAL VALUE EQUITY
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 825,077 $ 410,251 $ 188,386
Mortality and expense and administrative charges (123,780) (194,130) (40,956)
Net realized gain (loss) on investments 252,120 28,203 39,670
Net unrealized appreciation (depreciation) of investments
during the year 3,033,017 3,720,163 1,649,575
----------- ----------- ----------
Net increase (decrease) in net assets resulting from
operations 3,986,434 3,964,487 1,836,675
CAPITAL TRANSACTIONS
Purchase of Variable Account units 226,709 16,475,875 2,617,843
Redemption of Variable Account units (1,596,240) (279,283) (238,984)
Redemptions for mortality and expense and administrative
charges 123,780 194,130 40,956
Dividend income distribution to Fortis Benefits Insurance
Company - - -
----------- ----------- ----------
Net increase (decrease) from capital transactions (1,245,751) 16,390,722 2,419,815
Net assets at beginning of year 8,386,931 4,972,260 1,574,363
----------- ----------- ----------
Net assets at end of year $11,127,614 $25,327,469 $5,830,853
=========== =========== ==========
</TABLE>
* For the period from September 20, 1999 to December 31, 1999.
See accompanying notes
10
<PAGE> 67
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
MONEY ALLIANCE PREMIER SAFECO
MARKET INTERNATIONAL GROWTH GROWTH
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 980,514 $ 60,854 $ 99,520 $ -
Mortality and expense and administrative charges (93,511) (5,299) (35,830) (20,651)
Net realized gain (loss) on investments - 783,355 1,669,250 (539,748)
Net unrealized appreciation (depreciation) of investments
during the year (1,972) 85,364 257,229 702,775
--------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 885,031 924,274 1,990,169 142,376
CAPITAL TRANSACTIONS
Purchase of Variable Account units 200,368,900 61,396,606 13,223,689 4,984,999
Redemption of Variable Account units (201,747,571) (61,575,309) (15,623,413) (6,589,089)
Redemptions for mortality and expense and administrative charges 93,511 5,299 35,830 20,651
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
--------------- ------------ ------------ ------------
Net increase (decrease) from capital transactions (1,285,160) (173,404) (2,363,894) (1,583,439)
Net assets at beginning of year 16,561,373 1,185,950 8,695,749 5,578,102
--------------- ------------ ------------ ------------
Net assets at end of year $ 16,161,244 $ 1,936,820 $ 8,322,024 $ 4,137,039
=============== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FEDERATED U.S. FEDERATED
SAFECO GOVERNMENT HIGH INCOME
EQUITY SECURITIES II BOND FUND II
----------- ------------ -------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 179,477 $ 58,331 $ 384,300
Mortality and expense and administrative charges (15,168) (19,646) (42,973)
Net realized gain (loss) on investments 137,678 (28,762) (136,499)
Net unrealized appreciation (depreciation) of investments
during the year (20,217) (19,403) (121,670)
----------- ------------ -------------
Net increase (decrease) in net assets resulting from operations 281,770 (9,480) 83,158
CAPITAL TRANSACTIONS
Purchase of Variable Account units 2,726,246 6,472,452 21,516,246
Redemption of Variable Account units (1,922,280) (2,731,024) (16,700,953)
Redemptions for mortality and expense and administrative charges 15,168 19,646 42,973
Dividend income distribution to Fortis Benefits Insurance
Company - - -
----------- ------------ -------------
Net increase (decrease) from capital transactions 819,134 3,761,074 4,858,266
Net assets at beginning of year 2,288,591 1,054,187 3,713,159
----------- ------------ -------------
Net assets at end of year $ 3,389,495 $ 4,805,781 $ 8,654,583
=========== ============ =============
</TABLE>
See accompanying notes.
11
<PAGE> 68
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
FEDERATED FEDERATED FEDERATED
FEDERATED AMERICAN EQUITY GROWTH
UTILITY II LEADERS II INCOME STRATEGIES *
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 64,933 $ 459,974 $ 35,871 $ -
Mortality and expense and administrative charges (32,151) (183,354) (106,207) (90,114)
Net realized gain (loss) on investments (5,840) (274,924) 1,692 10,040
Net unrealized appreciation (depreciation) of investments during
the year (17,935) 111,282 1,936,223 6,370,927
------------ ------------- -------------- -------------
Net increase (decrease) in net assets resulting from operations 9,007 112,978 1,867,579 6,290,853
CAPITAL TRANSACTIONS
Purchase of Variable Account units 7,849,681 80,714,962 22,067,857 18,226,511
Redemption of Variable Account units (2,352,749) (43,728,259) (38,072) (147,062)
Redemptions for mortality and expense and administrative charges 32,151 183,354 106,207 90,114
Dividend income distribution to Fortis Benefits Insurance Company - - - -
------------ ------------- -------------- -------------
Net increase (decrease) from capital transactions 5,529,083 37,170,057 22,135,992 18,169,563
Net assets at beginning of year 1,090,491 1,665,573 - -
------------ ------------- -------------- -------------
Net assets at end of year $ 6,628,581 $ 38,948,608 $ 24,003,571 $ 24,460,416
============ ============= ============== =============
</TABLE>
<TABLE>
<CAPTION>
FEDERATED FEDERATED MONEY FEDERATED
INTERNATIONAL FUND* STRATEGIC
EQUITY* INCOME**
------------- ------------ ----------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 10,135 $ 45,051 $ -
Mortality and expense and administrative charges (34,075) (12,240) (1,532)
Net realized gain (loss) on investments (41) - 9
Net unrealized appreciation (depreciation) of investments during
the year 3,420,120 - 16,167
------------- ------------ ----------
Net increase (decrease) in net assets resulting from operations 3,396,139 32,811 14,644
CAPITAL TRANSACTIONS
Purchase of Variable Account units 6,923,501 8,313,016 586,922
Redemption of Variable Account units (7,023) (7,080,345) (1,362)
Redemptions for mortality and expense and administrative charges 34,075 12,240 1,532
Dividend income distribution to Fortis Benefits Insurance Company - - -
------------- ------------ ----------
Net increase (decrease) from capital transactions 6,950,553 1,244,911 587,092
Net assets at beginning of year - - -
------------- ------------ ----------
Net assets at end of year $ 10,346,692 $ 1,277,722 $ 601,736
============= ============ ==========
</TABLE>
* For the period from February 1, 1999 to December 31, 1999.
** For the period from June 1, 1999 to December 31, 1999.
See accompanying notes.
12
<PAGE> 69
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
LEXINGTON
FEDERATED NATURAL LEXINGTON MFS
SMALL CAP RESOURCES EMERGING EMERGING
STRATEGIES** TRUST MARKETS GROWTH
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ - $ 5,210 $ 275 $ -
Mortality and expense and administrative charges (2,128) (3,122) (293) (127,446)
Net realized gain (loss) on investments 74 (87,178) 35,831 969,753
Net unrealized appreciation (depreciation) of investments
during the year 175,321 128,261 25,869 7,798,184
------------ ----------- ----------- ------------
Net increase (decrease) in net assets resulting from operations 173,267 43,171 61,682 8,640,491
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,018,966 2,156,000 135,498 14,159,113
Redemption of Variable Account units (501) (1,817,326) (124,824) (7,363,014)
Redemptions for mortality and expense and administrative charges 2,128 3,122 293 127,446
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
------------ ----------- ----------- ------------
Net increase (decrease) from capital transactions 1,020,593 341,796 10,967 6,923,545
Net assets at beginning of year - 532,800 58,894 6,789,451
------------ ----------- ----------- ------------
Net assets at end of year $ 1,193,860 $ 917,767 $ 131,543 $ 22,353,487
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
MONTGOMERY
MFS HIGH MFS WORLD EMERGING
INCOME GOVERNMENT MARKETS
----------- --------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 401,657 $ 14,302 $ 74
Mortality and expense and administrative charges (77,640) (707) (3,647)
Net realized gain (loss) on investments (43,906) (24,456) 445,265
Net unrealized appreciation (depreciation) of investments
during the year (31,441) (1,365) 74,782
----------- --------- ------------
Net increase (decrease) in net assets resulting from operations 248,670 (12,226) 516,474
CAPITAL TRANSACTIONS
Purchase of Variable Account units 9,777,837 705,250 20,340,446
Redemption of Variable Account units (5,404,573) (990,963) (20,144,272)
Redemptions for mortality and expense and administrative charges 77,640 707 3,647
Dividend income distribution to Fortis Benefits Insurance
Company - - -
----------- --------- ------------
Net increase (decrease) from capital transactions 4,450,904 (285,006) 199,821
Net assets at beginning of year 3,508,800 325,006 309,163
----------- --------- ------------
Net assets at end of year $ 8,208,374 $ 27,774 $ 1,025,458
=========== ========= ============
</TABLE>
** For the period from June 1, 1999 to December 31, 1999.
See accompanying notes.
13
<PAGE> 70
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
STRONG STRONG AMERICAN
MONTGOMERY DISCOVERY INTERNATIONAL CENTURY VP
GROWTH FUND II II BALANCED
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 5,201 $ 27,272 $ 1,845 $ 204,087
Mortality and expense and administrative charges (4,566) (963) (3,930) (6,370)
Net realized gain (loss) on investments 233,717 (52,371) 606,345 11,391
Net unrealized appreciation (depreciation) of investments during
the year (1,115) 39,168 395,740 (74,370)
------------ ------------ ------------- -----------
Net increase (decrease) in net assets resulting from operations 233,237 13,106 1,000,000 134,738
CAPITAL TRANSACTIONS
Purchase of Variable Account units 3,986,865 1,505,925 17,404,182 713,675
Redemption of Variable Account units (4,518,176) (1,729,824) (16,023,839) (700,154)
Redemptions for mortality and expense and administrative charges 4,566 963 3,930 6,370
Dividend income distribution to Fortis Benefits Insurance Company - - - -
------------ ------------ ------------- -----------
Net increase (decrease) from capital transactions (526,745) (222,936) 1,384,273 19,891
Net assets at beginning of year 768,330 485,106 320,567 1,328,610
------------ ------------ ------------- -----------
Net assets at end of year $ 474,822 $ 275,276 $ 2,704,840 $ 1,483,239
============ ============ ============= ===========
</TABLE>
<TABLE>
<CAPTION>
VAN ECK
AMERICAN VAN ECK WORLDWIDE
CENTURY WORLDWIDE HARD
VP GROWTH BOND FUND ASSETS FUND
------------ ----------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ - $ 32,424 $ 5,800
Mortality and expense and administrative charges (1,427) (1,686) (3,390)
Net realized gain (loss) on investments 74,376 (59,331) 19,792
Net unrealized appreciation (depreciation) of investments during
the year 129,007 (13,943) 123,503
------------ ----------- ------------
Net increase (decrease) in net assets resulting from operations 201,956 (42,536) 145,705
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,507,118 1,050,294 5,494,999
Redemption of Variable Account units (1,098,083) (1,582,123) (5,197,598)
Redemptions for mortality and expense and administrative charges 1,427 1,686 3,390
Dividend income distribution to Fortis Benefits Insurance Company - - -
------------ ----------- ------------
Net increase (decrease) from capital transactions 410,462 (530,143) 300,791
Net assets at beginning of year 130,057 882,098 371,483
------------ ----------- ------------
Net assets at end of year $ 742,475 $ 309,419 $ 817,979
============ =========== ============
</TABLE>
See accompanying notes.
14
<PAGE> 71
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
NEUBERGER &
BERMAN AMT
LIMITED NEUBERGER & INVESCO
MATURITY BERMAN AMT HEALTH
BOND PARTNERS & SCIENCES
--------- ---------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 34,231 $ 22,384 $ 1,773
Mortality and expense and administrative charges (2,313) (3,261) (8,720)
Net realized gain (loss) on investments (20,107) (5,353) 58,119
Net unrealized appreciation (depreciation) of investments during the year (8,853) 32,264 (29,108)
--------- ---------- ------------
Net increase (decrease) in net assets resulting from operations 2,958 46,034 22,064
CAPITAL TRANSACTIONS
Purchase of Variable Account units 578,191 597,368 4,368,976
Redemption of Variable Account units (714,271) (873,323) (4,238,621)
Redemptions for mortality and expense and administrative charges 2,313 3,261 8,720
Dividend income distribution to Fortis Benefits Insurance Company - - -
--------- ---------- ------------
Net increase (decrease) from capital transactions (133,767) (272,694) 139,075
Net assets at beginning of year 675,400 852,869 1,868,095
--------- ---------- ------------
Net assets at end of year $ 544,591 $ 626,209 $ 2,029,234
========= ========== ============
</TABLE>
<TABLE>
<CAPTION>
INVESCO COMBINED
INDUSTRIAL INVESCO VARIABLE
INCOME TECHNOLOGY ACCOUNT
----------- ------------ ---------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 15,560 $ - $ 288,944,665
Mortality and expense and administrative charges (3,233) (18,191) (42,331,871)
Net realized gain (loss) on investments 50,003 1,995,638 114,341,208
Net unrealized appreciation (depreciation) of investments during the year 22,334 2,842,497 414,351,155
----------- ------------ ---------------
Net increase (decrease) in net assets resulting from operations 84,664 4,819,944 775,305,157
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,629,081 24,971,634 1,142,010,519
Redemption of Variable Account units (1,394,230) (18,308,129) (945,768,190)
Redemptions for mortality and expense and administrative charges 3,233 18,191 42,331,871
Dividend income distribution to Fortis Benefits Insurance Company - - (894,843)
----------- ------------ ---------------
Net increase (decrease) from capital transactions 238,084 6,681,696 237,679,357
Net assets at beginning of year 540,536 1,239,047 2,937,518,919
----------- ------------ ---------------
Net assets at end of year $ 863,284 $ 12,740,687 $ 3,950,503,433
=========== ============ ===============
</TABLE>
See accompanying notes.
15
<PAGE> 72
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
FORTIS U.S.
FORTIS GROWTH GOVERNMENT FORTIS MONEY FORTIS ASSET
STOCK SECURITIES MARKET ALLOCATION
------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 26,467,526 $ 8,254,423 $ 2,881,782 $ 944,495
Mortality and expense and administrative charges (7,108,278) (1,819,718) (754,138) (6,446,486)
Net realized gain (loss) on investments 34,160,134 378,287 317,058 5,833,283
Net unrealized appreciation (depreciation) of investments
during the year 29,707,787 2,601,264 (332,026) 80,554,775
------------- -------------- ------------ --------------
Net increase (decrease) in net assets resulting from 83,227,169 9,414,256 2,112,676 80,886,067
operations
CAPITAL TRANSACTIONS
Purchase of Variable Account units 8,096,970 29,320,325 56,925,744 38,225,062
Redemption of Variable Account units (83,484,018) (31,609,712) (41,411,119) (27,638,570)
Redemptions for mortality and expense and administrative
charges 7,108,278 1,819,718 754,138 6,446,486
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment
in subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
------------- -------------- ------------ --------------
Net increase (decrease) from capital transactions (68,278,770) (469,669) 16,268,763 17,032,978
Net assets at beginning of year 526,688,738 132,824,879 48,737,748 438,465,903
------------- -------------- ------------ --------------
Net assets at end of year $ 541,637,137 $ 141,769,466 $ 67,119,187 $ 536,384,948
============= ============== ============ ==============
</TABLE>
<TABLE>
<CAPTION>
FORTIS FORTIS
DIVERSIFIED FORTIS GLOBAL AGGRESSIVE
INCOME GROWTH GROWTH
-------------- --------------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 6,770,367 $ 295,915 $ 171,175
Mortality and expense and administrative charges (1,387,204) (3,706,532) (1,205,738)
Net realized gain (loss) on investments 248,128 15,447,835 1,786,779
Net unrealized appreciation (depreciation) of investments
during the year (806,741) 12,596,119 15,717,735
-------------- --------------- ------------
Net increase (decrease) in net assets resulting from 4,824,550 24,633,337 16,469,951
operations
CAPITAL TRANSACTIONS
Purchase of Variable Account units 11,808,123 5,585,488 6,778,089
Redemption of Variable Account units (9,454,092) (47,585,475) (13,235,104)
Redemptions for mortality and expense and administrative
charges 1,387,204 3,706,532 1,205,738
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment
in subaccount - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - -
-------------- --------------- ------------
Net increase (decrease) from capital transactions 3,741,235 (38,293,455) (5,251,277)
Net assets at beginning of year 98,063,099 275,542,311 86,757,870
-------------- --------------- ------------
Net assets at end of year $ 106,628,884 $ 261,882,193 $ 97,976,544
============== =============== ============
</TABLE>
See accompanying notes.
16
<PAGE> 73
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
FORTIS GLOBAL
FORTIS GROWTH FORTIS HIGH ASSET FORTIS GLOBAL
& INCOME YIELD ALLOCATION BOND
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 74,701 $ 5,211,819 $ 4,126,850 $ 963,909
Mortality and expense and administrative charges (3,367,889) (833,772) (659,482) (190,032)
Net realized gain (loss) on investments 3,162,729 117,060 501,769 158,614
Net unrealized appreciation (depreciation) of investments
during the year 26,107,816 (5,113,753) 3,060,304 1,473,210
-------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 25,977,357 (618,646) 7,029,441 2,405,701
CAPITAL TRANSACTIONS
Purchase of Variable Account units 34,565,822 17,120,211 9,260,170 6,259,719
Redemption of Variable Account units (12,370,869) (6,968,139) (3,266,333) (4,791,843)
Redemptions for mortality and expense and administrative
charges 3,367,889 833,772 659,482 190,032
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - (265,877) (241,695)
-------------- ------------ ------------ ------------
Net increase (decrease) from capital transactions 25,562,842 10,985,844 6,387,442 1,416,213
Net assets at beginning of year 214,442,986 54,179,260 46,053,856 18,796,550
-------------- ------------ ------------ ------------
Net assets at end of year $ 265,983,185 $ 64,546,458 $ 59,470,739 $ 22,618,464
============== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FORTIS
INTERNATIONAL FORTIS
STOCK FORTIS VALUE S & P 500
------------ ------------ -------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 5,327,524 $ 1,608,314 $ 2,986,482
Mortality and expense and administrative charges (950,221) (871,723) (1,887,000)
Net realized gain (loss) on investments 2,690,314 700,432 3,863,409
Net unrealized appreciation (depreciation) of investments
during the year 2,473,473 2,820,051 29,200,375
------------ ------------ -------------
Net increase (decrease) in net assets resulting from operations 9,541,090 4,257,074 34,163,266
CAPITAL TRANSACTIONS
Purchase of Variable Account units 16,782,466 26,693,597 100,704,775
Redemption of Variable Account units (8,715,471) (5,550,357) (19,641,461)
Redemptions for mortality and expense and administrative
charges 950,221 871,723 1,887,000
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount (4,534,143) (1,111,186) (6,137,363)
Dividend income distribution to Fortis Benefits Insurance
Company - - -
------------ ------------ -------------
Net increase (decrease) from capital transactions 4,483,073 20,903,777 76,812,951
Net assets at beginning of year 63,379,379 47,432,774 89,188,764
------------ ------------ -------------
Net assets at end of year $ 77,403,542 $ 72,593,625 $ 200,164,981
============ ============ =============
</TABLE>
See accompanying notes.
17
<PAGE> 74
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
FORTIS BLUE FORTIS MID FORTIS LARGE FORTIS SMALL
CHIP STOCK CAP STOCK * CAP GROWTH * CAP VALUE *
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 2,429,183 $ 19,450 $ 3,827 $ 189,053
Mortality and expense and administrative charges (1,324,309) (22,225) (6,487) (41,502)
Net realized gain (loss) on investments 368,440 (12,512) (8,719) (17,305)
Net unrealized appreciation (depreciation) of investments
during the year 23,595,863 545,643 2,263,168 58,284
------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 25,069,177 530,356 2,251,789 188,530
CAPITAL TRANSACTIONS
Purchase of Variable Account units 57,253,131 6,896,405 8,728,546 10,421,155
Redemption of Variable Account units (2,538,109) (225,181) (226,237) (610,438)
Redemptions for mortality and expense and administrative charges
1,324,309 22,225 6,487 41,502
Funding of subaccount by Fortis Benefits Insurance Company - 4,150,000 4,150,000 4,150,000
Redemption of Fortis Benefits Insurance Company investment in
subaccount (182,209) - - -
Dividend income distribution to Fortis Benefits Insurance
Company (106,437) (6,889) (1,287) (52,166)
------------- ------------ ------------ ------------
Net increase (decrease) from capital transactions 55,750,685 10,836,560 12,657,509 13,950,053
Net assets at beginning of year 65,094,254 - - -
------------- ------------ ------------ ------------
Net assets at end of year $ 145,914,116 $ 11,366,916 $ 14,909,298 $ 14,138,583
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
NORWEST NORWEST SMALL
NORWEST INTERMEDIATE COMPANY
VALUGROWTH BOND STOCK
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 238,581 $ 1,098,033 $ 39,626
Mortality and expense and administrative charges (411,392) (207,725) (168,037)
Net realized gain (loss) on investments 14,844 58,241 222,258
Net unrealized appreciation (depreciation) of investments
during the year 5,752,937 (1,238,385) (2,310,701)
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations 5,594,970 (289,836) (2,216,854)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 9,841,845 14,092,379 6,325,057
Redemption of Variable Account units (1,757,906) (1,034,235) (779,846)
Redemptions for mortality and expense and administrative charges
411,392 207,725 168,037
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - (1,710,197)
Dividend income distribution to Fortis Benefits Insurance
Company - - -
------------ ------------ ------------
Net increase (decrease) from capital transactions 8,495,331 13,265,869 4,003,051
Net assets at beginning of year 21,661,424 9,180,606 11,506,028
------------ ------------ ------------
Net assets at end of year $ 35,751,725 $ 22,156,639 $ 13,292,225
============ ============ ============
</TABLE>
* For the period from May 1, 1998 to December 31, 1998.
See accompanying notes.
18
<PAGE> 75
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
NORWEST AIM V.I.
INCOME SCUDDER AIM V.I. INTERNATIONAL
EQUITY INTERNATIONAL VALUE EQUITY
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 1,056,309 $ 896,543 $ 211,271 $ 12,369
Mortality and expense and administrative charges (888,643) (109,417) (18,617) (7,795)
Net realized gain (loss) on investments 230,940 30,845 847 (627)
Net unrealized appreciation (depreciation) of investments
during the year 8,996,308 252,510 460,156 23,040
------------ ----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations 9,394,914 1,070,481 653,657 26,987
CAPITAL TRANSACTIONS
Purchase of Variable Account units 37,762,541 1,811,004 4,403,159 1,598,178
Redemption of Variable Account units (1,797,881) (788,697) (103,173) (58,597)
Redemptions for mortality and expense and administrative
charges 888,643 109,417 18,617 7,795
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
------------ ----------- ----------- -----------
Net increase (decrease) from capital transactions 36,853,303 1,131,724 4,318,603 1,547,376
Net assets at beginning of year 39,808,806 6,184,726 - -
------------ ----------- ----------- -----------
Net assets at end of year $ 86,057,023 $ 8,386,931 $ 4,972,260 $ 1,574,363
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
MONEY ALLIANCE PREMIER
MARKET INTERNATIONAL GROWTH
------------- -------------- ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 1,519,027 $ 275,640 $ 43,994
Mortality and expense and administrative charges (71,287) (9,699) (21,589)
Net realized gain (loss) on investments - 670,420 539,395
Net unrealized appreciation (depreciation) of investments
during the year - (11,830) 1,207,289
------------- -------------- ------------
Net increase (decrease) in net assets resulting from operations 1,447,740 924,531 1,769,089
CAPITAL TRANSACTIONS
Purchase of Variable Account units 275,790,809 112,885,826 44,398,125
Redemption of Variable Account units (267,800,970) (115,289,922) (39,496,646)
Redemptions for mortality and expense and administrative
charges 71,287 9,699 21,589
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - -
------------- -------------- ------------
Net increase (decrease) from capital transactions 8,061,126 (2,394,397) 4,923,068
Net assets at beginning of year 7,052,507 2,655,816 2,003,592
------------- -------------- ------------
Net assets at end of year $ 16,561,373 $ 1,185,950 $ 8,695,749
============= ============== ============
</TABLE>
See accompanying notes.
19
<PAGE> 76
\
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
FEDERATED U.S. FEDERATED
SAFECO SAFECO GOVERNMENT HIGH INCOME
GROWTH EQUITY SECURITIES II BOND FUND II
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 611,481 $ 107,105 $ 1,490 $ 145,006
Mortality and expense and administrative charges (23,023) (8,994) (3,497) (14,352)
Net realized gain (loss) on investments (298,311) 106,229 38,761 102,512
Net unrealized appreciation (depreciation) of investments during
the year 20,810 181,464 10,223 70,747
------------ ----------- ----------- ------------
Net increase (decrease) in net assets resulting from operations 310,957 385,804 46,977 303,913
CAPITAL TRANSACTIONS
Purchase of Variable Account units 38,247,904 5,017,777 8,903,906 12,041,460
Redemption of Variable Account units (36,738,247) (4,563,051) (8,113,615) (11,229,632)
Redemptions for mortality and expense and administrative charges 23,023 8,994 3,497 14,352
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance Company - - - -
------------ ----------- ----------- ------------
Net increase (decrease) from capital transactions 1,532,680 463,720 793,788 826,180
Net assets at beginning of year 3,734,465 1,439,067 213,422 2,583,066
------------ ----------- ----------- ------------
Net assets at end of year $ 5,578,102 $ 2,288,591 $ 1,054,187 $ 3,713,159
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
LEXINGTON
FEDERATED NATURAL
FEDERATED AMERICAN RESOURCES
UTILITY II LEADERS II TRUST
---------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 17,235 $ 233,707 $ 43,384
Mortality and expense and administrative charges (3,159) (12,652) (3,193)
Net realized gain (loss) on investments (30,623) 274,612 (119,305)
Net unrealized appreciation (depreciation) of investments during
the year 3,687 77,514 (105,350)
---------- ----------- -----------
Net increase (decrease) in net assets resulting from operations (12,860) 573,181 (184,464)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 6,829,897 26,396,563 1,760,109
Redemption of Variable Account units (7,379,883) (28,510,268) (2,202,365)
Redemptions for mortality and expense and administrative charges 3,159 12,652 3,193
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - -
Dividend income distribution to Fortis Benefits Insurance Company - - -
---------- ----------- -----------
Net increase (decrease) from capital transactions (546,827) (2,101,053) (439,063)
Net assets at beginning of year 1,650,178 3,193,445 1,156,327
---------- ----------- -----------
Net assets at end of year $1,090,491 $ 1,665,573 $ 532,800
========== =========== ===========
</TABLE>
See accompanying notes.
20
<PAGE> 77
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
LEXINGTON MFS
EMERGING EMERGING MFS HIGH MFS WORLD
MARKETS GROWTH INCOME GOVERNMENT
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 6,180 $ 14,899 $ 68,432 $ 1,291
Mortality and expense and administrative charges (496) (10,192) (4,620) (565)
Net realized gain (loss) on investments (9,637) 533,200 (9,817) 3,733
Net unrealized appreciation (depreciation) of investments during
the year (21,006) 819,762 (69,962) 1,201
----------- ------------ ----------- -----------
Net increase (decrease) in net assets resulting from operations (24,959) 1,357,669 (15,967) 5,660
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,654,144 29,085,014 5,754,624 1,429,924
Redemption of Variable Account units (2,210,494) (27,832,016) (2,913,514) (1,219,491)
Redemptions for mortality and expense and administrative charges 496 10,192 4,620 565
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance Company - - - -
----------- ------------ ----------- -----------
Net increase (decrease) from capital transactions (555,854) 1,263,190 2,845,730 210,998
Net assets at beginning of year 639,707 4,168,592 679,037 108,348
----------- ------------ ----------- -----------
Net assets at end of year $ 58,894 $ 6,789,451 $ 3,508,800 $ 325,006
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MONTGOMERY STRONG
EMERGING MONTGOMERY DISCOVERY
MARKETS GROWTH FUND II
----------- ------------ -----------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 1,019 $ 27,444 $ 28,115
Mortality and expense and administrative charges (2,277) (5,823) (2,038)
Net realized gain (loss) on investments (251,784) 63,647 17,142
Net unrealized appreciation (depreciation) of investments during
the year 12,116 (104,066) 17,556
----------- ------------ -----------
Net increase (decrease) in net assets resulting from operations (240,926) (18,798) 60,775
CAPITAL TRANSACTIONS
Purchase of Variable Account units 3,568,166 958,991 8,735,012
Redemption of Variable Account units (3,677,901) (2,080,709) (8,549,511)
Redemptions for mortality and expense and administrative charges 2,277 5,823 2,038
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - -
Dividend income distribution to Fortis Benefits Insurance Company - - -
----------- ------------ -----------
Net increase (decrease) from capital transactions (107,458) (1,115,895) 187,539
Net assets at beginning of year 657,547 1,903,023 236,792
----------- ------------ -----------
Net assets at end of year $ 309,163 $ 768,330 $ 485,106
=========== ============ ===========
</TABLE>
See accompanying notes.
21
<PAGE> 78
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
AMERICAN AMERICAN VAN ECK
STRONG CENTURY VP CENTURY WORLDWIDE
INTERNATIONAL II BALANCED VP GROWTH BOND FUND
---------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 4,316 $ 97,253 $ 5,760 $ 7,031
Mortality and expense and administrative charges (1,711) (2,774) (2,218) (2,373)
Net realized gain (loss) on investments 62,354 (77,370) 67,659 45,162
Net unrealized appreciation (depreciation) of investments
during the year 9,766 86,667 32,986 5,746
------------- ------------ ------------ -----------
Net increase (decrease) in net assets resulting from operations 74,725 103,776 104,187 55,566
CAPITAL TRANSACTIONS
Purchase of Variable Account units 11,439,550 3,176,516 22,191,371 3,619,169
Redemption of Variable Account units (11,526,224) (2,521,079) (22,309,476) (3,073,617)
Redemptions for mortality and expense and administrative charges
1,711 2,774 2,218 2,373
Funding of subaccount by Fortis Benefits Insurance Company - - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - - -
------------- ------------ ------------ -----------
Net increase (decrease) from capital transactions (84,963) 658,211 (115,887) 547,925
Net assets at beginning of year 330,805 566,623 141,757 278,607
------------- ------------ ------------ -----------
Net assets at end of year $ 320,567 $ 1,328,610 $ 130,057 $ 882,098
============= ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
VAN ECK NEUBERGER &
WORLDWIDE BERMAN AMT NEUBERGER &
HARD ASSETS LIMITED BERMAN AMT
FUND MATURITY BOND PARTNERS
----------- ------------- -----------
<S> <C> <C> <C>
OPERATIONS
Dividend income $ 146,361 $ 23,272 $ 123,635
Mortality and expense and administrative charges (3,044) (2,433) (4,346)
Net realized gain (loss) on investments (314,422) (4,949) (90,988)
Net unrealized appreciation (depreciation) of investments
during the year (47,362) 3,288 (45,410)
----------- ------------ -----------
Net increase (decrease) in net assets resulting from operations (218,467) 19,178 (17,109)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 4,113,612 1,490,835 1,326,782
Redemption of Variable Account units (4,849,914) (1,173,233) (1,051,703)
Redemptions for mortality and expense and administrative charges
3,044 2,433 4,346
Funding of subaccount by Fortis Benefits Insurance Company - - -
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - -
Dividend income distribution to Fortis Benefits Insurance
Company - - -
----------- ------------ -----------
Net increase (decrease) from capital transactions (733,258) 320,035 279,425
Net assets at beginning of year 1,323,208 336,187 590,553
----------- ------------ -----------
Net assets at end of year $ 371,483 $ 675,400 $ 852,869
=========== ============ ===========
</TABLE>
See accompanying notes.
22
<PAGE> 79
Fortis Benefits Insurance Company
Variable Account D
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
INVESCO INVESCO COMBINED
HEALTH & INDUSTRIAL INVESCO VARIABLE
SCIENCES INCOME TECHNOLOGY ACCOUNT
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 45,713 $ 25,527 $ 5,212 $ 75,909,596
Mortality and expense and administrative charges (4,325) (2,272) (2,193) (34,619,507)
Net realized gain (loss) on investments 83,990 (17,099) (30,307) 71,607,287
Net unrealized appreciation (depreciation) of investments
during the year 170,413 32,862 160,236 240,978,559
------------ ------------ ----------- ----------------
Net increase (decrease) in net assets resulting from operations 295,791 39,018 132,948 353,875,395
CAPITAL TRANSACTIONS
Purchase of Variable Account units 5,191,549 1,055,446 4,726,295 1,169,049,337
Redemption of Variable Account units (3,777,233) (893,692) (3,791,287) (950,418,556)
Redemptions for mortality and expense and administrative charges
4,325 2,272 2,193 34,619,507
Funding of subaccount by Fortis Benefits Insurance Company - - - 12,450,000
Redemption of Fortis Benefits Insurance Company investment in
subaccount - - - (13,675,098)
Dividend income distribution to Fortis Benefits Insurance
Company - - - (674,351)
------------ ------------ ----------- ----------------
Net increase (decrease) from capital transactions 1,418,641 164,026 937,201 251,350,839
Net assets at beginning of year 153,663 337,492 168,898 2,332,292,685
------------ ------------ ----------- ----------------
Net assets at end of year $ 1,868,095 $ 540,536 $ 1,239,047 $ 2,937,518,919
============ ============ =========== ================
</TABLE>
See accompanying notes.
23
<PAGE> 80
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements
December 31, 1999
1. GENERAL
FORTIS BENEFITS INSURANCE COMPANY
Variable Account D (the "Account") was established as a segregated asset account
of Fortis Benefits Insurance Company ("Fortis Benefits") on October 14, 1987
under Minnesota law. The Account is registered under the Investment Company Act
of 1940 as a unit investment trust. The variable annuity contracts are sold
under the names of EmPower Variable Annuity, Opportunity Variable Annuity, Wells
Fargo Passage Variable Annuity (formerly known as Norwest Passage Variable
Annuity), Masters Variable Annuity, Value Advantage Plus Variable Annuity and
Income Preferred Variable Annuity and Federated Triple Crown Variable Annuity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Account are segregated from Fortis Benefits' other assets. The
operations of the Account are part of Fortis Benefits. The following is a
summary of significant accounting policies consistently followed by the Account
in the preparation of its financial statements.
INVESTMENT TRANSACTIONS
Capital gain distributions from subaccounts are recorded on the ex-dividend date
and reinvested upon receipt.
INVESTMENT INCOME
Dividend income distributions from subaccounts are recorded on the ex-dividend
date and reinvested upon receipt.
24
<PAGE> 81
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of net assets at the date of
the financial statements and the reported amounts of net increase and decrease
in net assets from operations during the reporting period. Actual results could
differ from these estimates.
3. INVESTMENTS
There were 61 subaccounts within the Account. Investment in shares of the Fortis
Series Fund, Inc. (the "Series") subaccounts are stated at market value, which
is based on the percentage owned by the Account of the net asset value for the
respective portfolios of these Series. The Series' net asset value is based on
market quotations of the securities held in the portfolio. Investments in the
other subaccounts are valued at the net asset (market) value per share at the
close of business on December 31, as reported by the respective mutual fund.
On September 20, 1999, the Norwest Series Funds changed its name to the Wells
Fargo Variable Trust. As a result of the change from Norwest to Wells Fargo, the
following funds changed names: The Norwest Select Income Equity Fund changed to
Wells Fargo Variable Trust Equity Income Fund, the Norwest Select Valugrowth
Fund changed to Wells Fargo Variable Trust Large Company Growth Fund, the
Norwest Income Fund changed to the Wells Fargo Variable Trust Corporate Bond
Fund, and the Norwest Select Small Company Stock Fund changed to the Wells Fargo
Variable Trust Small Cap Stock Fund.
The cost of investments sold and redeemed is determined on the average cost
method. Unrealized appreciation or depreciation of investments represents the
Account's share of the subaccounts' undistributed net investment income,
undistributed realized gains or losses and unrealized appreciation or
depreciation.
25
<PAGE> 82
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
Purchases and sales of shares of the Fund are recorded on the trade date. The
number of shares and aggregate cost of purchases, including reinvested dividends
and realized capital gains, and aggregate cost of investments sold or redeemed
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock 4,978,132 2,488,571 $161,442,240 $ 60,051,825
U.S. Government Securities 1,916,594 2,147,519 19,930,332 23,141,836
Money Market 9,210,743 5,738,592 103,104,140 63,850,738
Asset Allocation 4,015,172 2,762,388 82,165,249 43,092,189
Diversified Income 1,206,078 1,555,645 13,354,668 18,287,745
Global Growth 770,088 2,667,719 20,141,023 38,663,127
Aggressive Growth 1,237,296 784,771 28,632,229 10,639,902
Growth & Income 1,147,912 1,657,035 23,472,414 24,762,684
High Yield 1,396,065 1,176,380 13,088,327 11,968,830
Global Asset Allocation 730,517 535,027 10,234,446 6,996,772
Global Bond 728,969 425,728 8,090,103 4,981,315
International Stock 1,543,903 815,081 24,396,424 10,609,129
Value 449,284 605,528 6,823,332 7,895,168
S & P 500 6,179,339 2,022,842 125,545,450 38,403,086
Blue Chip Stock 2,679,741 277,993 52,655,703 4,405,532
Mid Cap Stock 891,979 125,899 8,528,073 1,140,982
Large Cap Growth 3,491,409 50,255 47,009,337 703,566
Small Cap Value 1,921,850 222,974 19,193,803 2,225,383
Wells Fargo Variable Trust:
Large Cap 467,130 240,704 17,880,099 3,039,944
Corporate Bond 1,120,765 230,185 13,560,810 2,673,496
Small Cap Stock 122,610 269,659 1,382,121 3,442,322
Income Equity 2,148,439 203,437 38,111,023 2,903,009
Growth 2,183 - 56,266 1
Equity Value 10,708 - 100,121 -
Asset Allocation 75,891 302 1,191,046 4,188
Scudder Variable Life Investment Fund:
International 14,987 101,879 1,051,785 1,344,120
AIM Variable Insurance Funds, Inc.:
V.I. Value Fund 563,265 9,554 16,886,126 251,080
V.I. International Equity 121,509 9,905 2,806,228 199,314
</TABLE>
26
<PAGE> 83
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Alliance Variable Product Series:
Money Market 200,370,409 201,747,571 $201,349,414 $201,747,571
International 3,557,215 3,535,060 61,457,460 60,791,954
Premier Growth 385,714 459,541 13,323,209 13,954,163
SAFECO Resource Series:
Growth 243,582 321,802 5,005,304 7,128,837
Equity 88,378 61,277 2,905,724 1,784,602
Federated Insurance Series:
U.S. Government Securities II 610,469 256,608 6,530,790 2,759,786
High Income Bond Fund II 2,064,857 1,597,032 21,900,547 16,837,452
American Leaders II 3,837,639 2,066,898 81,174,935 44,003,183
Equity Income 1,474,209 2,456 22,103,728 36,380
Growth Strategies 798,642 6,531 18,226,511 137,022
International Equity II 374,118 439 6,933,636 7,065
Utility II 548,821 163,128 7,914,617 2,358,588
Money II 8,313,351 7,080,345 8,358,067 7,080,345
Strategic Income II 58,160 138 586,922 1,353
Small Cap II 85,863 36 1,018,966 427
Lexington Funds, Inc.:
Natural Resources Trust 170,459 145,816 2,161,210 1,904,504
Emerging Markets 135,638 14,322 135,773 105,456
MFS Variable Insurance Trust:
Emerging Growth 249,835 301,231 14,159,112 6,393,261
High Income 455,613 466,550 10,179,495 5,448,479
World Government 67,910 96,403 719,554 1,015,419
Montgomery Variable Funds:
Emerging Markets 2,441,174 2,392,615 20,357,660 19,699,007
Growth 235,480 260,002 3,992,065 4,284,459
Strong Variable Insurance Funds:
Discovery II 150,502 167,330 1,533,197 1,782,195
International II 1,729,393 1,600,904 17,406,027 15,417,494
American Century Investments:
VP Balanced 90,380 88,096 917,761 688,763
VP Capital Appreciation 141,050 105,438 1,507,118 1,023,707
</TABLE>
27
<PAGE> 84
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 96,979 142,677 $ 1,082,718 $ 1,641,454
Worldwide Hard Assets Fund 523,306 479,248 5,500,799 5,177,805
Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 43,964 54,339 612,422 734,378
AMT Partners 30,511 44,921 619,752 878,676
INVESCO, Inc.:
Health & Sciences 289,246 284,870 4,370,749 4,180,502
Industrial Income 81,284 69,977 1,644,642 1,344,227
Technology 1,106,916 850,184 24,971,634 16,312,491
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock 1,004,034 2,196,640 $ 34,564,496 $ 49,323,884
U.S. Government Securities 3,437,980 2,901,372 37,574,748 31,231,425
Money Market 5,363,997 3,716,023 59,807,526 41,094,061
Asset Allocation 2,001,168 1,458,017 39,169,557 21,805,287
Diversified Income 1,549,018 782,457 18,578,490 9,205,964
Global Growth 285,660 2,261,137 5,881,403 32,137,640
Aggressive Growth 487,885 901,804 6,949,264 11,448,325
Growth & Income 1,726,589 629,713 34,640,523 9,208,139
High Yield 2,152,596 667,421 22,332,030 6,851,079
Global Asset Allocation 936,706 250,285 13,387,020 3,303,440
Global Bond 631,500 440,320 7,223,628 4,874,924
International Stock 1,503,232 902,541 22,109,990 10,559,299
Value 1,993,402 477,833 28,301,911 5,961,110
S & P 500 6,188,109 1,534,358 103,691,257 21,915,415
Blue Chip Stock 3,595,998 155,356 59,682,314 2,458,315
Mid Cap Stock 1,205,928 26,346 11,055,855 244,582
Large Cap Growth 1,260,680 22,820 12,882,373 236,243
Small Cap Value 1,598,441 74,837 14,760,208 679,909
Norwest Select Fund:
ValuGrowth 660,500 120,742 10,080,966 1,743,062
Intermediate Bond 1,183,655 82,025 15,190,412 975,994
</TABLE>
28
<PAGE> 85
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Norwest Select Fund (continued):
Small Company Stock 517,603 197,617 $ 6,364,683 $ 2,267,785
Income Equity 2,588,219 119,655 38,818,850 1,566,941
Scudder Variable Life Investment Fund:
International 195,728 58,024 2,707,547 757,852
AIM Variable Insurance Funds, Inc.:
V.I. Value Fund 193,718 4,299 4,614,430 102,326
V.I. International Equity 83,290 3,047 1,610,547 59,224
Alliance Variable Product Series:
Money Market 277,309,836 267,800,970 277,309,836 267,800,970
International 6,931,865 7,035,341 113,161,466 114,619,502
Premier Growth 1,715,690 1,530,908 44,442,119 38,957,251
SAFECO Resource Series:
Growth 1,515,642 1,412,953 38,859,385 37,036,558
Equity 184,338 165,126 5,124,882 4,456,822
Federated Insurance Series:
U.S. Government Securities II 820,671 746,374 8,905,396 8,074,854
High Income Bond Fund II 1,126,285 1,022,148 12,186,466 11,127,120
Utility II 1,122,568 523,631 6,847,132 7,410,506
American Leaders II 1,344,922 1,430,779 26,630,270 28,235,656
Lexington Funds, Inc.:
Natural Resources Trust 126,536 155,785 1,803,493 2,321,670
Emerging Markets 200,566 261,939 1,660,324 2,220,131
MFS Variable Insurance Trust:
Emerging Growth 1,634,214 1,576,261 29,099,913 27,298,816
High Income 494,434 245,098 5,823,056 2,923,331
World Government 135,626 116,366 1,431,215 1,215,758
Montgomery Variable Funds:
Emerging Markets 454,651 469,946 3,569,185 3,929,685
Growth 63,835 140,023 986,435 2,017,062
Strong Variable Insurance Funds:
Discovery II 675,218 656,764 8,763,127 8,532,369
International II 1,257,834 1,256,817 11,443,866 11,463,870
American Century Investments:
VP Balanced 407,610 317,069 3,273,769 2,598,449
VP Growth 2,372,711 2,372,936 22,197,131 22,241,817
</TABLE>
29
<PAGE> 86
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------
SHARES COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---- --------- -----------
<S> <C> <C> <C> <C>
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 305,599 259,118 $ 3,626,200 $ 3,028,455
Worldwide Hard Assets Fund 328,539 372,387 4,259,973 5,164,336
Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 110,676 85,614 1,514,107 1,178,182
AMT Partners 73,345 56,959 1,450,417 1,142,691
INVESCO, Inc.:
Health & Sciences 396,457 288,098 5,237,262 3,693,243
Industrial Income 59,410 50,171 1,080,973 910,791
Technology 377,427 305,735 4,731,507 3,821,594
</TABLE>
Fortis Benefits' investment in the subaccounts represented the following number
of shares of the Funds held and aggregate cost of amounts invested at December
31, 1999:
<TABLE>
<CAPTION>
COST OF
SHARES SHARES
------- ----------
<S> <C> <C>
Fortis Series Fund, Inc.:
Global Asset Allocation 299,219 $3,216,120
Global Bond 518,523 5,286,998
Blue Chip Stock 342,151 3,533,258
Mid Cap Stock 415,029 4,149,737
Large Cap Growth 415,274 4,183,997
Small Cap Value 415,310 4,142,723
</TABLE>
30
<PAGE> 87
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
4. ACCOUNT CHARGES
ADMINISTRATION CHARGE
A $35 annual contract administrative charge is deducted each contract year from
the value of each Opportunity Variable Annuity and Masters Variable Annuity and
$30 for each EmPower Variable Annuity, Wells Fargo Passage Variable Annuity and
Value Advantage Plus Variable Annuity on each anniversary of the contract date
and upon total surrender of the contract. This charge will be waived during the
accumulation period if the contract value at the end of the contract year (or
upon total surrender) is $25,000 or more for the Opportunity Variable Annuity,
Masters Variable Annuity and Wells Fargo Passage Variable Annuity and $100,000
for the EmPower Variable Annuity.
In addition, Fortis Benefits assesses each subaccount of the Opportunity
Variable Annuity, Masters Variable Annuity, Income Preferred Variable Annuity
and Federated Triple Crown Variable Annuity, a daily charge for administrative
expense at annual rate of 0.10% of the net assets. For the EmPower Variable
Annuity and Wells Fargo Passage Variable Annuity, the daily charge is assessed
at an annual rate of 0.15%.
MORTALITY AND EXPENSE RISK CHARGE
Fortis Benefits assesses each subaccount of the Opportunity Variable Annuity,
Masters Variable Annuity and Wells Fargo Passage Variable Annuity a daily charge
for mortality and expense risk at an annual rate of 1.25% of the net assets. For
the EmPower Variable Annuity, the daily charge is assessed at an annual rate of
1.10%. For the Income Preferred Variable Annuity, the daily charge is assessed
at an annual rate of 1.85%. For the Value Advantage Plus Variable Annuity, the
mortality and expense risk charge is assessed at an annual rate of 0.45%. For
the Federated Triple Crown Variable Annuity, the mortality and expense risk
charge for contract owners less than 61 years old is 1.10%, and for contract
owners 61 years or older is 1.30%.
31
<PAGE> 88
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
4. ACCOUNT CHARGES (CONTINUED)
INVESTMENT RISK CHARGE
Fortis Benefits bears an investment risk associated with the Income Preferred
Variable Annuity in relation to the Guaranteed Payout Plan Benefit. With this
benefit Fortis bears the risk that investment performance is insufficient to
cover the guarantee of the return of purchase payment. Fortis assesses a daily
charge at an annual rate of .35% for this risk.
5. SURRENDER AND PREMIUM TAX CHARGES
FREE SURRENDERS
The following amounts can be withdrawn from the contract without a surrender
charge:
- Any purchase payments received more than five years prior to the
surrender date for Opportunity Variable Annuity and the Wells Fargo
Passage Variable Annuity, seven years for Masters Variable Annuity and
the Federated Triple Crown Variable Annuity, and nine years for Income
Preferred Variable Annuity and have not been previously surrendered.
- In any contract year, up to 10% of the purchase payments received less
than five years prior to the surrender date for Opportunity Variable
Annuity and Wells Fargo Passage Variable Annuity, seven years prior to
the surrender date for Masters Variable Annuity and the Federated
Triple Crown Variable Annuity, and nine years prior to the surrender
date for Income Preferred Variable Annuity
- For Masters Variable Annuity, Wells Fargo Passage Variable Annuity and
Federated Triple Crown Variable Annuity, any earnings that have not
been previously surrendered.
- For EmPower Variable Annuity and Value Advantage Plus Variable
Annuity, there is no surrender charge.
32
<PAGE> 89
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
5. SURRENDER AND PREMIUM TAX CHARGES (CONTINUED)
AMOUNT OF SURRENDER CHARGE
Surrender charges apply only if the amount being withdrawn exceeds the sum of
the amounts listed above under Free Surrenders. The surrender charge is based on
a percentage of the amount of purchase payments surrendered. The percentage of
payments is set at 5% during the first five years on the Opportunity Variable
Annuity and Wells Fargo Passage Variable Annuity contracts with a sliding scale
down to zero by the end of the fifth year. The percentage is set at 7% during
the first seven years of the Masters Variable Annuity contracts, with a sliding
scale down to zero by the end of the seventh year. The percentage is set at 8%
during the first nine years of the Income Preferred Variable Annuity contracts,
with a sliding scale down to zero by the end of the ninth year.
PREMIUM TAXES
Where premium taxes or similar assessments are imposed by states or other
jurisdictions upon receipt of purchase payments, Fortis Benefits pays such taxes
on behalf of the contract owner and will deduct a charge for these amounts from
the contract value upon surrender, death of the annuitant or contract owner, or
annuitization of the contract. In jurisdictions where premium taxes or similar
assessments are imposed at the time annuity payments begin, Fortis Benefits will
deduct a charge on a pro rata basis from the contract value at that time.
Surrender and premium tax charges are included in redemptions and are paid
directly to Fortis Benefits. The surrender and premium tax charges collected by
Fortis Benefits were $6,252,617 and $4,332,105 in 1999 and 1998, respectively.
6. FEDERAL INCOME TAXES
The operations of the Account form part of, and are taxed with, the operations
of Fortis Benefits, which is taxed as a life insurance company under the
Internal Revenue Code. As a result, the net asset value of the subaccounts are
not affected by income taxes on income distributions received by the
subaccounts.
33
<PAGE> 90
Fortis Benefits Insurance Company
Variable Account D
Notes to Financial Statements (continued)
7. RELATED PARTY TRANSACTIONS
Fortis Advisers, Inc. (Fortis Advisers), an affiliate of Fortis Benefits,
provides investment management services to Fortis Series Fund, Inc. in exchange
for investment advisory and management fees. Investment advisory and management
fees are based on each portfolio's daily net assets and decrease through reduced
percentages as average daily net assets increase. The fees represent an
investment expense to Fortis Series Fund, Inc. which reduces the portfolios' net
assets. The fees charged by Fortis Advisers are not available on an individual
variable account basis. Fees for all variable accounts to which Fortis Advisers
provided investment management services amounted to $21,779,394 and $17,790,513
in 1999 and 1998, respectively.
8. YEAR 2000 (UNAUDITED)
The Account has no computer systems of its own and is, therefore, dependent upon
the systems of its affiliates, including Fortis Benefits Insurance Company
(Fortis Benefits), Fortis Advisers (Advisers) and certain other third parties.
Fortis Benefits and Advisers utilize Fortis Inc. (Fortis) to process their
businesses. Fortis created a Year 2000 Project which was dedicated to ensuring
that all systems for Fortis and subsidiaries and affiliates were Year 2000
ready. The estimated total cost of Fortis Year 2000 Project was approximately
$85 million. There were no costs allocated to the Account, as amounts are only
allocated to the affiliated companies.
As of December 20, 1999, 100% of the Mission Critical and non-Mission Critical
computer system lines of code that had been identified were renovated and tested
and were Year 2000 ready. Although there have been several matters, as of the
date of this publication, no significant disruptions resulting from the century
date change have been detected in any of its Mission Critical systems. Fortis
will continue to monitor the status of and respond to any potential Year 2000
issue.
34
<PAGE> 91
Appendix A
PERFORMANCE INFORMATION
In advertising and other sales material for the Contracts, yield and total
return information for the Subaccounts of the Variable Account may be included.
The information below provides investment results for the indicated Subaccounts
of the Separate Account. The results shown in this section are not an estimate
or guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
YIELD CALCULATIONS
Yield information for the Money Market Subaccount will be based on the seven
days ended on a specified date. It will be computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account (after the deduction of all asset based charges) having a
balance of one Accumulation Unit at the beginning of the period and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return , and multiplying the base period return by
(365/7), with the resulting yield figure carried to the nearest hundredth of one
percent. The seven day yield for the Money Market Subaccount as of December 31,
1999 was 4.55%.
An effective yield may also be quoted for the Money Market Subaccount. Effective
yield is calculated by compounding the current yield as follows:
Effective Yield = [(Base Period Return + 1) 365/7 ] - 1
The seven day effective yield for the Money Market Subaccount as of December 31,
1999 was 4.65%.
Yield information for the other Subaccounts will be based on the thirty days
ended on a specified date and carried to the nearest hundredth of a percent,
according to the following formula:
A - B
2 [ ( ----- +1 ) 6 -1 ]
CD
Where:
A = net investment income earned during the period by the Portfolio
whose shares are owned by the Subaccount,
B = expenses accrued for the period,
C = the average daily number of Accumulation Units outstanding during
the period, and
D = the offering price per Accumulation Unit at the end of the last day
of the period.
The following table sets figures for the thirty days ended December 31, 1999.
Subaccount Yield
Norwest Income Fund .......................... 4.89%
A-1
<PAGE> 92
TOTAL RETURN CALCULATIONS
Total return information will be given for the one year and five year periods
ended on a specific date, provided that, if the registration statement has been
effective for a Subaccount only during a shorter period, then such shorter
period will be used.
Average Annual Total Return
Total average annual compounded rates of return for each period will be computed
to the nearest one hundredth of a percent, according to the following formula:
P(1 + T)n = CSV
Where: P = a hypothetical initial purchase payment of $1000,
T = average annual total return,
n = number of years, and
CSV = end of period Cash Surrender Value of hypothetical $1000 purchase
payment made at the beginning of the period.
The following table shows total average annual rates of return for the period
indicated:
<TABLE>
<CAPTION>
Subaccount One Year Period Five Year Period Commencement to Dec
Ended Dec 31, 1999 Ended Dec 31, 1999 31, 1999
- ------------------------------------ -------------------------------------------------------------
<S> <C> <C> <C>
WFVT Corporate Bond Fund -7.98% 2.05% 1.98%
WFVT Large Cap Growth Fund 23.57% 19.04% 16.49%
WFVT Small Cap Fund 60.96% NA 17.38%
WFVTEquity Income Fund 3.42% NA 13.74%
WFVT Growth Fund NA NA NA
WFVT Equity Value Fund NA NA NA
WFVT Asset Allocation Fund NA NA NA
Fortis Growth Stock Series 50.01% 21.99% 19.58%
Fortis Global Growth Series 52.49% 20.52% 18.11%
Scudder International Portfolio 49.37% 17.11% 16.71%
AIM Value 25.06% NA 24.67%
AIM International Equity 49.83% NA 25.64%
MFS Emerging Growth 71.61% NA 47.36%
MFS High Income 1.97% NA -2.11%
</TABLE>
Cumulative Total Return
Total cumulative rates of return for each period will be computed to the nearest
one hundredth of a percent, according to the following formula:
CTR = CSV - P 100
-------
P
A-2
<PAGE> 93
Where: P = a hypothetical initial purchase payment of $1,000,
CTR = cumulative total return, and
CSV = end of period Cash Surrender Value of hypothetical $1,000
purchase payment made at the beginning of the period.
<TABLE>
<CAPTION>
Subaccount One Year Period Five Year Period Commencement to Dec
Ended Dec 31, 1999 Ended Dec 31, 1999 31, 1999
- ------------------------------------ -------------------------------------------------------------
<S> <C> <C> <C>
WFVT Corporate Bond Fund -7.98% 10.67% 11.59%
WFVT Large Cap Growth Fund 23.57% 139.06% 134.35%
WFVT Small Cap Fund 60.96% NA 111.38%
WFVT Equity Income Fund 3.42% NA 60.41%
WFVT Growth Fund NA NA 9.78%
WFVT Equity Value Fund NA NA -0.92%
WFVT Asset Allocation Fund NA NA 4.73%
Fortis Growth Stock Series 50.01% 170.19% 171.17%
Fortis Global Growth Series 52.49% 154.30% 153.13%
Scudder International Portfolio 49.37% 120.32% 136.87%
AIM Value 25.06% NA 44.52%
AIM International Equity 49.83% NA 46.41%
MFS Emerging Growth 71.61% NA 91.06%
MFS High Income 1.97% NA -3.50%
</TABLE>
Yield figures do not reflect any surrender charge, and yield and total return
figures do not reflect any premium tax charge. Yield and total return figures do
reflect the reimbursement of certain Fortis Series expenses. Current Fixed
Account effective annual rates of interest may also be quoted in advertising and
other sales materials, and these rates do not reflect any deductions or charges.
A-3
<PAGE> 94
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENT AND EXHIBITS
a. Financial Statements included in Part B:
The following financial statements for Variable Account D:
Report of Ernst & Young LLP, independent auditors for Variable
Account D.
Statement of Net Assets as of December 31, 1999.
Statements of Changes in Net Assets for the years ended December
31, 1999 and 1998.
Notes to Financial Statements
The following financial statements of Fortis Benefits Insurance
Company ("Fortis Benefits"):
Report of Ernst & Young LLP, independent auditors for Fortis
Benefits.
Balance Sheets of Fortis Benefits as of December 31, 1999 and
1998.
Statements of Income, Statements of Changes in Shareholder's
Equity and Statements of Cash Flows of Fortis Benefits for the
years ended December 31, 1999, 1998 and 1997.
Notes to Financial Statements for Fortis Benefits.
There are no financial statements included in Part A.
b. Exhibits:
1. Resolution of the Board of Directors of Fortis Benefits effecting
the establishment of Variable Account D (Incorporated by
reference from Form N-4 registration statement of Fortis Benefits
and its Variable Account D filed on December 31, 1987, File No.
33-19421).
2. Not applicable.
3. (a) Principal Underwriter and Servicing Agreement dated as
of January 1, 1991. (Incorporated by reference from Form N-4
registration statement of Fortis Benefits and its Variable
Account D filed on January 11, 1994, File No. 33-72986.)
(b) Form of Amendment to Principal Underwriter and Servicing
Agreement, pertaining to Norwest Integrity Annuity.
(Incorporated by reference from Form N-4 registration
statement of Fortis Benefits and its Variable Account D
filed on January 11, 1994, File No. 33-72986.)
4. (a) Form of Variable Annuity Contract. (Incorporated by
reference from Form N-4 registration statement of Fortis
Benefits and its Variable Account D filed on January 11,
1994, File No. 33-73986.)
(b) Form of IRA Endorsement. (Incorporated by reference from
Form N-4 registration statement of Fortis Benefits and its
Variable Account D filed on January 11, 1994, File No.
33-73986.)
(c) Tax Deferred Annuity Loan Agreement Form. (Incorporated by
reference from Form N-4 registration statement of Fortis
Benefits and its Variable Account D filed on January 11,
1994, File No. 33-73986.)
(d) Form of Section 403(b) Annuity Endorsement. (Incorporated by
reference from Form N-4 registration statement of Fortis
Benefits and its Variable Account D filed on January 11,
1994, File No. 33-73986.)
(e) Nursing Care/Hospitalization Waiver of Surrender Charge
Rider -- previously filed as a part of this registration
statement on April 28, 1994.
<PAGE> 95
5. (a) Form of Application for Variable Annuity Contract
(Including telephone authorization form) -- previously filed
as a part of this registration statement on April 28, 1994.
(b) Annuity Contract Exchange Form (Incorporated by reference
from Pre-Effective Amendment No. 1 to Form N-4 to
registration statement of Fortis Benefits and its Variable
Account D, filed on April 18, 1988, File No. 22-19421).
6. (a) Articles of Incorporation of depositor (Incorporated by
reference from Form S-6 registration statement of Fortis
Benefits and its Variable Account C filed on March 17, 1986,
File No. 33-03919).
(b) By-laws of depositor (Incorporated by reference from Form
S-6 registration statement of Fortis Benefits and its
Variable Account C filed on March 17, 1986, File No.
33-03919).
(c) Certificate of Amendment to Articles of Incorporation and
By-laws of depositor dated November 21, 1991 (Incorporated
by reference from 1933 Act Post-Effective Amendment No. 6 to
Form N-4 registration statement by Fortis Benefits and its
Variable Account D, filed on March 2, 1992, File No.
33-19421).
(d) Certificate of Amendment to Bylaws of depositor dated May 1,
1999 (Incorporated by reference from Form 10-K of Fortis
Benefits Insurance Company filed March 29, 2000, File No.
33-37576).
7. None.
8. Not Applicable.
9. Opinion and consent of David A. Peterson, Esq., Corporate Counsel
of the depositor, as to the legality of the securities being
registered. (Previously filed as a part of this Form N-4
registration statement of Fortis Benefits and its Variable
Account D filed on January 11, 1994, File No. 33-73986.)
10. (a) Consent of Ernst & Young LLP--filed herewith.
(b) Power of Attorney as to registration statements and reports,
and amendments thereto, for Messrs. Freedman and Clayton, in
their capacity as director (Incorporated by reference from
Form S-6 registration statement of Fortis Benefits and its
Variable Account C filed on December 17, 1993, File No.
33-73138).
11. Not applicable.
12. Not applicable.
13. Schedules of computation of each performance quotation provided
in the registration statement pursuant to Item 21--filed
herewith.
14. Financial Data Schedule--previously filed.
<PAGE> 96
Item 25. DIRECTORS AND OFFICERS OF FORTIS BENEFITS
The directors, executive officers, and, to the extent responsible for variable
annuity operations, other officers of Fortis Benefits are listed below.
Name and Principal
Business Address Offices With Depositor
---------------- ----------------------
Officer-Directors
- -----------------
Robert Brian Pollock (2) President and Chief Executive Officer
Benjamin Cutler (5) Executive Vice President (President--Fortis
Health)
Dean C. Kopperud (1) Executive Vice President (President--FFG)
Michael John Peninger (4) Executive Vice President (President--Group Non
Medical)
Other Directors
- ---------------
Allen Royal Freedman (2) Chairman of the Board
J. Kerry Clayton (2)
Arie Aristede Fakkert (3)
A.W. Feagin (6)
Other Officers
- --------------
Larry M. Cains (2) Treasurer
Jon H. Nicholson (1) Senior Vice President - CSG
Peggy L. Ettestad (1) Senior Vice President - Life Operations
Rhonda J. Schwartz (1) Senior Vice President and General Counsel --
Life and Investment Products
Melinda S. Urion (1) Senior Vice President and Chief Financial Officer
-- FFG
Dickson W. Lewis (1) Senior Vice President--Distribution and Marketing
- ---------------------------
(1) Address: Fortis Benefits Insurance Company, P. O. Box 64271, St. Paul, MN
55164.
(2) Address: Fortis, Inc., One Chase Manhattan Plaza, New York, NY 10005.
(3) Address: N.V. AMEV, Archmideslaan 10, 3584 BA Utrecht, The Netherlands.
(4) Address: 2323 Grand Avenue, Kansas City, MO 64108.
(5) Address: 515 West Wells Street, Milwaukee, WI 53201.
(6) Address: 10 Glenlake Parkway NE, Suite 500, Atlanta, GA 30328
- --------------------------
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Variable Accounts C and D of Fortis Benefits Insurance Company are separate
accounts of Fortis Benefits, and Variable Accounts A and C of First Fortis Life
Insurance Company ("First Fortis") (which may be deemed to be under common
control with Fortis Benefits) are separate accounts of First Fortis. These
separate accounts, certain separate accounts assumed by Fortis Benefits from St.
Paul Life Insurance Company, and Fortis Series Fund, Inc. may be deemed to be
controlled by or under common control with Fortis Benefits, although Fortis
Benefits and First Fortis follow voting instructions of variable insurance
contract owners with respect to voting on certain important matters in
connection with these entities. All of these entities are created under
Minnesota law (or New York law, in the case of Variable Accounts A and C of
First Fortis) and are the funding media for variable life insurance and annuity
contracts issued or assumed by Fortis Benefits or First Fortis.
The chart indicating the persons controlled by or under common control with
Fortis Benefits is hereby incorporated by reference from the response to Item 26
in Post-Effective Amendment No. 6 to the Form N-4 registration statement of
Fortis Benefits and its Variable Account D filed simultaneously herewith, File
No. 33-37577. Fortis Benefits has no subsidiaries.
<PAGE> 97
Item 27. NUMBER OF CONTRACT OWNERS
As of April 1, 2000, there were 7,252 contracts outstanding.
Item 28. INDEMNIFICATION
Pursuant to the Principal Underwriter and Servicing Agreement filed as Exhibit
3(a) to this registration statement and incorporated herein by this reference,
Fortis Benefits has agreed to indemnify Fortis Investors, Inc. ("Fortis
Investors") (and its agents, employees, and controlling persons) for damages and
expenses arising out of certain material misstatements and omissions in
connection with the offer and sale of the Contracts, unless the misstatement or
omission was based on information supplied by Fortis Investors; provided,
however, that no such indemnity will be made to Fortis Investors or its
controlling persons for liabilities to which they would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of their duties or by reason of reckless disregard of their obligations under
such agreement. This indemnity could apply to certain directors, officers or
controlling persons of the Separate Account by virtue of the fact that they are
also agents, employees or controlling persons of Fortis Investors. Pursuant to
the Principal Underwriter and Servicing Agreement, Fortis Investors has agreed
to indemnify Variable Account D, Fortis Benefits, and each of its officers,
directors and controlling persons for damages and expenses (1) arising out of
certain material misstatements and omissions in connection with the offer and
sale of the Contracts, if the misstatement or omission was based on information
furnished by Fortis Investors or (2) otherwise arising out of Fortis Investors'
negligence, bad faith, willful misfeasance or reckless disregard of its
responsibilities.
Also, Fortis Benefits' By-Laws (see Article VI, Section 5 thereof, which is
incorporated herein by reference from Exhibit 6(b) to this registration
statement) provide for indemnity and payment of expenses of Fortis Benefits'
officers, directors and employees in connection with certain legal proceedings,
judgments, and settlements arising by reason of their service as such, all to
the extent and in the manner permitted by law. Applicable Minnesota law
generally permits payment of such indemnification and expenses in a civil
proceeding if it appears that the person seeking indemnification has acted in
good faith and in a manner that he reasonably believed to be in, or not opposed
to, the best interests of Fortis Benefits and if such person has received no
improper personal benefit, or in a criminal proceeding if the person seeking
indemnification also has no reasonable cause of believe his conduct was
unlawful.
Insofar as indemnification for any liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of Fortis
Benefits or the Variable Account D pursuant to the foregoing provisions, or
otherwise, Fortis Benefits and Variable Account D have been advised that in the
opinion of the Securities and Exchange Commission such indemnification may be
against public policy as expressed in the Act and may be, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Fortis Benefits of expenses incurred or
paid by a director, officer or controlling person of Fortis Benefits or Variable
Account D in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE> 98
Item 29. PRINCIPAL UNDERWRITERS
(a) Fortis Investors is the principal underwriter for Variable Account D.
Fortis Investors also acts as the principal underwriter for the
following registered investment companies (in addition to Variable
Account D and Fortis Series Fund, Inc.): Variable Account C of Fortis
Benefits, Variable Accounts A and C of First Fortis, Fortis Advantage
Portfolios, Inc., Fortis Equity Portfolios, Inc., Fortis Growth Fund,
Inc., Fortis Fiduciary Fund, Inc., Fortis Tax-Free Portfolios, Inc.,
Fortis Money Portfolios, Inc., Fortis Income Portfolios, Inc., Fortis
Worldwide Portfolios, Inc., and Special Portfolios, Inc.
(b) The following table sets forth certain information regarding the
officers and directors of the principal underwriter, Fortis Investors:
Name and Principal Positions and Offices
Business Address with Underwriter
------------------ --------------------
Roger W. Arnold * Sr. Vice President
Robert W. Beltz, Jr.* Vice President and Director
Jeffrey R. Black* Business Development and Sales Desk Officer
Mark C. Cadalbert* Compliance Officer
Tamara L. Fagely* Vice President
Joanne M. Herron* Assistant Treasurer
John E. Hite* Vice President and Secretary
Carol M. Houghtby* Vice President, Treasurer and Director
Dean C. Kopperud* President and Director
Christine D. Pawlenty * Custom Solutions Group Officer
Mary B. Petersen * 2nd Vice President
Jennifer R. Relien* Assistant Secretary
- ------------------------------------
* Address: 500 Bielenberg Drive, Woodbury, MN 55125.
(c) None.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 and 31a-3 thereunder are maintained by Fortis
Benefits Insurance Company, Fortis Investors, Inc. and Fortis Advisers, Inc., at
500 Bielenberg Drive, Woodbury, Minnesota 55125.
Item 31. MANAGEMENT SERVICES
None.
<PAGE> 99
Item 32. UNDERTAKINGS
The registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than 16 months
old for so long as payments under the Contracts may be accepted;
(b) to include either (1) as part of any application to purchase a
Contract offered by the Prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a
toll-free phone number, postcard, or similar written communication
affixed to or included in the Prospectus that the applicant can call
or remove to send for a Statement of Additional Information;
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
Fortis Benefits Insurance Company represents:
(a) that the fees and charges imposed under the provisions of the Contract
covered by this registration statement, in the aggregate, are
reasonable in relation to the services to be rendered by the
Registrant associated with the Contracts, the expenses to be incurred
by the Registrant associated with the Contracts, and the risks assumed
by the Registrant associated with the Contracts.
The registrant intends to rely on the no-action response dated November 28, 1988
from Ms. Angela C. Goelzer of the Commission staff to the American Council of
Life Insurance concerning the redeemability of Section 403(b) annuity contracts,
and the registrant has complied with the provisions of paragraphs (1) - (4)
thereof.
<PAGE> 100
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this amended Registration Statement to be signed
on its behalf in the City of St. Paul, State of Minnesota on this 25th day of
April, 2000.
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
(Registrant)
By: FORTIS BENEFITS INSURANCE COMPANY
By: /s/
--------------------------------------------
Robert Brian Pollock, President
FORTIS BENEFITS INSURANCE COMPANY
(Depositor)
By: /s/
--------------------------------------------
Robert Brian Pollock, President
As required by the Securities Act of 1933 and the Investment Company Act of
1940, this Registration Statement has been signed by the following persons, in
the capacities indicated, on April 25, 2000.
Signature Title With Fortis Benefits
- --------- --------------------------
* Chairman of the Board
- ---------------------------------
Allen Royal Freedman
* Director
- ---------------------------------
J. Kerry Clayton
Director
- ---------------------------------
Arie Aristede Fakkert
Director
- ---------------------------------
Alan W. Feagin
/s/ Director
- ---------------------------------
Dean C. Kopperud
/s/ Director
- ---------------------------------
Michael John Peninger
/s/ President and Director
- ---------------------------------
Robert Brian Pollock (Chief Executive Officer)
/s/ Treasurer (Principal Accounting Officer
- ---------------------------------
Larry M. Cains and Principal Financial Officer)
* By: /s/
----------------------------
Robert Brian Pollock
Attorney-in-Fact
<PAGE> 101
EXHIBIT INDEX
EXHIBIT NO.
10(a) Consent of Independent Auditors
13 Schedules of Computation
<PAGE> 1
Consent of Independent Auditors
We consent to the use of our report dated February 17, 2000 on the financial
statements of Fortis Benefits Insurance Company and our report dated March 29,
2000 on the financial statements of Fortis Benefits Insurance Company Variable
Account D in Post-Effective Amendment No. 9 to the Registration Statement (Form
N-4 No. 33-73986) and related Prospectus and Statement of Additional Information
of Fortis Benefits Insurance Company for the registration of flexible premium
deferred combination variable and fixed annuity contracts.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 27, 2000
<PAGE> 1
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY SEPARATE ACCOUNT
PERFORMANCE CALCULATION
WFVT CORPORATE BOND FUND
The subaccount's standardized yield for the 30 day period ended
December 31, 1999 was computed by dividing the net investment income per
accumulation unit earned during the period by the maximum offering price per
unit on the last day of the period in accordance with the formula prescribed by
the Securities and Exchange Commission:
[ $125,121 6
2 * { ---------------------------- + 1] - 1} = 4.89%
[ ((2,448,465 * 12.659))
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 and the cumulative total return
since inception is as follows:
Ending Value Total Return
------------ ----------------
$920.23 $920.23 - $1,000
----------------------- = -7.98%
$1,000
Cumulative total return for five years ended December 31, 1999, is as follows:
$1,106.66 - $1,000
------------------ = 10.67%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$1,115.90 - $1,000
------------------ = 11.59%
$1,000
<PAGE> 2
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1999:
$920.23/$1,000 - 1 = -7.98%
Five years ended December 31, 1999:
1/5
($1,106.66/$1,000) - 1 = 2.05%
Since inception through December 31, 1999:
1/5.58
($1,115.90/$1,000) - 1 = 1.98%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- --------
<S> <C>
06/01/94 $ 9.988
12/31/94 9.877
12/31/95 11.404
12/31/96 11.509
12/31/97 12.379
12/31/98 13.322
12/31/99 12.659
</TABLE>
<PAGE> 3
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
WFVT LARGE CAP GROWTH FUND
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 and the cumulative total return
since inception is as follows:
Ending Value Total Return
------------ ------------------
$1,235.74 $1,235.74 - $1,000
----------------------- = 23.57%
$1,000
Cumulative total return for five years ended December 31, 1999, is as follows:
$2,390.59 - $1,000
------------------ = 139.06%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$2,343.50 - $1,000
------------------ = 134.35%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
<PAGE> 4
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1999:
$1,235.74/$1,000 - 1 = 23.57%
Five years ended December 31, 1999:
1/5
($2,390.59/$1,000) - 1 = 19.04%
Since inception through December 31, 1999:
1/5.58
($2,343.57/$1,000) - 1 = 16.49%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- --------
<S> <C>
06/01/94 $ 9.988
12/31/94 9.719
12/31/95 11.900
12/31/96 14.105
12/31/97 17.194
12/31/98 19.700
12/31/99 24.935
</TABLE>
<PAGE> 5
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
WFVT SMALL CAP FUND
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 and the cumulative total return
since inception is as follows:
Ending Value Total Return
------------ -----------------
$1,609.61 $1,609.61- $1,000
----------------------- = 60.96%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$2,113.80 - $1,000
------------------ = 111.38%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1999:
$1,609.61 / 1000 - 1 = 60.96%
<PAGE> 6
Average annual total return since inception of the subaccount through
December 31, 1999 is as follows:
1/4.67
($2,113.80/$1,000) - 1 = 17.38%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/95 $ 10.000
12/31/95 11.478
12/31/96 14.893
12/31/97 16.154
12/31/98 13.624
12/31/99 22.338
</TABLE>
<PAGE> 7
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
WFVT EQUITY INCOME FUND
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 and the cumulative total return
since inception is as follows:
Ending Value Total Return
------------ ------------------
$1,034.20 $1,034.20 - $1,000
----------------------- = 3.42%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$1,604.10 - $1,000
------------------ = 60.41%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1999:
$1,034.20/$1,000 - 1 = 3.42%
<PAGE> 8
Average annual total return since inception of the subaccount through
December 31, 1999 is as follows:
1/3.67
($1,604.10/$1,000) - 1 = 13.74%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/96 $ 10.000
12/31/96 10.892
12/31/97 13.632
12/31/98 15.919
12/31/99 16.941
</TABLE>
<PAGE> 9
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
WFVT GROWTH FUND
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made September 20, 1999 and unit
information shown on the attached page, and adjusting for the annual
administration charge, the value of such investment at December 31, 1999 and the
total return for the one year period are as follows:
Ending Value Total Return
------------ ------------------
$1,097.80 $1,097.80 - $1,000
----------------------- = 9.78%
$1,000
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---- ---------
<S> <C>
09/20/99 $ 10.000
12/31/99 10.978
</TABLE>
<PAGE> 10
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
WFVT EQUITY VALUE FUND
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made September 20, 1999 and unit
information shown on the attached page, and adjusting for the annual
administration charge, the value of such investment at December 31, 1999 and the
total return for the one year period are as follows:
Ending Value Total Return
------------ ----------------
$990.80 $990.80 - $1,000
----------------------- = -092%
$1,000
Unit Value Information
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
10/01/99 $ 10.000
12/31/99 9.908
</TABLE>
<PAGE> 11
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
WFVT ASSET ALLOCATION
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made September 20, 1999 and unit
information shown on the attached page, and adjusting for the annual
administration charge, the value of such investment at December 31, 1999 and the
total return for the one year period are as follows:
Ending Value Total Return
------------ ------------------
$1,047.30 $1,047.30 - $1,000
----------------------- = 4.73%
$1,000
Unit Value Information
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
10/01/99 $ 10.000
12/31/99 10.473
</TABLE>
<PAGE> 12
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
SCUDDER INTERNATIONAL PORTFOLIO SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 and the cumulative total return
since inception is as follows:
Ending Value Total Return
------------ ------------------
$1,439.71 $1,439.71 - $1,000
----------------------- = 49.37%
$1,000
Cumulative total return for five years ended December 31, 1999, is as follows:
$2,203.15 - $1,000
------------------ = 120.32%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$2,368.70 - $1,000
------------------ = 136.87%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
<PAGE> 13
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1999:
$1,493.71/$1,000 - 1 = 49.37%
Five years ended December 31, 1999:
1/5
($2,203.15/$1,000) - 1 = 17.11%
Since inception through December 31, 1999:
1/5.58
($2,368.70/$1,000) - 1 = 16.71%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
06/01/94 $ 10.858
12/31/94 10.591
12/31/95 11.605
13/31/96 13.134
12/31/97 14.124
12/31/98 16.530
12/31/99 25.187
</TABLE>
<PAGE> 14
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
FORTIS GROWTH STOCK SERIES SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 and the cumulative total return
since inception is as follows:
Ending Value Total Return
------------ ------------------
$1,500.07 $1,500.07 - $1,000
----------------------- = 50.01%
$1,000
Cumulative total return for five years ended December 31, 1999, is as follows:
$2,701.95 - $1,000
------------------ = 170.19%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$2,711.70 - $1,000
------------------ = 171.17%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
<PAGE> 15
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1999:
$1,500.07/$1,000 - 1 = 50.01%
Five years ended December 31, 1999:
1/5
($2,701.95/$1,000) - 1 = 21.99%
Since inception through December 31, 1999:
1/5.58
($2,711.70/$1,000) - 1 = 17.17%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- --------
<S> <C>
06/01/94 $ 9.735
12/31/94 9.947
12/31/95 12.523
12/31/96 14.375
12/31/97 15.936
12/31/98 18.703
12/31/99 28.617
</TABLE>
<PAGE> 16
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
FORTIS GLOBAL GROWTH SERIES SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 and the cumulative total return
since inception is as follows:
Ending Value Total Return
------------ ------------------
$1,524.92 $1,524.92 - $1,000
----------------------- = 52.49%
$1,000
Cumulative total return for five years ended December 31, 1999, is as follows:
$2,524.99 - $1,000
------------------ = 154.30%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$2,531.30 - $1,000
------------------ = 153.13%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
<PAGE> 17
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1999:
$1,524.92/$1,000 - 1 = 52.49%
Five years ended December 31, 1999:
1/5
($2,542.99/$1,000) - 1 = 20.52%
Since inception through December 31, 1999:
1/5.58
($2,531.30/$1,000) - 1 = 18.11%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- --------
<S> <C>
06/01/94 $ 9.722
12/31/94 9.865
12/31/95 12.694
12/31/96 14.908
12/31/97 15.703
12/31/98 17.244
12/31/99 26.813
</TABLE>
<PAGE> 18
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
FORTIS MONEY MARKET SUBACCOUNT
The subaccount's standardized yield for the seven day period ended
December 31, 1999 was computed by dividing 1 by the unit price for December 24,
1999, then multiplying this by the unit price on December 31, 1999 to get a base
period return. The base period return is then multiplied by 365 days and then
divided by 7. This calculation for the seven day period ended December 31, 1999
was as follows:
((1 / 12.297595) x 12.308324) -1 = .000872 - Base Period Return
.000872 x (365 / 7) = .0455 or 4.55%
The compound or effective yield for this same period is calculated by taking the
base period return and adding 1, raising the sum to a power equal to 365 divided
by 7 and subtracting 1 from the result. This calculation for the seven day
period ended December 31, 1999 was as follows:
365/7
(.000872 + 1) -1 = .0465 or 4.65%
<TABLE>
<CAPTION>
Date Unit Price
-------- ----------
<S> <C>
12/24/99 12.297595
12/31/99 12.308324
</TABLE>
<PAGE> 19
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
AIM VALUE SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 is as follows:
Ending Value Total Return
------------ ------------------
$1,250.56 $1,250.56 - $1,000
----------------------- = 25.06%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$1,445.20 - $1,000
------------------ = 44.52%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
<PAGE> 20
Average annual total return for the current one year period and since
commencement of the subaccount are as follows:
One year ended December 31, 1999:
$1,250.56/$1,000 - 1 = 25.06%
Since inception through December 31, 1999:
1/1.67
($1,445.20/$1,000) - 1 = 24.67%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/98 $ 10.000
12/31/98 11.520
12/31/99 14.752
</TABLE>
<PAGE> 21
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
AIM INTERNATIONAL EQUITY SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 is as follows:
Ending Value Total Return
------------- ------------------
$1,498.34 $1,498.34 - $1,000
----------------------- = 49.83%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$1,464.10 - $1,000
------------------ = 46.41%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period and since
commencement of the subaccount are as follows:
One year ended December 31, 1999:
$1,498.34/$1,000 - 1 = 49.83%
<PAGE> 22
Since inception through December 31, 1999:
1/1.67
($1,464.10/$1,000) - 1 = 25.64%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ---------
<S> <C>
05/01/98 $ 10.000
12/31/98 9.776
12/31/99 14.941
</TABLE>
<PAGE> 23
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
MFS EMERGING GROWTH SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 is as follows:
Ending Value Total Return
------------ ------------------
$1,716.15 $1,716.15 - $1,000
----------------------- = 71.61%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$1,910.60 - $1,000
------------------ = 91.06%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period and since
commencement of the subaccount are as follows:
One year ended December 31, 1999:
$1,716.15/$1,000 - 1 = 71.61%
<PAGE> 24
Since inception through December 31, 1999:
1/1.67
($1,910.60/$1,000) - 1 = 47.36%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/98 $ 10.000
12/31/98 11.136
12/31/99 19.406
</TABLE>
<PAGE> 25
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
MFS HIGH INCOME SUBACCOUNT
Total return is the percentage change between the public offering price
of one subaccount unit at the beginning of the period to the public offering
price of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ---------------------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1999 and unit
information shown below, and adjusting for the annual administration charge, the
value of such investment at December 31, 1999 is as follows:
Ending Value Total Return
------------ ------------------
$1,019.69 $1,019.69 - $1,000
----------------------- = 1.97%
$1,000
Cumulative total return since inception through December 31, 1999, is as
follows:
$965.00 - $1,000
---------------- = -3.50%
$1,000
Average annual total return (T) equates the initial amount invested (P)
to the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period and since
commencement of the subaccount are as follows:
One year ended December 31, 1999:
$1,019.69/$1,000 - 1 = 1.97%
<PAGE> 26
Since inception through December 31, 1999:
1/167
($965.00/$1,000) - 1 = -2.11%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/98 $ 10.000
12/31/98 9.479
12/31/99 9.950
</TABLE>
