<Page>
As filed with the Securities and Exchange Commission on April 4, 2002
File No. 333-43805
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 7 TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FORTIS BENEFITS INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of incorporation or organization)
81-0170040
(I.R.S. Employer Identification Number)
500 BIELENBERG DRIVE
WOODBURY, MINNESOTA 55125
(651) 738-4000
(Address, including zip code, and telephone number, including area
code of registrant's principal executive office)
MARIANNE O'DOHERTY
HARTFORD LIFE INSURANCE COMPANY
P.O. BOX 2999
HARTFORD, CONNECTICUT 06104-2999
(860) 843-6733
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11 (a)(1)
of this form, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
<Page>
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securties Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securties Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
<Page>
PART I
<Page>
<Table>
EMPOWER VARIABLE ANNUITY
VARIABLE ACCOUNT D
ISSUED BY:
FORTIS BENEFITS INSURANCE COMPANY
P.O. BOX 64272
ST. PAUL, MINNESOTA 55164
ADMINISTERED BY:
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
P.O. BOX 5085
HARTFORD, CONNECTICUT 06102-5085
TELEPHONE: 1-800-862-6668 (CONTRACT OWNERS)
1-800-862-7155 (REGISTERED REPRESENTATIVES)
</Table>
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- --------------------------------------------------------------------------------
This prospectus describes information you should know before you purchase the
Fortis EmPower Variable Annuity. Please read it carefully.
Fortis EmPower Variable Annuity is a contract between you and Fortis Benefits
Insurance Company where you agree to make at least one Premium Payment and
Fortis agrees to make a series of Annuity Payouts at a later date. This Contract
is a flexible premium, tax-deferred, variable annuity offered to both
individuals and groups. It is:
x Flexible, because you may add Premium Payments at any time.
x Tax-deferred, which means you don't pay taxes until you take money out or
until we start to make Annuity Payouts.
x Variable, because the value of your Contract will fluctuate with the
performance of the underlying Funds.
- --------------------------------------------------------------------------------
At the time you purchase your Contract, you allocate your Premium Payment to
"Sub-Accounts." These are subdivisions of our Separate Account, an account that
keeps your Contract assets separate from our company assets. The Sub-Accounts
then purchase shares of mutual funds set up exclusively for variable annuity or
variable life insurance products. These are not the same mutual funds that you
buy through your stockbroker or through a retail mutual fund. They may have
similar investment strategies and the same portfolio managers as retail mutual
funds. This Contract offers you Funds with investment strategies ranging from
conservative to aggressive and you may pick those Funds that meet your
investment goals and risk tolerance. The Sub-Accounts and the Funds are listed
below:
- - HARTFORD MONEY MARKET HLS FUND SUB-ACCOUNT (formerly Money Market Series)
which purchases Class IA shares of Hartford Money Market HLS Fund, Inc.
- - HARTFORD U.S. GOVERNMENT SECURITIES HLS FUND SUB-ACCOUNT which purchases
Class IA shares of Hartford U.S. Government Securities HLS Fund of Hartford
HLS Series Fund II, Inc. (formerly U. S. Government Securities Series of
Fortis Series Fund, Inc.)
- - HARTFORD BOND HLS FUND SUB-ACCOUNT (formerly Diversified Income Series) which
purchases Class IA shares of Hartford Bond HLS Fund, Inc.
- - HARTFORD MULTISECTOR BOND HLS FUND SUB-ACCOUNT which purchases Class IA shares
of Hartford Multisector Bond HLS Fund of Hartford HLS Series Fund II, Inc.
(formerly Multisector Bond Series of Fortis Series Fund, Inc.)
- - HARTFORD HIGH YIELD HLS FUND SUB-ACCOUNT (formerly High Yield Series) which
purchases Class IA shares of Hartford High Yield HLS Fund of Hartford
Series Fund, Inc.
- - HARTFORD INTERNATIONAL STOCK II HLS FUND SUB-ACCOUNT which purchases Class IA
shares of Hartford International Stock II HLS Fund of Hartford HLS
Series Fund II, Inc. (formerly International Stock Series II of Fortis
Series Fund, Inc.)
- - HARTFORD INTERNATIONAL STOCK HLS FUND SUB-ACCOUNT which purchases Class IA
shares of Hartford International Stock HLS Fund of Hartford HLS Series Fund
II, Inc. (formerly International Stock Series of Fortis Series Fund, Inc.)
- - HARTFORD GLOBAL LEADERS HLS FUND SUB-ACCOUNT (formerly Global Growth Series)
which purchases Class IA shares of Hartford Global Leaders HLS Fund of
Hartford Series Fund, Inc.
- - HARTFORD GLOBAL EQUITY HLS FUND SUB-ACCOUNT which purchases Class IA shares of
Hartford Global Equity HLS Fund of Hartford HLS Series Fund II, Inc. (formerly
Global Equity Series of Fortis Series Fund, Inc.)
- - HARTFORD ADVISERS HLS FUND SUB-ACCOUNT (formerly Asset Allocation Series)
which purchases Class IA shares of Hartford Advisers HLS Fund, Inc.
<Page>
- - HARTFORD AMERICAN LEADERS HLS FUND SUB-ACCOUNT which purchases Class IA shares
of Hartford American Leaders HLS Fund of Hartford HLS Series Fund II, Inc.
(formerly American Leaders Series of Fortis Series Fund, Inc.)
- - HARTFORD VALUE OPPORTUNITIES HLS FUND SUB-ACCOUNT which purchases Class IA
shares of Hartford Value Opportunities HLS Fund of Hartford HLS Series Fund
II, Inc. (formerly Value Series of Fortis Series Fund, Inc.)
- - HARTFORD CAPITAL OPPORTUNITIES HLS FUND SUB-ACCOUNT which purchases Class IA
shares of Hartford Capital Opportunities HLS Fund of Hartford HLS Series Fund
II, Inc. (formerly Capital Opportunities Series of Fortis Series Fund, Inc.)
- - HARTFORD GROWTH AND INCOME HLS FUND SUB-ACCOUNT (formerly Growth & Income
Series) which purchases Class IA shares of Hartford Growth and Income HLS Fund
of Hartford HLS Series Fund II, Inc.
- - HARTFORD INDEX HLS FUND SUB-ACCOUNT (formerly S&P 500 Index Series) which
purchases Class IA shares of Hartford Index HLS Fund, Inc.
- - HARTFORD BLUE CHIP STOCK HLS FUND SUB-ACCOUNT which purchases Class IA shares
of Hartford Blue Chip Stock HLS Fund of Hartford HLS Series Fund II, Inc.
(formerly Blue Chip Stock Series of Fortis Series Fund, Inc.)
- - HARTFORD BLUE CHIP STOCK II HLS FUND SUB-ACCOUNT which purchases Class IA
shares of Hartford Blue Chip Stock II HLS Fund of Hartford HLS Series Fund
II, Inc. (formerly Blue Chip Stock Series II of Fortis Series Fund, Inc.)
- - HARTFORD LARGE CAP GROWTH HLS FUND SUB-ACCOUNT which purchases Class IA shares
of Hartford Large Cap Growth HLS Fund of Hartford HLS Series Fund II, Inc.
(formerly Large Cap Growth Series of Fortis Series Fund, Inc.)
- - HARTFORD INVESTORS GROWTH HLS FUND SUB-ACCOUNT which purchases Class IA shares
of Hartford Investors Growth HLS Fund of Hartford HLS Series Fund II, Inc.
(formerly Investors Growth Series of Fortis Series Fund, Inc.)
- - HARTFORD MID CAP STOCK HLS FUND SUB-ACCOUNT which purchases Class IA shares of
Hartford Mid Cap Stock HLS Fund of Hartford HLS Series Fund II, Inc. (formerly
Mid Cap Stock Series of Fortis Series Fund, Inc.)
- - HARTFORD GROWTH OPPORTUNITIES HLS FUND SUB-ACCOUNT which purchases Class IA
shares of Hartford Growth Opportunities HLS Fund of Hartford HLS Series Fund
II, Inc. (formerly Growth Stock Series of Fortis Series Fund, Inc.)
- - HARTFORD SMALL CAP VALUE HLS FUND SUB-ACCOUNT which purchases Class IA shares
of Hartford Small Cap Value HLS Fund of Hartford HLS Series Fund II, Inc.
(formerly Small Cap Value Series of Fortis Series Fund, Inc.)
- - HARTFORD SMALL CAP GROWTH HLS FUND SUB-ACCOUNT which purchases Class IA shares
of Hartford Small Cap Growth HLS Fund of Hartford HLS Series Fund II, Inc.
(formerly Aggressive Growth Series of Fortis Series Fund, Inc.)
You may also allocate some or all of your Premium Payment to a Guarantee Period
in our General Account. A Guarantee Period guarantees a rate of interest until a
specified maturity date and may be subject to a Market Value Adjustment. Premium
Payments allocated to a Guarantee Period are not segregated from our company
assets like the assets of the Separate Account.
If you decide to buy this Contract, you should keep this prospectus for your
records. You can also call us at 1-800-862-6668 to get a Statement of Additional
Information, free of charge. The Statement of Additional Information contains
more information about this Contract and, like this prospectus, is filed with
the Securities and Exchange Commission ("SEC"). We have included the Table of
Contents for the Statement of Additional Information at the end of this
prospectus.
Although we file the prospectus and the Statement of Additional Information with
the SEC, the SEC doesn't approve or disapprove these securities or determine if
the information in this prospectus is truthful or complete. Anyone who
represents that the SEC does these things may be guilty of a criminal offense.
This prospectus and the Statement of Additional Information can also be obtained
from the SEC's website (WWW.SEC.GOV).
This Contract IS NOT:
- A bank deposit or obligation
- Federally insured
- Endorsed by any bank or governmental agency
This Contract may not be available for sale in all states.
- --------------------------------------------------------------------------------
PROSPECTUS DATED: MAY 1, 2002
STATEMENT OF ADDITIONAL INFORMATION DATED: MAY 1, 2002
<Page>
FORTIS BENEFITS INSURANCE COMPANY 3
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TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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DEFINITIONS 4
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FEE TABLE 6
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HIGHLIGHTS 9
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GENERAL CONTRACT INFORMATION 10
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Fortis Benefits Insurance Company 10
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The Separate Account 10
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The Funds 10
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PERFORMANCE RELATED INFORMATION 13
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GUARANTEE PERIODS 13
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THE CONTRACT 14
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Purchases and Contract Value 14
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Charges and Fees 17
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Death Benefit 17
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Surrenders 18
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ANNUITY PAYOUTS 19
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OTHER PROGRAMS AVAILABLE 21
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OTHER INFORMATION 22
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Legal Matters 22
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More Information 22
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FEDERAL TAX CONSIDERATIONS 22
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INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS 27
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ACCUMULATION UNIT VALUES 30
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FURTHER INFORMATION ABOUT FORTIS BENEFITS INSURANCE COMPANY 33
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TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION 37
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APPENDIX I -- SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS 38
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APPENDIX II -- INVESTMENTS BY FORTIS 39
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FORTIS BENEFITS FINANCIAL STATEMENTS F-1
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</Table>
<Page>
4 FORTIS BENEFITS INSURANCE COMPANY
- --------------------------------------------------------------------------------
DEFINITIONS
These terms are capitalized when used throughout this prospectus. Please refer
to these defined terms if you have any questions as you read your prospectus.
ACCOUNT: Any of the Sub-Accounts or Guarantee Periods.
ACCUMULATION PERIOD: The time after you purchase the Contract until we begin to
make Annuity Payouts.
ACCUMULATION UNITS: If you allocate your Premium Payment to any of the
Sub-Accounts, we will convert those payments into Accumulation Units in the
selected Sub-Accounts. Accumulation Units are valued at the end of each
Valuation Day and are used to calculate the value of your Contract prior to
Annuitization.
ACCUMULATION UNIT VALUE: The daily price of Accumulation Units on any Valuation
Day.
ADMINISTRATIVE OFFICE: Hartford Life and Annuity Insurance Company administers
these Contracts. Our location and overnight mailing address is: 200 Hopmeadow
Street, Simsbury, Connecticut 06089. Our standard mailing address is: Investment
Product Services, P.O. Box 5085, Hartford, Connecticut 06102-5085.
ANNIVERSARY VALUE: The value equal to the Contract Value as of a Contract
Anniversary, increased by the dollar amount of any Premium Payments made since
that anniversary and reduced by the dollar amount of any partial Surrenders
since that anniversary.
ANNUITANT: The person on whose life the Contract is based. The Annuitant may not
be changed after your Contract is issued.
ANNUITY CALCULATION DATE: The date we calculate the first Annuity Payout.
ANNUITY PAYOUT: The money we pay out after the Annuity Commencement Date for the
duration and frequency you select.
ANNUITY PAYOUT OPTION: Any of the options available for payout after the Annuity
Commencement Date or death of the Contract Owner or Annuitant.
ANNUITY PERIOD: The time during which we make Annuity Payouts.
ANNUITY UNIT: The unit of measure we use to calculate the value of your Annuity
Payouts under a variable dollar amount Annuity Payout Option.
ANNUITY UNIT VALUE: The daily price of Annuity Units on any Valuation Day.
BENEFICIARY: The person entitled to receive a Death Benefit upon the death of
the Contract Owner.
CHARITABLE REMAINDER TRUST: An irrevocable trust, where an individual donor
makes a gift to the trust, and in return receives an income tax deduction. In
addition, the individual donor has the right to receive a percentage of the
trust earnings for a specified period of time.
CODE: The Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT: The person you may designate to become the Annuitant if
the original Annuitant dies before the Annuity Commencement Date. You must name
a Contingent Annuitant before the original Annuitant's death. This is only
available if you own a Non-Qualified Contract.
CONTRACT: The individual Annuity Contract and any endorsements or riders. Group
participants and some individuals will receive a certificate rather than a
Contract.
CONTRACT ANNIVERSARY: The anniversary of the date we issued your Contract. If
the Contract Anniversary falls on a Non-Valuation Day, then the Contract
Anniversary will be the next Valuation Day.
CONTRACT OWNER OR YOU: The owner or holder of the Contract described in this
prospectus. We do not capitalize "you" in the prospectus.
CONTRACT VALUE: The total value of the Accounts on any Valuation Day.
CONTRACT YEAR: Any 12 month period between Contract Anniversaries, beginning
with the date the Contract was issued.
DEATH BENEFIT: The amount payable after the Contract Owner or the Annuitant
dies.
FORTIS: Fortis Benefits Insurance Company, the company that issued this
Contract.
GENERAL ACCOUNT: This account holds our company assets and any assets not
allocated to a Separate Account. The assets in this account are available to the
creditors of Fortis and/or Hartford.
JOINT ANNUITANT: The person on whose life Annuity Payouts are based if the
Annuitant dies after Annuitization. You may name a Joint Annuitant only if your
Annuity Payout Option provides for a survivor. The Joint Annuitant may not be
changed.
MARKET VALUE ADJUSTMENT: An adjustment that either increases or decreases the
amount we pay you under certain circumstances.
NET INVESTMENT FACTOR: This is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next, and is also used to calculate
your Annuity Payout amount.
NON-VALUATION DAY: Any day the New York Stock Exchange is not open for trading.
PAYEE: The person or party you designate to receive Annuity Payouts.
PREMIUM PAYMENT: Money sent to us to be invested in your Contract.
<Page>
FORTIS BENEFITS INSURANCE COMPANY 5
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PREMIUM TAX: A tax charged by a state or municipality on Premium Payments.
QUALIFIED CONTRACT: A Contract that is defined as a tax-qualified retirement
plan in the Code.
REQUIRED MINIMUM DISTRIBUTION: A federal requirement that individuals age 70 1/2
and older must take a distribution from their tax-qualified retirement account
by December 31, each year. For employer sponsored Qualified Contracts, the
individual must begin taking distributions at the age of 70 1/2 or upon
retirement, whichever comes later.
SUB-ACCOUNT VALUE: The value on or before the Annuity Calculation Date, which is
determined on any day by multiplying the number of Accumulation Units by the
Accumulation Unit Value for that Sub-Account.
SURRENDER: A complete or partial withdrawal from your Contract.
SURRENDER VALUE: The amount we pay you if you terminate your Contract before the
Annuity Commencement Date. The Surrender Value is equal to the Contract Value
minus any applicable charges and increased or decreased, as applicable, by any
Market Value Adjustment.
VALUATION DAY: Every day the New York Stock Exchange is open for trading. Values
of the Separate Account are determined as of the close of the New York Stock
Exchange, generally 4:00 p.m. Eastern Time.
VALUATION PERIOD: The time span between the close of trading on the New York
Stock Exchange from one Valuation Day to the next.
<Page>
6 FORTIS BENEFITS INSURANCE COMPANY
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FEE TABLE
<Table>
CONTRACT OWNER TRANSACTION EXPENSES
SALES CHARGE IMPOSED ON PURCHASES (as a percentage of
Premium Payments) None
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MAXIMUM CONTINGENT DEFERRED SALES CHARGE (as a percentage of
Premium Payments) None
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SUB-ACCOUNT TRANSFER FEE (1) $25
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ANNUAL MAINTENANCE FEE (2) $30
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SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average
daily Sub-Account value)
Mortality and Expense Risk Charge 1.10%
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Administrative Charge 0.15%
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Total Separate Account Annual Expenses 1.25%
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</Table>
(1) The Sub-Account Transfer Fee is currently being waived.
(2) An annual $30 charge deducted on a Contract Anniversary or upon Surrender if
the Contract Value at either of those times is less than $100,000. It is
deducted proportionately from the Accounts in which you are invested at the
time of the charge.
The purpose of the Fee Table and Example is to assist you in understanding
various costs and expenses that you will pay directly or indirectly. The Fee
Table and Example reflect the Annual Maintenance Fee, maximum Separate Account
Annual Expenses, and expenses of the underlying Funds. We will deduct any
Premium Taxes that apply. The Example assumes that any fee waivers or expense
reimbursements for the underlying Funds will continue for the period shown in
the Example.
The Example should not be considered a representation of past or future expenses
and actual expenses may be greater or less than those shown. In the following
Example table, Hartford assumes a Contract Value of $40,000 to illustrate the
charges that would be deducted. Our average Contract Value is $80,000, but we
use a smaller Contract Value so that we can show you the highest possible
deductions. The Example assumes that the Annual Maintenance Fee will always be
deducted if the Contract is Surrendered. If your Contract Value is $100,000 or
more, Hartford waives the Annual Maintenance Fee, so the Example shows charges
that are higher than you would have to pay. We change the Annual Maintenance Fee
for a $40,000 Contract Value into a percentage to more easily calculate the
charges. The percentage we use is 0.075%.
<Page>
FORTIS BENEFITS INSURANCE COMPANY 7
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Annual Fund Operating Expenses
As of the Fund's Year End
(As a percentage of net assets)
<Table>
<Caption>
TOTAL FUND
OTHER OPERATING
MANAGEMENT FEES EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------
Hartford Money Market HLS Fund 0.45% 0.03% 0.48%
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Hartford U.S. Government Securities HLS Fund 0.47% 0.04% 0.51%
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Hartford Bond HLS Fund 0.48% 0.03% 0.51%
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Hartford Multisector Bond HLS Fund 0.75% 0.11% 0.86%
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Hartford High Yield HLS Fund 0.77% 0.04% 0.81%
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Hartford International Stock II HLS Fund 0.90% 0.14% 1.04%
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Hartford International Stock HLS Fund 0.84% 0.10% 0.94%
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Hartford Global Leaders HLS Fund 0.74% 0.07% 0.81%
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Hartford Global Equity HLS Fund 1.00% 0.39% 1.39%
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Hartford Advisers HLS Fund 0.63% 0.03% 0.66%
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Hartford American Leaders HLS Fund 0.90% 0.15% 1.05%
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Hartford Value Opportunities HLS Fund 0.68% 0.05% 0.73%
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Hartford Capital Opportunities HLS Fund 0.90% 0.26% 1.16%
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Hartford Growth and Income HLS Fund 0.75% 0.04% 0.79%
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Hartford Index HLS Fund 0.40% 0.03% 0.43%
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Hartford Blue Chip Stock HLS Fund 0.87% 0.05% 0.92%
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Hartford Blue Chip Stock II HLS Fund 0.95% 0.15% 1.10%
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Hartford Large Cap Growth HLS Fund 0.90% 0.05% 0.95%
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Hartford Investors Growth HLS Fund 0.90% 0.61% 1.51%
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Hartford Mid Cap Stock HLS Fund 0.90% 0.12% 1.02%
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Hartford Growth Opportunities HLS Fund 0.61% 0.04% 0.65%
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Hartford Small Cap Value HLS Fund 0.89% 0.07% 0.96%
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Hartford Small Cap Growth HLS Fund 0.63% 0.05% 0.68%
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</Table>
<Page>
8 FORTIS BENEFITS INSURANCE COMPANY
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EXAMPLE
YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT AT THE END OF THE
APPLICABLE TIME PERIOD ASSUMING A 5% ANNUAL RETURN ON ASSETS.
<Table>
<Caption>
If you Surrender your Contract: If you annuitize your Contract: If you do not Surrender your Contract :
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------------------------------------
Hartford Money
Market HLS
Fund $19 $57 $ 99 $214 $18 $56 $ 98 $213 $19 $57 $ 99 $214
--------------------------------------------------------------------------------------------------------------------------
Hartford U.S.
Government
Securities
HLS Fund $19 $58 $100 $217 $18 $57 $ 99 $216 $19 $58 $100 $217
--------------------------------------------------------------------------------------------------------------------------
Hartford Bond
HLS Fund $19 $58 $100 $217 $18 $57 $ 99 $216 $19 $58 $100 $217
--------------------------------------------------------------------------------------------------------------------------
Hartford
Multisector
Bond HLS Fund $22 $69 $118 $254 $22 $68 $117 $253 $22 $69 $118 $254
--------------------------------------------------------------------------------------------------------------------------
Hartford High
Yield HLS
Fund $22 $68 $116 $249 $21 $67 $115 $248 $22 $68 $116 $249
--------------------------------------------------------------------------------------------------------------------------
Hartford
International
Stock II HLS
Fund $24 $75 $128 $273 $23 $74 $127 $272 $24 $75 $128 $273
--------------------------------------------------------------------------------------------------------------------------
Hartford
International
Stock HLS
Fund $23 $72 $122 $262 $22 $71 $122 $261 $23 $72 $122 $262
--------------------------------------------------------------------------------------------------------------------------
Hartford Global
Leaders HLS
Fund $22 $68 $116 $249 $21 $67 $115 $248 $22 $68 $116 $249
--------------------------------------------------------------------------------------------------------------------------
Hartford Global
Equity HLS
Fund $28 $85 $145 $308 $27 $85 $145 $307 $28 $85 $145 $308
--------------------------------------------------------------------------------------------------------------------------
Hartford
Advisers HLS
Fund $20 $63 $108 $233 $20 $62 $107 $232 $20 $63 $108 $233
--------------------------------------------------------------------------------------------------------------------------
Hartford
American
Leaders HLS
Fund $24 $75 $128 $274 $24 $74 $127 $273 $24 $75 $128 $274
--------------------------------------------------------------------------------------------------------------------------
Hartford Value
Opportunities
HLS Fund $21 $65 $112 $240 $20 $64 $111 $239 $21 $65 $112 $240
--------------------------------------------------------------------------------------------------------------------------
Hartford
Capital
Opportunities
HLS Fund $25 $78 $134 $285 $25 $77 $133 $284 $25 $78 $134 $285
--------------------------------------------------------------------------------------------------------------------------
Hartford Growth
and Income
HLS Fund $22 $67 $115 $247 $21 $66 $114 $246 $22 $67 $115 $247
--------------------------------------------------------------------------------------------------------------------------
Hartford Index
HLS Fund $18 $56 $ 96 $208 $17 $55 $ 95 $207 $18 $56 $ 96 $208
--------------------------------------------------------------------------------------------------------------------------
Hartford Blue
Chip Stock
HLS Fund $23 $71 $121 $260 $22 $70 $121 $259 $23 $71 $121 $260
--------------------------------------------------------------------------------------------------------------------------
Hartford Blue
Chip Stock II
HLS Fund $25 $76 $131 $279 $24 $76 $130 $278 $25 $76 $131 $279
--------------------------------------------------------------------------------------------------------------------------
Hartford Large
Cap Growth
HLS Fund $23 $72 $123 $263 $23 $71 $122 $262 $23 $72 $123 $263
--------------------------------------------------------------------------------------------------------------------------
Hartford
Investors
Growth HLS
Fund $29 $89 $152 $320 $28 $88 $151 $319 $29 $89 $152 $320
--------------------------------------------------------------------------------------------------------------------------
Hartford Mid
Cap Stock HLS
Fund $24 $74 $127 $270 $23 $73 $126 $270 $24 $74 $127 $270
--------------------------------------------------------------------------------------------------------------------------
Hartford Growth
Opportunities
HLS Fund $20 $63 $107 $232 $19 $62 $107 $231 $20 $63 $107 $232
--------------------------------------------------------------------------------------------------------------------------
Hartford Small
Cap Value HLS
Fund $23 $72 $123 $264 $23 $71 $123 $263 $23 $72 $123 $264
--------------------------------------------------------------------------------------------------------------------------
Hartford Small
Cap Growth
HLS Fund $21 $63 $109 $235 $20 $63 $108 $234 $21 $63 $109 $235
--------------------------------------------------------------------------------------------------------------------------
</Table>
<Page>
FORTIS BENEFITS INSURANCE COMPANY 9
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HIGHLIGHTS
HOW DO I PURCHASE THIS CONTRACT?
You must complete our application or order request and submit it to us for
approval with your first Premium Payment. Your first Premium Payment must be at
least $25,000 ($10,000 for Qualified Contracts) and subsequent Premium Payments
must be at least $50, unless you take advantage of our InvestEase-Registered
Trademark- Program or are part of certain retirement plans.
- For a limited time, usually within ten days after you receive your Contract,
you may cancel your Contract. You may bear the investment risk for your
Premium Payment prior to our receipt of your request for cancellation.
IS THERE AN ANNUAL MAINTENANCE FEE?
We deduct this $30 Fee each year on your Contract Anniversary or when you fully
Surrender your Contract, if, on either of those dates, the value of your
Contract is less than $100,000.
WHAT CHARGES WILL I PAY ON AN ANNUAL BASIS?
In addition to the Annual Maintenance Fee, you pay the following charges each
year:
- - MORTALITY AND EXPENSE RISK CHARGE -- This charge is for insurance. It is
subtracted daily and is equal to an annual charge of 1.10% of your Contract
Value invested in the Funds.
- - ADMINISTRATIVE CHARGE -- This is a charge for the administration of the
Contract. It is subtracted daily and is equal to an annual charge of 0.15% of
the Contract Value held in the Separate Account.
- - ANNUAL FUND OPERATING EXPENSES -- These are charges for the Funds. See the
Annual Fund Operating Expenses table for more complete information and the
Funds' prospectuses accompanying this prospectus.
CAN I TAKE OUT ANY OF MY MONEY?
You may Surrender all or part of the amounts you have invested at any time
before we start making Annuity Payouts.
- - You may have to pay income tax on the money you take out and, if you Surrender
before you are age 59 1/2 , you may have to pay an income tax penalty.
- - You may have to pay a Market Value Adjustment on the amount you Surrender.
IS THERE A MARKET VALUE ADJUSTMENT?
Surrenders and other withdrawals from a Guarantee Period in our General Account
more than fifteen days from the end of a Guarantee Period are subject to a
Market Value Adjustment. The Market Value Adjustment may increase or reduce the
General Account value of your Contract. The Market Value Adjustment is computed
using a formula that is described in this prospectus under "Market Value
Adjustment".
WHAT INVESTMENT CHOICES ARE AVAILABLE?
You may allocate your Premium Payment or Contract Values among the following
investment choices:
- - The variable Sub-Accounts that invest in underlying Funds; and/or
- - One or more Guarantee Periods, which may be subject to a Market Value
Adjustment.
Guarantee Periods are not available for Contracts issued in Pennsylvania and
Nevada.
WILL FORTIS PAY A DEATH BENEFIT?
There is a Death Benefit if the Contract Owner dies before we begin to make
Annuity Payouts. If the Contract Owner is a non-natural person, we will pay the
Death Benefit upon the death of the Annuitant prior to the Annuity Commencement
Date. In such case, if more than one Annuitant has been named, we will pay the
Death Benefit only upon the death of the last survivor of the Annuitants. The
Death Benefit amount will remain invested in the Sub-Accounts according to your
last instructions and will fluctuate with the performance of the underlying
Funds until we receive proof of death and complete instructions from the
Beneficiary.
The Death Benefit is the greatest of:
- - The total Premium Payments you have made to us minus adjustments for partial
Surrenders; or
- - The Contract Value of your Contract; or
- - The highest Anniversary Value before the earlier of the decedent's death or
the Contract Owner's age 75.
See "Death Benefit" for a complete description for the Death Benefit applicable
to your Contract.
WHAT ANNUITY PAYOUT OPTIONS ARE AVAILABLE?
When it comes time for us to make payouts, you may choose one of the following
Annuity Payout Options: Life Annuity, Life Annuity with Payments for 10 or 20
years, Joint and Full Survivor Life Annuity, and Joint and 1/2 Contingent
Survivor Life Annuity. We may make other Annuity Payout Options available at any
time.
You must begin to take payouts by the Annuitant's 110th birthday unless you
elect a later date to begin receiving payments subject to the laws and
regulations then in effect and our approval. The date you select may have tax
consequences, so please check with an qualified tax advisor. You cannot begin to
take Annuity Payouts until the completion of the 2nd Contract Year. If you do
not tell us what Annuity Payout Option you want before that time, we will make
Automatic Annuity Payouts under the Life Annuity with Payments for a Period
Certain Payout Option with a ten-year period certain payment option. Automatic
Annuity Payouts will be fixed dollar amount Annuity Payouts, variable dollar
amount Annuity Payouts, or a combination of fixed or variable dollar amount
Annuity Payouts, depending on the investment allocation of your Account in
effect on the Annuity Commencement Date.
<Page>
10 FORTIS BENEFITS INSURANCE COMPANY
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GENERAL CONTRACT INFORMATION
FORTIS BENEFITS INSURANCE COMPANY
Fortis Benefits Insurance Company ("Fortis") is the issuer of the contracts.
Fortis 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 is an indirectly wholly owned subsidiary of
Fortis, Inc., which is itself indirectly owned 50% by Fortis N.V. and 50% by
Fortis FA/NV. Fortis, Inc. manages the United States operations for these two
companies.
Fortis N.V. is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
FA/NV is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis N.V. and Fortis
FA/ NV have merged their operating companies under the trade name of Fortis. The
Fortis group of companies is active in insurance, banking, financial services,
and real estate development in the Netherlands, Belgium, the United States,
Western Europe, and the Pacific Rim.
All of the guarantees and commitments under the contracts are general
obligations of Fortis, regardless of whether you have allocated the contract
value to the Separate Account or to the Fixed Accumulation Feature. None of
Fortis' affiliated companies has any legal obligation to back Fortis'
obligations under the contracts.
On January 25, 2001, Fortis, Inc., the parent company of Fortis entered into an
agreement with Hartford Life and Annuity Insurance Company ("Hartford") to
co-insure the obligations of Fortis under the variable annuity Contracts and to
provide administration for the Contracts. Hartford was originally incorporated
under the laws of Wisconsin on January 9, 1956, and subsequently redomiciled to
Connecticut. Hartford's offices are located in Simsbury, Connecticut; however,
its mailing address is P.O. Box 2999, Hartford, CT 06104-2999. Hartford is
ultimately controlled by The Hartford Financial Services Group, Inc., one of the
largest financial service providers in the United States.
FORTIS' RATINGS
<Table>
<Caption>
EFFECTIVE DATE
RATING AGENCY OF RATING RATING BASIS OF RATING
- --------------------------------------------------------------------------------
A.M. Best and
Company, Inc. 9/26/01 A Financial Strength
- --------------------------------------------------------------------------------
Standard & Poor's 9/20/01 AA- Financial Security
Characteristics
- --------------------------------------------------------------------------------
</Table>
These ratings apply to Fortis' ability to meet its obligations under the
Contract. The ratings do not apply to the Separate Account or the underlying
Funds.
THE SEPARATE ACCOUNT
The Separate Account is where we set aside and invest the assets of some of our
annuity contracts, including this Contract. The Separate Account was established
on October 14, 1987 as "Variable Account D" and is registered as a unit
investment trust under the Investment Company Act of 1940. This registration
does not involve supervision by the SEC of the management or the investment
practices of the Separate Account, Fortis or Hartford. The Separate Account
meets the definition of "Separate Account" under federal securities law. This
Separate Account holds only assets for variable annuity contracts. The Separate
Account:
- - Holds assets for your benefit and the benefit of other Contract Owners, and
the persons entitled to the payouts described in the Contract.
- - Is not subject to the liabilities arising out of any other business Fortis or
Hartford may conduct.
- - Is not affected by the rate of return of Fortis' General Account or Hartford's
General Account or by the investment performance of any of Fortis' or
Hartford's other Separate Accounts.
- - May be subject to liabilities from a Sub-Account of the Separate Account that
holds assets of other variable annuity contracts offered by the Separate
Account, which are not described in this prospectus.
- - Is credited with income and gains, and takes losses, whether or not realized,
from the assets it holds.
We do not guarantee the investment results of the Separate Account. There is no
assurance that the value of your Contract will equal the total of the payments
you make to us.
THE FUNDS
Hartford HLS Funds are sponsored and administered by Hartford. Hartford Advisers
HLS Fund, Hartford Bond HLS Fund, Hartford Index HLS Fund and Hartford Money
Market HLS Fund are each a separate Maryland corporation registered with the
Securities and Exchange Commission as an open-end management investment company.
Hartford Series Fund, Inc. is a Maryland Corporation registered with the
Securities and Exchange Commission as an as an open-end management investment
company. Hartford High Yield HLS Fund, Hartford Global Leaders HLS Fund and
Hartford Growth and Income HLS Fund are series of Hartford Series Fund, Inc.
Hartford HLS Series Fund II, Inc. is a Maryland corporation registered with the
Securities and Exchange Commission as an open-end management investment company.
Hartford U.S. Government Securities HLS Fund, Hartford Multisector Bond HLS
Fund, Hartford International Stock HLS Fund, Hartford International Stock II HLS
Fund, Hartford Global Equity HLS Fund, Hartford American Leaders HLS Fund,
Hartford Value Opportunities HLS Fund, Hartford Capital Opportunities HLS Fund,
Hartford Blue Chip Stock HLS Fund, Hartford Blue Chip Stock II HLS Fund,
Hartford Large Cap Growth HLS Fund, Hartford Investors Growth HLS Fund, Hartford
Mid Cap Stock HLS Fund, Hartford Growth Opportunities HLS Fund, Hartford
<Page>
FORTIS BENEFITS INSURANCE COMPANY 11
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Small Cap Value HLS Fund and Hartford Small Cap Growth HLS Fund are series of
the Hartford HLS Series Fund II, Inc., formerly known as Fortis
Series Fund, Inc. Prior to May 1, 2002, these Funds were named, respectively,
U.S. Government Securities Series, Multisector Bond Series, High Yield Series,
International Stock Series, International Stock Series II, Global Growth Series,
Global Equity Series, American Leaders Series, Value Series, Capital
Opportunities Series, Growth & Income Series, Blue Chip Stock, Blue Chip Stock
Series II, Large Cap Growth Series, Investors Growth Series, Mid Cap Stock
Series, Growth Stock Series, Small Cap Value Series and Aggressive Growth
Series.
HL Investment Advisors, LLC ("HL Advisors") serves as the investment adviser to
the Funds.
Hartford Global Leaders HLS Fund, Hartford Advisers HLS Fund, Hartford Value
Opportunities HLS Fund, Hartford Growth and Income HLS Fund, Hartford Growth
Opportunities HLS Fund, and Hartford Small Cap Growth HLS Fund are sub-advised
by Wellington Management Company, LLP ("Wellington").
Hartford Money Market HLS Fund, Hartford U.S. Government Securities HLS Fund,
Hartford Bond HLS Fund, Hartford High Yield HLS Fund, and Hartford Index HLS
Fund are sub-advised by Hartford Investment Management Company ("HIMCO").
Hartford Multisector Bond HLS Fund and Hartford Blue Chip Stock II HLS Fund are
sub-advised by A I M Capital Management, Inc.
Hartford International Stock HLS Fund is sub-advised by Lazard Asset Management.
Hartford International Stock II HLS Fund is sub-advised by T. Rowe Price
International, Inc.
Hartford Blue Chip Stock HLS Fund is sub-advised by T. Rowe Price
Associates, Inc.
Hartford Global Equity HLS Fund, Hartford Capital Opportunities HLS Fund and
Hartford Investors Growth HLS Fund are sub-advised by Massachusetts Financial
Services Company.
Hartford Large Cap Growth HLS Fund is sub-advised by Alliance Capital Management
L.P.
Hartford Mid Cap Stock HLS Fund is sub-advised by The Dreyfus Corporation.
Hartford Small Cap Value HLS Fund is sub-advised by Berger LLC, which has
contracted with Perkins, Wolf, McDonnell & Company to provide day-to-day
investment management for the Series.
Hartford American Leaders HLS Fund is sub-advised by Federated Investment
Management Company.
The shares of each Hartford HLS Fund have been divided into Class IA and
Class IB. Only Class IA shares are available in this Contract.
We do not guarantee the investment results of any of the underlying Funds. Since
each underlying Fund has different investment objectives, each is subject to
different risks. These risks and the Funds' expenses are more fully described in
the accompanying Funds' prospectus, and the Funds' Statement of Additional
Information which may be ordered from us. The Funds' prospectus should be read
in conjunction with this Prospectus before investing.
The Funds may not be available in all states.
The investment goals of each of the Funds are as follows:
HARTFORD MONEY MARKET HLS FUND (formerly Money Market Series) -- Seeks maximum
current income consistent with liquidity and preservation of capital.
Sub-advised by HIMCO.
HARTFORD U.S. GOVERNMENT SECURITIES HLS FUND (formerly U.S. Government
Securities Series) -- Seeks to maximize total return while providing a high
level of current income consistent with prudent investment risk. Sub-advised by
HIMCO.
HARTFORD BOND HLS FUND (formerly Diversified Income Series) -- Seeks a high
level of current income, consistent with a competitive total return, as compared
to bond funds with similar investment objectives and policies, by investing
primarily in debt securities. Sub-advised by HIMCO.
HARTFORD MULTISECTOR BOND HLS FUND (formerly Multisector Bond Series) -- Seeks
to achieve a high level of current income consistent with reasonable concern for
safety of principal. Sub-advised by A I M Capital Management, Inc.
HARTFORD HIGH YIELD HLS FUND (formerly High Yield Series) -- Seeks high current
income by investing in non-investment grade debt securities. Growth of capital
is a secondary objective. Securities rated below investment grade are commonly
referred to as "high yield-high risk securities" or "junk bonds." For more
information concerning the risks associated with investing in such securities,
please read the prospectus for this Fund. Sub-advised by HIMCO.
HARTFORD INTERNATIONAL STOCK II HLS FUND (formerly International Stock
Series II) -- Seeks long-term growth of capital. Sub-advised by T. Rowe Price
International, Inc.
HARTFORD INTERNATIONAL STOCK HLS FUND (formerly International Stock
Series) -- Seeks long-term capital appreciation. Sub-advised by Lazard Asset
Management.
HARTFORD GLOBAL LEADERS HLS FUND (formerly Global Growth Series) -- Seeks growth
of capital by investing primarily in stocks issued by companies worldwide.
Sub-advised by Wellington Management.
HARTFORD GLOBAL EQUITY HLS FUND (formerly Global Equity Series) -- Seeks capital
appreciation. Sub-advised by Massachusetts Financial Services Company.
HARTFORD ADVISERS HLS FUND (formerly Asset Allocation Series) -- Seeks maximum
long-term total return. Sub-advised by Wellington Management.
<Page>
12 FORTIS BENEFITS INSURANCE COMPANY
- --------------------------------------------------------------------------------
HARTFORD AMERICAN LEADERS HLS FUND (formerly American Leaders Series) -- Seeks
long-term growth of capital. The secondary objective is to provide income.
Sub-advised by Federated Investment Management Company.
HARTFORD VALUE OPPORTUNITIES HLS FUND (formerly Value Series) -- Seeks short and
long term capital appreciation. Sub-advised by Wellington.
HARTFORD CAPITAL OPPORTUNITIES HLS FUND (formerly Capital Opportunities
Series) -- Seeks capital appreciation. Sub-advised by Massachusetts Financial
Services, Inc.
HARTFORD GROWTH AND INCOME HLS FUND (formerly Growth & Income Series) -- Seeks
growth of capital and current income by investing primarily in stocks with
earnings growth potential and steady or rising dividends. Sub-advised by
Wellington Management.
HARTFORD INDEX HLS FUND (formerly S&P 500 Index) -- Seeks to provide investment
results that approximate the price and yield performance of publicly traded
common stocks in the aggregate. Sub-advised by HIMCO.
HARTFORD BLUE CHIP STOCK HLS FUND (formerly Blue Chip Stock Series) -- Seeks
long-term growth of capital. Current income is a secondary objective.
Sub-advised by T. Rowe Price Associates, Inc.
HARTFORD BLUE CHIP STOCK II HLS FUND (formerly Blue Chip Stock
Series II) -- Seeks long-term growth of capital with a secondary objective of
current income. Sub-advised by AIM Capital Management, Inc.
HARTFORD LARGE CAP GROWTH HLS FUND (formerly Large Cap Growth Series) -- Seeks
long-term growth of capital. Sub-advised by Alliance Capital Management Company.
HARTFORD INVESTORS GROWTH HLS FUND (formerly Investors Growth Series) -- Seeks
to provide long-term growth of capital and future income rather than current
income. Sub-advised by Massachusetts Financial Services Company.
HARTFORD MID CAP STOCK HLS FUND (formerly Mid Cap Stock Series) -- Seeks total
investment returns, including capital appreciation and income that consistently
outperform the Standard & Poor's 400 MidCap Index ("S&P MidCap"). Sub-advised by
The Dreyfus Corporation.
HARTFORD GROWTH OPPORTUNITIES HLS FUND (formerly Growth Stock Series) -- Seeks
long-term capital appreciation. Sub-advised by Wellington.
HARTFORD SMALL CAP VALUE HLS FUND (formerly Small Cap Value Series) -- Seeks
capital appreciation. Sub-advised by Berger, LLC.
HARTFORD SMALL CAP GROWTH HLS FUND (formerly Aggressive Growth Series) -- Seeks
to maximize short and long-term capital appreciation. Sub-advised by Wellington.
MIXED AND SHARED FUNDING -- Shares of the Funds may be sold to our other
separate accounts and our insurance company affiliates or other unaffiliated
insurance companies to serve as the underlying investment for both variable
annuity contracts and variable life insurance policies, a practice known as
"mixed and shared funding." As a result, there is a possibility that a material
conflict may arise between the interests of Contract Owners, and of owners of
other contracts whose contract values are allocated to one or more of these
other separate accounts investing in any one of the Funds. In the event of any
such material conflicts, we will consider what action may be appropriate,
including removing the Fund from the Separate Account or replacing the Fund with
another underlying fund. There are certain risks associated with mixed and
shared funding, as disclosed in the Funds' prospectus.
VOTING RIGHTS -- We are the legal owners of all Fund shares held in the Separate
Account and we have the right to vote at the Fund's shareholder meetings. To the
extent required by federal securities laws or regulations, we will:
- - Notify you of any Fund shareholders' meeting if the shares held for your
Contract may be voted.
- - Send proxy materials and a form of instructions that you can use to tell us
how to vote the Fund shares held for your Contract.
- - Arrange for the handling and tallying of proxies received from Contract
Owners.
- - Vote all Fund shares attributable to your Contract according to instructions
received from you, and
- - Vote all Fund shares for which no voting instructions are received in the same
proportion as shares for which instructions have been received.
If any federal securities laws or regulations, or their present interpretation,
change to permit us to vote Fund shares on our own, we may decide to do so. You
may attend any shareholder meeting at which shares held for your Contract may be
voted. After we begin to make Annuity Payouts to you, the number of votes you
have will decrease.
SUBSTITUTIONS, ADDITIONS, OR DELETIONS OF FUNDS -- We reserve the right, subject
to any applicable law, to make certain changes to the Funds offered under your
Contract. We may, in our sole discretion, establish new Funds. New Funds will be
made available to existing Contract Owners as we determine appropriate. We may
also close one or more Funds to additional Payments or transfers from existing
Sub-Accounts.
We reserve the right to eliminate the shares of any of the Funds for any reason
and to substitute shares of another registered investment company for the shares
of any Fund already purchased or to be purchased in the future by the Separate
Account. To the extent required by the Investment Company Act of 1940 (the "1940
Act"), substitutions of shares attributable to your interest in a Fund will not
be made until we have the approval of the Commission and we have notified you of
the change.
In the event of any substitution or change, we may, by appropriate endorsement,
make any changes in the Contract necessary
<Page>
FORTIS BENEFITS INSURANCE COMPANY 13
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or appropriate to reflect the substitution or change. If we decide that it is in
the best interest of Contract Owners, the Separate Account may be operated as a
management company under the 1940 Act or any other form permitted by law, may be
deregistered under the 1940 Act in the event such registration is no longer
required, or may be combined with one or more other Separate Accounts.
ADMINISTRATIVE SERVICES -- Fortis has entered into agreements with the
investment advisers or distributors of many of the Funds. Under the terms of
these agreements, Fortis, or its agents, provide administrative services and the
Funds pay a fee that is usually based on an annual percentage of the average
daily net assets of the Funds. These agreements may be different for each Fund
or each Fund family.
PERFORMANCE RELATED INFORMATION
- --------------------------------------------------------------------------------
The Separate Account may advertise certain performance-related information
concerning the Sub-Accounts, Performance information about a Sub-Account is
based on the Sub-Account's past performance only and is no indication of future
performance.
When a Sub-Account advertises its standardized total return, it will usually be
calculated since the inception of the Separate Account for one year, five years,
and ten years or some other relevant periods if the Sub-Account has not been in
existence for at least ten years. Total return is measured by comparing the
value of an investment in the Sub-Account at the beginning of the relevant
period to the value of the investment at the end of the period.
The Separate Account may also advertise non-standardized total returns that
pre-date the inception of the Separate Account. These non-standardized total
returns are calculated by assuming that the Sub-Accounts have been in existence
for the same periods as the underlying Funds and by taking deductions for
charges equal to those currently assessed against the Sub-Accounts. These
non-standardized returns must be accompanied by standardized total returns.
If applicable, the Sub-Accounts may advertise yield in addition to total return.
The yield will be computed in the following manner: The net investment income
per unit earned during a recent one month period is divided by the unit value on
the last day of the period. This figure includes the recurring charges at the
Separate Account level.
A money market Sub-Account may advertise yield and effective yield. The yield of
a Sub-Account over a seven-day period and then annualized, i.e. the income
earned in the period is assumed to be earned every seven days over a 52-week
period and stated as a percentage of the investment. Effective yield is
calculated similarly but when annualized, the income earned by the investment is
assumed to be reinvested in Sub-Account units and thus compounded in the course
of a 52-week period. Yield and effective yield include the recurring charges at
the Separate Account level.
We may provide information on various topics to Contract Owners and prospective
Contract Owners in advertising, sales literature or other materials. These
topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as systematic investing and asset allocation),
the advantages and disadvantages of investing in tax-deferred and taxable
instruments, customer profiles and hypothetical purchase scenarios, financial
management and tax and retirement planning, and other investment alternatives,
including comparisons between the Contract and the characteristics of and market
for such alternatives.
GUARANTEE PERIODS
- --------------------------------------------------------------------------------
Any amount you allocate to our General Account under this Contract earns a
guaranteed interest rate beginning on the date you make the allocation. The
guaranteed interest rate continues for the number of years you select, up to a
maximum of ten years. We call this a Guarantee Period. At the end of your
Guarantee Period, your Contract Value, including accrued interest, will be
allocated to a new Guarantee Period that is the same length as your original
Guarantee Period. However, you may reallocate your Contract Value to different
Guarantee Periods or to the Sub-Accounts. If you decide to reallocate your
Contract Value, you must do so by sending us a written request. We must receive
your written request at least three business days before the end of your
Guarantee Period. The first day of your new Guarantee Period or other
reallocation will be the day after the end of your previous Guarantee Period. We
will notify you at least 45 days and not more than 75 days before the end of
your Guarantee Period.
We currently offer ten different Guarantee Periods. These Guarantee Periods
range in length from one to ten years. Each Guarantee Period has its own
guaranteed interest rate, which may differ from other Guarantee Periods. We
will, at our discretion, change the guaranteed interest rate for future
Guarantee Periods. These changes will not affect the guaranteed interest rates
we are paying on current Guarantee Periods. The guaranteed interest rate will
never be less than an effective annual rate of 3%. We cannot predict or assure
the level of any future guaranteed interest rates in excess of an effective
annual rate of 3%.
We declare the guaranteed interest rates from time to time as market conditions
dictate. We advise you of the guaranteed interest rate for a Guarantee Period at
the time we receive a Purchase Payment from you, or at the time we execute a
transfer you have requested, or at the time a Guarantee Period is
<Page>
14 FORTIS BENEFITS INSURANCE COMPANY
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renewed. You may obtain information concerning the guaranteed interest rates
that apply to the various Guarantee Periods. You may obtain this information
from our home office or from your sales representative at any time.
The maximum amount you can invest in a Guarantee Period is $500,000.
We do not have a specific formula for establishing the guaranteed interest rates
for the Guarantee Periods. Guaranteed interest rates may be influenced by the
available interest rates on the investments we acquire with the amounts you
allocate for a particular Guarantee Period. Guaranteed interest rates do not
necessarily correspond to the available interest rates on the investments we
acquire with the amounts you allocate for a particular Guarantee Period. In
addition, when we determine guaranteed interest rates, we may consider:
- - the duration of a Guarantee Period,
- - regulatory and tax requirements,
- - sales and administrative expenses we bear,
- - risks we assume,
- - our profitability objectives, and
- - general economic trends.
Guarantee Periods are not available for Contracts issued in Pennsylvania or
Nevada.
MARKET VALUE ADJUSTMENT
Except as described below, we will apply a Market Value Adjustment to any
General Account value that is:
- - surrendered,
- - transferred, or
- - otherwise paid out
before the end of its Guarantee Period.
For example, we will apply a Market Value Adjustment to account value that we
pay:
- - as a death benefit pursuant to a Contract,
- - as an amount applied to an Annuity Payout option, or
- - as an amount paid as a single sum in lieu of an Annuity Payout.
The Market Value Adjustment reflects both the amount of time left in your
Guarantee Period and the difference between the rate of interest credited to
your current Guarantee Period and the rate of interest we are crediting to a new
Guarantee period with a duration equal to the amount of time left in your
Guarantee Period. If your Guarantee Period's rate of interest is lower than the
rate of interest we are currently crediting the new Guarantee Period, then the
application of the Market Value Adjustment will reduce the amount you receive or
transfer. Conversely, if your Guarantee period's rate of interest is higher than
the rate of interest we are crediting for the new Guarantee Period, then the
application of the Market Value Adjustment will increase the amount you receive
or transfer.
You will find sample Market Value Adjustment calculations in Appendix I.
We do not apply a Market Value Adjustment to withdrawals and transfers of
account value under two exceptions.
(1) We will not apply a Market Value Adjustment to account value that we pay out
during a 30 day period that: -- begins 15 days before the end date of the
Guarantee Period in which the account value was being held, and that: --
ends 15 days after the end date of the Guarantee Period in which the account
value was being held.
(2) We will not apply a Market Value Adjustment to account value that is
withdrawn or transferred from a Guarantee Period on a periodic, automatic
basis. This exception only applies to such withdrawals or transfers under a
formal Fortis program for the withdrawal or transfer of General Account
value.
We may impose conditions and limitations on any formal Fortis program for the
withdrawal or transfer of General Account value. Ask your Fortis representative
about the availability of such a program in your state. In addition, if such a
program is available in your state, your Fortis representative can inform you
about the conditions and limitations that may apply to that program.
THE CONTRACT
- --------------------------------------------------------------------------------
PURCHASES AND CONTRACT VALUE
WHAT TYPES OF CONTRACTS ARE AVAILABLE?
The Contract is an individual or group tax-deferred variable annuity contract.
It is designed for retirement planning purposes and may be purchased by any
individual, group or trust, including:
- - Any trustee or custodian for a retirement plan qualified under Sections
401(a) or 403(a) of the Code;
- - Annuity purchase plans adopted by public school systems and certain tax-exempt
organizations according to Section 403(b) of the Code; and
- - Individual Retirement Annuities adopted according to Section 408 of the Code.
- - Certain eligible deferred compensation plans as defined in Section 457 of the
Code.
The examples above represent Qualified Contracts, as defined by the Code. In
addition, individuals and trusts can also purchase Contracts that are not part
of a tax qualified retirement plan. These are known as Non-Qualified Contracts.
If you are purchasing the Contract for use in an IRA or other qualified
retirement plan, you should consider other features of the Contract besides tax
deferral, since any investment vehicle
<Page>
FORTIS BENEFITS INSURANCE COMPANY 15
- --------------------------------------------------------------------------------
used within an IRA or other qualified plan receives tax-deferred treatment under
the Code.
HOW DO I PURCHASE A CONTRACT?
You may purchase a Contract by completing and submitting an application or an
order request along with an initial Premium Payment. For most Contracts, the
minimum Premium Payment is $25,000 ($10,000 for Qualified Contracts). For
additional Premium Payments, the minimum Premium Payment is $50. Under certain
situations, we may allow smaller Premium Payments, for example, if you are part
of our InvestEase-Registered Trademark- Program or certain tax qualified
retirement plans. Prior approval is required for Premium Payments of $1,000,000
or more.
You and your Annuitant must not be older than age 90 on the date that your
Contract is issued. You must be of legal age in the state where the Contract is
being purchased or a guardian must act on your behalf.
HOW ARE PREMIUM PAYMENTS APPLIED TO MY CONTRACT?
Your initial Premium Payment will be invested within two Valuation Days of our
receipt of a properly completed application or an order request and the Premium
Payment. If we receive your subsequent Premium Payment before the close of the
New York Stock Exchange, it will be priced on the same Valuation Day. If we
receive your Premium Payment after the close of the New York Stock Exchange, it
will be invested on the next Valuation Day. If we receive your subsequent
Premium Payment on a Non-Valuation Day, the amount will be invested on the next
Valuation Day. Unless we receive new instructions, we will invest the Premium
Payment based on your last allocation instructions. We will send you a
confirmation when we invest your Premium Payment.
If the request or other information accompanying the Premium Payment is
incomplete when received, we will hold the money in a non-interest bearing
account for up to five Valuation Days while we try to obtain complete
information. If we cannot obtain the information within five Valuation Days, we
will either return the Premium Payment and explain why the Premium Payment could
not be processed or keep the Premium Payment if you authorize us to keep it
until you provide the necessary information.
CAN I CANCEL MY CONTRACT AFTER I PURCHASE IT?
We want you to be satisfied with the Contract you have purchased. We urge you to
closely examine its provisions. If for any reason you are not satisfied with
your Contract, simply return it within ten days after you receive it with a
written request for cancellation that indicates your tax-withholding
instructions. In some states, you may be allowed more time to cancel your
Contract. We may require additional information, including a signature
guarantee, before we can cancel your Contract.
You bear the investment risk from the time the Contract is issued until we
receive your complete cancellation request.
The amount we pay you upon cancellation depends on the requirements of the state
where you purchased your Contract, the method of purchase, the type of Contract
you purchased and your age.
HOW IS THE VALUE OF MY CONTRACT CALCULATED BEFORE THE ANNUITY COMMENCEMENT DATE?
The Contract Value is the sum of all Accounts. There are two things that affect
your Sub-Account value: (1) the number of Accumulation Units and (2) the
Accumulation Unit Value. The Sub-Account value is determined by multiplying the
number of Accumulation Units by the Accumulation Unit Value. Therefore, on any
Valuation Day your Contract Value reflects the investment performance of the
Sub-Accounts and will fluctuate with the performance of the underlying Funds.
When Premium Payments are credited to your Sub-Accounts, they are converted into
Accumulation Units by dividing the amount of your Premium Payments, minus any
Premium Taxes, by the Accumulation Unit Value for that day. The more Premium
Payments you put into your Contract, the more Accumulation Units you will own.
You decrease the number of Accumulation Units you have by requesting Surrenders,
transferring money out of an Account, settling a Death Benefit claim or by
annuitizing your Contract.
To determine the current Accumulation Unit Value, we take the prior Valuation
Day's Accumulation Unit Value and multiply it by the Net Investment Factor for
the current Valuation Day.
The Net Investment Factor is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next. The Net Investment Factor for
each Sub-Account equals:
- - The net asset value per share of each Fund held in the Sub-Account at the end
of the current Valuation Day divided by
- - The net asset value per share of each Fund held in the Sub-Account at the end
of the prior Valuation Day; minus
- - The daily mortality and expense risk charge adjusted for the number of days in
the period, and any other applicable charges.
We will send you a statement in each calendar quarter, which tells you how many
Accumulation Units you have, their value and your total Contract Value.
A Contract's Guarantee Period value is guaranteed by Fortis. We bear the
investment risk with respect to amounts allocated to a Guarantee Period, except
to the extent that (1) we may vary the guaranteed interest rate for future
Guarantee Periods (subject to the 3% effective annual minimum) and (2) the
Market Value Adjustment imposes investment risks on you. The Contract's
Guarantee Period value on any Valuation Date is the sum of its General Account
values in each Guarantee Period on that date. The General Account value in a
Guarantee Period is equal to the following amounts, in each case increased by
accrued interest at the applicable guaranteed interest rate:
- - The amount of Premium Payments or transferred amounts allocated to the
Guarantee Period; less
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16 FORTIS BENEFITS INSURANCE COMPANY
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- - The amount of any transfers or Surrenders out of the Guarantee Period.
CAN I TRANSFER FROM ONE INVESTMENT CHOICE TO ANOTHER?
Subject to the restrictions below, you may transfer Contract Value:
- - From a Sub-Account to another Sub-Account;
- - From a Sub-Account to a Guarantee Period;
- - From a Guarantee Period to a Sub-Account;
- - From a Guarantee Period to another Guarantee Period.
Transfers from a Guarantee Period may be subject to a Market Value Adjustment.
TRANSFERS BETWEEN SUB-ACCOUNTS -- You may transfer from one Sub-Account to
another before and after the Annuity Commencement Date. We may impose a
Sub-Account Transfer Fee not to exceed $25 per transfer. For purposes of the
Sub-Account Transfer Fee, we will count all transfers between and among the
Sub-Accounts as one transfer if all of the transfer requests are made at the
same time as part of one request. Your transfer request will be processed on the
day that it is received as long as it is received on a Valuation Day before the
close of the New York Stock Exchange. Otherwise, your request will be processed
on the following Valuation Day. We will send you a confirmation when we process
your transfer. You are responsible for verifying transfer confirmations and
promptly advising us of any errors within 30 days of receiving the confirmation.
After the Annuity Commencement Date, the Payee may make four Sub-Account
Transfers.
SUB-ACCOUNT TRANSFER RESTRICTIONS -- This Contract is not designed to serve as a
vehicle for frequent trading in response to short-term fluctuations in the stock
market. Any individual or legal entity that intends to engage in international
arbitrage, utilize market timing practices or make frequent transfers to take
advantage of inefficiencies in Fund pricing should not purchase this Contract.
These abusive or disruptive transfers can have an adverse impact on management
of a Fund, increase Fund expenses and affect Fund performance.
- - You may submit 20 Sub-Account transfers each Contract Year for each Contract
by U.S. Mail, Voice Response Unit, Internet, telephone, or facsimile.
- - Once these 20 Sub-Account transfers have been executed, you may submit any
additional Sub-Account transfers only in writing by U.S. Mail or overnight
delivery service. Transfer requests sent by same day mail or courier service
will not be accepted. If you want to cancel a written Sub-Account transfer,
you must also cancel it in writing by U.S. Mail or overnight delivery service.
We will process the cancellation request as of the day we receive it.
In addition, if your initial Premium Payment is $1 million or more, or if you
are acting on behalf of multiple Contract Owners with aggregate Contract Values
of $2 million or more, you may be required to sign a separate agreement with
Hartford which includes additional restrictions before you may submit any Sub-
Account transfers.
ABUSIVE TRANSFERS -- Regardless of the number of transfers you have made, we
will monitor Sub-Account transfers and we may terminate your transfer privileges
until your next Contract Anniversary if we determine that you are engaging in a
pattern of transfers that is disadvantageous or potentially harmful to other
Contract Owners. We will consider the following factors:
- - the dollar amount of the transfer;
- - the total assets of the Funds involved in the transfer;
- - the number of transfers completed in the current calendar quarter; or
- - whether the transfer is part of a pattern of transfers designed to take
advantage of short term market fluctuations or market inefficiencies.
We will send you a letter after your 10th Sub-Account transfer to remind you of
our Sub-Account transfer policy. After your 20th transfer, or after any time we
determine that you are engaging in a pattern of abusive transfers, we will send
you a letter to notify you that your transfer privileges have been restricted or
terminated under our policy until your next Contract Anniversary.
None of these restrictions are applicable to Sub-Account transfers made under a
systematic transfer program.
We will continue to monitor transfer activity and Fortis or Hartford may modify
these restrictions at any time.
POWER OF ATTORNEY -- You may authorize another person to make transfers on your
behalf by submitting a completed power of attorney form. Once we have the
completed form on file, we will accept transfer instructions from your
designated third party, subject to any transfer restrictions in place, until we
receive new instructions in writing from you. You will not be able to make
transfers or other changes to your Contract if you have authorized someone else
to act under a power of attorney.
TRANSFERS BETWEEN THE SUB-ACCOUNTS AND GUARANTEE PERIODS: You may transfer from
the Sub-Accounts to a Guarantee Period or from one Guarantee Period to another
Guarantee Period. Transfers from a Guarantee Period, other than the one-year
Guarantee Period, are subject to a Market Value Adjustment if the transfer is:
- - more than 15 days before or 15 days after the expiration of the existing
Guarantee Period, or
- - are not part of a formal Fortis program for the transfer of General Account
value.
The amount of any positive or negative Market Value Adjustment will be added or
deducted from the transferred amount.
You may not make a transfer into the one-year Guarantee Period within six months
of a transfer out of the one-year Guarantee Period.
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FORTIS BENEFITS INSURANCE COMPANY 17
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GENERAL ACCOUNT TRANSFER RESTRICTIONS -- We reserve the right to defer transfers
from the General Account for up to 6 months from the date of your request. After
any transfer, you must wait six months before moving Sub-Account Values back to
a Guarantee Period in the General Account. After the Annuity Commencement Date,
you may not make transfers from the General Account.
CHARGES AND FEES
The following charges and fees are associated with the Contract:
MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contract, we deduct a daily
charge at an annual rate of 1.10% of Sub-Account Value. The mortality and
expense risk charge is broken into charges for mortality risks and an expense
risk:
- - MORTALITY RISK -- There are two types of mortality risks that we assume, those
made while your Premium Payments are accumulating and those made once Annuity
Payouts have begun.
During the period your Premium Payments are accumulating, we are required to
cover any difference between the Death Benefit paid and the Surrender Value.
These differences may occur during periods of declining value or in periods
where the Contingent Deferred Sales Charges would have been applicable. The
risk that we bear during this period is that actual mortality rates, in
aggregate, may exceed expected mortality rates.
Once Annuity Payouts have begun, we may be required to make Annuity Payouts as
long as the Annuitant is living, regardless of how long the Annuitant lives.
The risk that we bear during this period is that actual mortality rates, in
aggregate, may be lower than expected mortality rates.
- - EXPENSE RISK -- We also bear an expense risk that the Contingent Deferred
Sales Charges collected before the Annuity Commencement Date may not be enough
to cover the actual cost of selling, distributing and administering the
Contract.
Although variable Annuity Payouts will fluctuate with the performance of the
underlying Fund selected, your Annuity Payouts will NOT be affected by (a) the
actual mortality experience of our Annuitants, or (b) our actual expenses if
they are greater than the deductions stated in the Contract. Because we cannot
be certain how long our Annuitants will live, we charge this percentage fee
based on the mortality tables currently in use. The mortality and expense risk
charge enables us to keep our commitments and to pay you as planned.
ADMINISTRATIVE CHARGE
For administration, we deduct a daily charge at the rate of 0.15% per year
against all Contract Values held in the Separate Account during both the
accumulation and annuity phases of the Contract. There is not necessarily a
relationship between the amount of administrative charge imposed on a given
Contract and the amount of expenses that may be attributable to that Contract;
expenses may be more or less than the charge.
ANNUAL MAINTENANCE FEE
The Annual Maintenance Fee is a flat fee that is deducted from your Contract
Value to reimburse us for expenses relating to the administrative maintenance of
the Contract and the Accounts. The annual $30 charge is deducted on a Contract
Anniversary or when the Contract is fully Surrendered if the Contract Value at
either of those times is less than $100,000. The charge is deducted
proportionately from each Account in which you are invested.
WHEN IS THE ANNUAL MAINTENANCE FEE WAIVED?
We will waive the Annual Maintenance Fee if your Contract Value is $100,000 or
more on your Contract Anniversary or when you fully Surrender your Contract. We
reserve the right to waive the Annual Maintenance Fee under certain other
conditions.
PREMIUM TAXES
We deduct Premium Taxes, if required, by a state or other government agency.
Some states collect the taxes when Premium Payments are made; others collect at
Annuitization. Since we pay Premium Taxes when they are required by applicable
law, we may deduct them from your Contract when we pay the taxes, upon
Surrender, or on the Annuity Commencement Date. The Premium Tax rate varies by
state or municipality. Currently, the maximum rate charged by any state is 5%
and 4% in Puerto Rico.
CHARGES AGAINST THE FUNDS
The Separate Account purchases shares of the Funds at net asset value. The net
asset value of the Fund shares reflects investment advisory fees and
administrative expenses already deducted from the assets of the Funds. These
charges are described in the Fund prospectuses accompanying this prospectus.
DEATH BENEFIT
WHAT IS THE DEATH BENEFIT AND HOW IS IT CALCULATED?
The Death Benefit is the amount we will pay upon the death of the Contract Owner
or Annuitant before the Annuity Commencement Date. The Death Benefit is
calculated when we receive a certified death certificate or other legal document
acceptable to us along with complete instructions from all beneficiaries on how
to pay the death benefit.
Until we receive proof of death and the completed instructions from the
Beneficiary, the Death Benefit will remain invested in the same Accounts,
according to the Contract Owner's last instructions. Therefore, the Death
Benefit amount will fluctuate with the performance of the underlying Funds. When
there is more than one Beneficiary, we will calculate the Accumulation Units for
each Sub-Account for each Beneficiary's portion of the proceeds.
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18 FORTIS BENEFITS INSURANCE COMPANY
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The Death Benefit is the greatest of:
- - The total Premium Payments you have made to us minus adjustments for partial
Surrenders; or
- - The Contract Value of your Contract; or
- - The highest Anniversary Value before the earlier of the decedent's death or
the Contract Owner's age 75.
Adjustments for partial Surrenders to total Premium Payments are calculated by:
- - Taking the amount of the partial Surrender and
- - Dividing that amount by the Contract Value immediately prior to the partial
Surrender and
- - Multiplying that amount by all prior Premium Payments minus prior adjustments
for partial Surrenders.
Adjustments for partial Surrenders to the highest Anniversary Value are
calculated by:
- - Taking the amount of the partial Surrender and
- - Dividing that amount by the Contract Value immediately prior to the partial
Surrender and
- - Multiplying that amount by an amount equal to the Contract Value on the
highest Anniversary Value, plus Premium Payments made since that Anniversary,
minus adjustments for partial Surrenders since that Anniversary.
HOW IS THE DEATH BENEFIT PAID?
The Death Benefit may be taken in one lump sum or under any of the Annuity
Payout Options then being offered by us. On the date we receive proof of death
and complete instructions from the Beneficiary, we will compute the Death
Benefit to be paid out or applied to a selected Annuity Payout Option. When
there is more than one Beneficiary, we will calculate the Death Benefit amount
for each Beneficiary's portion of the proceeds and then pay it out or apply it
to a selected Annuity Payout Option according to each Beneficiary's
instructions. If we receive the complete instructions on a Non-Valuation Day,
computations will take place on the next Valuation Day.
The Beneficiary may elect, under the Annuity Proceeds Settlement Option, "Death
Benefit Remaining with the Company", to leave proceeds from the Death Benefit
with us for up to five years from the date of death if the death occurred before
the Annuity Commencement Date. Once we receive a certified death certificate or
other legal document acceptable to us, the Beneficiary can: (a) make Sub-Account
transfers and (b) take Surrenders.
The Beneficiary of a non-qualified Contract or IRA may also elect the "Single
Life Expectancy Only" option. This option allows the Beneficiary to take the
Death Benefit in a series of payments spread over a period equal to the
Beneficiary's remaining life expectancy. Distributions are calculated based on
IRS life expectancy tables. This option is subject to different limitations and
conditions depending on whether the Contract is non-qualified or an IRA.
REQUIRED DISTRIBUTIONS -- If the Contract Owner dies before the Annuity
Commencement Date, the Death Benefit must be distributed within five years after
death. The Beneficiary can choose any Annuity Payout Option that results in
complete Annuity Payout within five years.
If the Contract Owner dies on or after the Annuity Commencement Date under an
Annuity Payout Option with a Death Benefit, any remaining value must be
distributed at least as rapidly as under the payment method being used as of the
Contract Owner's death.
If the Contract Owner is not an individual (e.g. a trust), then the original
Annuitant will be treated as the Contract Owner in the situations described
above and any change in the original Annuitant will be treated as the death of
the Contract Owner.
WHAT SHOULD THE BENEFICIARY CONSIDER?
ALTERNATIVES TO THE REQUIRED DISTRIBUTIONS -- The selection of an Annuity Payout
Option and the timing of the selection will have an impact on the tax treatment
of the Death Benefit. To receive favorable tax treatment, the Annuity Payout
Option selected: (a) cannot extend beyond the Beneficiary's life or life
expectancy, and (b) must begin within one year of the date of death.
If these conditions are not met, the Death Benefit will be treated as a lump sum
payment for tax purposes. This sum will be taxable in the year in which it is
considered received.
SPOUSAL CONTRACT CONTINUATION -- If the Beneficiary is the Contract Owner's
spouse, the Beneficiary may elect to continue the Contract as the Contract
Owner, receive the death benefit in one lump sum payment or elect an Annuity
Payout Option. If the Contract continues with the spouse as Contract Owner, we
will adjust the Contract Value to the amount that we would have paid as the
Death Benefit payment, had the spouse elected to receive the Death Benefit as a
lump sum payment. Spousal Contract Continuation will only apply one time for
each Contract.
SURRENDERS
WHAT KINDS OF SURRENDERS ARE AVAILABLE?
FULL SURRENDERS BEFORE THE ANNUITY COMMENCEMENT DATE -- When you Surrender your
Contract before the Annuity Commencement Date and while the Annuitant is living,
the Surrender Value of the Contract will be made in a lump sum payment. The
Surrender Value is the Contract Value minus any applicable Contingent Deferred
Sales Charge and Premium Taxes and adjusted for any positive or negative Market
Value Adjustment. The Surrender Value may be more or less than the amount of the
Premium Payments made to a Contract.
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FORTIS BENEFITS INSURANCE COMPANY 19
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PARTIAL SURRENDERS BEFORE THE ANNUITY COMMENCEMENT DATE -- You may request a
partial Surrender of Contract Values at any time before the Annuity Commencement
Date and while the Annuitant is living. There are two restrictions:
- - The partial Surrender amount must be at least equal to $1,000, our current
minimum for partial Surrenders, and
- - The Contract must have a minimum Contract Value of $1,000 after the Surrender.
We reserve the right to close your Contract and pay the full Surrender Value
if the Contract Value is under the minimum after the Surrender.
HOW DO I REQUEST A SURRENDER?
Requests for full Surrenders must be in writing. Requests for partial Surrenders
can be made in writing or by telephone. We will send your money within seven
days of receiving complete instructions. However, we may postpone payment of
Surrenders whenever: (a) the New York Stock Exchange is closed, (b) trading on
the New York Stock Exchange is restricted by the SEC, (c) the SEC permits and
orders postponement, or (d) the SEC determines that an emergency exists to
restrict valuation. We may also defer payment of Surrender proceeds payable out
of the Fixed Accumulation Feature for a period of up to 6 months.
WRITTEN REQUESTS -- To request a full or partial Surrender, complete a Surrender
Form or send us a letter, signed by you, stating:
- - the dollar amount that you want to receive, either before or after we withhold
taxes and deduct for any applicable charges,
- - your tax withholding amount or percentage, if any, and
- - your mailing address.
If there are joint Contract Owners, both must authorize all Surrenders. For a
partial Surrender, specify the Accounts that you want your Surrender to come
from, otherwise, the Surrender will be taken in proportion to the value in each
Account.
TELEPHONE REQUESTS -- To request a partial Surrender by telephone, we must have
received your completed Telephone Redemption Program Enrollment Form. If there
are joint Contract Owners, both must sign this form. By signing the form, you
authorize us to accept telephone instructions for partial Surrenders from either
Contract Owner. Telephone authorization will remain in effect until we receive a
written cancellation notice from you or your joint Contract Owner, we
discontinue the program; or you are no longer the owner of the Contract. There
are some restrictions on telephone surrenders, please call us with any
questions.
We may record telephone calls and use other procedures to verify information and
confirm that instructions are genuine. We will not be liable for losses or
expenses arising from telephone instructions reasonably believed to be genuine.
WE MAY MODIFY THE REQUIREMENTS FOR TELEPHONE REDEMPTIONS AT ANY TIME.
Telephone Surrender instructions received before the close of the New York Stock
Exchange will be processed on that Valuation Day. Otherwise, your request will
be processed on the next Valuation Day.
COMPLETING A POWER OF ATTORNEY FORM FOR ANOTHER PERSON TO ACT ON YOUR BEHALF MAY
PREVENT YOU FROM MAKING SURRENDERS VIA TELEPHONE.
WHAT SHOULD BE CONSIDERED ABOUT TAXES?
There are certain tax consequences associated with Surrenders:
PRIOR TO AGE 59 1/2 -- If you make a Surrender prior to age 59 1/2, there may be
adverse tax consequences including a 10% federal income tax penalty on the
taxable portion of the Surrender payment. Surrendering before age 59 1/2 may
also affect the continuing tax-qualified status of some Contracts.
WE DO NOT MONITOR SURRENDER REQUESTS. TO DETERMINE WHETHER A SURRENDER IS
PERMISSIBLE, WITH OR WITHOUT FEDERAL INCOME TAX PENALTY, PLEASE CONSULT YOUR
PERSONAL TAX ADVISER.
MORE THAN ONE CONTRACT ISSUED IN THE SAME CALENDAR YEAR -- If you own more than
one contract issued by us or our affiliates in the same calendar year, then
these contracts may be treated as one contract for the purpose of determining
the taxation of distributions prior to the Annuity Commencement Date. Please
consult your tax adviser for additional information.
INTERNAL REVENUE CODE SECTION 403(b) ANNUITIES -- As of December 31, 1988, all
section 403(b) annuities have limits on full and partial Surrenders.
Contributions to your Contract made after December 31, 1988 and any increases in
cash value after December 31, 1988 may not be distributed unless you are:
(a) age 59 1/2, (b) no longer employed, (c) deceased, (d) disabled, or
(e) experiencing a financial hardship (cash value increases may not be
distributed for hardships prior to age 59 1/2). Distributions prior to age
59 1/2 due to financial hardship; unemployment or retirement may still be
subject to a penalty tax of 10%.
WE ENCOURAGE YOU TO CONSULT WITH YOUR QUALIFIED TAX ADVISER BEFORE MAKING ANY
SURRENDERS. PLEASE SEE THE "FEDERAL TAX CONSIDERATIONS" SECTION FOR MORE
INFORMATION.
ANNUITY PAYOUTS
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THIS SECTION DESCRIBES WHAT HAPPENS WHEN WE BEGIN TO MAKE REGULAR ANNUITY
PAYOUTS FROM YOUR CONTRACT. YOU, AS THE CONTRACT OWNER, SHOULD ANSWER FIVE
QUESTIONS:
- - When do you want Annuity Payouts to begin?
- - Which Annuity Payout Option do you want to use?
- - How often do you want to receive Annuity Payouts?
- - What level of Assumed Investment Return should you choose?
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20 FORTIS BENEFITS INSURANCE COMPANY
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- - Do you want Annuity Payouts to be fixed or variable or a combination?
Please check with your financial adviser to select the Annuity Payout Option
that best meets your income needs.
1. WHEN DO YOU WANT ANNUITY PAYOUTS TO BEGIN?
You select an Annuity Commencement Date when you purchase your Contract or at
any time before you begin receiving Annuity Payouts. You may change the Annuity
Commencement Date by notifying us within thirty days prior to the date. The
Annuity Commencement Date cannot be deferred beyond the Annuitant's 110th
birthday, subject to the laws and regulations then in effect and our approval.
The date you select may have tax consequences, so please check with a qualified
tax advisor. You cannot begin to take Annuity Payouts until the end of the 2nd
Contract Year. If this Contract is issued to the trustee of a Charitable
Remainder Trust, the Annuity Commencement Date may be deferred to the
Annuitant's 100th birthday.
The Annuity Calculation Date is when the amount of your Annuity Payout is
determined. This occurs within five Valuation Days before your selected Annuity
Commencement Date.
All Annuity Payouts, regardless of frequency, will occur on the same day of the
month as the Annuity Commencement Date. After the initial payout, if an Annuity
Payout date falls on a Non-Valuation Day, the Annuity Payout is computed on the
prior Valuation Day. If the Annuity Payout date does not occur in a given month
due to a leap year or months with only 28 days (i.e. the 31st), the Annuity
Payout will be computed on the last Valuation Day of the month.
2. WHICH ANNUITY PAYOUT OPTION DO YOU WANT TO USE?
Your Contract contains the Annuity Payout Options described below. The Annuity
Proceeds Settlement Option is an option that can be elected by the Beneficiary
and is described in the "Death Benefit" section. We may at times offer other
Annuity Payout Options. Once we begin to make Annuity Payouts, the Annuity
Payout Option cannot be changed.
LIFE ANNUITY
We make Annuity Payouts as long as the Annuitant is living. When the Annuitant
dies, we stop making Annuity Payouts. A Payee would receive only one Annuity
Payout if the Annuitant dies after the first payout, two Annuity Payouts if the
Annuitant dies after the second payout, and so forth.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS
We will make Annuity Payouts as long as the Annuitant is living, but we at least
guarantee to make Annuity Payouts for a time period you select either 10 or 20
years. If the Annuitant dies before the guaranteed number of years have passed,
then the Beneficiary may elect to continue Annuity Payouts for the remainder of
the guaranteed number of years.
JOINT AND FULL SURVIVOR LIFE ANNUITY
We will make Annuity Payouts as long as the Annuitant and Joint Annuitant are
living. When one Annuitant dies, we continue to make Annuity Payouts to the
other Annuitant until that second Annuitant dies.
JOINT AND 1/2 CONTINGENT SURVIVOR LIFE ANNUITY
We make Payouts as long as both the Annuitant and Joint Annuitant are alive. If
the Annuitant dies first, we will make Payouts equal to 1/2 the original payout.
If the Joint Annuitant dies first, we will continue to make Payouts at the full
amount.
We may offer other Annuity Payout Options available.
IMPORTANT INFORMATION:
- - YOU CANNOT SURRENDER YOUR CONTRACT ONCE ANNUITY PAYOUTS BEGIN
- - For Qualified Contracts, if you elect an Annuity Payout Option with a Period
Certain, the guaranteed number of years must be less than the life expectancy
of the Annuitant at the time the Annuity Payouts begin. We compute life
expectancy using the IRS mortality tables.
- - AUTOMATIC ANNUITY PAYOUTS -- If you do not elect an Annuity Payout Option,
Annuity Payouts will automatically begin on the Annuity Commencement Date
under the Life Annuity with Payments for a Period Certain Annuity Payout
Option with a ten-year period certain. Automatic Annuity Payouts will be fixed
dollar amount Annuity Payouts, variable dollar amount Annuity Payouts, or a
combination of fixed or variable dollar amount Annuity Payouts, depending on
the investment allocation of your Account in effect on the Annuity
Commencement Date.
3. HOW OFTEN DO YOU WANT THE PAYEE TO RECEIVE ANNUITY PAYOUTS?
In addition to selecting an Annuity Commencement Date and an Annuity Payout
Option, you must also decide how often you want the Payee to receive Annuity
Payouts. You may choose to receive Annuity Payouts:
- - monthly,
- - quarterly,
- - semiannually, or
- - annually.
Once you select a frequency, it cannot be changed. If you do not make a
selection, the Payee will receive monthly Annuity Payouts. You must select a
frequency that results in an Annuity Payout of at least $50. If the amount falls
below $50, we have the right to change the frequency to bring the Annuity Payout
up to at least $50 ($20 in Texas).
WHAT IS THE ASSUMED INVESTMENT RETURN?
The Assumed Investment Return ("AIR") is the investment return before we start
to make Annuity Payouts. It is a critical
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FORTIS BENEFITS INSURANCE COMPANY 21
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assumption for calculating variable dollar amount Annuity Payouts. The first
Annuity Payout will be based upon the AIR. The remaining Annuity Payouts will
fluctuate based on the performance of the underlying Funds. The AIR for this
Contract is 3%.
For example, if the Sub-Accounts earned exactly the same as the AIR, then the
second monthly Annuity Payout Option is the same as the first. If the
Sub-Accounts earned more than the AIR, then the second monthly Annuity Payout
Option is higher than the first. If the Sub-Accounts earned less than the AIR,
then the second monthly Annuity Payout Option is lower than the first.
Level variable dollar Annuity Payouts would be produced if the investment
returns remained constant and equal to the AIR. In fact, Annuity Payouts will
vary up or down as the investment rate varies up or down from the AIR.
DO YOU WANT FIXED DOLLAR AMOUNT OR VARIABLE DOLLAR AMOUNT ANNUITY PAYOUTS OR A
COMBINATION OF BOTH?
You may choose an Annuity Payout Option with fixed dollar amounts, variable
dollar amounts or a combination depending on your income needs.
FIXED DOLLAR AMOUNT ANNUITY PAYOUTS -- Once a fixed dollar amount Annuity Payout
begins, you cannot change your selection to receive variable dollar amount
Annuity Payout. You will receive equal fixed dollar amount Annuity Payouts
throughout the Annuity Payout period. Fixed dollar amount Annuity Payout amounts
are determined by multiplying the Contract Value, minus any applicable Premium
Taxes, by an annuity rate. The annuity rate is set by us and is not less than
the rate specified in the fixed dollar amount Annuity Payout Option tables in
your Contract.
VARIABLE DOLLAR AMOUNT ANNUITY PAYOUTS -- A variable dollar amount Annuity
Payout is based on the investment performance of the Sub-Accounts. The variable
dollar amount Annuity Payouts may fluctuate with the performance of the
underlying Funds. To begin making variable dollar amount Annuity Payouts, we
convert the first Annuity Payout amount to a set number of Annuity Units and
then price those units to determine the Annuity Payout amount. The number of
Annuity Units that determines the Annuity Payout amount remains fixed unless you
transfer units between Sub-Accounts.
The dollar amount of the first variable Annuity Payout depends on:
- - the Annuity Payout Option chosen,
- - the Annuitant's attained age and gender (if applicable), and,
- - the applicable annuity purchase rates based on the 1983a Individual Annuity
Mortality table
- - the Assumed Investment Return
The total amount of the first variable dollar amount Annuity Payout is
determined by dividing the Contract Value minus any applicable Premium Taxes, by
$1,000 and multiplying the result by the payment factor defined in the Contract
for the selected Annuity Payout Option.
The dollar amount of each subsequent variable dollar amount Annuity Payout is
equal to the total of:
Annuity Units for each Sub-Account multiplied by Annuity Unit Value for each
Sub-Account.
The Annuity Unit Value of each Sub-Account for any Valuation Period is equal to
the Accumulation Unit Value Net Investment Factor for the current Valuation
Period multiplied by the Annuity Unit factor, multiplied by the Annuity Unit
Value for the preceding Valuation Period.
COMBINATION ANNUITY PAYOUTS -- You may choose to receive a combination of fixed
dollar amount and variable dollar amount annuity payouts as long as they total
100% of your Annuity Payout. For example, you may choose to receive 40% fixed
dollar amount and 60% variable dollar amount to meet your income needs.
TRANSFER OF ANNUITY UNITS -- After the Annuity Calculation Date, you may
transfer dollar amounts of Annuity Units from one Sub-Account to another. On the
day you make a transfer, the dollar amounts are equal for both Sub-Accounts and
the number of Annuity Units will be different. We will transfer the dollar
amount of your Annuity Units the day we receive your written request if received
before the close of the New York Stock Exchange. Otherwise, the transfer will be
made on the next Valuation Day.
OTHER PROGRAMS AVAILABLE
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INVESTEASE-REGISTERED TRADEMARK- -- InvestEase, which was formerly called "PAC,"
is an electronic transfer program that allows you to have money automatically
transferred from your checking or savings account, and invested in your
Contract. It is available for Premium Payments made after your initial Premium
Payment. The minimum amount for each transfer is $50. You can elect to have
transfers occur either monthly or quarterly, and they can be made into any
Account available in your Contract.
AUTOMATIC INCOME PROGRAM -- The Automatic Income Program allows you to Surrender
a percentage of your total Premium Payments each Contract Year. You can
Surrender from the Accounts you select systematically on a monthly, quarterly,
semiannual, or annual basis.
ASSET ALLOCATION PROGRAM -- Asset Allocation is a program that allows you to
choose an allocation for your Sub-Accounts to help you reach your investment
goals. The Contract offers model allocations with pre-selected Sub-Accounts and
percentages that have been established for each type of investor ranging from
conservative to aggressive. Over time, Sub-Account performance may cause your
Contract's allocation percentages to change, but under the Asset Allocation
Program, your Sub-Account allocations are rebalanced to the percentages in the
current model you have chosen. You can transfer freely between
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22 FORTIS BENEFITS INSURANCE COMPANY
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allocation models up to twelve times per year. You can also allocate a portion
of your investment to Sub-Accounts that may not be part of the model. You can
only participate in one asset allocation model at a time.
ASSET REBALANCING -- Asset Rebalancing is another type of asset allocation
program in which you customize your Sub-Accounts to meet your investment needs.
You select the Sub-Accounts and the percentages you want allocated to each Sub-
Account. Based on the frequency you select, your model will automatically
rebalance to the original percentages chosen. You can transfer freely between
models up to twelve times per year. You can also allocate a portion of your
investment to Sub-Accounts that are not part of the model. You can only
participate in one asset rebalancing model at a time.
OTHER INFORMATION
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ASSIGNMENT -- A Non-Qualified Contract may be assigned. We must be properly
notified in writing of an assignment. Any Annuity Payouts or Surrenders
requested or scheduled before we record an assignment will be made according to
the instructions we have on record. We are not responsible for determining the
validity of an assignment. Assigning a Non-Qualified Contract may require the
payment of income taxes and certain penalty taxes. Please consult a qualified
tax adviser before assigning your Contract.
A Qualified Contract may not be transferred or otherwise assigned, unless
allowed by applicable law.
CONTRACT MODIFICATION -- The Annuitant may not be changed. However, if the
Annuitant is still living, the Contingent Annuitant may be changed at any time
prior to the Annuity Commencement Date by sending us written notice.
We may modify the Contract, but no modification will affect the amount or term
of any Contract unless a modification is required to conform the Contract to
applicable federal or state law. No modification will effect the method by which
Contract Values are determined.
HOW CONTRACTS ARE SOLD -- Woodbury Financial Services ("WFS")serves as Principal
Underwriter for the securities issued with respect to the Separate Account. WFS
is registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. It is an affiliate of ours. WFS is
ultimately controlled by The Hartford. The principal business address of WFS is
500 Bielenberg Drive, Woodbury, MN 55125. The securities will be sold by
individuals who represent us as insurance agents and who are registered
representatives of broker-dealers that have entered into distribution agreements
with WFS.
Commissions will be paid by Fortis and will not be more than 7% of Premium
Payments. From time to time, Fortis may pay or permit other promotional
incentives, in cash or credit or other compensation.
Broker-dealers or financial institutions are compensated according to a schedule
set forth by WFS and any applicable rules or regulations for variable insurance
compensation. Compensation is generally based on Premium Payments made by
policyholders or Contract Owners. This compensation is usually paid from the
sales charges described in this prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. WFS, its affiliates or Fortis may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance products.
These payments, which may be different for different broker-dealers or financial
institutions, will be made by WFS, its affiliates or Fortis out of their own
assets and will not affect the amounts paid by the policyholders or Contract
Owners to purchase, hold or Surrender variable insurance products.
LEGAL MATTERS
There are no material legal proceedings pending to which the Separate Account is
a party.
Counsel with respect to federal laws and regulations applicable to the issue and
sale of the Contracts and with respect to Minnesota law is Douglas R. Lowe,
corporate counsel, Fortis Benefits Insurance Company, 500 Bielenberg Drive,
Woodbury, MN 55125.
MORE INFORMATION
You may call your Registered Representative if you have any questions or write
or call us at the address below:
Hartford Life and Annuity Insurance Company
Attn: Investment Product Services
P.O. Box 5085
Hartford, Connecticut 06102-5085.
Telephone: 1-800-862-6668 (Contract Owners)
1-800-862-7155 (Registered Representatives)
FEDERAL TAX CONSIDERATIONS
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What are some of the federal tax consequences which affect these Contracts?
A. GENERAL
Since federal tax law is complex, the tax consequences of purchasing this
Contract will vary depending on your situation.
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FORTIS BENEFITS INSURANCE COMPANY 23
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You may need tax or legal advice to help you determine whether purchasing this
Contract is right for you.
Our general discussion of the tax treatment of this contract is based on our
understanding of federal income tax laws as they are currently interpreted. A
detailed description of all federal income tax consequences regarding the
purchase of this contract cannot be made in the prospectus. We also do not
discuss state, municipal or other tax laws that may apply to this contract. For
detailed information, you should consult with a qualified tax adviser familiar
with your situation.
B. TAXATION OF FORTIS AND THE SEPARATE ACCOUNT
The Separate Account is taxed as part of Fortis which is taxed as a life
insurance company under Subchapter L of Chapter 1 of the Internal Revenue Code
of 1986, as amended (the "Code"). Accordingly, the Separate Account will not be
taxed as a "regulated investment company" under Subchapter M of Chapter 1 of the
Code. Investment income and any realized capital gains on the assets of the
Separate Account are reinvested and are taken into account in determining the
value of the Accumulation and Annuity Units (See "Value of Accumulation Units").
As a result, such investment income and realized capital gains are automatically
applied to increase reserves under the Contract.
No taxes are due on interest, dividends and short-term or long-term capital
gains earned by the Separate Account with respect to Qualified or Non-Qualified
Contracts.
C. TAXATION OF ANNUITIES -- GENERAL PROVISIONS AFFECTING PURCHASERS OTHER THAN
QUALIFIED RETIREMENT PLANS
Section 72 of the Code governs the taxation of annuities in general.
1. NON-NATURAL PERSONS, CORPORATIONS, ETC.
Code Section 72 contains provisions for contract owners which are not natural
persons. Non-natural persons include corporations, trusts, limited liability
companies, partnerships and other types of legal entities. The tax rules for
contracts owned by non-natural persons are different from the rules for
contracts owned by individuals. For example, the annual net increase in the
value of the contract is currently includable in the gross income of a
non-natural person, unless the non-natural person holds the contract as an agent
for a natural person. There are additional exceptions from current inclusion
for:
- - certain annuities held by structured settlement companies,
- - certain annuities held by an employer with respect to a terminated qualified
retirement plan and
- - certain immediate annuities.
A non-natural person which is a tax-exempt entity for federal tax purposes will
not be subject to income tax as a result of this provision.
If the contract owner is a non-natural person, the primary annuitant is treated
as the contract owner in applying mandatory distribution rules. These
rules require that certain distributions be made upon the death of the contract
owner. A change in the primary annuitant is also treated as the death of the
contract owner.
2. OTHER CONTRACT OWNERS (NATURAL PERSONS).
A Contract Owner is not taxed on increases in the value of the Contract until an
amount is received or deemed received, e.g., in the form of a lump sum payment
(full or partial value of a Contract) or as Annuity payments under the
settlement option elected.
The provisions of Section 72 of the Code concerning distributions are summarized
briefly below. Also summarized are special rules affecting distributions from
Contracts obtained in a tax-free exchange for other annuity contracts or life
insurance contracts which were purchased prior to August 14, 1982.
a. DISTRIBUTIONS PRIOR TO THE ANNUITY COMMENCEMENT DATE.
i. Total premium payments less amounts received which were not includible in
gross income equal the "investment in the contract" under Section 72 of the
Code.
ii. To the extent that the value of the Contract (ignoring any surrender
charges except on a full surrender) exceeds the "investment in the
contract," such excess constitutes the "income on the contract."
iii Any amount received or deemed received prior to the Annuity Commencement
Date (e.g., upon a partial surrender) is deemed to come first from any such
"income on the contract" and then from "investment in the contract," and
for these purposes such "income on the contract" shall be computed by
reference to any aggregation rule in subparagraph 2.c. below. As a result,
any such amount received or deemed received (1) shall be includible in
gross income to the extent that such amount does not exceed any such
"income on the contract," and (2) shall not be includible in gross income
to the extent that such amount does exceed any such "income on the
contract." If at the time that any amount is received or deemed received
there is no "income on the contract" (e.g., because the gross value of the
Contract does not exceed the "investment in the contract" and no
aggregation rule applies), then such amount received or deemed received
will not be includible in gross income, and will simply reduce the
"investment in the contract."
iv The receipt of any amount as a loan under the Contract or the assignment or
pledge of any portion of the value of the Contract shall be treated as an
amount received for purposes of this subparagraph a. and the next
subparagraph b.
v. In general, the transfer of the Contract, without full and adequate
consideration, will be treated as an amount received for purposes of this
subparagraph a. and the next subparagraph b. This transfer rule does not
apply, however, to certain transfers of property between spouses or incident
to divorce.
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24 FORTIS BENEFITS INSURANCE COMPANY
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b. DISTRIBUTIONS AFTER ANNUITY COMMENCEMENT DATE.
Annuity payments made periodically after the Annuity Commencement Date are
includible in gross income to the extent the payments exceed the amount
determined by the application of the ratio of the "investment in the contract"
to the total amount of the payments to be made after the Annuity Commencement
Date (the "exclusion ratio").
i. When the total of amounts excluded from income by application of the
exclusion ratio is equal to the investment in the contract as of the
Annuity Commencement Date, any additional payments (including surrenders)
will be entirely includible in gross income.
ii. If the annuity payments cease by reason of the death of the Annuitant and,
as of the date of death, the amount of annuity payments excluded from gross
income by the exclusion ratio does not exceed the investment in the
contract as of the Annuity Commencement Date, then the remaining portion of
unrecovered investment shall be allowed as a deduction for the last taxable
year of the Annuitant.
iii. Generally, nonperiodic amounts received or deemed received after the
Annuity Commencement Date are not entitled to any exclusion ratio and
shall be fully includible in gross income. However, upon a full surrender
after such date, only the excess of the amount received (after any
surrender charge) over the remaining "investment in the contract" shall be
includible in gross income (except to the extent that the aggregation
rule referred to in the next subparagraph c. may apply).
c. AGGREGATION OF TWO OR MORE ANNUITY CONTRACTS.
Contracts issued after October 21, 1988 by the same insurer (or affiliated
insurer) to the same Contract Owner within the same calendar year (other than
certain contracts held in connection with a tax-qualified retirement
arrangement) will be treated as one annuity Contract for the purpose of
determining the taxation of distributions prior to the Annuity Commencement
Date. An annuity contract received in a tax-free exchange for another annuity
contract or life insurance contract may be treated as a new Contract for this
purpose. Fortis believes that for any annuity subject to such aggregation, the
values under the Contracts and the investment in the contracts will be added
together to determine the taxation under subparagraph 2.a., above, of amounts
received or deemed received prior to the Annuity Commencement Date. Withdrawals
will first be treated as withdrawals of income until all of the income from all
such Contracts is withdrawn. As of the date of this prospectus, there are no
regulations interpreting this provision.
d. 10% PENALTY TAX -- APPLICABLE TO CERTAIN WITHDRAWALS AND ANNUITY
PAYMENTS.
If any amount is received or deemed received on the Contract (before or after
the Annuity Commencement Date), the Code applies a penalty tax equal to ten
percent of the portion of the amount includible in gross income, unless an
exception applies.
ii. The 10% penalty tax will not apply to the following distributions
(exceptions vary based upon the precise plan involved):
1. Distributions made on or after the date the recipient has attained the
age of 59 1/2.
2. Distributions made on or after the death of the holder or where the
holder is not an individual, the death of the primary annuitant.
3. Distributions attributable to a recipient's becoming disabled.
4. A distribution that is part of a scheduled series of substantially equal
periodic payments (not less frequently than annually) for the life (or
life expectancy) of the recipient (or the joint lives or life
expectancies of the recipient and the recipient's designated
Beneficiary).
5. Distributions made under certain annuities issued in connection with
structured settlement agreements.
6. Distributions of amounts which are allocable to the "investment in the
contract" prior to August 14, 1982 (see next subparagraph e.).
e. SPECIAL PROVISIONS AFFECTING CONTRACTS OBTAINED THROUGH A TAX-FREE
EXCHANGE OF OTHER ANNUITY OR LIFE INSURANCE CONTRACTS PURCHASED PRIOR TO
AUGUST 14, 1982.
If the Contract was obtained by a tax-free exchange of a life insurance or
annuity Contract purchased prior to August 14, 1982, then any amount received or
deemed received prior to the Annuity Commencement Date shall be deemed to come
(1) first from the amount of the "investment in the contract" prior to
August 14, 1982 ("pre-8/14/82 investment") carried over from the prior Contract,
(2) then from the portion of the "income on the contract" (carried over to, as
well as accumulating in, the successor Contract) that is attributable to such
pre-8/14/82 investment, (3) then from the remaining "income on the contract" and
(4) last from the remaining "investment in the contract." As a result, to the
extent that such amount received or deemed received does not exceed such
pre-8/14/82 investment, such amount is not includible in gross income. In
addition, to the extent that such amount received or deemed received does not
exceed the sum of (a) such pre-8/14/82 investment and (b) the "income on the
contract" attributable thereto, such amount is not subject to the 10% penalty
tax. In all other respects, amounts received or deemed received from such post-
exchange Contracts are generally subject to the rules described in this
subparagraph e.
f. REQUIRED DISTRIBUTIONS.
i. Death of Contract Owner or Primary Annuitant
Subject to the alternative election or spouse beneficiary provisions in ii
or iii below:
If any Contract Owner dies on or after the Annuity Commencement Date and
before the entire interest
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FORTIS BENEFITS INSURANCE COMPANY 25
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in the Contract has been distributed, the remaining portion of such
interest shall be distributed at least as rapidly as under the method of
distribution being used as of the date of such death;
If any Contract Owner dies before the Annuity Commencement Date, the
entire interest in the Contract will be distributed within 5 years after
such death; and
If the Contract Owner is not an individual, then for purposes of 1. or
2. above, the primary annuitant under the Contract shall be treated as
the Contract Owner, and any change in the primary annuitant shall be
treated as the death of the Contract Owner. The primary annuitant is the
individual, the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the Contract.
ii. Alternative Election to Satisfy Distribution Requirements
If any portion of the interest of a Contract Owner described in i. above is
payable to or for the benefit of a designated beneficiary, such beneficiary
may elect to have the portion distributed over a period that does not extend
beyond the life or life expectancy of the beneficiary. Distributions must be
made and payments must begin within a year of the Contract Owner's death.
iii. Spouse Beneficiary
If any portion of the interest of a Contract Owner is payable to or for the
benefit of his or her spouse, and the Annuitant or Contingent Annuitant is
living, such spouse shall be treated as the Contract Owner of such portion
for purposes of section i. above. This spousal contract continuation shall
apply only once for this contract.
3. DIVERSIFICATION REQUIREMENTS.
The Code requires that investments supporting your contract be adequately
diversified. Code Section 817 provides that a variable annuity contract will not
be treated as an annuity contract for any period during which the investments
made by the separate account or underlying fund are not adequately diversified.
If a contract is not treated as an annuity contract, the contract owner will be
subject to income tax on annual increases in cash value.
The Treasury Department's diversification regulations require, among other
things, that:
- - no more than 55% of the value of the total assets of the segregated asset
account underlying a variable contract is represented by any one investment,
- - no more than 70% is represented by any two investments,
- - no more than 80% is represented by any three investments, and
- - no more than 90% is represented by any four investments.
In determining whether the diversification standards are met, all securities of
the same issuer, all interests in the same real property project, and all
interests in the same commodity are each treated as a single investment. In the
case of government securities, each government agency or instrumentality is
treated as a separate issuer.
A separate account must be in compliance with the diversification standards on
the last day of each calendar quarter or within 30 days after the quarter ends.
If an insurance company inadvertently fails to meet the diversification
requirements, the company may still comply within a reasonable period and avoid
the taxation of contract income on an ongoing basis. However, either the company
or the contract owner must agree to pay the tax due for the period during which
the diversification requirements were not met.
We monitor the diversification of investments in the separate accounts and test
for diversification as required by the Code. We intend to administer all
contracts subject to the diversification requirements in a manner that will
maintain adequate diversification.
4. OWNERSHIP OF THE ASSETS IN THE SEPARATE ACCOUNT.
In order for a variable annuity contract to qualify for tax deferral, assets in
the separate accounts supporting the contract must be considered to be owned by
the insurance company and not by the contract owner. It is unclear under what
circumstances an investor is considered to have enough control over the assets
in the separate account to be considered the owner of the assets for tax
purposes.
The IRS has issued several rulings discussing investor control. These rulings
say that certain incidents of ownership by the contract owner, such as the
ability to select and control investments in a separate account, will cause the
contract owner to be treated as the owner of the assets for tax purposes.
In its explanation of the diversification regulations, the Treasury Department
recognized that the temporary regulations "do not provide guidance concerning
the circumstances in which investor control of the investments of a segregated
asset account may cause the investor, rather than the insurance company, to be
treated as the owner of the assets in the account." The explanation further
indicates that "the temporary regulations provide that in appropriate cases a
segregated asset account may include multiple sub-accounts, but do not specify
the extent to which policyholders may direct their investments to particular
sub-accounts without being treated as the owners of the underlying assets.
Guidance on this and other issues will be provided in regulations or revenue
rulings under Section 817(d), relating to the definition of variable contract."
The final regulations issued under Section 817 did not provide guidance
regarding investor control, and as of the date of this prospectus, guidance has
yet to be issued. We do not know if additional guidance will be issued. If
guidance is issued, we do not know if it will have a retroactive effect.
Due to the lack of specific guidance on investor control, there is some
uncertainty about when a contract owner is considered the owner of the assets
for tax purposes. We reserve the right to
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26 FORTIS BENEFITS INSURANCE COMPANY
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modify the contract, as necessary, to prevent you from being considered the
owner of assets in the separate account.
D. FEDERAL INCOME TAX WITHHOLDING
Any portion of a distribution that is current taxable income to the Contract
Owner will be subject to federal income tax withholding and reporting under the
Code. Generally, however, a Contract Owner may elect not to have income taxes
withheld or to have income taxes withheld at a different rate by filing a
completed election form with us. Election forms will be provided at the time
distributions are requested.
E. GENERAL PROVISIONS AFFECTING QUALIFIED RETIREMENT PLANS
The Contract may be used for a number of qualified retirement plans. If the
Contract is being purchased with respect to some form of qualified retirement
plan, please refer to Information Regarding Tax-Qualified Retirement Plans for
information relative to the types of plans for which it may be used and the
general explanation of the tax features of such plans.
F. ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal income
tax consequences to annuity purchasers that are U.S. citizens or residents.
Purchasers that are not U.S. citizens or residents will generally be subject to
U.S. federal income tax and withholding on annuity distributions at a 30% rate,
unless a lower treaty rate applies and any required tax forms are submitted to
us. In addition, purchasers may be subject to state premium tax, other state
and/or municipal taxes, and taxes that may be imposed by the purchaser's country
of citizenship or residence. Prospective purchasers are advised to consult with
a qualified tax adviser regarding U.S., state, and foreign taxation with respect
to an annuity purchase.
G. GENERATION SKIPPING TRANSFERS
Under certain circumstances, the Code may impose a "generation skipping transfer
tax" when all or part of an Annuity Contract is transferred to, or a death
benefit is paid to, an individual two or more generations younger than the
owner. Regulations issued under the Code may require Fortis to deduct the tax
from your Contract, or from any applicable payment, and pay it directly to the
IRS.
H. ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001
The Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA")
repealed the Federal estate tax and replaced it with a carryover basis income
tax regime effective for estates of decedents dying after December 31, 2009.
EGTRRA also repealed the generation skipping transfer tax, but not the gift tax,
for transfers made after December 31, 2009. EGTRRA contains a sunset provision,
which essentially returns the Federal estate, gift and generation skipping
transfer taxes to their pre-EGTRRA form, beginning in 2011. Congress may or may
not enact permanent repeal between now and then.
During the period prior to 2010, EGTRRA provides for periodic decreases in the
maximum estate tax rate coupled with periodic increases in the unified credit
exemption amount. For 2002, the maximum estate tax rate is 50% and the unified
credit exemption amount is $1,000,000.
The complexity of the new tax law, along with uncertainty as to how it might be
modified in coming years, underscores the importance of seeking guidance from a
qualified advisor to help ensure that your estate plan adequately addresses your
needs and that of your beneficiaries under all possible scenarios.
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FORTIS BENEFITS INSURANCE COMPANY 27
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INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS
This summary does not attempt to provide more than general information about the
federal income tax rules associated with use of a Contract by a tax-qualified
retirement plan. Because of the complexity of the federal tax rules, owners,
participants and beneficiaries are encouraged to consult their own tax advisors
as to specific tax consequences.
The federal tax rules applicable to owners of Contracts under tax-qualified
retirement plans vary according to the type of plan as well as the terms and
conditions of the plan itself. Contract owners, plan participants and
beneficiaries are cautioned that the rights and benefits of any person may be
controlled by the terms and conditions of the tax-qualified retirement plan
itself, regardless of the terms and conditions of a Contract. We are not bound
by the terms and conditions of such plans to the extent such terms conflict with
a Contract, unless we specifically consent to be bound.
Some tax-qualified retirement plans are subject to distribution and other
requirements that are not incorporated into our administrative procedures.
Contract owners, participants and beneficiaries are responsible for determining
that contributions, distributions and other transactions comply with applicable
law. Tax penalties may apply to transactions with respect to tax-qualified
retirement plans if applicable federal income tax rules and restrictions are not
carefully observed.
We do not currently offer the Contracts in connection with all of the types of
tax-qualified retirement plans discussed below and may not offer the Contracts
for all types of tax-qualified retirement plans in the future.
1. TAX-QUALIFIED PENSION OR PROFIT-SHARING PLANS -- Eligible employers can
establish certain tax-qualified pension and profit-sharing plans under section
401 of the Code. Rules under section 401(k) of the Code govern certain "cash or
deferred arrangements" under such plans. Rules under section 408(k) govern
"simplified employee pensions". Tax-qualified pension and profit-sharing plans
are subject to limitations on the amount that may be contributed, the persons
who may be eligible to participate and the time when distributions must
commence. Employers intending to use the Contracts in connection with
tax-qualified pension or profit-sharing plans should seek competent tax and
other legal advice.
2. TAX SHELTERED ANNUITIES UNDER SECTION 403(b) -- Public schools and certain
types of charitable, educational and scientific organizations, as specified in
section 501(c)(3) of the Code, can purchase tax-sheltered annuity contracts for
their employees. Tax-deferred contributions can be made to tax-sheltered annuity
contracts under section 403(b) of the Code, subject to certain limitations. In
general, contributions may not exceed the lesser of (1) 100% of the
participant's compensation, and (2) $40,000 (adjusted for increases in
cost-of-living). The maximum elective deferral amount is equal to $11,000 for
2002. The contribution limitation may be increased to allow certain "catch-up"
contributions for individuals who have attained age 50.
Tax-sheltered annuity programs under section 403(b) are subject to a PROHIBITION
AGAINST DISTRIBUTIONS FROM THE CONTRACT ATTRIBUTABLE TO CONTRIBUTIONS MADE
PURSUANT TO A SALARY REDUCTION AGREEMENT, unless such distribution is made:
- - after the participating employee attains age 59 1/2;
- - upon severance from employment;
- - upon death or disability; or
- - in the case of hardship (and in the case of hardship, any income attributable
to such contributions may not be distributed).
Generally, the above restrictions do not apply to distributions attributable to
cash values or other amounts held under a section 403(b) contract as of
December 31, 1988.
3. DEFERRED COMPENSATION PLANS UNDER SECTION 457 -- A governmental employer or a
tax-exempt employer other than a governmental unit can establish a Deferred
Compensation Plan under section 457 of the Code. For these purposes, a
"governmental employer" is a State, a political subdivision of a State, or an
agency or an instrumentality of a State or political subdivision of a State.
Employees and independent contractors performing services for a governmental or
tax-exempt employer can elect to have contributions made to a Deferred
Compensation Plan of their employer in accordance with the employer's plan and
section 457 of the Code.
Deferred Compensation Plans that meet the requirements of section 457(b) of the
Code are called "eligible" Deferred Compensation Plans. Section 457(b) limits
the amount of contributions that can be made to an eligible Deferred
Compensation Plan on behalf of a participant. Generally, the limitation on
contributions is the lesser of (1) 100% of a participant's includible
compensation or (2) the applicable dollar amount equal to $11,000 for 2002. The
plan may provide for additional "catch-up" contributions during the three
taxable years ending before the year in which the participant attains normal
retirement age. In addition, the contribution limitation may be increased to
allow certain "catch-up" contributions for individuals who have attained age 50.
All of the assets and income of an eligible Deferred Compensation Plan for a
governmental employer must be held in trust for the exclusive benefit of
participants and their beneficiaries. For this purpose, custodial accounts and
certain annuity contracts are treated as trusts. The requirement of a trust does
not apply to amounts under a Deferred Compensation Plan of a tax-exempt
(non-governmental) employer. In addition, the requirement of a trust does not
apply to amounts under a Deferred Compensation Plan of a governmental employer
if the Deferred Compensation Plan is not an eligible plan within the meaning of
section 457(b) of the Code. In the absence of such a trust, amounts under the
plan will be subject to the claims of the employer's general creditors.
<Page>
28 FORTIS BENEFITS INSURANCE COMPANY
- --------------------------------------------------------------------------------
In general, distributions from an eligible Deferred Compensation Plan are
prohibited under section 457 of the Code unless made after the participating
employee:
- - attains age 70 1/2,
- - has a severance from employment,
- - dies, or
- - suffers an unforeseeable financial emergency as defined in the Code.
4. INDIVIDUAL RETIREMENT ANNUITIES ("IRAS") UNDER SECTION 408
TRADITIONAL IRAS -- Eligible individuals can establish individual retirement
programs under section 408 of the Code through the purchase of an IRA.
Section 408 imposes limits with respect to IRAs, including limits on the amount
that may be contributed to an IRA, the amount of such contributions that may be
deducted from taxable income, the persons who may be eligible to contribute to
an IRA, and the time when distributions commence from an IRA.
SIMPLE IRAS -- Eligible employees may establish SIMPLE IRAs in connection with a
SIMPLE IRA plan of an employer under section 408(p) of the Code. Special
rollover rules apply to SIMPLE IRAs. Amounts can be rolled over from one SIMPLE
IRA to another SIMPLE IRA. However, amounts can be rolled over from a SIMPLE IRA
to a Traditional IRA only after two years have expired since the employee first
commenced participation in the employer's SIMPLE IRA plan. Amounts cannot be
rolled over to a SIMPLE IRA from a qualified plan or a Traditional IRA. Hartford
is a non-designated financial institution for purposes of the SIMPLE IRA rules.
ROTH IRAS -- Eligible individuals may establish Roth IRAs under section 408A of
the Code. Contributions to a Roth IRA are not deductible. Subject to special
limitations, a Traditional IRA may be converted into a Roth IRA or a
distribution from a Traditional IRA may be rolled over to a Roth IRA. However, a
conversion or a rollover from a Traditional IRA to a Roth IRA is not excludable
from gross income. If certain conditions are met, qualified distributions from a
Roth IRA are tax-free.
5. FEDERAL TAX PENALTIES AND WITHHOLDING -- Distributions from tax-qualified
retirement plans are generally taxed as ordinary income under section 72 of the
Code. Under these rules, a portion of each distribution may be excludable from
income. The excludable amount is the portion of the distribution that bears the
same ratio as the after-tax contributions bear to the expected return.
(a) PENALTY TAX ON EARLY DISTRIBUTIONS Section 72(t) of the Code imposes an
additional penalty tax equal to 10% of the taxable portion of a distribution
from certain tax-qualified retirement plans. However, the 10% penalty tax
does not apply to a distributions that is:
- - Made on or after the date on which the employee reaches age 59 1/2;
- - Made to a beneficiary (or to the estate of the employee) on or after the death
of the employee;
- - Attributable to the employee's becoming disabled (as defined in the Code);
- - Part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the employee or the
joint lives (or joint life expectancies) of the employee and his or her
designated beneficiary;
- - Except in the case of an IRA, made to an employee after separation from
service after reaching age 55; or
- - Not greater than the amount allowable as a deduction to the employee for
eligible medical expenses during the taxable year.
IN ADDITION, THE 10% PENALTY TAX DOES NOT APPLY TO A DISTRIBUTION FROM AN IRA
THAT IS:
- - Made after separation from employment to an unemployed IRA owner for health
insurance premiums, if certain conditions are met;
- - Not in excess of the amount of certain qualifying higher education expenses,
as defined by section 72(t)(7) of the Code; or
- - A qualified first-time homebuyer distribution meeting the requirements
specified at section 72(t)(8) of the Code.
If you are a participant in a SIMPLE IRA plan, you should be aware that the 10%
penalty tax is increased to 25% with respect to non-exempt early distributions
made from your SIMPLE IRA during the first two years following the date you
first commenced participation in any SIMPLE IRA plan of your employer.
(b) MINIMUM DISTRIBUTION PENALTY TAX If the amount distributed is less than the
minimum required distribution for the year, the Participant is subject to a
50% penalty tax on the amount that was not properly distributed.
An individual's interest in a tax-qualified retirement plan generally must be
distributed, or begin to be distributed, not later than the Required Beginning
Date. Generally, the Required Beginning Date is April 1 of the calendar year
following the later of:
- - the calendar year in which the individual attains age 70 1/2; or
- - the calendar year in which the individual retires from service with the
employer sponsoring the plan.
The Required Beginning Date for an individual who is a five (5) percent owner
(as defined in the Code), or who is the owner of an IRA, is April 1 of the
calendar year following the calendar year in which the individual attains age
70 1/2.
The entire interest of the Participant must be distributed beginning no later
than the Required Beginning Date over:
- - the life of the Participant or the lives of the Participant and the
Participant's designated beneficiary, or
<Page>
FORTIS BENEFITS INSURANCE COMPANY 29
- --------------------------------------------------------------------------------
- - over a period not extending beyond the life expectancy of the Participant or
the joint life expectancy of the Participant and the Participant's designated
beneficiary.
Each annual distribution must equal or exceed a "minimum distribution amount"
which is determined by dividing the account balance by the applicable life
expectancy. This account balance is generally based upon the account value as of
the close of business on the last day of the previous calendar year. In
addition, minimum distribution incidental benefit rules may require a larger
annual distribution.
If an individual dies before reaching his or her Required Beginning Date, the
individual's entire interest must generally be distributed within five years of
the individual's death. However, this rule will be deemed satisfied, if
distributions begin before the close of the calendar year following the
individual's death to a designated beneficiary and distribution is over the life
of such designated beneficiary (or over a period not extending beyond the life
expectancy of the beneficiary). If the beneficiary is the individual's surviving
spouse, distributions may be delayed until the individual would have attained
age 70 1/2.
If an individual dies after reaching his or her Required Beginning Date or after
distributions have commenced, the individual's interest must generally be
distributed at least as rapidly as under the method of distribution in effect at
the time of the individual's death.
The minimum distribution requirements apply to Roth IRAs after the Contract
owner dies, but not while the Contract owner is alive. In addition, if the owner
of a Traditional or Roth IRA dies and the Contract owner's spouse is the
designated beneficiary, the surviving spouse may elect to treat the Traditional
or Roth IRA as his or her own.
On January 17, 2001, the Internal Revenue Service published a new set of
proposed regulations in the Federal Register relating to minimum required
distributions. The discussion above does not take these new proposed regulations
into account. Please consult with your tax or legal adviser with any questions
regarding the new proposed regulations.
(c) WITHHOLDING In general, regular wage withholding rules apply to
distributions from IRAs and non-governmental plans described in section 457
of the Code. Periodic distributions from other tax-qualified retirement
plans that are made for a specified period of 10 or more years or for the
life or life expectancy of the participant (or the joint lives or life
expectancies of the participant and beneficiary) are generally subject to
federal income tax withholding as if the recipient were married claiming
three exemptions. The recipient of periodic distributions may generally
elect not to have withholding apply or to have income taxes withheld at a
different rate by providing a completed election form.
The withholding rules applicable to distributions from qualified plans and
section 403(b) plans apply generally to distributions from governmental 457(b)
plans.
Mandatory federal income tax withholding at a flat rate of 20% will generally
apply to other distributions from section 401, 403(b) or governmental 457(b)
plans unless such distributions are:
- - the non-taxable portion of the distribution;
- - required minimum distributions;
- - hardship distributions;
- - made for a specified period of 10 or more years or for the life or life
expectancy of the participant (or the joint lives or life expectancies of the
participant and beneficiary); or
- - direct transfer distributions.
Direct transfer distributions are direct payments to an IRA or to another
eligible retirement plan under Code section 401(a)(31).
Certain states require withholding of state taxes when federal income tax is
withheld.
6. ROLLOVER DISTRIBUTIONS -- Under present federal tax law, eligible rollover
distributions from qualified retirement plans, section 403(b) arrangements, and
governmental 457(b) plans generally can be rolled over to any of such plans or
arrangements. Similarly, distributions from an IRA generally are permitted to be
rolled over to a qualified plan, section 403(b) arrangement, or governmental
457(b) plan. After tax contributions may be rolled over from a qualified plan
into another qualified plan or an IRA. In the case of a rollover from a
qualified plan to another qualified plan, the rollover is permitted to be
accomplished only through a direct rollover. In addition, a qualified plan is
not permitted to accept rollovers of after tax contributions unless the plan
provides separate accounting for such contributions (and earnings thereon).
After tax contributions (including nondeductible contributions to an IRA) are
not permitted to be rolled over from an IRA into a qualified plan, section
403(b) arrangement, or governmental 457(b) plan.
Separate accounting is required on amounts rolled from plans described under
Code sections 401, 403(b) or 408(IRA), when those amounts are rolled into plans
described under section 457(b) sponsored by governmental employers. These
amounts, when distributed from the governmental 457(b) plan, will be subject to
the 10% early withdrawal tax applicable to distributions from plans described
under sections 401, 403(b) or 408(IRA), respectively.
<Page>
30 FORTIS BENEFITS INSURANCE COMPANY
- --------------------------------------------------------------------------------
ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
The following information should be read in conjunction with the financial
statements for the Separate Account included in the Statement of Additional
Information, which is incorporated by reference in this prospectus.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
SUB-ACCOUNT 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD MONEY MARKET HLS FUND
Accumulation Unit Value at beginning of
period $11.156 $10.640 $10.265 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $11.455 $11.156 $10.640 $10.265 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 743 646 573 201 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD U.S. GOVERNMENT SECURITIES HLS FUND
(FORMERLY NAMED U.S. GOVERNMENT SECURITIES
SERIES)
Accumulation Unit Value at beginning of
period $11.306 $10.243 $10.577 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $12.007 $11.306 $10.243 $10.577 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 605 473 443 129 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD BOND HLS FUND
Accumulation Unit Value at beginning of
period $10.629 $10.015 $10.314 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $11.199 $10.629 $10.015 $10.314 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period
(in thousands) 156 126 134 56 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD MULTISECTOR BOND HLS FUND
(FORMERLY NAMED AIM -- MULTISECTOR BOND SERIES)
Accumulation Unit Value at beginning of
period $10.317 $10.021 $10.974 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $10.760 $10.317 $10.021 $10.974 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 97 85 64 24 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD HIGH YIELD HLS FUND
Accumulation Unit Value at beginning of
period $8.961 $9.699 $9.707 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $8.959 $8.961 $9.699 $9.707 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 93 72 81 34 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD INTERNATIONAL STOCK II HLS FUND
(FORMERLY NAMED T. ROWE PRICE -- INTERNATIONAL
STOCK SERIES II)
Accumulation Unit Value at beginning of
period $9.163 $10.103 $10.320 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $7.105 $9.163 $10.103 $10.320 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 105 87 80 33 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD INTERNATIONAL STOCK HLS FUND
(FORMERLY NAMED LAZARD FRERES -- INTERNATIONAL
STOCK SERIES)
Accumulation Unit Value at beginning of
period $10.728 $12.023 $9.818 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $8.022 $10.728 $12.023 $9.818 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 235 285 270 98 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD GLOBAL LEADERS HLS FUND
Accumulation Unit Value at beginning of
period $12.033 $14.823 $9.519 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $9.055 $12.033 $14.823 $9.519 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 170 243 117 83 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Page>
FORTIS BENEFITS INSURANCE COMPANY 31
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
SUB-ACCOUNT 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD GLOBAL EQUITY HLS FUND
(FORMERLY NAMED MFS -- GLOBAL EQUITY SERIES)
Accumulation Unit Value at beginning of
period $9.270 $10.000 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $8.274 $9.270 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 22 16 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD ADVISERS HLS FUND
Accumulation Unit Value at beginning of
period $12.748 $12.888 $10.915 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $11.723 $12.748 $12.888 $10.915 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 729 848 585 231 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD AMERICAN LEADERS HLS FUND
(FORMERLY NAMED FEDERATED -- AMERICAN LEADERS
SERIES)
Accumulation Unit Value at beginning of
period $10.399 $10.000 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $9.911 $10.399 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 48 11 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD VALUE OPPORTUNITIES HLS FUND
(FORMERLY NAMED VALUE SERIES)
Accumulation Unit Value at beginning of
period $12.212 $10.435 $9.698 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $16.003 $12.212 $10.435 $9.698 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 256 151 114 64 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD CAPITAL OPPORTUNITIES HLS FUND
(FORMERLY NAMED MFS -- CAPITAL OPPORTUNITIES
SERIES)
Accumulation Unit Value at beginning of
period $8.760 $10.000 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $6.606 $8.760 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 62 47 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD GROWTH AND INCOME HLS FUND
Accumulation Unit Value at beginning of
period $11.539 $11.113 $10.164 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $10.304 $11.539 $11.113 $10.164 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 246 276 202 76 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD INDEX HLS FUND
Accumulation Unit Value at beginning of
period $11.644 $13.031 $10.964 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $10.085 $11.644 $13.031 $10.964 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 642 830 858 345 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD BLUE CHIP STOCK HLS FUND
(FORMERLY NAMED T. ROWE PRICE -- BLUE CHIP STOCK
SERIES)
Accumulation Unit Value at beginning of
period $12.543 $13.021 $10.998 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $10.601 $12.543 $13.021 $10.998 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 530 712 636 134 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD BLUE CHIP STOCK II HLS FUND
(FORMERLY NAMED AIM -- BLUE CHIP STOCK
SERIES II)
Accumulation Unit Value at beginning of
period $8.699 $10.000 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $6.684 $8.699 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 81 295 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
<Page>
32 FORTIS BENEFITS INSURANCE COMPANY
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
SUB-ACCOUNT 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD LARGE CAP GROWTH HLS FUND
(FORMERLY NAMED ALLIANCE -- LARGE CAP GROWTH
SERIES)
Accumulation Unit Value at beginning of
period $11.978 $14.779 $11.763 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $10.065 $11.978 $14.779 $11.763 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 313 393 360 131 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD INVESTORS GROWTH HLS FUND
(FORMERLY NAMED MFS -- INVESTORS GROWTH SERIES)
Accumulation Unit Value at beginning of
period $8.911 $10.000 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $6.618 $8.911 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 53 45 -- -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD MID CAP STOCK HLS FUND
(FORMERLY NAMED DREYFUS -- MID CAP STOCK SERIES)
Accumulation Unit Value at beginning of
period $11.333 $10.555 $9.632 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $10.725 $11.333 $10.555 $9.632 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 151 139 108 43 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD GROWTH OPPORTUNITIES HLS FUND
(FORMERLY NAMED GROWTH STOCK SERIES)
Accumulation Unit Value at beginning of
period $16.327 $15.898 $10.374 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $12.438 $16.327 $15.898 $10.374 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 327 399 153 58 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD SMALL CAP VALUE HLS FUND
(FORMERLY NAMED BERGER -- SMALL CAP VALUE
SERIES)
Accumulation Unit Value at beginning of
period $13.392 $10.677 $9.373 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $16.003 $13.392 $10.677 $9.373 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 257 190 186 48 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD SMALL CAP GROWTH HLS FUND
(FORMERLY NAMED AGGRESSIVE GROWTH SERIES)
Accumulation Unit Value at beginning of
period $18.036 $21.505 $10.405 $10.000 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit Value at end of period $14.215 $18.036 $21.505 $10.405 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Accumulation Units outstanding at
end of period (in thousands) 218 352 216 84 -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(a) Inception date May 1, 2000.
<Page>
FORTIS BENEFITS INSURANCE COMPANY 33
- --------------------------------------------------------------------------------
FURTHER INFORMATION ABOUT FORTIS BENEFITS INSURANCE COMPANY
Fortis Benefits Insurance Company ("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 N.V. and 50% by Fortis. Fortis, Inc. manages the
United States operations for these two companies.
Fortis N.V. is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
SA/NV is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis N.V. and Fortis
SA/ NV 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.
We offer and sell insurance products, including fixed and variable life
insurance policies, fixed and variable annuity contracts, and group life,
accident and health insurance policies. We market our products to small
businesses and individuals through a national network of independent agents,
brokers, and financial institutions.
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 Variable Account or to the fixed account. None of Fortis
Benefits' affiliated companies has any legal obligation to back Fortis Benefits'
obligations under the contracts.
Effective April 1, 2001, Fortis Benefits contracted the administrative servicing
obligations for the contracts to Hartford Life and Annuity Insurance Company
("Hartford L&A"), a subsidiary of The Hartford Financial Services Group
("Hartford"). Although Fortis Benefits remains responsible for all contract
terms and conditions, Hartford L&A is responsible for servicing the contracts,
including the payment of benefits, oversight of investment management (i.e., the
Portfolios) and overall contract administration. This was part of a larger
transaction whereby Hartford L&A reinsured all of the individual life insurance
and annuity business of Fortis Benefits.
Additionally, as part of the transaction, Hartford Life and Accident, another
subsidiary of Hartford, purchased all of the stock of Fortis Advisers, Inc., the
investment manager for the Portfolios and Fortis Investors, Inc., the principal
underwriter of the contracts. The portfolios have subsequently entered into a
new investment advisory agreement with a Hartford affiliate. Please refer in
this regard to the prospectus for the available portfolios which accompanies
this prospectus.
Fortis Benefits seeks to compete primarily on the basis of customer service,
product design, and, in the case of variable products, the investment results
achieved. Many other insurance companies compete with Fortis Benefits in each of
its markets, including on the basis of price. Many of these companies, which
include some of the largest and best known insurance companies, have
considerably greater resources than Fortis Benefits.
The Company is subject to regulation and supervision by the insurance
departments of the states in which it is licensed to do business. This
regulation covers a variety of areas, including benefit reserve requirements,
adequacy of insurance company capital and surplus, various operational
standards, and accounting and financial reporting procedures. Fortis Benefits'
operations and accounts are subject to periodic examination by insurance
regulatory authorities.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed up to prescribed limits for insurance contract losses,
if covered, incurred by insolvent companies. The amount of any future
assessments of Fortis Benefits under these laws cannot be reasonably estimated.
Most of these laws do provide, however, that an assessment may be excused or
deferred if it would threaten an insurer's own financial strength.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Federal measures that may adversely affect the insurance
business include health care reform, employee benefit regulation, controls on
medicare costs and medical entitlement programs, tax law changes affecting the
taxation of insurance companies or of insurance products, changes in the
relative desirability of various personal investment vehicles, and removal of
impediments on the entry of banking institutions into the business of insurance.
Pursuant to state insurance laws and regulations, Fortis Benefits is obligated
to carry on its books, as liabilities, reserves to meet its obligations under
outstanding insurance contracts. These reserves are based on assumptions about,
among other things, future claims experience and investment returns. Neither the
reserve requirements nor the other aspects of state insurance regulation provide
absolute protection to holders of insurance contracts, if Fortis Benefits were
to incur claims or expenses at rates significantly higher than expected or
significant unexpected losses on its investments.
PROPERTIES
Fortis Benefits has approximately 1500 employees. Fortis Benefits has its
principal offices in Kansas City, Missouri. Fortis Benefits leases a portion of
that building consisting of 297,000 square feet. Fortis Benefits occupies
approximately 85% of its building, which it expects will be adequate for its
purposes for the foreseeable future. Fortis Benefits also leases approximately
70,000 square feet of space in Birmingham, Alabama for the employees of its
dental insurance division. In addition Fortis Benefits has several regional
claims and sales offices throughout the United States.
<Page>
34 FORTIS BENEFITS INSURANCE COMPANY
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits, none of which, in the opinion of
the Company counsel, will result in a material liability.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 24, 2001 the shareholders consented to and approved the terms of a
sale to Hartford Life, Inc. of substantially all of the assets and liabilities
comprising the variable insurance and mutual fund division of the Company called
the Fortis Financial Group.
On March 1, 2001 the shareholders consented to and approved the merger of Pierce
National Life Insurance Company into Fortis Benefits Insurance Company effective
July 1, 2001.
A shareholder meeting was held on April 30, 2001 to elect the current slate of
directors of Fortis Benefits Insurance Company.
SELECTED FINANCIAL DATA
The following is a summary of certain financial data of Fortis Benefits. This
summary has been derived in part from the financial statements of Fortis
Benefits included elsewhere in this prospectus. You should read the following
along with these financial statements.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS) 2001 2000 1999 1998* 1997*
- -------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Premiums and policy charges $ 1,547,678 $ 1,604,244 $1,528,081 $1,333,258 $1,238,006
Net investment income 306,377 331,380 289,719 234,043 228,724
Net realized gains (losses) on investment (34,437) (21,629) 18,854 52,404 41,101
Amortization of gain on reinsured business 52,179 5,000 1,101 -- --
Other income 13,161 9,607 11,663 11,183 36,458
----------- ----------- ---------- ---------- ----------
Total Revenues $ 1,884,958 $ 1,928,602 $1,849,418 $1,630,888 $1,544,289
----------- ----------- ---------- ---------- ----------
Total benefits and expenses $ 1,722,125 $ 1,791,172 $1,714,876 $1,538,604 $1,442,059
Federal Income taxes 55,474 44,820 44,869 30,402 35,120
Net income 107,359 92,610 89,673 61,882 67,110
BALANCE SHEET DATA
Total assets $10,025,352 $10,632,449 $9,610,139* $7,578,055 $6,819,484
Total liabilities 9,304,557 9,641,403 8,760,587* 6,692,587 5,939,378
Total shareholder's equity 720,795 991,046 849,552* 885,468 880,106
- -------------------------------------------------------------------------------------------------------------------
</Table>
*The Balance Sheet Data for 1999 and the Income Statement Data and Balance Sheet
Data for 1998 and 1997 have not been restated to reflect the merger activity
occurring in 2001. The remaining data for 1999 and 2000 have been restated.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
2001 COMPARED TO 2000
On April 1, 2001, Fortis, Inc. completed the sale (the "Sale") of its Fortis
Financial Group division (the "Division") to Hartford Life Insurance Company
("The Hartford"). The Division includes, among other blocks of business, certain
individual life insurance policies and annuity contracts (collectively, the
"Insurance Contracts") written by Fortis Benefits Insurance Company (the
"Company").
To effect the Sale as it relates to the Company, The Hartford reinsured the
Insurance Contracts on a 100% coinsurance basis (or a 100% modified coinsurance
basis for some of the block) and agreed to administer the Insurance Contracts
going forward. The Company received in connection with the Sale aggregate cash
consideration of approximately $500 million from The Hartford. The reinsurance
transaction resulted in a gain of $396 million which was deferred and will be
amortized into income at the rate that earnings from the business sold would
have been expected to emerge.
Effective as of July 1, 2001, Fortis Benefits Insurance Company, a Minnesota
insurance company ("FBIC"), completed a statutory merger in which Pierce
National Life Insurance Company, a California insurance company ("PNL"), merged
with and into FBIC (the "Merger"). Immediately prior to the Merger, both FBIC
and PNL were indirect wholly owned subsidiaries of Fortis, Inc., a Nevada
corporation and a holding company for certain insurance companies in the United
States. The Merger was completed as part of an internal reorganization being
effected by Fortis, Inc. with respect to certain of its life and health
insurance companies.
On December 31, 2001, the Company purchased (the "Purchase") the Dental Benefits
Division of Protective Life Corporation ("Protective"). The Purchase includes
group dental, group life and group disability insurance products ("Insurance
Products"). The Company will reinsure these Insurance Products on a 100%
coinsurance basis and perform administration of such Insurance Products. The
Company paid $212 million for the business and recorded $143 million of goodwill
in the transaction.
<Page>
FORTIS BENEFITS INSURANCE COMPANY 35
- --------------------------------------------------------------------------------
REVENUES
The sale of the Fortis Financial Group division resulted in a 82% decrease in
the revenues derived from Investment Products for year ended December 31, 2001
compared to the year ended December 31, 2000.
The Company's major products are group disability and dental, group medical,
group life, and pre-need annuity and life insurance coverages sold through a
network of independent agents and brokers. Strong sales in the group dental,
group disability and pre-need annuity and life lines resulted in an increase of
premium from the year ended December 31, 2000 to December 31, 2001 of 10%, 3%
and 9% respectively. Rate increases in the group medical line resulted in a 6%
premium decrease due to non-renewal of existing business and lower new sales.
During 2001, the Company began offering a new accidental death product through
financial institutions. This business represents 4% of total accident and health
premium.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Investment income decreased from $331 million in
2000 to $306 million in 2001 due to the Company's smaller invested asset base
from the ceded Investment Product block of business. Changes in interest rates
during 2001 and 2000 resulted in recognition of realized gains and losses upon
sales of securities. The Company had less capital losses from fixed income
investments in 2001 as compared to 2000. During 2001, the Company realized
equity losses due to sales of certain equity security assets with underlying
high yield bond investments.
BENEFITS
The total year-to-date policyholder benefit to premium ratio increased to 80% in
2001 from 78% in 2000. The group disability and dental, group medical, group
life and pre-need benefit to premium ratios for the year ended December 31, were
82%, 75%, 72% and 103% respectively in 2001 and 82%, 74%, 67% and 106%
respectively in 2000. Group life experienced unusually high mortality during
2001.
EXPENSES
Commission rates have increased from the levels in 2000. This is primarily due
to changes in the mix of business by product lines as well as the change in
first year versus renewal premiums.
The Company's general and administrative expense to premium ratio decreased to
19% in 2001 from 22% in 2000. During 2000, the Company incurred project and
system costs as well as new sales efforts resulting in unusually higher expenses
over 2001. The Company continues to monitor expenses, striving to improve the
expense to premium ratio, while maintaining quality and timely services to
policyholders.
2000 COMPARED TO 1999
REVENUES
The Company's major products are group disability and dental, group medical,
group life, and annuity and individual life insurance coverages sold through a
network of independent agents and brokers. In the fourth quarter of 1999, the
Company assumed a block of business from an affiliated Company, United Family
Life Insurance Company. This assumed business is primarily pre-need life
insurance designed to pre-fund funeral expenses and is sold as individual and
group life and annuity products. Pre-need business represents $148 million and
$36 million of gross premiums in 2000 and 1999 respectively. Group disability
and dental, group medical, group life, annuity and individual life and pre-need
represented 39%, 25%, 18%, 8% and 10%, respectively of premium in 2000 and 39%,
32%, 18%, 8% and 3% respectively in 1999. Rate increases in the group medical
line resulted in non-renewal of existing business and lower new sales, which
account for the decrease in premium from 1999 to 2000. Group medical sales began
to recover during 2000.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Investment income increased from $239 million in
1999 to $280 million in 2000 due to the Company's larger invested asset base
from the assumed pre-need business. Changes in interest rates during 2000 and
1999 resulted in recognition of realized gains and losses upon sales of
securities. The Company had more capital losses from fixed income investments in
2000 as compared to 1999. During 1999, the Company decreased its common stock
holdings as a result of investment portfolio realignment, which resulted in
equity gains.
BENEFITS
The total year-to-date policyholder benefit to premium ratio decreased to 79% in
2000 from 80% in 1999. The group disability and dental, group medical, group
life and pre-need benefit to premium ratios for the year ended December 31, were
82%, 74%, 67% and 98% respectively in 2000 and 83%, 80%, 70% and 87%
respectively in 1999. The group medical business experienced a lower benefit to
premium ratio due to rate increases implemented in 1998 causing an increase in a
higher quality base of business in 2000. Group life had improved mortality in
2000. The annuity line experienced lower interest credited due to the continued
decline in the size of the fixed account block. The pre-need benefit to premium
ratio at the end of 1999 represents one-quarter of business as it was assumed
from an affiliated Company during the last quarter of 1999.
EXPENSES
Commission rates have decreased from the levels in 1999. This is primarily due
to changes in the mix of business by product lines as well as the change in
first year versus renewal premiums.
The Company's general and administrative expense to premium ratio increased
slightly to 23% in 2000 up from 22% in 1999. Project and system costs as well as
new sales efforts are the primary reason for this increase. The Company
continues to monitor expenses, striving to improve the expense to premium ratio,
while maintaining quality and timely services to policyholders.
<Page>
36 FORTIS BENEFITS INSURANCE COMPANY
- --------------------------------------------------------------------------------
MARKET RISK AND RISK MANAGEMENT
Interest rate risk is the Company's primary market risk exposure. Substantial
and sustained increases and decreases in market interest rates can affect the
profitability of insurance products and market value of investments. The yield
realized on new investments generally increases or decreases in direct
relationship with interest rate changes. The market value of the Company's fixed
maturity and mortgage loan portfolios generally increases when interest rates
decrease, and decreases when interest rates increase.
Interest rate risk is monitored and controlled through asset/ liability
management. As part of the risk management process, different economic scenarios
are modeled, including cash flow testing required for insurance regulatory
purposes, to determine that existing assets are adequate to meet projected
liability cash flows. A major component of the Company's asset/liability
management program is structuring the investment portfolio with cash flow
characteristics consistent with the cash flow characteristics of the Company's
insurance liabilities.
The Company uses computer models to perform simulations of the cash flow
generated from existing insurance policies under various interest rate
scenarios. Information from these models is used in the determination of
interest crediting strategies and investment strategies. The asset/liability
management discipline includes strategies to minimize exposure to loss as market
interest rates change. On the basis of these analyses, management believes there
is no material solvency risk to the Company with respect to interest rate
movements up or down of 100 basis points from year-end levels.
Equity market risk exposure is not significant. Equity investments in the
General Account are not material enough to threaten solvency and contract owners
bear the investment risk related to the variable products. Therefore, the risks
associated with the investments supporting the variable separate accounts are
assumed by contract owners, not by the Company. The Company provides certain
minimum death benefits that depend on the performance of the variable separate
accounts. Currently the majority of these death benefit risks are reinsured
which then protects the Company from adverse mortality experience and prolonged
capital market decline.
LIQUIDITY AND CAPITAL RESOURCES
The market value of cash, short-term investments and publicly traded bonds and
stocks is at least equal to all policyholder reserves and liabilities. The
Company's portfolio is readily marketable and convertible to cash to a degree
sufficient to provide for short-term needs. The Company consistently monitors
its liability durations and invests assets accordingly. The Company has no
material commitments or off-balance sheet financing arrangements, which would
reduce sources of funds in the upcoming year.
The National Association of Insurance Commissioners has implemented risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. Based upon current calculations using
these risk-based capital standards, the Company's percentage of total adjusted
capital is in excess of ratios, which would require regulatory attention.
The Company's fixed maturity investments consisted of 97.5% investment grade
bonds as of December 31, 2001 and the Company does not expect this percentage to
change significantly in the future.
REGULATION
The Company is subject to the laws and regulations established by the Minnesota
State Insurance Department governing insurance business conducted in Minnesota
State. Periodic audits are conducted by the Minnesota Insurance Department
related to the Company's compliance with these laws and regulations. To date,
there have been no adverse findings regarding the Company's operations.
ACCOUNTING
There were no changes in, or disagreements with, accountants on accounting and
financial disclosure in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001.
<Page>
FORTIS BENEFITS INSURANCE COMPANY 37
- --------------------------------------------------------------------------------
TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION
<Table>
<Caption>
- ----------------------------------------------------------------------
GENERAL INFORMATION
- ----------------------------------------------------------------------
Safekeeping of Assets
- ----------------------------------------------------------------------
Independent Public Accountants
- ----------------------------------------------------------------------
Non-Participating
- ----------------------------------------------------------------------
Misstatement of Age or Sex
- ----------------------------------------------------------------------
Principal Underwriter
- ----------------------------------------------------------------------
PERFORMANCE RELATED INFORMATION
- ----------------------------------------------------------------------
Total Return for all Sub-Accounts
- ----------------------------------------------------------------------
Yield for Sub-Accounts
- ----------------------------------------------------------------------
Money Market Sub-Accounts
- ----------------------------------------------------------------------
Additional Materials
- ----------------------------------------------------------------------
Performance Comparisons
- ----------------------------------------------------------------------
PERFORMANCE TABLES
- ----------------------------------------------------------------------
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------
</Table>
<Page>
38 FORTIS BENEFITS INSURANCE COMPANY
- --------------------------------------------------------------------------------
APPENDIX I -- SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
The formula which will be used to determine the Market Value Adjustment is: [(1
+ I)/(1 + J + .005)] TO THE POWER OF n/12 - 1
SAMPLE CALCULATION 1: POSITIVE ADJUSTMENT
<Table>
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 Years
Time of withdrawal or transfer Beginning of 3rd year of Existing Guarantee
Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 7%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment: = $10,000 X [[(1 + .08)/(1 + .07 + .005)] TO THE
POWER OF 60/12 - 1]
= $234.73
</Table>
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$10,234.73
SAMPLE CALCULATION 2: NEGATIVE ADJUSTMENT
<Table>
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 Years
Time of withdrawal or transfer Beginning of 3rd year of Existing Guarantee
Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 9%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment: = $10,000 X [[(1 + .08)/(1 + .09 + .005)] TO THE
POWER OF 60/12 - 1]
= -$666.42
</Table>
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,333.58
SAMPLE CALCULATION 3: NEGATIVE ADJUSTMENT
<Table>
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 Years
Time of withdrawal or transfer Beginning of 3rd year of Existing Guarantee
Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 7.75%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment: = $10,000 X [[(1 + .08)/(1 + .0775 + .005)] TO THE
POWER OF 60/12 - 1]
= $114.94
</Table>
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,885.06
* Assumed for illustrative purposes only.
<Page>
FORTIS BENEFITS INSURANCE COMPANY 39
- --------------------------------------------------------------------------------
APPENDIX II -- INVESTMENTS BY FORTIS
Fortis' legal obligations with respect to the Guarantee Periods are supported by
our General Account assets. These General Account assets also support our
obligations under other insurance and annuity contracts. Investments purchased
with amounts allocated to the Guarantee Periods are the property of Fortis, and
you have no legal rights in such investments. Subject to applicable law, we have
sole discretion over the investment of assets in our General Account. Neither
our General Account nor the Guarantee Periods are subject to registration under
the Investment Company Act of 1940.
We will invest amounts in our General Account in compliance with applicable
state insurance laws and regulations concerning the nature and quality of
investments for the General Account. Within specified limits and subject to
certain standards and limitations, these laws generally permit investment in:
- - federal, state and municipal obligations,
- - preferred and common stocks,
- - corporate bonds,
- - real estate mortgages and mortgage backed securities,
- - real estate, and
- - certain other investments, including various derivative investments.
See the Financial Statements for information on our investments.
When we establish guaranteed interest rates, we will consider the available
return on the instruments in which we invest amounts allocated to the General
Account. However, this return is only one of many factors we consider when we
establish the guaranteed interest rates. See "Guarantee Periods".
Generally, we expect to invest amounts allocated to the Guarantee Periods in
debt instruments. We expect that these debt instruments will approximately match
our liabilities with regard to the Guarantee Periods. We also expect that these
debt instruments will primarily include:
(1) securities issued by the United States Government or its agencies or
instrumentalities. These securities may or may not be guaranteed by the
United States Government;
(2) debt securities that, at the time of purchase, have an investment grade
within the four highest grades assigned by Moody's Investors Services, Inc.
("Moody's"), Standard & Poor's Corporation ("Standard & Poor's"), or any
other nationally recognized rating service. Moody's four highest grades are:
Aaa, Aa, A, and Baa. Standard & Poor's four highest grades are: AAA, AA, A,
and BBB;
(3) other debt instruments including, but not limited to, issues of, or
guaranteed by, banks or bank holding companies and corporations. Although
not rated by Moody's or Standard & Poor's, we deem these obligations to have
an investment quality comparable to securities that may be purchased as
stated above;
(4) other evidences of indebtedness secured by mortgages or deeds of trust
representing liens upon real estate.
Except as required by applicable state insurance laws and regulations, we are
not obligated to invest amounts allocated to the General Account according to
any particular strategy.
The Contracts are reinsured by Hartford Life and Annuity Insurance Company. As
part of this reinsurance arrangement, the assets supporting the General Account
under the Contracts are held by Fortis; however, these assets are managed by
Hartford Investment Management Company ("HIMCO"), an affiliate of Hartford Life
and Annuity Insurance Company. HIMCO generally invests those assets as described
above for the Contract General Account related investments of Fortis.
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------
To the Board of Directors and Shareholder of Fortis Benefits Insurance Company
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in shareholder's equity and of cash lows present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (SA/NV) and Fortis N.V.
(the Company) at December 31, 2001 and 2000, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. The financial statements of the Company as of
December 31, 1999 were audited by other independent accountants whose report
dated February 17, 2000 expressed an unqualified opinion on those statements.
February 15, 2002 PRICEWATERHOUSECOOPERS LLP
F-1
<Page>
REPORT OF INDEPENDENT AUDITORS
----------------------------------------------------
The Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying statement of operations, changes in equity and
comprehensive income, and cash flow of Fortis Benefits Insurance Company (the
Company), for the year 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 Company's results of operations and cash flows for
the year ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
February 17, 2000 ERNST & YOUNG LLP
F-2
<Page>
FORTIS BENEFITS INSURANCE COMPANY
BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31
- ------------------------------------------------------------------------------------------------
2000
2001 (restated)
- ------------------------------------------------------------------------------------------------
(In thousands, except share
data)
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost 2001 --
$2,744,158; 2000 -- $3,270,943) $ 2,785,442 $ 3,236,446
Equity securities, at fair value (cost 2001 -- $114,049;
2000 -- $91,266) 115,348 88,014
Mortgage loans on real estate, less allowance for
possible losses (2001 -- $13,118; 2000 -- $11,085) 655,211 856,213
Policy loans 9,935 111,594
Short-term investments 258,790 171,351
Real estate and other investments 64,424 41,712
- ------------------------------------------------------------------------------------------------
3,889,150 4,505,330
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents 11,704 17,084
Receivables:
Uncollected premiums 63,080 68,182
Reinsurance recoverable on unpaid and paid losses 1,104,617 105,097
Other 34,027 53,096
- ------------------------------------------------------------------------------------------------
1,201,724 226,375
- ------------------------------------------------------------------------------------------------
Accrued investment income 50,999 63,330
Deferred policy acquisition costs 108,406 533,313
Property and equipment at cost, less accumulated
depreciation 4,972 20,893
Federal income tax recoverable -- 6,029
Deferred federal income taxes 193,022 45,779
Other assets 12,780 3,543
Due from affiliates 12,044 --
Goodwill, less accumulated amortization (2001 -- $5,720;
2000 -- $4,195) 167,992 26,690
Assets held in separate accounts 4,372,559 5,184,083
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $10,025,352 $10,632,449
- ------------------------------------------------------------------------------------------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-3
<Page>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31
- ------------------------------------------------------------------------------------------------
2000
2001 (restated)
- ------------------------------------------------------------------------------------------------
(In thousands, except share
data)
POLICY RESERVES AND LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance $ 1,796,952 $ 1,854,095
Interest sensitive and investment products 1,052,932 1,027,079
Accident and health 1,110,436 1,007,789
- ------------------------------------------------------------------------------------------------
3,960,320 3,888,963
- ------------------------------------------------------------------------------------------------
Unearned revenues 54,811 35,132
Other policy claims and benefits payable 265,702 244,755
Policyholder dividends payable 2,023 9,470
- ------------------------------------------------------------------------------------------------
4,282,856 4,178,320
- ------------------------------------------------------------------------------------------------
Accrued expenses 92,783 76,041
Current income taxes payable 80,306 --
Other liabilities 106,220 118,975
Dividends declared and unpaid -- 75,000
Deferred gain on reinsurance ceded 369,833 25,909
Due to affiliates -- 7,883
Liabilities related to separate accounts 4,372,559 5,159,275
- ------------------------------------------------------------------------------------------------
TOTAL POLICY RESERVES AND LIABILITIES 9,304,557 9,641,403
- ------------------------------------------------------------------------------------------------
Shareholder's equity:
Common stock, $5 par value: authorized, issued and
outstanding shares -- 1,000,000 5,000 5,000
Additional paid-in capital 516,570 645,757
Retained earnings 170,811 363,452
Unrealized gain (loss) on available-for-sale securities
(net of deferred taxes 2001 -- $16,099; 2000 --
$(11,880)) 29,899 (22,063)
Unrealized gain on assets held in separate accounts (net
of deferred taxes 2000 -- $113) -- 210
Unrealized loss due to foreign currency exchange (1,485) (1,310)
- ------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDER'S EQUITY 720,795 991,046
- ------------------------------------------------------------------------------------------------
TOTAL POLICY RESERVES AND LIABILITIES AND SHAREHOLDER'S
EQUITY $10,025,352 $10,632,449
- ------------------------------------------------------------------------------------------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-4
<Page>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
<Table>
<Caption>
YEARS ENDED DECEMBER 31
- ------------------------------------------------------------------------------------------------------------
2000 1999
2001 (restated) (restated)
- ------------------------------------------------------------------------------------------------------------
(in thousands)
REVENUES:
Insurance operations:
Traditional and pre-need life insurance premiums $ 497,053 $ 492,288 $ 383,654
Interest sensitive and investment product policy
charges 49,690 159,728 141,299
Accident and health insurance premiums 1,000,935 952,228 1,003,128
- ------------------------------------------------------------------------------------------------------------
1,547,678 1,604,244 1,528,081
- ------------------------------------------------------------------------------------------------------------
Net investment income 306,377 331,380 289,719
Net realized (losses) gains on investments (34,437) (21,629) 18,854
Amortization of gain on reinsured business 52,179 5,000 1,101
Other income 13,161 9,607 11,663
- ------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,884,958 1,928,602 1,849,418
- ------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Benefits to policyholders:
Traditional and pre-need life insurance 422,478 413,326 303,139
Interest sensitive investment products 39,701 89,062 96,116
Accident and health claims 773,926 750,048 812,144
- ------------------------------------------------------------------------------------------------------------
1,236,105 1,252,436 1,211,399
- ------------------------------------------------------------------------------------------------------------
Policyholder dividends 966 2,685 3,114
Amortization of deferred policy acquisition costs 55,936 55,311 50,274
Insurance commissions 141,623 131,772 130,814
General and administrative expenses 287,495 348,968 319,275
- ------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES 1,722,125 1,791,172 1,714,876
- ------------------------------------------------------------------------------------------------------------
Income before federal income taxes 162,833 137,430 134,542
Federal income taxes 55,474 44,820 44,869
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 107,359 $ 92,610 $ 89,673
- ------------------------------------------------------------------------------------------------------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-5
<Page>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<Table>
<Caption>
Accumulated
Other
Common Additional Paid-In Retained Comprehensive
Total Stock Capital Earnings (Loss) Income
- ------------------------------------------------------------------------------------------------------------
(In thousands)
Balance, December 31, 1998 (restated) $1,060,655 $5,000 $645,757 $337,655 $ 72,243
Comprehensive income :
Net income 89,673 -- -- 89,673 --
Change in unrealized losses on
investments, net (150,037) -- -- -- (150,037)
- ------------------------------------------------------------------------------------------------------------
Total comprehensive loss (60,364)
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 (restated) 1,000,291 5,000 645,757 427,328 (77,794)
Comprehensive income :
Net income 92,610 -- -- 92,610 --
Change in unrealized gain on
investments, net 54,631 -- -- -- 54,631
- ------------------------------------------------------------------------------------------------------------
Total comprehensive income 147,241
Dividend (156,486) -- -- (156,486) --
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 (restated) 991,046 5,000 645,757 363,452 (23,163)
Comprehensive income :
Net income 107,359 -- -- 107,359 --
Change in unrealized gain on
investments, net 51,577 -- -- -- 51,577
- ------------------------------------------------------------------------------------------------------------
Total comprehensive income 158,936
Net deemed dividend to parent (129,187) -- (129,187) -- --
Dividend (300,000) -- -- (300,000) --
- ------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $ 720,795 $5,000 $516,570 $170,811 $ 28,414
- ------------------------------------------------------------------------------------------------------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-6
<Page>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------
2000 1999
2001 (restated) (restated)
- -----------------------------------------------------------------------------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 107,359 $ 92,610 $ 89,673
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for depreciation and amortization of goodwill 2,769 6,628 14,602
Amortization of gain on reinsured business (52,179) (5,000) (1,101)
Amortization of investment (discounts) premiums, net (8,065) 4,190 5,997
Net realized losses (gains) on sold investments 28,529 18,500 (18,903)
Write-off of investment 5,907 3,129 --
Policy acquisition costs deferred (74,993) (118,826) (105,888)
Amortization of deferred policy acquisition costs 55,936 55,311 50,274
Provision for deferred federal income taxes (147,243) (8,093) 20,317
Decrease in income taxes recoverable 163,445 (13,963) (866)
Change in receivables, accrued investment income,
unearned premiums, accrued expenses, other assets, due
to and from affiliates and other liabilities 37,210 (51,691) (914)
Increase (decrease) in future policy benefit reserves
for traditional, interest sensitive and accident and
health policies 121,712 165,148 120,142
Increase (decrease) in other policy claims and benefits
and policyholder dividends payable 13,360 (25,303) 5,012
Other (1,947) 174 --
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 251,800 122,814 178,345
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturity investments (1,400,355) (1,757,391) (2,149,606)
Sales and repayments of fixed maturity investments 1,729,692 1,992,838 2,134,102
(Increase) decrease in short-term investments (87,459) (47,669) (45,461)
Purchases of other investments (222,285) (363,978) (305,889)
Sales of other investments 294,350 298,927 353,267
Sales (purchases) of property and equipment 17,190 (603) (7,213)
Cash received pursuant to reinsurance agreement (27,176) 17,591 3,374
Cash paid pursuant to reinsurance agreement (162,003) -- --
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 141,954 139,715 (17,426)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Activities related to investment products:
Considerations received 43,713 226,139 237,375
Surrenders and death benefits (79,329) (448,349) (416,537)
Interest credited to policyholders 7,174 32,886 39,855
Dividend (375,000) (81,486) --
Change in foreign exchange rate 4,308 2,731 (5,077)
- -----------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (399,134) (268,079) (144,384)
- -----------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (5,380) (5,550) 16,535
Cash and cash equivalents at beginning of year 17,084 22,634 6,099
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,704 $ 17,084 $ 22,634
- -----------------------------------------------------------------------------------------------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-7
<Page>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEARS ENDED DECEMBER 31
- ------------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------------
(In thousands)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Assets and liabilities transferred in reinsurance
transactions (Note 9):
Cessations of FFG in 2001 and LTC in 2000:
Non-cash assets (ceded) received:
Compensation for ceded liabilities $ (500,000) $ -- $ --
Fixed maturities (161,579) -- --
Other investments (196,987) -- --
Capital gains on assets transferred 582 -- --
Other assets (20,367) (157) --
Deferred acquisition costs (441,555) (20,829) --
- ------------------------------------------------------------------------------------------------
TOTAL VALUE OF ASSETS (CEDED) RECEIVED $(1,319,906) $(20,986) $ --
- ------------------------------------------------------------------------------------------------
Non-cash liabilities ceded (assumed):
Ceding commission $ 500,000 $ -- $ --
Future policy benefit reserves 1,049,137 15,086 --
Claim liabilities and dividends payable 14,928 7 --
Unearned premium reserves 241 7,641 --
Separate accounts seed money liability (21,387) -- --
Other liabilities 1,515 (320) --
Proceeds reallocation 198,750 -- --
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES CEDED (ASSUMED) $ 1,743,184 $ 22,414 $ --
- ------------------------------------------------------------------------------------------------
Deemed dividend to parent $ (198,750) $ -- $ --
Deferred tax asset 69,563 -- --
- ------------------------------------------------------------------------------------------------
NET DEEMED DIVIDEND TO PARENT $ (129,187) $ -- $ --
- ------------------------------------------------------------------------------------------------
Assumptions of Protective DBD in 2001 and UFL in 1999:
Non-cash assets assumed:
Fixed maturities $ -- $ -- $ 517,091
Other investments -- -- 121,696
Goodwill and intangibles 143,204 -- --
Other assets 20,890 -- 12,763
Deferred acquisition costs -- -- 35,882
Federal income tax recoverable 77,110 -- --
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS ASSUMED $ 241,204 $ -- $ 687,432
- ------------------------------------------------------------------------------------------------
Non-cash liabilities assumed
Future policy benefit reserves $ (21,913) $ -- $(685,932)
Unearned premium reserves (13,975) -- --
Claim liabilities and dividends payable (15,068) -- (4,874)
Accrued expenses and other liabilities (28,245) -- --
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ASSUMED $ (79,201) $ -- $(690,806)
- ------------------------------------------------------------------------------------------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-8
<Page>
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
-----------------------------------------------------------------------------
1. 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 (SA/NV) and Fortis 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 pre-need products.
Effective March 1, 2000, the Company sold through cessation long-term care
insurance business to John Hancock Life Insurance Company on a 100% co-insurance
basis. (See Note 9 "Reinsurance" for more information on this reinsurance
transaction.)
Effective April 1, 2001, the Company sold through cessation certain individual
life insurance policies and annuity contracts to Hartford Life Insurance and
Annuity Company on a 100% co-insurance basis and it's Separate Accounts business
on a 100% modified co-insurance basis. (See Note 9 "Reinsurance" for more
information on this reinsurance transaction.)
Effective July 1, 2001, the Company completed a statutory merger in which Pierce
National Life Insurance Company (PNL), a California insurance company, merged
with and into the Company (the Merger). Immediately prior to the Merger, both
the Company and PNL were indirect wholly owned subsidiaries of Fortis, Inc., a
Nevada corporation and a holding company for certain insurance companies in the
United States. The Merger was completed as part of an internal reorganization
being effected by Fortis, Inc. with respect to certain of its life and health
insurance companies. Prior period financial statements have been restated to
reflect the merger.
On December 31, 2001, the Company purchased the Dental Benefits Division of
Protective Life Corporation. The Purchase includes group dental, group life and
group disability insurance products. The Company will reinsure these insurance
products on a 100% co-insurance basis and perform administration of such
insurance products. (See Note 9 "Reinsurance" for more information on this
reinsurance transaction.)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2000, the Company adopted Statement of Position ("SOP")
98-7, Deposit Accounting: Accounting for Insurance and Reinsurance Contracts
that do not Transfer Insurance Risk. SOP 98-7 provides guidance on how to
account for insurance and reinsurance contracts that do not transfer insurance
risk. The adoption of SOP 98-7 did not have a material effect on the Company's
results of operations or financial position.
In June 2001, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142,
Goodwill and Other Intangible Assets. SFAS 141 addresses financial accounting
and reporting for business combinations and requires that all business
combinations initiated after June 30, 2001 be accounted for using the purchase
method. The Company applied the provisions of SFAS 141 for all business
combinations subsequent to June 30, 2001. SFAS 142 eliminates the amortization
of goodwill and certain intangible assets that are deemed to have indefinite
lives and requires such assets to be tested for impairment and to be written
down to fair value, if necessary. The Company is currently assessing its
goodwill for impairment and has not yet determined whether or to what extent
this new statement will affect the financial statements.
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.
F-9
<Page>
Policy loans are reported at their unpaid balance. Short-term investments are
carried 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 or carrying value of loans foreclosed 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.
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
is reviewed periodically. As excess amounts of deferred costs over future
premiums or gross profits are identified, such excess amounts are expensed.
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
$1,243, $4,831 and $12,809 for the years ended December 31, 2001, 2000 and 1999,
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 currently
enacted tax rates.
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.
SEPARATE ACCOUNTS
Effective April 1, 2001, the Company sold through cessation its separate
accounts business to Hartford Life Insurance and Annuity Company on a 100%
modified co-insurance basis. 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. (See Note 9 "Reinsurance" for more information
on this reinsurance transaction.)
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 owner, 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 received mortality and expense risk fees from the separate accounts,
deducted monthly cost of insurance charges, and received minimum death benefit
guarantee fees along with issue and administrative fees from the variable life
insurance separate accounts prior to the sale.
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 made periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities 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 to be payable at the initial level regardless of
investment performance so long as minimum premium payments are made.
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
F-10
<Page>
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% to 14% in 2001, 4% to 15% in 2000 and 3.5% to 12% in
1999.
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.
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.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive income
which includes unrealized gains and losses adjusted for the impact of gains and
losses realized during the current year on securities classified as
available-for-sale, net of the effect on deferred policy acquisition costs and
taxes.
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.
RECLASSIFICATIONS
Certain amounts in the 2000 and 1999 financial statements have been reclassified
to conform to the 2001 presentation.
3. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities:
<Table>
<Caption>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
-------------------------------------------------------------------
AT DECEMBER 31, 2001:
Fixed maturities:
Governments $ 216,644 $ 3,554 $ 3,583 $ 216,615
Public utilities 191,860 4,777 4,834 191,803
Industrial and miscellaneous 2,048,100 69,239 34,104 2,083,235
Other 287,554 6,701 466 293,789
-------------------------------------------------------------------
Total fixed maturities 2,744,158 84,271 42,987 2,785,442
Equity securities 114,049 6,012 4,713 115,348
-------------------------------------------------------------------
TOTAL $2,858,207 $90,283 $ 47,700 $2,900,790
-------------------------------------------------------------------
AT DECEMBER 31, 2000:
Fixed maturities:
Governments $ 420,539 $18,176 $ 601 $ 438,114
Public utilities 267,144 4,182 5,121 266,205
Industrial and miscellaneous 2,313,100 30,665 85,376 2,258,389
Other 270,160 4,941 1,363 273,738
-------------------------------------------------------------------
Total fixed maturities 3,270,943 57,964 92,461 3,236,446
Equity securities 91,266 5,160 8,412 88,014
-------------------------------------------------------------------
TOTAL $3,362,209 $63,124 $100,873 $3,324,460
-------------------------------------------------------------------
</Table>
F-11
<Page>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 2001, by contractual maturity, are shown below.
<Table>
<Caption>
Amortized
Cost Fair Value
-----------------------------
Due in one year or less $ 140,972 $ 142,518
Due after one year through five years 440,342 453,284
Due after five years through ten years 981,551 990,470
Due after ten years 1,181,293 1,199,170
-----------------------------
TOTAL $2,744,158 $2,785,442
-----------------------------
</Table>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 36% and 37% of outstanding principal
is concentrated in the states of New York, California and Florida, at
December 31, 2001 and 2000, respectively. Loan commitments outstanding totaled
$0 and $8,000 at December 31, 2001 and 2000 respectively.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $64,176 and $93,940 at December 31,
2001 and 2000, respectively, on deposit with various governmental authorities as
required by law.
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:
<Table>
<Caption>
Before-Tax Tax Benefit Net-of-Tax
Amount (Expense) Amount
-------------------------------------------------
December 31, 2001:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments $ 123,988 $(43,904) $ 76,168
Increase in amortization of deferred policy
acquisition costs (1,752) 612 (1,140)
Reclassification for gains (losses) realized in net
income (42,061) 14,694 (23,451)
-------------------------------------------------
OTHER COMPREHENSIVE GAIN $ 80,175 $(28,598) $ 51,577
-------------------------------------------------
December 31, 2000:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments $ 117,559 $(41,145) $ 76,414
Increase in amortization of deferred policy
acquisition costs (2,314) 810 (1,504)
Reclassification for gains (losses) realized in net
income (31,198) 10,919 (20,279)
-------------------------------------------------
OTHER COMPREHENSIVE GAIN $ 84,047 $(29,416) $ 54,631
-------------------------------------------------
December 31, 1999:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments $(256,773) $ 89,871 $(166,902)
Decrease in amortization of deferred policy
acquisition costs 9,142 (3,200) 5,942
Reclassification for gains (losses) realized in net
income 16,805 (5,882) 10,923
-------------------------------------------------
OTHER COMPREHENSIVE LOSS $(230,826) $ 80,789 $(150,037)
-------------------------------------------------
</Table>
F-12
<Page>
NET INVESTMENT INCOME AND NET REALIZED (LOSSES) GAINS ON INVESTMENTS
Major categories of net investment income and realized (losses) gains on
investments for each year were as follows:
<Table>
<Caption>
2000 1999
2001 (restated) (restated)
----------------------------------------------
NET INVESTMENT INCOME:
Fixed maturities $217,535 $240,163 $215,664
Equity securities 16,967 15,842 8,274
Mortgage loans on real estate 65,524 72,278 59,307
Policy loans 2,156 7,114 5,664
Short-term investments 939 600 979
Real estate and other investments 9,428 2,877 6,695
----------------------------------------------
312,549 338,874 296,583
Expenses (6,172) (7,494) (6,864)
----------------------------------------------
$306,377 $331,380 $289,719
----------------------------------------------
NET REALIZED (LOSSES) GAINS ON INVESTMENTS:
Fixed maturities $(35,594) $(35,889) $(17,060)
Equity securities (6,467) 4,691 33,865
Mortgage loans on real estate 7,810 -- --
Short-term investments (129) 120 (50)
Real estate and other investments (57) 9,449 2,099
----------------------------------------------
$(34,437) $(21,629) $ 18,854
----------------------------------------------
</Table>
Proceeds from sales of investments in fixed maturities were $1,729,692,
$1,992,838 and $2,134,102 in 2001, 2000 and 1999, respectively. Gross gains of
$47,473, $16,692 and $12,918 and gross losses of $83,067, $52,581 and $29,978
were realized on the sales in 2001, 2000 and 1999, respectively.
4. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows:
<Table>
<Caption>
Interest Sensitive
Traditional and and Investment Accident
Pre-Need Life Products and Health Total
--------------------------------------------------------------------------------
Balance, December 31, 1999 $107,679 $ 366,724 $ 18,498 $ 492,901
Acquisition costs deferred 20,866 95,284 2,983 119,133
Acquisition costs amortized (21,806) (32,854) (21,481) (76,141)
Foreign currency conversion (262) (4) -- (266)
Increased amortization of
deferred acquisition costs from
unrealized gains on
available-for-sale securities -- (2,314) -- (2,314)
--------------------------------------------------------------------------------
Balance, December 31, 2000 106,477 426,836 -- 533,313
Acquisition costs deferred 52,413 22,580 -- 74,993
Acquisition costs amortized (51,811) (445,681) -- (497,492)
Foreign currency conversion (615) (41) -- (656)
Increased amortization of
deferred acquisition costs from
unrealized gains on
available-for-sale securities -- (1,752) -- (1,752)
--------------------------------------------------------------------------------
Balance, December 31, 2001 $106,464 $ 1,942 $ -- $ 108,406
--------------------------------------------------------------------------------
</Table>
Included in total policy acquisition costs amortized in 2001 are $441,555 of
acquisition costs and $8,013 of present value of future profits resulting from
the reinsurance cession agreement on certain individual life insurance policies
and annuity contracts with Hartford Life Insurance Company, which became
effective April 1, 2001. See Note 9 "Reinsurance" for more information on the
reinsurance transaction.
Included in total policy acquisition costs amortized in 2000 is $20,829 of
acquisition costs resulting from the long-term care reinsurance cession
agreement with John Hancock Life Insurance Company, which became effective
March 1, 2000. See Note 9, "Reinsurance" for more information on the reinsurance
transaction.
F-13
<Page>
5. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows:
<Table>
<Caption>
2001 2000
-------------------------
Land $ -- $ 1,900
Building and improvements 2,106 27,019
Furniture and equipment 49,878 79,051
-------------------------
51,984 107,970
Less accumulated depreciation (47,012) (87,077)
-------------------------
Net property and equipment $ 4,972 $ 20,893
-------------------------
</Table>
During 2001, land, building and furniture and equipment with book values of
$1,900, $15,307, and $1,605, respectively, were sold to Hartford Life and
Annuity Insurance Company for $20,791.
6. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims is summarized
as follows:
<Table>
<Caption>
Years Ended December 31
--------------------------------------------
2001 2000 1999
--------------------------------------------
Balance as of January 1, net of reinsurance recoverables $1,154,773 $1,140,084 $1,062,447
Add: Incurred losses related to:
Current year 822,695 753,173 824,944
Prior years (36,591) (25,859) (12,800)
--------------------------------------------
TOTAL INCURRED LOSSES 786,104 727,314 812,144
--------------------------------------------
Deduct: Paid losses related to:
Current year 434,095 428,725 468,404
Prior years 259,202 283,900 266,103
--------------------------------------------
TOTAL PAID LOSSES 693,297 712,625 734,507
--------------------------------------------
Balance as of December 31, net of reinsurance
recoverables $1,247,580 $1,154,773 $1,140,084
--------------------------------------------
</Table>
The table above differs from 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.
Included in incurred losses presented above related to current year is $12,178
of reserves assumed resulting from the Dental Benefits Division of Protective
Life Corporation reinsurance agreement which became effective December 31, 2001.
See Note 9 "Reinsurance" for more information on this reinsurance transaction.
Excluded from incurred losses presented above related to prior year is $22,734
of reserves ceded resulting from the long-term care reinsurance agreement with
John Hancock Life Insurance Company, which became effective March 1, 2000. See
Note 9 "Reinsurance" for more information on this reinsurance transaction.
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 a reduction of loss reserves due to ongoing analysis of recent loss
development trends.
The liability for unpaid accident and health claims includes $1,109,112 and
$1,042,180 of total disability income reserves as of December 31, 2001 and 2000,
respectively, which were discounted for anticipated interest earnings using a
rate which varies by incurral year.
7. 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-14
<Page>
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 2001 and 2000 are as follows:
<Table>
<Caption>
2001 2000
-----------------------
Deferred tax assets:
Deferred gain on reinsurance $129,427 $ 3,497
Separate account assets/liabilities 8,418 72,599
Reserves 24,356 41,171
Deferred policy acquisition costs 23,427 --
Claims and benefits payable 7,706 7,445
Accrued liabilities 8,229 15,002
Unrealized losses -- 13,007
Investments 4,515 14,639
Other 6,508 8,304
-----------------------
TOTAL DEFERRED TAX ASSETS 212,586 175,664
-----------------------
Deferred tax liabilities:
Deferred policy acquisition costs -- 117,568
Unrealized gains 16,523 747
Fixed assets 1,075 3,143
Investments 1,966 5,632
Other -- 2,795
-----------------------
TOTAL DEFERRED TAX LIABILITIES 19,564 129,885
-----------------------
NET DEFERRED TAX ASSET $193,022 $ 45,779
-----------------------
</Table>
As of December 31, 2001, the Company had a balance of $12,145 in its
Policyholder Surplus Account under the provisions of the Internal Revenue Code.
This amount could become taxable to the extent that certain future events occur.
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:
<Table>
<Caption>
2001 2000 1999
------------------------------------
Current $ 84,696 $52,981 $33,601
Deferred (29,222) (8,161) 11,268
------------------------------------
$ 55,474 $44,820 $44,869
------------------------------------
</Table>
Federal income tax payments and refunds resulted in net payments of $8,684,
$67,384 and $24,641 in 2001, 2000 and 1999, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<Table>
<Caption>
2001 2000 1999
--------------------------------------
Statutory income tax rate 35.0% 35.0% 35.0%
Other, net (0.9) (2.1) (1.7)
--------------------------------------
34.1% 32.9% 33.3%
--------------------------------------
</Table>
8. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows:
<Table>
<Caption>
2001 2000
---------------------------
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 $4,372,559 $5,159,275
Assets of the separate accounts owned by the Company, at
fair value -- 24,808
---------------------------
$4,372,559 $5,184,083
---------------------------
</Table>
9. REINSURANCE
In the second quarter of 1996, First Fortis Life Insurance Company (First
Fortis), an affiliate, received approval from the New York State Insurance
Department for a reinsurance agreement with the Company. The agreement, which
became
F-15
<Page>
effective as of January 1, 1996, decreased First Fortis' long-term disability
reinsurance retention from a $10 net monthly benefit to a $2 net monthly benefit
for claims incurred on and after January 1, 1996. The Company has assumed
$6,622, $6,884 and $6,580 of premium from First Fortis in 2001, 2000 and 1999,
respectively. The Company has assumed $17,480 and $14,366 of reserves in 2001
and 2000, 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 of reserves and received approximately $654,924 of cash,
investments (primarily fixed maturities and mortgages) and other assets as of
October 1, 1999. The $35,882 ceding commission was capitalized as an acquisition
cost. The Company has assumed premium from UFL of $35,919 in 2001 and $63,069 in
2000. The Company has assumed $696,961 and $679,969 of reserves in 2001 and
2000, respectively, from UFL.
In the first quarter of 2000, the Company entered into a reinsurance agreement
with John Hancock Life Insurance Company (John Hancock) for the sale of the
Long-Term Care (LTC) line of business. The sale of the LTC line of business was
effective March 1, 2000. The Company recorded a gain on this transaction of
$19,019. The gain has been deferred and is being amortized as the level of
direct inforce LTC policies decreases over future years, not to exceed 30 years.
The amount of gain amortized was $2,581 and $3,100 in 2001 and 2000,
respectively. The Company ceded $69,719 and $41,309 of premiums and $62,637 and
$32,222 of reserves to John Hancock in 2001 and 2000 respectively.
In the second quarter of 2001, the Company entered into a reinsurance agreement
with Hartford Life Insurance and Annuity Company (Hartford) for the sale (Sale)
of its Fortis Financial Group division (the Division). The Division includes,
among other blocks of business, certain individual life insurance policies and
annuity contracts (collectively, the Insurance Contracts) written by the
Company. Certain of the Insurance Contracts permit investment in, among other
investment options, various series of the Fortis Series Fund.
To effect the Sale as it relates to the Company, The Hartford reinsured the
Insurance Contracts on a 100% coinsurance basis (or 100% modified coinsurance
basis for the Separate Accounts block) and agreed to administer the Insurance
Contracts going forward. The Company received in connection with the Sale
aggregate cash consideration of approximately $500 million from The Hartford.
The reinsurance transaction resulted in a gain of $396,102 which was deferred
and will be amortized into income at the rate that earnings from the business
sold would have expected to emerge. The amount of gain amortized in 2001 was
$47,928.
In the fourth quarter of 2001, the Company entered into a reinsurance agreement
with Protective Life Corporation (Protective). The agreement, which became
effective December 31, 2001, provided for the assumption of Protective's Dental
Benefits Division on a 100% co-insurance basis. The Company assumed
approximately $79,000 of reserves, $241,000 of assets including $143,000 of
goodwill, and paid cash of approximately $162,000 as of December 31, 2001.
The maximum amount that the Company retains on any one life is $1,300 of life
insurance including accidental death. Amounts in excess of $1,300 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:
<Table>
<Caption>
2001 2000 1999
------------------------------------
Life insurance $435,917 $17,048 $11,167
Accident and health insurance 76,132 48,427 17,824
------------------------------------
$512,049 $65,475 $28,991
------------------------------------
</Table>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows:
<Table>
<Caption>
2001 2000 1999
-------------------------------------
Life insurance $52,548 $ 6,686 $ 2,160
Accident and health insurance 7,420 8,535 13,669
-------------------------------------
$59,968 $15,221 $15,829
-------------------------------------
</Table>
Reinsurance ceded would become a liability of the Company in the event the
reinsurers are unable to meet the obligations assumed under the reinsurance
agreement. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities or economic characteristics of the reinsurers.
10. DIVIDEND RESTRICTIONS
Dividend distributions to the parent are restricted as to the amount by state
regulatory requirements. A dividend is extraordinary when combined with all
other dividends and distributions made with in the preceding 12 months exceeds
the greater of 10% of the insurers surplus as regards to policy holders on
December 31 of the next preceding year, or the net gain from operations. In
2001, the Company declared dividends of $300,000, all of which was
extraordinary.
F-16
<Page>
Approval was sought and received from the Minnesota Department of Commerce for
the distribution of the extraordinary dividends. The Company paid $375,000
during 2001, $75,000 of which was declared in 2000.
11. 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. The Company does not employ any
significant permitted practices.
In 1998, the NAIC adopted codified statutory accounting practices (Codification)
effective January 1, 2001. Codification changed, to some extent, prescribed
statutory accounting practices and resulted in changes to the accounting
practices that the Company uses to prepare its statutory-basis financial
statements. Codification required adoption by the various states before it
became the prescribed statutory basis of accounting for insurance companies
domesticated within those states. Minnesota adopted Codification effective
January 1, 2001. The cumulative effect of all changes resulting from the
Codification guidance was recorded as a direct adjustment to statutory surplus
on January 1, 2001. The effect of the adoption was an increase to statutory
surplus of $33,501 due primarily to deferred taxes.
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:
<Table>
<Caption>
Net Income Shareholder's Equity
-------------------------------------- -------------------------
2001 2000 1999 2001 2000
----------------------------------------------------------------------
Based on statutory accounting
practices $(48,149) $ 99,806 $ 16,765 $ 485,031 $ 508,982
Deferred policy acquisition costs 19,057 63,821 55,752 108,406 533,313
Investment valuation differences (3,892) (3,456) (5,127) 49,062 (28,603)
Deferred and uncollected premiums 2,684 449 (2,700) (12,934) (18,222)
Policy reserves (2,744) (13,383) (21,377) 52,593 (146,255)
Commissions 6,722 (45,485) 75,547 5 --
Current income taxes payable (60,568) 2,616 (8,882) 1,384 (10,117)
Deferred income taxes 29,221 8,162 (9,474) 162,081 45,779
Realized gains on investments 3,444 (4,958) (4,729) -- --
Realized gains (losses) transferred
to the Interest Maintenance Reserve
(IMR), net of tax 6,011 (17,376) (8,489) -- --
Amortization of IMR, net of tax 672 (5,352) (8,363) -- --
Write-off of investment (5,907) (3,129) -- -- --
Pension expense 3,745 (2,145) (1,475) (6,256) (9,985)
Goodwill and intangibles (1,535) (1,551) (1,643) 174,492 26,778
Property and equipment (1,255) -- -- 2,532 3,261
Interest maintenance reserve -- -- -- 14,621 31,482
Asset valuation reserve -- -- -- 55,616 76,317
Ceded reinsurance agreement 8,998 -- -- (361,513) --
Assumed reinsurance agreement 147,429 -- -- -- --
Other, net 3,426 14,591 13,868 (4,325) (21,684)
----------------------------------------------------------------------
Based on generally accepted
accounting principles $107,359 $ 92,610 $ 89,673 $ 720,795 $ 991,046
----------------------------------------------------------------------
</Table>
12. 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, information technology and other
administrative functions. The fees paid to Fortis, Inc. for these services for
years ended December 31, 2001, 2000 and 1999, were $9,332, $11,174 and $13,434,
respectively. Information technology expenses were $10,436, $47,123 and $59,390
for years ended December 31, 2001, 2000 and 1999, respectively.
In conjunction with the marketing of its fixed and variable annuity and variable
life products, the Company paid $19,313, $93,107 and $79,413 in commissions to
its affiliate, Fortis Investors, Inc., for the years ended December 31, 2001,
2000 and 1999, respectively.
F-17
<Page>
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.
13. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS
The fair values for fixed maturity securities and equity securities are based on
quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
Mortgage loans are reported at unpaid principal balance less allowances for
possible losses. The fair values of mortgage loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Mortgage loans with
similar characteristics are aggregated for purposes of the calculations. 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, 2001 December 31, 2000
--------------------------- ---------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------------------------------------------------------------
ASSETS:
Investments:
Securities available-for-sale:
Fixed maturities $2,785,442 $2,791,350 $3,236,446 $3,236,446
Equity securities 115,348 115,348 88,014 88,014
Mortgage loans on real estate 655,211 690,026 856,213 890,173
Policy loans 9,935 9,935 111,594 111,594
Short-term investments 258,790 258,790 171,351 171,351
Assets held in separate accounts 4,372,559 4,372,559 5,184,083 5,184,083
LIABILITIES:
Individual and group annuities (subject
to discretionary withdrawal) 286,367 276,900 637,080 621,596
Liabilities related to separate accounts 4,372,559 4,372,559 5,159,275 5,159,275
</Table>
14. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company is an indirect wholly-owned subsidiary of Fortis, 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
$4,114, $2,097 and $2,223 for 2001, 2000 and 1999, 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. For employees hired on or before December 31, 2000, the first 3% of an
employee's contribution is matched 200% by the Company. The second 2% is matched
50% by the Company. For employees hired after December 31, 2000, the first 3% of
an employee's contribution is matched 100% by the Company. The second 2% is
matched 50% by the Company. The amount expensed was approximately $5,216, $4,573
and $3,711 for 2001, 2000 and 1999, respectively.
F-18
<Page>
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 10
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, 2001, 2000 and 1999. The Company made contributions to
the postretirement benefit plans of approximately $1,049, $0 and $19 in 2001,
2000 and 1999, respectively, as claims were incurred.
F-19
<Page>
To obtain a Statement of Additional Information, please complete the form below
and mail to:
Fortis Benefits Insurance Company
Attn: Investment Product Services
P.O. Box 5085
Hartford, CT 06102-5085
Please send a Statement of Additional Information for EmPower variable annuity
to me at the following address:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City/State Zip Code
<Page>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Fortis Benefit's By-Laws provide for indemnity and payment of expenses of
Fortis Benefits's officers, directors and employees in connection with certain
legal proceedings, judgments, and settlements arising by reason of their
service as such, all to the extent and in the manner permitted by law.
Applicable Minnesota law generally permits payment of such indemnification and
expenses if the person seeking indemnification has acted in good faith and in a
manner that he reasonably believed to be in the best interests of the Company
and if such person has received no improper personal benefit, and in a criminal
proceeding, if the person seeking indemnification also has no reasonable cause
to believe his conduct was unlawful.
There are agreements in place under which the underwriter and affiliated
persons of the Registrant may be indemnified against liabilities arising out of
acts or omissions in connection with the offer of the Contracts; provided
however, that so such indemnity will be made to the underwriter or affiliated
persons of the Registrant for liabilities to which they would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant 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>
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
1 Underwriting Agreement Filed herewith.
3(a) Articles of Incorporation Filed herewith.
3(b) By-laws Filed herewith.
4 Variable Annuity Contract Incorporated by reference to Pre-Effective
Amendment No. #1 to the Registration
Statement File No. 333-43799 filed with the
Commission on April 24, 1998.
5 Opinion re legality Filed herewith.
23(a) Legal Consent Filed herewith as Exhibit 5.
23(b)(1) Consent of PriceWaterhouseCoopers LLP, Filed herewith.
Independent Public Accountants
23(b)(2) Consent of Ernst & Young LLP, Independent Filed herewith.
Public Accountants
24 Copy of Power of Attorney Filed herewith.
</Table>
Item 18. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
i. To include any Prospectus required by section 10(a)(3) of
the Securities Act of 1933;
<Page>
ii. To reflect in the Prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
iii. To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
reasonable grounds to believe that it meets all the requirements for filing
this Post-Effective Amendment on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Simsbury, State of Connecticut on this 4th day of
April, 2002.
FORTIS BENEFITS INSURANCE COMPANY
By: Robert B. Pollock* *By: /s/ Marianne O'Doherty
------------------------------ --------------------------
Robert B. Pollock, President Marianne O'Doherty
Attorney-In-Fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated.
J. Kerry Clayton
Chairman of the Board*
Arie Aristide Fakkert
Director*
Alan W. Feagin
Director*
Robert Brian Pollock *By: /s/ Marianne O'Doherty
President and Director* ----------------------
Chief Executive Officer Marianne O'Doherty
Michael John Peninger Attorney-in-Fact
Director*
Larry M. Cains Date: April 4, 2002
Treasurer, Principal Accounting
Officer, and Principal Financial Officer
Leslie Silvester
Director*
333-43805
<Page>
EXHIBIT INDEX
1 Underwriting Agreement.
3(a) Articles of Incorporation of Fortis Benefits Insurance Company.
3(b) By-laws of Fortis Benefits Insurance Company.
5 Opinion and Consent of Douglas R. Lowe, Esq., corporate counsel of
Fortis Benefits Insurance Company.
23(a) Legal Consent filed as part of Exhibit 5.
23(b)(1) Consent of PriceWaterhouseCoopers LLP, Independent Public
Accountants.
23(b)(2) Consent of Ernst & Young LLP, Independent Public Accountants.
24 Copy of Power of Attorney