1
As filed with the Securities and Exchange Commission on April 17, 2001
Registration No. 33-63799
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 8 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
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(State or other jurisdiction of incorporation or organization)
63
---------------------------------
(Primary Standard Industrial Classification Code Number)
81-0170040
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(I.R.S. Employer Identification No.)
500 Bielenberg Drive
Woodbury, Minnesota 55125
651-738-4000
------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Rhonda J. Schwartz, Esquire
P. O. Box 64284
Saint Paul, Minnesota 55164
651-738-4000
---------------------------------------
(Name, address including zip code, and telephone number, including
area code, of agent for service)
Approximate Date of Commencement of Proposed Sale to 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/
---
------------------------------------------
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
Title of each Proposed Proposed maximum
class of securities Amount to be maximum offering aggregate Amount of
to be registered registered price per unit offering price registration fee
- ---------------------------------------------------------------------------------------------------------------------------
Interests under flexible * * [None registered herewith.]
premium deferred
fixed annuity
contracts
- ------------------
* The maximum aggregate offering price is estimated solely for the purpose of
determining the registration fee. The amount being registered and the proposed
maximum offering price per unit are not applicable in that these securities are
not issued in predetermined amounts or units.
2
FORTIS BENEFITS INSURANCE COMPANY
Cross-Reference Sheet
Pursuant to Regulation S-K
Item 501(b)
Form S-1 Item Number Prospectus Caption
- -------------------- ------------------
1. Forepart of the Registration Cover Page; Table of Contents;
Statement and Outside Front Distribution and Servicing
Cover Page of Prospectus
2. Inside Front and Back Other Information; Reports
Cover Pages of Prospectus
3. Summary Information, Risk Summary of Contract Features or, as to
Factors and Ratio of ratio of earnings to fixed charges, Not
Earnings to Fixed Charges Applicable
4. Use of Proceeds The Variable Account; Series Fund; The
Fixed Account
5. Determination of Offering Not Applicable
Price
6. Dilution Not Applicable
7. Selling Security Holders None
8. Plan of Distribution Distribution and Servicing
9. Description of Securities Cover Page; The Variable Account; Series
to be Registered Fund; The Fixed Account; Accumulation
Period; Charges and Deductions; General
Provisions
10. Interests of Named Legal Matters
Experts and Counsel
11. Information with Respect Fortis Benefits/Fortis Financial Group
to the Registrant Member; Further Information About Fortis
Benefits; Financial Statements;
Distribution and
Servicing
12. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act
Liabilities
3
FORTIS
MASTERS
VARIABLE
ANNUITY
Contracts Under Flexible
Premium Deferred
Combination Variable and
Fixed Annuity Contracts
PROSPECTUS DATED
May 1, 2001
[FORTIS SOLID PARTNERS, FLEXIBLE SOLUTIONS(SM) LOGO]
95961 (5/01)
FORTIS BENEFITS INSURANCE COMPANY
MAILING STREET ADDRESS: PHONE: 1-800-800-2000
ADDRESS: 500 BIELENBERG DRIVE EXTENSION 3057
P.O. BOX 64272 WOODBURY
ST. PAUL MINNESOTA 55125
MINNESOTA 55164
This prospectus describes interests under flexible premium, deferred combination
variable and fixed annuity contracts issued by Fortis Benefits Insurance Company
("Fortis Benefits").
These contracts allow you to accumulate funds on a tax-deferred basis. You may
elect a guaranteed interest accumulation option through a fixed account, or a
variable return accumulation option through a variable account, or a combination
of these two options. You can choose among 10 different guarantee periods under
the guaranteed interest accumulation option, each of which has its own interest
rate which is guaranteed for the entire guarantee period.
Under the variable return accumulation option, you can choose among the
following investment portfolios (those portfolios which have a non-Fortis
subadvisor include the name of the subadvisor at the beginning of the portfolio
name):
Money Market Series Value Series
U.S. Government Securities Series MFS -- Capital Opportunities Series
Diversified Income Series Growth & Income Series
AIM -- Multisector Bond Series Dreyfus -- S&P 500 Index Series
High Yield Series T. Rowe Price -- Blue Chip Stock
T. Rowe Price -- International Stock Series
Series II Alliance -- Large Cap Growth Series
Lazard Freres -- International Stock MFS -- Investors Growth Series
Series AIM -- Blue Chip Stock Series II
Global Growth Series Dreyfus -- Mid Cap Stock Series
MFS -- Global Equity Series Growth Stock Series
Asset Allocation Series Berger -- Small Cap Value Series
Federated -- American Leaders Series Aggressive Growth Series
The accompanying prospectus for these investment portfolios describes the
investment objectives, policies, and risks of each of the portfolios.
This prospectus gives you information about the contracts that you should know
before investing. This prospectus must be accompanied by a current prospectus of
the available investment portfolios. These prospectuses should be read carefully
and kept for future reference.
A Statement of Additional Information, dated May 1, 2001, about certain aspects
of the contracts has been filed with the Securities and Exchange Commission and
is available, without charge, from Fortis Benefits at the address and phone
number printed above. The Table of Contents for the Statement of Additional
Information appears on page 24 of this prospectus.
THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK,
CREDIT UNION, BROKER-DEALER, OR OTHER FINANCIAL INSTITUTION. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. THEY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
4
TABLE OF CONTENTS
PAGE
Special Terms Used in this Prospectus....................... 3
Information Concerning Fees and Charges..................... 4
Summary of Contract Features................................ 6
- Fortis Benefits...................................... 9
The Variable Account........................................ 9
Series Fund................................................. 9
The Fixed Account........................................... 10
- Guaranteed Interest Rates/Guarantee Periods.......... 10
- Market Value Adjustment.............................. 10
- Investments by Fortis Benefits....................... 11
Accumulation Period......................................... 11
- Issuance of a Contract and Purchase Payments......... 11
- Contract Value....................................... 12
- Allocation of Purchase Payments and Contract Value... 12
- Total and Partial Surrenders......................... 13
- Telephone Transactions............................... 14
- Benefit Payable on Death of Annuitant or Owner....... 14
The Annuity Period.......................................... 15
- Annuity Commencement Date............................ 15
- Commencement of Annuity Payments..................... 15
- Relationship Between Subaccount Investment
Performance and Amount of Variable Annuity Payments... 15
- Annuity Options...................................... 15
- Death of Annuitant or Other Payee.................... 16
Charges and Deductions...................................... 16
- Premium Taxes........................................ 16
- Charges Against the Variable Account................. 16
- Tax Charge........................................... 16
- Surrender Charge..................................... 16
- Miscellaneous........................................ 17
- Reduction of Charges................................. 17
General Provisions.......................................... 17
- The Contracts........................................ 17
- Postponement of Payment.............................. 18
- Misstatement of Age or Sex and Other Errors.......... 18
- Assignment........................................... 18
- Beneficiary.......................................... 18
- Reports.............................................. 18
Rights Reserved By Fortis Benefits.......................... 18
Distribution................................................ 18
Federal Tax Matters......................................... 19
Further Information about Fortis Benefits................... 21
- General.............................................. 21
- Ownership of Securities.............................. 21
- Selected Financial Data.............................. 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Voting Privileges........................................... 23
Other Information........................................... 24
Contents of Statement of Additional Information............. 24
Fortis Benefits Financial Statements........................ 24
Appendix A--Sample Market Value Adjustment Calculations..... A-1
Appendix B--Sample Death Benefit Calculations............... B-1
Appendix C--Explanation of Expense Calculations............. C-1
THE CONTRACTS ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. FORTIS BENEFITS DOES NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS WHICH IS NOT
INCLUDED IN THIS PROSPECTUS, THE RELATED STATEMENT OF ADDITIONAL INFORMATION, OR
ANY SUPPLEMENTS THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY
FORTIS BENEFITS.
5
SPECIAL TERMS USED IN THIS PROSPECTUS
Accumulation PeriodThe time period under a contract between the contract issue
date and the annuity commencement date.
Accumulation Unit A unit of measure used to calculate the owners' interest in
the Variable Account during the Accumulation Period.
Annuitant A person during whose life annuity payments are to be made by
Fortis Benefits under the contract.
Annuity Period The time period following the Accumulation Period, during
which annuity payments are made by Fortis Benefits.
Annuity Unit A unit of measurement used to calculate variable annuity
payments.
Fixed Annuity An annuity option under which Fortis Benefits promises to pay
the Annuitant or any other payee Option that you designate
one or more fixed payments.
Market Value Adjustment
Positive or negative adjustment in fixed account value that
we make if such value is paid out more than fifteen days
before or after the end of a guarantee period in which it was
being held.
Non-Qualified Contracts
Contracts that do not qualify for the special federal income
tax treatment applicable in connection with certain
retirement plans.
Qualified ContractsContracts that do qualify for the special federal income tax
treatment applicable in connection with certain retirement
plans.
Series Fund Fortis Series Fund, Inc., a diversified, open-end management
investment company in which the Variable Account invests.
Seven Year The seventh anniversary of a contract issue date, and each
Anniversary subsequent seventh anniversary of that date.
Valuation Date All business days except, with respect to any subaccount,
days on which the related portfolio does not value its
shares. Generally, the portfolios value their shares on each
day the New York Stock Exchange is open.
Valuation Period The period that starts at the close of regular trading on the
New York Stock Exchange on a Valuation Date and ends at the
close of regular trading on the exchange on the next
succeeding Valuation Date.
Variable The segregated asset account referred to as Variable Account
D Account of Fortis Benefits Insurance Company established to
receive and invest purchase payments under contracts.
Variable Annuity Option
An annuity option under which Fortis Benefits promises to pay
the Annuitant or any other payee chosen by you one or more
payments which vary in amount in accordance with the net
investment experience of the subaccounts selected by the
Annuitant.
3
6
INFORMATION CONCERNING FEES AND CHARGES
OWNER TRANSACTION CHARGES
Front-End Sales Charge Imposed on Purchases................. 0%
Maximum Surrender Charge for Sales Expenses................. 7%(1)
NUMBER OF YEARS SURRENDER CHARGE AS A
SINCE PURCHASE PERCENTAGE OF
PAYMENT WAS CREDITED PURCHASE PAYMENT
-------------------- ---------------------
Less than 1 7%
At least 1 but less than 2 6%
At least 2 but less than 3 5%
At least 3 but less than 4 4%
At least 4 but less than 5 3%
At least 5 but less than 6 2%
At least 6 but less than 7 1%
7 or more 0%
Other Surrender Fees........................................ 0%
Exchange Fee................................................ 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE............................ $ 0
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge........................... 1.25%
Variable Account Administrative Charge...................... .10%
Total Variable Account Annual Expenses...................... 1.35%
- ------------------------------
(1) This charge does not apply in certain cases such as partial surrenders each
year of up to 10% of "new purchase payments" as defined under the heading
"Surrender Charge," or payment of a death benefit.
MARKET VALUE ADJUSTMENT WITH RESPECT TO FIXED ACCOUNT
Surrenders and other withdrawals from the fixed account more than fifteen days
from the end of a guarantee period are subject to a Market Value Adjustment. The
Market Value Adjustment may increase or reduce the fixed account value. We
compute this adjustment according to a formula that we describe in more detail
under "Market Value Adjustment".
PORTFOLIO ANNUAL EXPENSES (a)
U.S.
MONEY GOVERNMENT DIVERSIFIED INTERNATIONAL ASSET AMERICAN
MARKET SECURITIES INCOME MULTI SECTOR HIGH YIELD STOCK ALLOCATION LEADERS
SERIES SERIES SERIES BOND SERIES SERIES SERIES II SERIES SERIES
------ ---------- ----------- ------------ ---------- ------------- ---------- --------
Investment and Management
Fee...................... 0.30% 0.47% 0.48% 0.75% 0.50% 0.90% 0.47% 0.90%
Other Expenses............. 0.06% 0.05% 0.05% 0.19% 0.06% 0.16% 0.04% 0.35%
Total Fortis Series
Operating Expenses....... 0.36% 0.52% 0.53% 0.94% 0.56% 1.06% 0.51% 1.25%
CAPITAL GROWTH & S&P 500
VALUE OPPORTUNITIES INCOME INDEX
SERIES SERIES SERIES SERIES
------ ------------- -------- -------
Investment and Management
Fee...................... 0.70% 0.90% 0.63% 0.40%
Other Expenses............. 0.06% 0.41% 0.04% 0.05%
Total Fortis Series
Operating Expenses....... 0.76% 1.31% 0.67% 0.45%
BLUE
CHIP GLOBAL GLOBAL
BLUE CHIP STOCK INTERNATIONAL MID CAP SMALL CAP GROWTH EQUITY
STOCK SERIES SERIES II STOCK SERIES STOCK SERIES VALUE SERIES SERIES SERIES
------------ --------- ------------- ------------ ------------ ------ ------
Investment and Management Fee........... 0.87% 0.95% 0.83% 0.90% 0.90% 0.70% 1.00%
Other Expenses.......................... 0.05% 0.43% 0.10% 0.15% 0.13% 0.05% 0.43%
Total Fortis Series Operating
Expenses.............................. 0.92% 1.38% 0.93% 1.05% 1.03% 0.75% 1.43%
LARGE
CAP INVESTORS GROWTH AGGRESSIVE
GROWTH GROWTH STOCK GROWTH
SERIES SERIES SERIES SERIES
------ --------- ------ ----------
Investment and Management Fee........... 0.90% 0.90% 0.61% 0.62%
Other Expenses.......................... 0.06% 0.49% 0.03% 0.04%
Total Fortis Series Operating
Expenses.............................. 0.96% 1.39% 0.64% 0.66%
- ------------------------------
(a) As a percentage of Series average net assets based on 2000 historical data.
The figures set forth above were annualized numbers for the following
portfolios and the total operating expense ratio for them would have been as
follows had there not been a waiver and reimbursement of expense arrangement
in effect: American Leaders Series--1.50%; Blue Chip Series II--1.50%;
Capital Opportunities Series--1.38%; Global Equity Series--1.86%; Investors
Growth Series--1.53%.
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7
EXAMPLES*
If you Surrender your contract in full at the end of any of the time periods
shown below, you would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return on assets:
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
Money Market................................................ $80 $ 98 $118 $199
U.S. Government Securities.................................. 82 103 127 216
Diversified Income.......................................... 82 103 127 217
Multisector Bond............................................ 86 116 148 259
High Yield.................................................. 82 104 129 220
International Stock II...................................... 87 119 154 271
Asset Allocation............................................ 82 103 126 215
American Leaders............................................ 89 125 163 290
Value....................................................... 84 110 139 241
Capital Opportunities....................................... 90 127 166 296
Growth & Income............................................. 83 107 134 231
S&P 500 Index............................................... 81 101 123 208
Blue Chip Stock............................................. 86 115 147 257
Blue Chip Stock II.......................................... 90 129 170 303
International Stock......................................... 86 115 147 258
MidCap Stock Series......................................... 87 119 153 270
Small Cap Value Series...................................... 87 118 152 268
Global Growth............................................... 84 110 138 240
Global Equity............................................... 91 130 172 307
Large Cap Growth Series..................................... 86 116 149 261
Investors Growth Series..................................... 90 129 170 304
Growth Stock................................................ 83 107 133 228
Aggressive Growth........................................... 83 107 134 230
If you commence an annuity payment option, or do not surrender your contract,
you would pay the following cumulative expenses on a $1,000 investment, assuming
a 5% annual return on assets:
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
Money Market................................................ $17 $53 $ 91 $199
U.S. Government Securities.................................. 19 58 100 216
Diversified Income.......................................... 19 58 100 217
Multisector Bond............................................ 23 71 121 259
High Yield.................................................. 19 59 102 220
International Stock II...................................... 24 74 127 271
Asset Allocation............................................ 19 58 99 215
American Leaders............................................ 26 80 136 290
Value....................................................... 21 65 112 241
Capital Opportunities....................................... 27 82 139 296
Growth & Income............................................. 20 62 107 231
S&P 500 Index............................................... 18 56 96 208
Blue Chip Stock............................................. 23 70 120 257
Blue Chip Stock II.......................................... 27 84 143 303
International Stock......................................... 23 70 120 258
MidCap Stock Series......................................... 24 74 126 270
Small Cap Value Series...................................... 24 73 125 268
Global Growth............................................... 21 65 111 240
Global Equity............................................... 28 85 145 307
Large Cap Growth Series..................................... 23 71 122 261
Investors Growth Series..................................... 27 84 143 304
Growth Stock................................................ 20 62 106 228
Aggressive Growth........................................... 20 62 107 230
- ------------------------------
* Does not include the effect of any Market Value Adjustment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
------------------------------
We have included the foregoing tables and examples to help you understand the
transaction and operating expenses we directly or indirectly impose under the
contracts and under the Series Fund. Please note, we will also deduct amounts
for state premium taxes or similar assessments where these deductions are
applicable.
See Appendix C for an explanation of the calculation of the amounts set forth
above.
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8
SUMMARY OF CONTRACT FEATURES
The following summary should be read in conjunction with the detailed
information in this prospectus. Variations from the information appearing in
this prospectus due to requirements particular to your state are described in
supplements which are attached to this prospectus, or in endorsements to the
contract as appropriate.
The contracts are designed to provide individuals with retirement benefits
through the accumulation of purchase payments on a fixed or variable basis, and
by the application of such accumulations to provide fixed or variable annuity
payments.
Depending on the state that you live in, the contract that is issued to you may
be as a part of a group contract or as an individual contract. Participation in
a group contract will be evidenced by the issuance of a certificate showing your
interest under the group contract. In other states, an individual contract will
be issued to you. Both the certificate and the contract are referred to as a
"contract" in this prospectus.
FREE LOOK
You have the right to examine a contract during a "free look" period after you
receive the contract and return it for a refund of the amount of the then
current contract value. However, in certain states where required by state law
the refund will be in the amount of all purchase payments that have been made,
without interest or appreciation or depreciation. The "free look" period is
generally 10 days unless a longer time is specified on the face page of your
contract.
PURCHASE PAYMENTS
The initial purchase payment under a contract must be at least $5,000 ($2,000
for a contract which is a part of a qualified plan). Additional purchase
payments under a contract must be at least $50. See "Issuance of a Contract and
Purchase Payments".
ALLOCATION OF PURCHASE PAYMENTS
On the date that the contract is issued, the initial purchase payment is
allocated, as specified by you in the contract application, among one or more of
the portfolios, or to one or more of the guarantee periods in the fixed account,
or to a combination thereof. Subsequent purchase payments are allocated in the
same way, or pursuant to different allocation percentages that you may request
in writing.
VARIABLE ACCOUNT INVESTMENT OPTIONS
Each of the subaccounts of the Variable Account invests in shares of a
corresponding portfolio of Series Fund. Contract value in each of the
subaccounts of the Variable Account will vary to reflect the investment
experience of each of the corresponding portfolios, as well as deductions for
certain charges.
Each portfolio has a separate and distinct investment objective and is managed
by Fortis Advisers, Inc. or a subadviser of Fortis Advisers, Inc. A full
description of the portfolios and their investment objectives, policies, risks
and expenses can be found in the current prospectus for Series Fund, which
accompanies this prospectus, and Series Fund Statement of Additional Information
which is available upon request from Fortis Benefits at the address and phone
number on the cover of this prospectus.
FIXED ACCOUNT INVESTMENT OPTIONS
Any amount allocated by the owner to the fixed account earns a guaranteed
interest rate. The level of the guaranteed interest rate depends on the length
of the guarantee period selected by the owner. We currently make available ten
different guarantee periods, ranging from one to ten years.
If amounts are transferred, surrendered or otherwise paid out more than fifteen
days before or after the end of the applicable guarantee period, a Market Value
Adjustment will be applied to increase or decrease the amount of fixed account
value that is paid out. Accordingly, the Market Value Adjustment can result in
gains or losses to you.
THE FIXED ACCOUNT INVESTMENT OPTION IS NOT AVAILABLE FOR CONTRACTS ISSUED IN THE
STATES OF PENNSYLVANIA AND NEVADA.
For a more complete discussion of the fixed account investment options and the
Market Value Adjustment, see "The Fixed Account".
TRANSFERS
During the Accumulation Period, you can transfer all or part of your contract
value from one subaccount to another or into the fixed account and, subject to
any Market Value Adjustment, from one guarantee period to another or into a
subaccount. There is currently no charge for these transfers. We reserve the
right to restrict the frequency of or otherwise condition, terminate, or impose
charges upon, transfers from a subaccount during the Accumulation Period. During
the Annuity Period the person receiving annuity payments may make up to four
transfers (but not from a Fixed Annuity Option) during each year of the Annuity
Period. For a description of certain limitations on transfer rights, see
"Allocations of Purchase Payments and Contract Value--Transfers".
TOTAL OR PARTIAL SURRENDERS
Subject to certain conditions, all or part of the contract value may be
surrendered by you before the earlier of the Annuitant's death or the annuity
commencement date. Amounts surrendered may be subject to a surrender charge and,
in addition, amounts surrendered from the fixed account may be subject to a
Market Value Adjustment. See "Total and Partial Surrenders," "Surrender Charge"
and "Market Value Adjustment". Particular attention should be paid to the tax
implications of any surrender, including possible penalties for premature
distributions. See "Federal Tax Matters".
ANNUITY PAYMENTS
The contract provides several types of annuity benefits to you or to other
persons you properly designate to receive such payments, including Fixed and
Variable Annuity Options. The owner has considerable flexibility in choosing the
annuity commencement date. However, the tax implications of an annuity
commencement date must be carefully considered, including the possibility of
penalties for commencing benefits either too soon or too late. See "Annuity
Commencement Date," "Annuity Options" and "Federal Tax Matters" in this
prospectus and "Taxation Under Certain Retirement Plans" in the Statement of
Additional Information.
6
9
DEATH BENEFIT
In the event that the Annuitant or owner dies prior to the annuity commencement
date, a death benefit is payable to the beneficiary. See "Benefit Payable on
Death of Annuitant or Owner".
LIMITATIONS IMPOSED BY RETIREMENT PLANS AND EMPLOYERS
Certain rights you would otherwise have under a contract may be limited by the
terms of any applicable employee benefit plan. These limitations may restrict
such things as total and partial surrenders, the amount or timing of purchase
payments that may be made, when annuity payments must start and the type of
annuity options that may be selected. Accordingly, you should familiarize
yourself with these and all other aspects of any retirement plan in connection
with which a contract is issued.
The record owner of the group variable annuity contract pursuant to which group
certificates will be issued will be a bank trustee whose sole function is to
hold record ownership of the contract or an employer (or the employer's
designee) in connection with an employee benefit plan. In the latter cases,
certain rights that an owner otherwise would have under a contract may be
reserved instead by the employer.
TAX IMPLICATIONS
The tax implications for you or any other persons who may receive payments under
a contract, and those of any related employee benefit plan can be quite
important. A brief discussion of some of these is set out under "Federal Tax
Matters" in this prospectus and "Taxation Under Certain Retirement Plans" in the
Statement of Additional Information, but such discussion is not comprehensive.
Therefore, you should consider these matters carefully and consult a qualified
tax adviser before making purchase payments or taking any other action in
connection with a contract or any related employee benefit plan. Failure to do
so could result in serious adverse tax consequences which might otherwise have
been avoided.
QUESTIONS AND OTHER COMMUNICATIONS
Any question about procedures of the contract should be directed to your sales
representative, or Fortis Benefits' home office: P.O. Box 64272, St. Paul,
Minnesota, 55164: 1-800-800-2000, extension 3057. Purchase payments and written
requests should be mailed or delivered to the same home office address. All
communications should include the contract number, the owner's name and, if
different, the Annuitant's name. The number for telephone transfers is
1-800-800-2000 (extension 3057).
Any purchase payment or other communication, except a 10-day cancellation
notice, is deemed received at Fortis Benefit's home office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.
7
10
FINANCIAL AND PERFORMANCE INFORMATION
The information presented below reflects the Accumulation Unit information for
subaccounts of the Variable Account through December 31, 2000.
MONEY U.S. GOV'T DIVERSIFIED MULTISECTOR HIGH INTERNATIONAL ASSET
MARKET SECURITIES INCOME BOND YIELD STOCK II ALLOCATION
------ ---------- ----------- ----------- ----- ------------- ----------
December 31, 2000
Accum Units in Force... 39,594,550 5,977,686 37,519,171 1,388,496 3,777,913 2,403,196 144,888,821
Accum Unit Values...... $1.662 $19.655 $2.118 $12,436 $11.814 $14.633 $3.877
December 31, 1999
Accum Units in Force... 59,567,286 6,961,590 46,271,405 1,402,949 4,713,245 3,230,112 152,820,325
Accum Unit Values...... $1.587 $17.823 $1.998 $12.092 $12.799 $16.150 $3.923
December 31, 1998
Accumulation Units in
Force................. 39,532,433 7,577,700 51,323,231 1,236,211 4,984,906 3,315,158 160,803,266
Accumulation Unit
Values................ $1.532 $18.421 $2.059 $13.254 $12.823 $16.513 $3.326
December 31, 1997
Accumulation Units in
Force................. 31,491,629 7,743,923 49,942,498 1,123,401 4,194,544 2,918,483 156,035,843
Accumulation Unit
Values................ $1.474617 $17.149938 $1.963344 $11.837281 $12.917282 $14.433538 $2.809839
December 31, 1996
Accumulation Units in
Force................. 36,220,947 9,635,092 55,653,680 1,088,043 3,337,604 2,330,884 154,525,474
Accumulation Unit
Values................ $1.418 $15.935 $1.801 $11.961 $11.928 $12.884 $2.368
January 1, 1996*
Accumulation Unit
Values................ -- -- -- -- -- -- --
December 31, 1995
Accumulation Units in
Force................. 26,915,975 10,989,914 59,213,865 574,142 2,321,419 1,117,596 148,700,081
Accumulation Unit
Value................. $1.367 $15.805 $1.753 $11.743 $10.941 $11.590 $2.134
January 2, 1995*
Accumulation Unit
Value................. -- -- -- 10.000 -- 10.000 --
December 31, 1994
Accumulation Units in
Force................. 30,697,754 12,271,738 62,744,615 -- 1,216,957 -- 137,642,102
Accumulation Unit
Value................. $1.311 $13.483 $1.515 -- $9.834 -- $1.773
May 1, 1994*
Accumulation Unit
Value................. -- -- -- -- 10.0000 -- --
December 31, 1993
Accumulation Units in
Force................. 21,315,022 15,601,818 56,005,709 -- -- -- 106,834,367
Accumulation Unit
Value................. $1.278 $14.609 $1.621 -- -- -- $1.797
December 31, 1992
Accumulation Units in
Force................. 20,674,556 9,505,984 19,353,521 -- -- -- 49,688,937
Accumulation Unit
Value................. $1.261 $13.529 $1.457 -- -- -- $1.664
May 1, 1992*
Accumulation Unit
Value................. -- -- -- -- -- -- --
December 31, 1991
Accumulation Units in
Force................. 7,235,168.03 3,595,759.23 6,056,976.03 -- -- -- 17,772,322.83
Accumulation Unit
Value................. $1.237 $12.921 $1.379 -- -- -- $1.577
December 31, 1990
Accumulation Units in
Force................. 5,632,146.27 747,992.12 2,352,517.74 -- -- -- 8,249,373.75
Accumulation Unit
Value................. $1.183 $11.450 $1.219 -- -- -- $1.252
AMERICAN CAPITAL GROWTH & S&P BLUE BLUE
LEADERS VALUE OPPORTUNITIES INCOME 500 CHIP CHIP II
-------- ----- ------------- -------- --- ---- -------
December 31, 2000
Accum Units in Force... 180,486 4,407,086 763,073 9,221,342 14,152,174 10,307,005 834,628
Accum Unit Values...... $10.392 $18.559 $8.754 $24.661 $19.808 $20,758 $8.728
December 31, 1999
Accum Units in Force... -- 4,744,081 -- 10,994,926 14,134,177 9,671,577 --
Accum Unit Values...... -- $15.875 -- $23.775 $22.189 $21.571 --
December 31, 1998
Accumulation Units in
Force................. -- 4,869,102 -- 12,171,938 10,440,486 7,548,794 --
Accumulation Unit
Values................ -- $14.768 -- $21.767 $18.689 $18.238 --
December 31, 1997
Accumulation Units in
Force................. -- 3,402,217 -- 11,003,248 5,491,818 4,149,587 --
Accumulation Unit
Values................ -- $13.651572 -- $19.487584 $14.786540 $14.429421 --
December 31, 1996
Accumulation Units in
Force................. -- 1,071,648 -- 7,892,683 1,259,758 915,358 --
Accumulation Unit
Values................ -- $11.048 -- $15.468 $11.326 $11.520 --
January 1, 1996*
Accumulation Unit
Values................ -- -- 10.000 10.000 10.000 --
December 31, 1995
Accumulation Units in
Force................. -- -- 4,204,164 --
Accumulation Unit
Value................. -- -- $12.904 $11.271 --
January 2, 1995*
Accumulation Unit
Value................. -- -- --
December 31, 1994
Accumulation Units in
Force................. -- -- 1,489,517
Accumulation Unit
Value................. -- -- $10.083
May 1, 1994*
Accumulation Unit
Value................. -- -- 10.0000
December 31, 1993
Accumulation Units in
Force................. -- -- --
Accumulation Unit
Value................. -- -- --
December 31, 1992
Accumulation Units in
Force................. -- -- --
Accumulation Unit
Value................. -- -- --
May 1, 1992*
Accumulation Unit
Value................. -- -- --
December 31, 1991
Accumulation Units in
Force................. -- -- --
Accumulation Unit
Value................. -- -- --
December 31, 1990
Accumulation Units in
Force................. -- -- --
Accumulation Unit
Value................. -- -- -- -- $1.298
INTERNATIONAL GLOBAL GLOBAL GROWTH AGGRESSIVE MID CAP LARGE CAP INVESTORS
STOCK GROWTH EQUITY STOCK GROWTH GROWTH GROWTH GROWTH
------------- ------ ------ ------ ---------- ------- --------- ---------
December 31, 2000
Accum Units in Force... 5,688,753 9,791,503 280,353 111,543,696 8,239,797 2,297,535 5,763,035 508,808
Accum Unit Values...... $17.572 $27.039 $9.264 $6.079 $27.382 $11.303 $11.946 $8.905
December 31, 1999
Accum Units in Force... 5,344,248 9,640,858 -- 114,976,011 6,379,981 1,441,402 3,962,830 --
Accum Unit Values...... $19.711 $33.343 -- $5.925 $32.680 $10.538 $14.754 --
December 31, 1998
Accumulation Units in
Force................. 4,751,940 11,754,865 -- 136,042,148 6,165,803 765,338 842,995 --
Accumulation Unit
Values................ $16.113 $21.433 -- $3.870 $15.829 $9.625 $11.755 --
December 31, 1997
Accumulation Units in
Force................. 4,239,821 13,725,612 -- 156,975,866 6,551,677 -- -- --
Accumulation Unit
Values................ $14.021796 $19.507894 -- $3.296005 $13.241215 -- -- --
December 31, 1996
Accumulation Units in
Force................. 3,137,348 13,713,860 -- 169,095,500 5,706,895 -- -- --
Accumulation Unit
Values................ $12.690 $18.510 -- $2.971 $13.232 -- -- --
January 1, 1996*
Accumulation Unit
Values................ -- -- -- --
December 31, 1995
Accumulation Units in
Force................. 1,157,064 10,769,830 -- 160,247,280 3,033,587 -- -- --
Accumulation Unit
Value................. $15.754 $2.587 -- $12.461
January 2, 1995*
Accumulation Unit
Value................. 10.000 -- -- -- -- -- -- --
December 31, 1994
Accumulation Units in
Force................. -- 10,055,959 -- 148,657,108 1,115,647 -- -- --
Accumulation Unit
Value................. -- $12.236 -- $2.054 $9.723 -- -- --
May 1, 1994*
Accumulation Unit
Value................. -- -- -- -- $10.0000 -- -- --
December 31, 1993
Accumulation Units in
Force................. -- 5,108,957 -- 118,720,649 -- -- -- --
Accumulation Unit
Value................. -- $12.784 -- $2.142 -- -- -- --
December 31, 1992
Accumulation Units in
Force................. -- 698,720 -- 79,582,321 -- -- -- --
Accumulation Unit
Value................. -- $10.988 -- $1.996 -- -- -- --
May 1, 1992*
Accumulation Unit
Value................. -- 10.0000 -- -- -- -- --
December 31, 1991
Accumulation Units in
Force................. -- -- 42,946,178.33 -- -- -- --
Accumulation Unit
Value................. -- -- $1.965 -- -- -- --
December 31, 1990
Accumulation Units in
Force................. -- -- 14,690,313.64 -- -- -- --
Accumulation Unit
Value................. --
SMALL CAP
VALUE
---------
December 31, 2000
Accum Units in Force... 3,045,179
Accum Unit Values...... $13.357
December 31, 1999
Accum Units in Force... 2,496,974
Accum Unit Values...... $10.659
December 31, 1998
Accumulation Units in
Force................. 1,098,102
Accumulation Unit
Values................ $9.367
December 31, 1997
Accumulation Units in
Force................. --
Accumulation Unit
Values................ --
December 31, 1996
Accumulation Units in
Force................. --
Accumulation Unit
Values................
January 1, 1996*
Accumulation Unit
Values................
December 31, 1995
Accumulation Units in
Force................. --
Accumulation Unit
Value.................
January 2, 1995*
Accumulation Unit
Value................. --
December 31, 1994
Accumulation Units in
Force................. --
Accumulation Unit
Value................. --
May 1, 1994*
Accumulation Unit
Value................. --
December 31, 1993
Accumulation Units in
Force................. --
Accumulation Unit
Value................. --
December 31, 1992
Accumulation Units in
Force................. --
Accumulation Unit
Value................. --
May 1, 1992*
Accumulation Unit
Value................. --
December 31, 1991
Accumulation Units in
Force................. --
Accumulation Unit
Value................. --
December 31, 1990
Accumulation Units in
Force................. --
Accumulation Unit
Value.................
- ------------------------------
* Accumulation Unit value at date of initial registration statement
effectiveness
8
11
Audited financial statements of the Variable Account are included in the
Statement of Additional Information.
Advertising and other sales materials may include yield and total return figures
for the subaccounts of the Variable Account. These figures are based on
historical results and are not intended to indicate future performance. "Yield"
is the income generated by an investment in the subaccount over a period of time
specified in the advertisement. This rate of return is assumed to be earned over
a full year and is shown as a percentage of the investment. "Total Return" is
the total change in value of an investment in the subaccount over a period of
time specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield figures
do not reflect the surrender charge and yield and total return figures do not
reflect premium tax charges. This makes the performance shown more favorable.
Financial information concerning Fortis Benefits is included in this prospectus
under "Additional Information About Fortis Benefits" and "Fortis Benefits
Financial Statements".
FORTIS BENEFITS
Fortis Benefits Insurance Company is the issuer of the contracts. Fortis
Benefits is a Minnesota corporation founded in 1910. It is qualified to sell
life insurance and annuity contracts in the District of Columbia and in all
states except New York. Fortis Benefits is an indirectly wholly-owned subsidiary
of Fortis, Inc., which is itself indirectly owned 50% by Fortis (NL)N.V. and 50%
by Fortis (B). Fortis, Inc. manages the United States operations for these two
companies.
Fortis (NL)N.V. is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
(B) is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis (NL)N.V. and
Fortis (B) have merged their operating companies under the trade name of Fortis.
The Fortis group of companies is active in insurance, banking and financial
services, and real estate development in The Netherlands, Belgium, the United
States, Western Europe, and the Pacific Rim.
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.
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 available
investment 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.
THE VARIABLE ACCOUNT
The Variable Account is a segregated investment account of Fortis Benefits.
Fortis Benefits established Variable Account D under Minnesota insurance law as
of October 14, 1987. The Variable Account is an integral part of Fortis
Benefits. However, the Variable Account is registered with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. Assets in the Variable Account representing reserves and liabilities
under these contracts and other variable annuity contracts issued by Fortis
Benefits will not be chargeable with liabilities arising out of any other
business of Fortis Benefits.
The Variable Account has subaccounts. The assets in each subaccount are invested
exclusively in a distinct class (or series) of stock issued by Series Fund, each
of which represents a separate investment portfolio within Series Fund. Income
and both realized and unrealized gains or losses from the assets of each
subaccount of the Variable Account are credited to or charged against that
subaccount without regard to income, gains or losses from any other subaccount
of the Variable Account or arising out of any other business we may conduct. We
may add or eliminate new subaccounts as new portfolios are added or are
eliminated.
SERIES FUND
Series Fund is a "series" type of mutual fund. Series Fund is registered with
the Securities and Exchange Commission under the Investment Company Act of 1940.
Series Fund has served as the investment medium for the Variable Account since
the Variable Account began operations. Series Fund is also the investment medium
for the variable account of Fortis Benefits through which variable life
insurance policies are issued by Fortis Benefits. We do not foresee any conflict
between your interests and the interests of life insurance policy owners.
However, Series Fund's Board of Directors will monitor to identify any material,
irreconcilable conflicts which may develop. Series Fund's Board of Directors
will determine what action, if any, should be taken in response. If it becomes
necessary for any separate account to replace shares of any portfolio with
another investment, the portfolio may have to liquidate securities on a
disadvantageous basis.
Fortis Benefits purchases and redeems Series Fund shares for the Variable
Account at their net asset value without any sales or redemption charges. These
shares are interests in the portfolios of Series Fund available for investment
by the Variable Account. Each portfolio corresponds to one of the subaccounts of
the Variable Account. The assets of each portfolio are separate from the assets
of other portfolios. In addition, each portfolio operates as a separate
investment portfolio whose investment performance has no effect on the
investment performance of any other portfolio.
We automatically reinvest dividends or capital gain distributions attributable
to contracts in shares of the portfolio from which they are received at the
portfolio's net asset value on the date paid. These dividends and distributions
will have the effect of reducing the net asset value of each share of the
corresponding portfolio and increasing, by an equivalent value, the number of
shares outstanding of the portfolio. However, the value of your interest in the
corresponding subaccount will not change as a result of any of these dividends
and distributions.
The portfolios of Series Fund available for investment by the Variable Account
are listed on the cover page of this prospectus.
A full description of the portfolios, their investment policies and
restrictions, the charges, the risks associated with investing in
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them, and other aspects of their operations is contained in the prospectus for
Series Fund accompanying this prospectus and in the Statement of Additional
Information for Series Fund. Additional copies of these documents may be
obtained from your sales representative or from our home office. The complete
risk disclosure in the prospectus for the Diversified Income Series, High Yield
Series, Asset Allocation Series, and Global Asset Allocation Series should be
read before selection of them for investment.
THE FIXED ACCOUNT
GUARANTEED INTEREST RATES/GUARANTEE PERIODS
Any amount you allocate to the fixed account 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. At
the end of your guarantee period, your contract value, including accrued
interest, will be allocated to a new guarantee period of equal length. However,
you may reallocate your contract value to a different guarantee period (or
periods) or to one (or more) of the subaccounts of the Variable Account. 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 those for other guarantee
periods. From time to time 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. Please
note, when you allocate or transfer an amount to a guarantee period, a new
guarantee period begins running with respect to that amount. Therefore, the
amount you allocate will earn a guaranteed interest rate that will not change
until the end of that period. In addition, the guaranteed interest rate will
never be less than an effective annual rate of 4%.
We declare the guaranteed interest rates from time to time as market conditions
dictate. We advise you of the guaranteed interest rate for a chosen 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
renewed.
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. See
"Investments by Fortis Benefits". In addition, when we determine guaranteed
interest rates, we may consider: (1) the duration of a guarantee period, (2)
regulatory and tax requirements, (3) sales and administrative expenses we bear,
(4) risks we assume, (5) our profitability objectives, and (6) general economic
trends.
FORTIS BENEFITS' MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED
INTEREST RATES WE DECLARE. WE CANNOT PREDICT OR ASSURE THE LEVEL OF ANY FUTURE
GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL RATE OF 4%.
THE FIXED ACCOUNT INVESTMENT OPTION IS NOT AVAILABLE FOR CONTRACTS ISSUED IN THE
STATES OF PENNSYLVANIA AND NEVADA.
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.
MARKET VALUE ADJUSTMENT
Except as described below, we will apply a Market Value Adjustment to any fixed
account value that is:
- surrendered,
- transferred, or
- otherwise paid out
before the end of the guarantee period in which it is being held.
For example, we will apply a Market Value Adjustment to fixed account value that
we pay:
- as a death benefit pursuant to a contract,
- as an amount applied to an annuity option, and
- as an amount paid as a single sum in lieu of an annuity.
The Market Value Adjustment we apply may increase or decrease the fixed account
value that is withdrawn or transferred. We determine whether the fixed account
value is increased or decreased by performing a comparison of two guaranteed
interest rates.
The first rate we compare is the guaranteed interest rate for the fixed account
value that is withdrawn or transferred from the existing guarantee period. The
second rate we compare is the guaranteed interest rate we are then offering for
new guarantee periods with durations equal to the number of years remaining in
the existing guarantee period. After comparing these two rates, we determine
whether the fixed account value is increased or decreased as follows:
- If the first rate exceeds the second rate by more than 1/2%, the Market
Value Adjustment produces an increase in the fixed account value
withdrawn or transferred.
- If the first rate does not exceed the second rate by at least 1/2%, the
Market Value Adjustment produces a decrease in the fixed account value
withdrawn or transferred.
We will determine the Market Value Adjustment by multiplying the fixed account
value that is withdrawn or transferred from the existing guarantee period
(before deduction of any applicable surrender charge) by the following factor:
1 + I n/12
------------ - 1
( 1 + J + .005 )
where,
- I is the guaranteed interest rate we credit to the fixed account value
that is withdrawn or transferred from the existing guarantee period.
10
13
- J is the guaranteed interest rate we are then offering for new guarantee
periods with durations equal to the number of years remaining in the
existing guarantee period (rounded up to the next higher number of
years).
- N is the number of months remaining in the existing guarantee period
(rounded up to the next higher number of months).
You will find sample Market Value Adjustment calculations in Appendix A.
We do not apply a Market Value Adjustment to withdrawals and transfers of fixed
account value under two exceptions. We describe these exceptions below.
We will not apply a Market Value Adjustment to fixed 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
fixed account value was being held,
and that:
- ends 15 days after the end date of the guarantee period in which the
fixed account value was being held.
In addition, we will not apply a Market Value Adjustment to fixed 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 Benefits program for the withdrawal or transfer of fixed
account value.
We may impose conditions and limitations on any formal Fortis Benefits program
for the withdrawal or transfer of fixed account value. Ask your Fortis Benefits
representative about the availability of such a program in your state. In
addition, if such a program is available in your state, your Fortis Benefits
representative can inform you about the conditions and limitations that may
apply to that program.
INVESTMENTS BY FORTIS BENEFITS
Fortis Benefits' legal obligations with respect to the fixed account 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 fixed account are the property of Fortis
Benefits, 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 and in the fixed account. Neither our general account nor the
fixed account is subject to registration under the Investment Company Act of
1940.
We will invest amounts in our general account, and amounts in the fixed 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 "Fortis Benefits' 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 fixed
account. However, this return is only one of many factors we consider when we
establish the guaranteed interest rates. See "Guaranteed Interest
Rates/Guarantee Periods".
Generally, we expect to invest amounts allocated to the fixed account 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 fixed account according to any
particular strategy, See "Regulation and Reserves".
As stated above under the caption "Fortis Benefits" in the "Summary of Contract
Features" section of this prospectus, the contracts are reinsured by Hartford
Life and Annuity Insurance Company. As part of this reinsurance arrangement, the
assets supporting the reserve liabilities of Fortis Benefits associated with the
fixed accounts under the contracts are held by Fortis Benefits; however, these
assets are managed by Hartford Investment Management Company, an affiliate of
Hartford Life and Annuity Insurance Company. Hartford Investment Management
Company generally invests those assets as described above for the contract fixed
account related investments of Fortis Benefits.
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
We reserve the right to reject any application for a contract or any purchase
payment for any reason. If we accept your issuing instructions in the form
received, we will credit the initial purchase payment within two Valuation Dates
after the later of (1) receipt of the issuing instructions or (2) receipt of the
initial purchase payment at our home office. If we cannot apply the
11
14
initial purchase payment within five Valuation Dates after receipt because the
issuing instructions are incomplete, we will return the initial purchase payment
unless you consent to our retaining the initial purchase payment and applying it
as of the end of the Valuation Period in which the necessary requirements are
fulfilled. The initial purchase payment must be at least $5,000 ($2,000 for a
contract issued pursuant to a qualified plan).
The date that we apply the initial purchase payment to the purchase of the
contract is also the contract issue date. The contract issue date is the date
used to determine contract years, regardless of when we deliver the contract.
Our crediting of investment experience in the Variable Account, or a fixed rate
of return in the fixed account, generally begins as of the contract issue date.
We will accept additional purchase payments at any time after the contract issue
date and prior to the annuity commencement date, as long as the Annuitant is
living. You must transmit purchase payments (together with any required
information identifying the proper contracts and account to be credited with
purchase payments) to our home office. We apply additional purchase payments to
the contract, and add to the contract value as of the end of the Valuation
Period in which we receive the payments.
Each additional purchase payment under a contract must be at least $50. The
total of all purchase payments for all Fortis Benefits annuities having the same
owner or Annuitant, may not exceed $1 million (not more than $500,000 allocated
to the fixed account) without our prior approval. We reserve the right to modify
this limitation at any time.
You may make purchase payments in excess of the initial minimum by monthly draft
against a bank account if you have completed and returned to us a special
authorization form. You may get the form from your sales representative or from
our home office. We can also arrange for you to make purchase payments by wire
transfer, payroll deduction, military allotment, direct deposit and billing.
Purchase payments by check should be made payable to Fortis Benefits Insurance
Company.
If the contract value is less than $1,000, we may cancel the contract on any
Valuation Date. We will notify you of our intention to cancel the contract at
least 90 days in advance of the cancellation date. If we do cancel your
contract, we consider such cancellation a full surrender of the contract.
CONTRACT VALUE
Contract value is the total of any Variable Account value in all the subaccounts
of the Variable Account, plus any fixed account value in all the guarantee
periods.
The contract does not guarantee a minimum Variable Account value. You bear the
entire investment risk for the contract value that you allocate to the Variable
Account.
Determination of Variable Account Value. A contract's Variable Account value is
based on the number of Accumulation Units and on Accumulation Unit values, which
are determined on each Valuation Date. The value of an Accumulation Unit for a
subaccount on any Valuation Date is equal to the previous value of that
subaccount's Accumulation Unit multiplied by that subaccount's net investment
factor (discussed directly below) for the Valuation Period ending on that
Valuation Date. At the end of any Valuation Period, a contract's Variable
Account value in a subaccount is equal to the number of Accumulation Units in
the subaccount times the value of one Accumulation Unit for that subaccount.
The number of Accumulation Units in each subaccount is equal to
- Accumulation Units purchased at the time that any purchase payments or
transferred amounts are allocated to the subaccount; less
- Accumulation Units redeemed to pay for the portion of any transfers from
or partial surrenders allocated to the subaccount; less
- Accumulation Units redeemed to pay charges under the contract.
Net Investment Factor. The net investment factor for a subaccount is determined
by dividing (1) the net asset value per share of the portfolio shares held by
the subaccount, determined at the end of the current Valuation Period, plus the
per share amount of any dividend or capital gains distribution made with respect
to the portfolio shares held by the subaccount during the current Valuation
Period, minus a per share charge for the increase, plus a per share credit for
the decrease, in any income taxes assessed which we determine to have resulted
from the investment operation of the subaccount or any other taxes which are
attributable to this contract, by (2) the net asset value per share of the
portfolio shares held in the subaccount as determined at the end of the previous
Valuation Period, and subtracting from that result a factor representing the
mortality risk, expense risk and administrative expense charge.
If a subaccount's net investment factor is greater than one, the subaccount's
Accumulation Unit value has increased. If a subaccount's net investment factor
is less than one, the subaccount's Accumulation Unit value has decreased.
Determination of Fixed Account Value. A contract's fixed account value is
guaranteed by Fortis Benefits. Therefore, we bear the investment risk with
respect to amounts allocated to the fixed account, except to the extent that (1)
we may vary the guaranteed interest rate for future guarantee periods (subject
to the 4% effective annual minimum) and (2) the Market Value Adjustment imposes
investment risks on you.
The contract's fixed account value on any Valuation Date is the sum of its fixed
account values in each guarantee period on that date. The fixed 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 purchase payments or transferred amounts allocated to the
guarantee period; less
- The amount of any transfers or surrenders out of the guarantee period.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Allocation of Purchase Payments. In your application for a contract, you may
allocate purchase payments, or portions of payments, to the:
- available subaccounts of the Variable Account, or
- to the guarantee periods in the fixed account, or
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- to a combination of the two previous options.
Percentages must be in whole numbers and the total allocation must equal 100%.
The percentage allocations for future purchase payments may be changed, without
charge, at any time by sending a written request to Fortis Benefits' home
office. Changes in the allocation of future purchase payments will be effective
on the date we receive your written request.
Transfers. You may transfer contract value:
- from one available subaccount to another available subaccount, or
- from one available subaccount to the fixed account, or
- from one guarantee period to another guarantee period, or
- from one guarantee period to an available subaccount
You must request transfers by (1) a written request to Fortis Benefits' home
office, or by (2) a telephone transfer as described below. Currently, we do not
charge for any transfer. However, transfers from a guarantee period that are (1)
more than 15 days before or 15 days after the expiration of the existing
guarantee period, or are (2) not a part of a formal Fortis Benefits program for
the transfer of fixed account value are subject to a Market Value Adjustment.
See "Market Value Adjustment".
The minimum transfer from a subaccount or guarantee period is the lesser of:
- $1,000, or
- all of the contract value in the subaccount or guarantee period.
However, we may permit a continuing request for transfers of lesser specified
amounts automatically on a periodic basis. You may not make a transfer into the
one year guarantee period fixed account within six months of a transfer out of
the one year guarantee period fixed account. We reserve the right to
additionally restrict the frequency of transfers or to otherwise condition,
terminate, or impose charges (not to exceed $25 per transfer) upon transfers.
Where you make all your transfer requests at the same time, as part of one
request, we will count all transfers between and among the subaccounts of the
Variable Account and the fixed account as one transfer. We will execute the
transfers, and determine all values in connection with the transfers, at of the
end of the Valuation Period in which we receive the transfer request. The amount
of any positive or negative Market Value Adjustment will be added to or deducted
from the transferred amount.
Certain restrictions on very substantial allocations to any one subaccount are
set forth under "Limitations on Allocations" in the Statement of Additional
Information.
TOTAL AND PARTIAL SURRENDERS
Total Surrenders. You may surrender all of the cash surrender value at any time
during the life of the Annuitant and prior to the annuity commencement date. If
you choose to make a total surrender, you must do so by written request sent to
our home office. We reserve the right to require that the contract be returned
to us prior to making payment, although this will not affect our determination
of the amount of the cash surrender value. Cash surrender value is:
- the contract value at the end of the Valuation Period during which we
receive the written request for the total surrender at our home office,
less
- any applicable surrender charge, and
- after we have applied any Market Value Adjustment.
See "Surrender Charge" and "Market Value Adjustment".
We must receive written consent of all collateral assignees and irrevocable
beneficiaries prior to any total surrender. We will generally pay surrenders
from the Variable Account within seven days of the date of receipt by our home
office of the written request. However, we may postpone payments in certain
circumstances. See "Postponement of Payment".
The amount we pay upon total surrender of the cash surrender value (taking into
account any prior partial surrenders) may be more or less than the total
purchase payments you made. After a surrender of the cash surrender value or at
any time the contract value is zero, all rights of the owner, Annuitant, or any
other person will terminate.
Partial Surrenders. At any time during the life of the Annuitant and prior to
the annuity commencement date, you may surrender a portion of the fixed account
and/or the Variable Account. You must request partial surrender by a written
request sent to Fortis Benefits' home office. We will not accept a partial
surrender request from you unless the net proceeds payable to you, as a result
of the request, are at least $1,000. We will surrender the entire cash surrender
value under the contract if the total contract value in both the Variable
Account and fixed account would be less than $1,000 after the partial surrender.
You should specify the subaccounts of the Variable Account or guarantee periods
of the fixed account that you wish to partially surrender. If you do not
specify, we take the partial surrender from the subaccounts and from the
guarantee periods of the fixed account on a pro rata basis.
We will surrender Accumulation Units from the Variable Account and/ or dollar
amounts from the fixed account so that the total amount of the partial surrender
equals the dollar amount of the partial surrender request. We will reduce the
partial surrender by the amount of any applicable surrender charge. In addition,
if the surrender is from a guarantee period, we will reduce the amount payable
to you by any negative Market Value Adjustment, or we will increase the amount
payable to you by any positive Market Value Adjustment unless the surrender is
(1) within 15 days before or 15 days after the expiration of a guarantee period,
or (2) is a part of a formal Fortis Benefits program for the transfer or
withdrawal of fixed account value. The partial surrender will be effective at
the end of the Valuation Period in which we receive the written request for
partial surrender at our home office. Payments will generally be made within
seven days of the effective date of such request, although certain delays are
permitted. See "Postponement of Payment".
The Internal Revenue Code provides that a penalty tax will be imposed on certain
premature surrenders. For a discussion of this and other tax implications of
total and partial surrenders, including withholding requirements, see "Federal
Tax Matters". Also, under tax deferred annuity contracts pursuant to Sec-
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tion 403(b) of the Internal Revenue Code, no distributions of voluntary salary
reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.)
TELEPHONE TRANSACTIONS
You or your representative may make certain requests under the contract by
telephone if we have a written telephone authorization on file. These include
requests for (1) transfers, (2) withdrawals, and (3) changes in purchase payment
allocation instructions, dollar-cost averaging, portfolio rebalancing programs,
and systematic withdrawals. Our home office will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures may include, among others, (1) requiring some form of personal
identification such as your address and social security number prior to acting
upon instructions received by telephone, (2) providing written confirmation of
such transactions, and/or (3) tape recording of telephone instructions. Your
request for telephone transactions authorizes us to record telephone calls. We
may be liable for any losses due to unauthorized or fraudulent instructions if
we do not employ reasonable procedures. If we do employ reasonable procedures,
we will not be liable for any losses due to unauthorized or fraudulent
instructions. We reserve the right to place limits, including dollar limits, on
telephone transactions.
BENEFIT PAYABLE ON DEATH OF ANNUITANT OR OWNER
If the owner or Annuitant dies prior to the annuity commencement date, we will
pay a death benefit to the beneficiary. If more than one Annuitant has been
named, we will pay the death benefit payable upon the death of an Annuitant only
upon the death of the last survivor of the persons so named.
If the contract is issued on or after May 1, 1997 and in a state that has
approved the Enhanced Death Benefit Rider (check with your representative as to
its availability in your state), the death benefit will be equal to the greater
of (1), (2), or (3) as follows:
(1)(a) If an owner or the Annuitant dies before the date any owner or Annuitant
first reaches age 75, the accumulation of purchase payments made less all
prior surrenders and less any applicable prior negative Market Value
Adjustments less previously imposed surrender charges at an effective
annual rate of 3.0%. This amount may not exceed a maximum of two times
the following: purchase payments made less all prior surrenders and less
any applicable prior negative Market Value Adjustments less previously
imposed surrender charges. This amount is referred to as the "roll-up
amount".
or
(1)(b) If the Annuitant or owner dies on or after the date any owner or
Annuitant first reaches age 75, the roll-up amount as of the date that an
owner or Annuitant first reaches age 75, plus subsequent purchase
payments made, less subsequent surrenders and any subsequent negative
Market Value Adjustments less subsequently imposed surrender charges.
(2) The contract value adjusted by any applicable Market Value Adjustment as
of the date used for valuing the death benefit.
(3) The contract value adjusted by any Market Value Adjustment (less the
amount of any subsequent surrenders and surrender charges and negative
Market Value Adjustments in connection therewith), as of the contract's
Seven Year Anniversary immediately preceding the earlier of:
(a) the date of death of either the owner or Annuitant, or
(b) the date either first reaches his or her 75th birthday.
See Appendix B for Sample Death Benefit Calculations.
If the contract is issued prior to May 1, 1997, or on or after that date in a
state that has not approved the Enhanced Death Benefit rider, the death benefit
will be equal to the greater of (1), (2), or (3) as follows:
(1) The sum of all purchase payments made (less all prior surrenders and
previously-imposed surrender charges and prior negative Market Value
Adjustments);
(2) The contract value adjusted by any Market Value Adjustment, as of the date
used for valuing the death benefit; or
(3) The contract value adjusted by any Market Value Adjustment (less the amount
of any subsequent surrenders and surrender charges and negative Market Value
Adjustments in connection therewith), as of the contract's Seven Year
Anniversary immediately preceding the earlier of:
(a) the date of death of either the owner or Annuitant, or
(b) the date either first reaches his or her 75th birthday.
The value of the death benefit is determined as of the end of the Valuation
Period in which we receive, at our home office, proof of death and the written
request as to the manner of payment. Upon receipt of these items, the death
benefit generally will be paid within seven days. Under certain circumstances,
payment of the death benefit may be postponed. See "Postponement of Payment". If
we do not receive a written request for a settlement method, we will pay the
death benefit in a single sum, based on values determined at that time.
The beneficiary may (1) receive a single sum payment, which terminates the
contract, or (2) select an annuity option. If the beneficiary selects an annuity
option, he or she will have all the rights and privileges of a payee under the
contract. If the beneficiary desires an annuity option, the election should be
made within 60 days of the date the death benefit becomes payable. Failure to
make a timely election can result in unfavorable tax consequences. For further
information, see "Federal Tax Matters".
We accept any of the following as proof of death: (1) a copy of a certified
death certificate; (2) a copy of a certified decree of a court of competent
jurisdiction as to the finding of death; or (3) a written statement by a medical
doctor who attended the deceased at the time of death.
The Internal Revenue Code requires that a Non-Qualified Contract contain certain
provisions about an owner's death. We discuss these provisions below under
"Federal Tax Matters--Required Distributions for Non-Qualified Contracts". It is
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imperative that written notice of the death of the owner be promptly transmitted
to us at our home office, so that we can make arrangements for distribution of
the entire interest in the contract to the beneficiary in a manner that
satisfies the Internal Revenue Code requirements. Failure to satisfy these
requirements may result in the contract not being treated as an annuity contract
for federal income tax purposes with possible adverse tax consequences.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
You may specify an annuity commencement date in your application. The annuity
commencement date marks the beginning of the period during which an Annuitant or
other payee designated by the owner receives annuity payments under the
contract. The annuity commencement date must be at least two years after the
contract issue date. You should consult your sales representative in this
regard.
The Internal Revenue Code may impose penalty taxes on amounts distributed either
too soon or too late depending on the type of retirement arrangement involved.
See "Federal Tax Matters". You should consider this carefully in selecting or
changing an annuity commencement date.
You must submit a written request in order to advance or defer the annuity
commencement date. Moreover, you must submit a written request during the
Annuitant's lifetime. We must receive the request at our home office at least 30
days before the then-scheduled annuity commencement date. The new annuity
commencement date must also be at least 30 days after we receive the written
request. You have no right to make any total or partial surrender during the
Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
We may pay the entire contract value, rather than apply the amount to an annuity
option if the contract value at the end of the Valuation Period which contains
the annuity commencement date is less than $1,000. We would make the payment in
a single sum to the Annuitant or other payee chosen by the owner and cancel the
contract. We would not impose any charge other than the premium tax charge.
Otherwise, we will apply (1) the fixed account value to provide a Fixed Annuity
Option and (2) the Variable Account value in any subaccount to provide a
Variable Annuity Option using the same subaccount, unless you have notified us
by written request to apply the fixed account value and Variable Account value
in different proportions. We must receive written request at our home office at
least 30 days before the annuity commencement date.
We will make annuity payments under a Fixed or Variable Annuity Option on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If you name more than one person as an
Annuitant, you may elect to name one of such persons to be the sole Annuitant as
of the annuity commencement date. We reserve the right to change the frequency
of any annuity payment so that each payment will be at least $50 ($20 in Texas).
The amount of each annuity payment will depend on (1) the amount of contract
value applied to an annuity option, (2) the form of annuity selected, and (3)
the age of the Annuitant. For information concerning the relationship between
the Annuitant's sex and the amount of annuity payments, including special
requirements in connection with employee benefits plans, see "Calculations of
Annuity Payments' in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity option
selected. The dollar amount of variable annuity payments varies during the
Annuity Period based on changes in Annuity Unit values for the subaccounts that
you choose to use in connection with your payments.
RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS
The amount of an annuity payment depends on the average effective net investment
return of a subaccount during the period since the preceding payment as follows:
- if the return is higher than 4% annually, the Annuity Unit value will
increase, and the second payment will be higher than the first; and
- if the return is lower than 4% annually, the Annuity Unit value will
decrease, and the second payment will be lower than the first.
"Net investment return," for this purpose, refers to the subaccount's overall
investment performance after deduction of the mortality and expense risk and
administrative expense charges, which are assessed at an annual rate of 1.35%.
We guarantee that the amount of each variable annuity payment after the first
payment will not be affected by variations in our mortality experience or our
expenses.
Transfers. A person receiving annuity payments may make up to four transfers a
year among subaccounts. The current procedures for and conditions on these
transfers are the same as we describe above under "Allocation of Purchase
Payments and Contract Value--Transfers". We do not permit transfers from a Fixed
Annuity Option during the Annuity Period.
ANNUITY OPTIONS
You may select an annuity option or change a previous selection by written
request. We must receive your request at least 30 days before the annuity
commencement date. You may select one annuity form, although payments under that
form may be on a combination fixed and variable basis. If no annuity form
selection is in effect on the annuity commencement date, we usually
automatically apply Option B (described below), with payments guaranteed for ten
years. However, federal pension law may require that we make default payments
under certain retirement plans pursuant to plan provisions and/or federal law.
Tax laws and regulations may impose further restrictions to assure that the
primary purpose of the plan is distribution of the accumulated funds to the
employee.
Your contract offers the following options for fixed and variable annuity
payments. Under each of the options, we make payments as of the first Valuation
Date of each monthly period, starting with the annuity commencement date.
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Option A, Life Annuity. We do not make payments after the annuitant dies. It is
possible for the annuitant to receive only one payment under this option, if the
annuitant dies before the second payment is due.
Option B, Life Annuity with Payments Guaranteed for 10 Years to 20 Years. We
continue payments as long as the annuitant lives. If the annuitant dies before
we have made all of the guaranteed payments, we continue installments of the
guaranteed payments to the beneficiary.
Option C, Joint and Full Survivor Annuity. We continue payments as long as
either the annuitant or the joint annuitant is alive. We stop payments when both
the annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
Option D, Joint and One-Half Contingent Survivor Annuity. We continue payments
as long as either the annuitant or the joint annuitant is alive. If the
annuitant dies first, we continue payments to the joint annuitant at one-half
the original amount. If the joint annuitant dies first, we continue payments to
the annuitant at the original full amount. We stop payments when both the
annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
We also have other annuity options available. You can get information about them
from your sales representative or by calling or writing to our home office.
DEATH OF ANNUITANT OR OTHER PAYEE
Under most annuity forms offered by us, the amounts, if any, payable on the
death of the Annuitant during the Annuity Period are the continuation of annuity
payments for any remaining guarantee period or for the life of any joint
Annuitant. In all such cases, the person entitled to receive payments also
receives any rights and privileges under the annuity form in effect.
Additional rules applicable to such distributions under Non-Qualified Contracts
are described under "Federal Tax Matters--Required Distributions for
Non-Qualified Contracts". Though the rules there described do not apply to
contracts issued in connection with qualified plans, similar rules apply to the
plans themselves.
CHARGES AND DEDUCTIONS
PREMIUM TAXES
We deduct state premium taxes as follows:
- when imposed on purchase payments, we pay the amount on your behalf and
deduct the amount from your contract value upon (1) our payment of
surrender proceeds or death benefit or (2) annuitization of a contract,
or
- when imposed at the time annuity payments begin, we deduct the amount
from your contract value.
Applicable premium tax rates depend upon your place of residence. Rates can
change by legislation, administrative interpretations, or judicial acts.
CHARGES AGAINST THE VARIABLE ACCOUNT
Mortality and Expense Risk Charge. We assess each subaccount of the Variable
Account with a daily charge for mortality and expense risk. This charge is a
nominal annual rate of 1.25% of the average daily net assets of the Variable
Account. It consists of approximately .8% for mortality risk and approximately
.45% for expense risk. We guarantee not to increase this charge for the duration
of the contract. This charge is assessed during both the Accumulation Period and
the Annuity Period.
The mortality risk borne by us arises from our obligation to make annuity
payments (determined in accordance with the annuity tables and other provisions
contained in the contract) for the full life of all Annuitants regardless of how
long all Annuitants or any individual Annuitant might live. In addition, we bear
a mortality risk in that we guarantee to pay a death benefit upon the death of
an Annuitant or owner prior to the annuity commencement date. We do not impose a
surrender charge upon payment of a death benefit. This places a further
mortality risk on us.
The expense risk we assume is that actual expenses incurred in connection with
issuing and administering the contract will exceed the limits on administrative
charges set in the contract.
We or the reinsurer of the contracts bear the loss if the administrative charges
and the mortality and expense risk charge are insufficient to cover the expenses
and costs assumed. Conversely, we or the reinsurer of the contracts profit if
the amount deducted proves more than sufficient.
Administrative Expense Charge. We assess each subaccount of the Variable Account
with a daily charge at an annual rate of .10% of the average daily net assets of
the subaccount. We assess this charge during both the Accumulation Period and
the Annuity Period. This charge helps cover administrative costs such as those
incurred in issuing contracts, establishing and maintaining the records relating
to contracts, making regulatory filings and furnishing confirmation notices,
voting materials and other communications, providing computer, actuarial and
accounting services, and processing contract transactions. There is no necessary
relationship between the amount of administrative charges assessed on a given
contract and the amount of expenses actually incurred for that contract.
TAX CHARGE
We currently impose no charge for taxes payable by us in connection with the
contract, other than for applicable premium taxes. We reserve the right to
impose a charge for any other taxes that may become payable by us in the future
for the contracts or the Variable Account.
The annual administrative charge and charges against the Variable Account
described above are for the purposes described. We may receive a profit as a
result of these charges.
SURRENDER CHARGE
We do not deduct a sales charge from purchase payments. We deduct surrender
charges on certain total or partial surrenders. We use the revenues from
surrender charges to partially pay our expenses in the sale of the contracts,
including (1) commissions, (2) promotional, distribution and marketing expenses,
and (3) costs of printing and distribution of prospectuses and sales material.
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Free Surrenders. You can withdraw the following amounts from the contract
without a surrender charge:
- Any purchase payments that we received more than seven years before the
surrender date and that you have not previously surrendered;
- Any earnings that you have not previously surrendered;
- In any contract year, up to 10% of the purchase payments that we received
less than seven years before the surrender date (whether or not you have
previously surrendered the purchase payments).
Earnings are deemed to be withdrawn first. After all earnings have been
withdrawn, all purchase payments not subject to a surrender charge are deemed to
be withdrawn. After all purchase payments not subject to a surrender charge have
been withdrawn, all purchase payments subject to a surrender charge are deemed
to be withdrawn.
We do not impose a surrender charge on (1) annuitization or (2) payment of a
single sum because less than the minimum required contract value is available to
provide an annuity at the annuity commencement date or (3) payment of any death
benefit.
In addition, we have an administrative policy to waive surrender charges for
full surrenders of contracts that have been in force for at least ten years if
the amount then subject to the surrender charge is less than 25% of the contract
value. We have offered these contracts since 1991. Therefore, we have made no
waivers. We reserve the right to change or terminate this practice at any time,
both for new and for previously issued contracts.
Amount of Surrender Charge. We only apply surrender charges if the amount being
withdrawn exceeds the sum of the amounts listed above under "Free Surrenders"
(that is, if the amount being withdrawn includes purchase payments made less
than seven years prior to the surrender date). The surrender charges are:
NUMBER OF YEARS SURRENDER CHARGE
SINCE PURCHASE AS A PERCENTAGE OF
PAYMENT WAS CREDITED PURCHASE PAYMENT
-------------------- ------------------
Less than 1 7%
At least 1 but less than 2 6%
At least 2 but less than 3 5%
At least 3 but less than 4 4%
At least 4 but less than 5 3%
At least 5 but less than 6 2%
At least 6 but less than 7 1%
7 or more 0%
We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent that the surrender charge is insufficient,
we will pay such costs from our general account assets. These assets will
include any profit that we derive from the mortality and expense risk charge.
Nursing Care/Hospitalization Waiver of Surrender Charges. We do not deduct
surrender charges for a total or partial withdrawal:
- after a covered person has been confined in a hospital or skilled
health care facility for at least 60 consecutive days and the covered
person continues to be confined in the hospital or skilled care
facility when the request is made, or
- within 60 days following a covered person's discharge from a hospital
or skilled health care facility after confinement of at least 60
consecutive days.
Confinement must begin after the effective date of this provision.
Covered persons are the contract owner or owners and the spouse of any contract
owner if the spouse is the Annuitant. We will not waive surrender charges when a
confinement is due to (1) substance abuse, or (2) mental or personality
disorders without a demonstrable organic disease. We consider a degenerative
brain disease such as Alzheimer's Disease an organic disease.
We provide this nursing care/hospitalization waiver of surrender charges by
means of a rider to the contract. This rider has not been approved in all
states. When you apply for a contract, you should check with your Fortis
Benefits representative to determine if this rider is available in your state.
MISCELLANEOUS
The Variable Account invests in shares of the portfolios. Therefore, the net
assets of the Variable Account will reflect the investment advisory fees and
certain other expenses incurred by the portfolios and described in their
prospectus.
REDUCTION OF CHARGES
We will not impose a surrender charge under any contract owned by:
(A) Fortis, Inc. or its subsidiaries, and the following persons associated with
such companies, if at the contract issue date they are:
(1) officers and directors;
(2) employees; or
(3) spouses of any such persons or any of such persons' children,
grandchildren, parents, grandparents, or siblings--or spouses of any of
these persons;
(B) Series Fund directors, officers, or their spouses (or such persons'
children, grandchildren, parents or grandparents--or spouses of any such
persons); and
(C) representatives or employees (or their spouses) of Fortis Investors
(including agencies) or of other broker-dealers having a sales agreement
with Fortis Investors (or such persons' children, grandchildren, parents, or
grandparents--or spouses of any such persons).
GENERAL PROVISIONS
THE CONTRACTS
The entire contract includes any application, amendment, rider, endorsement, and
revised contract pages. Only an officer of Fortis Benefits can agree to change
or waive any provision of a contract. Any change or waiver must be in writing
and signed by an officer of Fortis Benefits.
The contracts are non-participating and do not share in dividends or earnings of
Fortis Benefits.
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POSTPONEMENT OF PAYMENT
We may defer for up to 15 days the payment of any amount attributable to a
purchase payment made by check to allow the check reasonable time to clear. For
a description of other circumstances in which amounts payable out of Variable
Account assets could be deferred, see "Postponement of Payments" in the
Statement of Additional Information. We may also defer payment of surrender
proceeds payable out of the fixed account for a period of up to 6 months.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the Annuitant's age or sex was misstated, we pay the amount that the purchase
payments paid would have purchased at the correct age and sex. If we make any
overpayment because of incorrect information about age or sex, or any other
miscalculation, we deduct the overpayment from the next payment due. We add
underpayments to the next payment. We credit or charge the amount of any
adjustment with interest at the rate of 4% annually.
ASSIGNMENT
Owners and payees may assign their rights and interests under a Qualified
Contract only in certain narrow circumstances referred to in the contract.
Owners and other payees may assign their rights and interests under
Non-Qualified Contracts, including their ownership rights.
We take no responsibility for the validity of any assignment. Owners and payees
must make a change in ownership rights in writing and send it to our home
office. The change will be effective on the date made, although we are not bound
by a change until the date we record it.
The rights under a contract are subject to any assignment of record at our home
office. An assignment or pledge of a contract may have adverse tax consequences.
See below under "Federal Tax Matters".
BENEFICIARY
You may name or change a beneficiary or a contingent beneficiary before the
annuity commencement date. You must send a written request of the change to
Fortis Benefits. Certain retirement programs may require spousal consent to name
or change a beneficiary. Applicable tax laws and regulations may limit the right
to name a beneficiary other than the spouse. We are not responsible for the
validity of any change. A change will take effect as of the date it is signed
but will not affect any payment we make or action we take before receiving the
written request. We also need the consent of any irrevocably named person before
making a requested change.
Upon the death of an owner or Annuitant prior to the annuity commencement date
the beneficiary will be deemed to be as follows:
- If there is any surviving owner, the surviving owner will be the
beneficiary (this overrides any other beneficiary designation).
- If there is no surviving owner, the beneficiary will be the beneficiary
designated by the owner.
- If there is no surviving owner and no surviving beneficiary who has been
designated by the owner, then the estate of the last surviving owner will
be the beneficiary.
REPORTS
We will mail to the owner (or to the person receiving payments during the
Annuity Period), at the last known address of record, any report and
communication required by applicable law or regulation. You should therefore
give us prompt written notice of any address change. This will include annual
audited financial statements of the Series Fund, but not necessarily of the
Variable Account or Fortis Benefits.
RIGHTS RESERVED BY FORTIS BENEFITS
We reserve the right to make certain changes if, in our judgment, they would
best serve the interests of owners and Annuitants or would be appropriate in
carrying out the purposes of the contracts. We will make any change only as
permitted by applicable laws. We will obtain your approval of the changes and
approval from any appropriate regulatory authority if required by law. Examples
of the changes we may make include:
- To operate the Variable Account in any form permitted under the
Investment Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any subaccount to another subaccount, or to one
or more separate accounts, or to the fixed account; or to add, combine,
or remove subaccounts in the Variable Account.
- To substitute, for the portfolio shares held in any subaccount, the
shares of another portfolio of Series Fund or the shares of another
investment company or any other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the contract as an
annuity.
- To change the time or time of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the contract in order to
conform with any action the above provisions permit us to take, including
to change the way we assess charges, but without increasing as to any
then outstanding contract the aggregate amount of the types of charges
that we have guaranteed.
DISTRIBUTION
Woodbury Financial Services, Inc. ("Woodbury Financial") is the principal
underwriter of the contracts. The contracts will be sold by individuals who are
licensed by state insurance authorities to sell the contracts of Fortis
Benefits, and (1) are registered representatives of Woodbury Financial, or (2)
are registered representatives of other broker-dealer firms or (3) are
representatives of other firms that are exempt from broker dealer regulation.
Woodbury Financial and any other broker-dealer firms are (1) registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 as
broker-dealers, and (2) members of the National Association of Securities
Dealers, Inc.
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Woodbury Financial will pay an allowance to its registered representatives and
selling brokers in varying amounts. Woodbury Financial does not expect the
allowances under normal circumstances to exceed 6.25% of purchase payments plus
a servicing fee of .25% of contract value per year, starting in the first
contract year.
Fortis Benefits and Woodbury Financial may, under certain flexible compensation
arrangements, pay lesser or greater selling allowances and larger or smaller
service fees to its registered representatives and other broker dealer firms
than as set forth above. However, in such case, such flexible compensation
arrangements will have actuarial present values that are approximately
equivalent to the amounts of the selling allowances and service fees set forth
above. Additionally, registered representatives, broker-dealer firms and exempt
firms may qualify for additional compensation based upon meeting certain
production standards. Woodbury Financial may charge back commissions paid to
others if the contract upon which the commission was paid is surrendered or
cancelled within certain specified time periods.
Fortis Benefits paid a total of $32,874,801, $48,774,402 and $55,661,956 to
Woodbury Financial for annuity contract distribution services during 1998, 1999
and 2000, respectively, $5,389,151 in 1998, $7,643,966 in 1999 and $9,648,917 in
2000 was not reallowed to other broker-dealers or exempt firms. In the
distribution agreement, Fortis Benefits has agreed to indemnify Woodbury
Financial (and its agents, employees, and controlling persons) for certain
damages and expenses, including those arising under federal securities laws.
Fortis Benefits or Woodbury Financial may also provide additional compensation
to broker-dealers in connection with sales of contracts. Compensation may
include financial assistance to broker-dealers in connection with (1)
conferences, (2) sales or training programs for their employees, (3) seminars
for the public, (4) advertising, (5) sales campaigns regarding contracts, and
(6) other broker-dealer sponsored programs or events. Compensation may also
include trips taken by invited sales representatives and their family members to
locations within or without the United States for business meetings or seminars.
Fortis Benefits or Woodbury Financial may pay travel expenses that arise from
these trips.
See Notes to Fortis Benefits' Financial Statements as to amounts it has paid to
Fortis, Inc. for various services.
Woodbury Financial is an indirect subsidiary of The Hartford Financial Services,
Group, Inc. Woodbury Financial principal business address is the same as that of
our home office. Woodbury Financial is not obligated to sell any specific amount
of interests under the contracts. $110,000,000 of interests in the fixed account
and an indefinite amount of interests in the Variable Account have been
registered with the Securities and Exchange Commission.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes. These rules are based on laws, regulations and
interpretations that are subject to change at any time. This summary is not
comprehensive. We do not intend it as tax advice. Federal estate and gift tax
considerations, as well as state and local taxes, may also be material. You
should consult a qualified tax adviser as to the tax implications of taking any
action under a contract or related retirement plan.
NON-QUALIFIED CONTRACTS
Section 72 of the Internal Revenue Code ("Code") governs the taxation of
annuities in general. Neither you nor any other person may exclude or deduct
purchase payments under Non-Qualified Contracts from gross income. However, you
are not currently taxed, until receipt, on any increase in the accumulated value
of a Non-Qualified Contract that results from (1) the investment performance of
the Variable Account, or (2) interest credited to the fixed account. Owners who
are not natural persons are taxed annually on any increase in the contract value
subject to exceptions. You may wish to discuss this with your tax adviser.
The following discussion applies generally to contracts owned by natural
persons.
In general, surrenders or partial withdrawals under contracts are taxed as
ordinary income to the extent of the accumulated income or gain under the
contract. If you assign or pledge any part of the value of a contract, you pay
on the value so pledged or assigned to the same extent as a partial withdrawal.
With respect to annuity payment options, the tax consequences may vary depending
on the option elected under the contract. Until the "investment in the contract"
is recovered, generally only the portion of the annuity payment that represents
the amount by which the contract value exceeds the "investment in the contract"
will be taxed. In general, "investment in the contract" is the aggregate amount
of purchase payments made. After recovery of an Annuitant's or other payee's
"investment in the contract," the full amount of any additional annuity payments
is taxable.
For variable annuity payments, in general, the taxable portion of each annuity
payment (prior to recovery of the "investment in the contract") is the amount of
the payment less the nontaxable portion. The nontaxable portion of each payment
is the "investment in the contract" divided by the total number of expected
annuity payments.
For fixed annuity payments, in general, prior to recovery of the "investment in
the contract," there is no tax on the amount of each payment that bears the same
ratio to that payment as the "investment in the contract" bears to the total
expected value of the annuity payments for the term of the payments. However,
the remainder of each annuity payment is taxable. The taxable portion of a
distribution (in the form of an annuity or a single sum payment) is taxed as
ordinary income.
For purposes of determining the amount of taxable income resulting from
distributions, all contracts and other annuity contracts we or our affiliates
issue to you within the same calendar year will be treated as if they were a
single contract.
You, or any other payee, will pay a 10% penalty on the taxable portion of a
"premature distribution." Generally, an amount is a "premature distribution"
unless the distribution is:
- made on or after you or another payee reach age 59 1/2, or is
- made to a beneficiary on or after your death, or is
- made upon your disability or that of another payee, or is
- part of a series of substantially equal annuity payments for your life or
life expectancy, or is
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- part of a series of substantially equal annuity payments for the life or
life expectancy of you and your beneficiary.
Premature distributions may result, for example, from:
- an early annuity commencement date
- an early surrender or partial surrender of a contract
- an assignment of a contract
- the early death of an Annuitant other than you or another person
receiving annuity payments under the contract
If you transfer ownership of a contract, or designate an Annuitant or payee
other than yourself, you may have certain income or gift tax consequences that
are beyond the scope of this discussion. If you are contemplating any transfer
or assignment of a contract, you should contact a competent tax adviser.
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
In order that a Non-Qualified Contract be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires:
- if any person receiving annuity payments dies on or after the annuity
commencement date but prior to the time the entire interest in the
contract has been distributed, the remaining portion of such interest
will be distributed at least as rapidly as under the method of
distribution being used as of the date of the person's death; and
- if you die prior to the annuity commencement date, the entire interest in
the contract will be distributed:
- within five years after your death, or
- as annuity payments that will begin within one year of your death and
will be made over your designated beneficiary's life or over a period
not extending beyond the life expectancy of that beneficiary.
However, if the owner's designated beneficiary is the surviving spouse, the
surviving spouse may continue the contract as the new contract owner. Where the
owner or other person receiving payments is not a natural person, the required
distributions under Section 72(A) apply on the death of the primary Annuitant.
The Internal Revenue Service has not issued regulations interpreting the
requirements of Section 72(s) (although it has issued proposed regulations
interpreting similar requirements for qualified plans). We intend to review and
modify the contract if necessary to ensure that it complies with the
requirements of Section 72(s) when clarified by regulation or otherwise.
Generally, the above requirements will be satisfied with a single sum payment
where the death occurs prior to the annuity commencement date. A single sum
payment will be subject to proof of the owner's death. The beneficiary, however,
may elect by written request to receive an annuity option instead of a lump sum
payment. However, if the election is not made within 60 days of the date the
single sum death benefit otherwise becomes payable, the IRS may disregard the
election for tax purposes and tax the beneficiary as if a single sum payment had
been made.
QUALIFIED CONTRACTS
The contracts may be used with several types of tax-qualified plans. The tax
rules applicable to owners, Annuitants, and other payees vary according to the
type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a tax qualified plan on your behalf are excludable
from your gross income during the Accumulation Period. The portion, if any, of
any purchase payment that is not excluded from your gross income during the
Accumulation Period constitutes your "investment in the contract".
When annuity payments begin, you will receive back your "investment in the
contract" if any, as a tax-free return of capital. The Code provides which
portion of each payment is taxable and which portion is tax free. These rules
may vary depending on the type of tax qualified plan.
The contracts are available in connection with the following types of retirement
plans:
- Section 403(b) annuity plans for employees of certain tax-exempt
organizations and public education institutions;
- Section 401 or 403(a) qualified pension, profit-sharing, or annuity
plans;
- Individual retirement annuities ("IRAs") under Section 408(b);
- Simplified employee pension plans ("SEPs") under Section 408(k);
- SIMPLE IRA Plans under Section 408(p); and
- Section 457 unfunded deferred compensation plans of tax-exempt
organizations and private employer unfunded deferred compensation plans.
The tax implications of these plans are further discussed in the
Statement of Additional Information under the heading "Taxation Under
Certain Retirement Plans".
WITHHOLDING
Annuity payments and other amounts received under contracts are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Despite the recipient's election, the Code may require withholding from certain
payments outside the United States. The Code may also require withholding from
certain distributions from certain types of qualified retirement plans, unless
the proceeds are transferred directly from the qualified plan to another
qualified retirement plan. Moreover, special "backup withholding" rules may
require us to disregard the recipient's election if the recipient fails to
supply us with a "TIN" or taxpayer identification number (social security number
for individuals), or if the Internal Revenue Service notifies us that the TIN
provided by the recipient is incorrect.
PORTFOLIO DIVERSIFICATION
The United States Treasury Department has adopted regulations under Section
817(h) of the Code that set forth diversification requirements for investments
underlying Non-Qualified Con-
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tracts. We believe that the investments will satisfy these requirements. Failure
to do so would result in immediate taxation to you or another person of all
income credited to Non-Qualified Contracts. Also, current regulations do not
provide guidance as to any circumstances in which control over allocation of
values among different investment alternatives may cause you or another person
receiving annuity payments to be treated as the owners of Variable Account
assets for tax purposes. We reserve the right to amend the contracts in any way
necessary to avoid any such result. The Treasury Department may establish
standards in this regard through regulations or rulings. Such standards may
apply only prospectively, although retroactive application is possible if the
Treasury Department considered such standards not to embody a new position.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized under the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange pursuant to the special
annuity contract exchange form we provide for this purpose is not generally a
taxable event under the Code. Moreover, your investment in the contract will be
the same as your investment in the product you exchanged out of.
Because of the complexity of these and other tax aspects in connection with an
exchange, you should consult a tax adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403(b) PLANS
Section 403(b)(11) of the Internal Revenue Code restricts the distribution under
Section 403(b) annuity contracts of:
(1) elective contributions made for years beginning after December 31, 1988;
(2) earnings on those contributions; and
(3) earnings on amounts held as of December 31, 1988.
Distribution of these amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, we may not distribute income attributable to elective
contributions made after December 31, 1988.
FURTHER INFORMATION ABOUT FORTIS BENEFITS
GENERAL
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 business
and individuals through a national network of independent agents, brokers, and
financial institutions.
OWNERSHIP OF SECURITIES
All of Fortis Benefits' outstanding shares are owned by Interfinancial, Inc.,
which is itself wholly owned by Fortis, Inc., both having an address of One
Chase Manhattan Plaza, New York, N.Y. 10005. Fortis, Inc., in turn, is wholly
owned by Fortis International, Inc., which is wholly owned by AMEV/VSB 1990
N.V., both of which share the same address with Fortis (NL) N.V., Archimedeslaan
10, 3584 BA, Utrecht, The Netherlands. AMEV/VSB 1990 N.V. is 50% owned by Fortis
(NL)N.V. and 50% owned, through certain subsidiaries, by Fortis (B), Boulevard
Emile Jacqmain 53, 1000 Brussels, Belgium.
SELECTED FINANCIAL DATA
The following is a summary of certain financial data of Fortis Benefits. This
summary has been derived in part from the financial statements of Fortis
Benefits included elsewhere in this prospectus. You should read the following
along with these financial statements.
YEAR ENDED DECEMBER 31,
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(IN THOUSANDS) 2000 1999 1998 1997 1996
-------------- ---- ---- ---- ---- ----
INCOME STATEMENT DATA
Premiums and policy charges......................... $1,540,384 $1,445,529 $1,333,258 $1,238,006 $1,295,878
Net investment income............................... 279,572 238,698 234,043 228,724 206,023
Net realized gains (losses) on investment........... (17,039) 25,962 52,404 41,101 25,731
Other income........................................ 12,687 11,610 11,183 36,458 31,725
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES...................................... $1,816,604 $1,721,799 $1,630,888 $1,544,289 $1,559,357
========== ========== ========== ========== ==========
Total benefits and expenses......................... $1,685,930 $1,598,266 $1,538,604 $1,442,059 $1,470,066
Federal Income taxes................................ 41,555 40,327 30,402 35,120 31,099
Net income.......................................... 88,119 83,206 61,882 67,110 58,192
BALANCE SHEET DATA
Total assets........................................ $9,691,784 $9,610,139 $7,578,055 $6,819,484 $5,951,876
Total liabilities................................... 8,861,060 8,760,587 6,692,587 5,939,378 5,171,203
Total shareholder's equity.......................... 830,724 849,552 885,468 880,106 780,673
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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.
EVENTS SUBSEQUENT
On January 25, 2001, Fortis, Inc. agreed to sell (the "Sale") its Fortis
Financial Group division (the "Division") to The Hartford Financial Services
Group ("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, First
Fortis Life Insurance Company, Fortis Insurance Company, John Alden Life
Insurance Company and Houston National Life Insurance Company (the "Companies").
Certain of the Insurance Contracts permit investment in, among other investment
options, various series of the Fortis Series Fund (the "Fund").
To effect the Sale as it relates to the Companies, Hartford Life and Annuity
Insurance Company and Hartford Life Insurance Company, indirect wholly owned
subsidiaries of The Hartford, will reinsure the Insurance Contracts on a 100%
coinsurance basis (or a 100% modified coinsurance basis for some of the block)
and perform administration of such Insurance Contracts. In addition, Hartford
Life and Accident Insurance Company, another indirect wholly owned subsidiary of
The Hartford, will purchase all of the outstanding stock of Fortis Advisers,
Inc., which is the investment adviser for the Fund. Thus, upon completion of the
Sale, Hartford Life and Accident Insurance Company will own and control Fortis
Advisers, Inc. and its subsidiaries, including Fortis Investors, Inc., which is
the principal distributor of the Fund.
The Sale was completed on April 1, 2001. Following the Sale, the Fund entered
into new investment advisory, subadvisory and distribution agreements with
affiliates of the Hartford. These new agreements will require approval of the
Fund's shareholders and by Insurance Contract holders to the extent required by
law.
1999 COMPARED TO 1998
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 $36 million in
gross premium in 1999. Group disability and dental, group medical, group life,
annuity and individual life and pre-need represented 39%,32%, 18%, 8% and 3%,
respectively of premium in 1999 and 38%, 36%, 19%, 7% and 0% respectively in
1998. The Company had less capital gains from fixed income investments in 1999
as compared to 1998. During 1999, the Company decreased its common stock
holdings as a result of investment portfolio realignment which resulted in
equity gains.
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The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1999 and 1998
resulted in recognition of realized gains and losses upon sales of securities.
BENEFITS
The total year-to-date policyholder benefit to premium ratio decreased to 80% in
1999 from 83% in 1998. The group disability and dental, group medical, group
life, annuity and individual life, and pre-need benefit to premium ratios for
the year ended December 31, were 83%, 80%, 70%, 94%, and 87% respectively in
1999 and 83%, 85%, 73%, 108% and 0% respectively in 1998. The group medical
business experienced a lower premium to benefit ratio due to rate increases and
better management of claims. Group life had improved mortality in 1999. The
annuity and individual life business also experienced strong market performance,
in addition to lower interest crediting on the Company's interest sensitive and
investment products.
EXPENSES
Commission rates have decreased from the levels in 1998. 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
slightly to 22% in 1999 down from 23% in 1998. A principal reason for this
expense reduction is the combining of three group medical cost centers into one.
The Company continued to monitor expenses, striving to improve the expense to
premium ratio, while maintaining quality and timely services to policyholders.
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 contractowners
bear the investment risk related to the variable products. Therefore, the risks
associated with the investments supporting the variable separate accounts are
assumed by contractowners, 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 % investment grade bonds
as of December 31, 2000 and the Company does not expect this percentage to
change significantly in the future.
VOTING PRIVILEGES
In accordance with our view of current applicable law, we will vote shares of
each of the portfolios attributable to a contract at regular and special
meetings of the shareholders of the portfolios. We will vote those shares in
proportion to instructions we receive from the persons having the voting
interest in the contract as of the record date for the corresponding portfolio
shareholders meeting. Owners have the voting interest during the Accumulation
Period, persons receiving annuity payments have the voting interest during the
Annuity Period, and beneficiaries have the voting interest after the death of
the Annuitant or owner. However, if the Investment Company Act of 1940 or any
rules thereunder should be amended or if the present interpretation thereof
should change, and as a result we determine that we are permitted to vote shares
of the portfolios in our own right, we may elect to do so.
We determine the number of shares of a portfolio attributable to a contract as
follows:
- During the Accumulation Period, we divide the amount of contract value in
a subaccount by the net asset value of one share of the portfolio
corresponding to that subaccount. We make this calculation as of the
record date for the applicable portfolio.
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- During the Annuity Period, or after the death of the Annuitant or owner,
we make a similar calculation. However, for subaccount value we use the
liability for future variable annuity payments allocable to that
subaccount as of the record date for the applicable portfolio. We
calculate the liability for future variable annuity payments on the basis
of the following on the record date:
- mortality assumptions,
- the assumed interest rate used in determining the number of Annuity Units
under the contract, and
- the applicable Annuity Unit value
During the Annuity Period, the number of votes attributable to a contract will
generally decrease since funds set aside to make the annuity payments will
decrease.
We will vote shares for which we have not received timely instructions, and any
shares attributable to excess amounts we have accumulated in the related
subaccount, in proportion to the voting instructions which we receive for all
contracts and other variable annuity contracts participating in a portfolio. To
the extent that we or any affiliated company holds any shares of a portfolio,
those shares will be voted in the same proportion as instructions for that
portfolio from all our policy holders holding voting interests in that
portfolio. Shares held by separate accounts other than the Variable Account will
in general be voted in accordance with instructions of owners in such other
separate accounts. This diminishes the relative voting influence of the
contracts.
Each person having a voting interest in a subaccount of the Variable Account
will receive proxy material, reports and other materials relating to the
appropriate portfolio. Under the procedures described above, these persons may
give instructions regarding:
- the election of the Board of Directors of the portfolios,
- ratification of the selection of a portfolio's independent auditors,
- the approval of the investment managers of a portfolio,
- changes in fundamental investment policies of a portfolio, and
- all other matters that are put to a vote of portfolio shareholders
OTHER INFORMATION
We have filed Registration Statements with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
contracts discussed in this prospectus. We have not included in the prospectus
all of the information set forth in the Registration Statement, amendments, and
exhibits thereto. We intend statements contained in this prospectus about the
content of the contracts and other legal instruments to be summaries. For a
complete statement of the terms of these documents, you should refer to the
instruments filed with the Securities and Exchange Commission.
A Statement of Additional Information is available upon request. Its contents
are as follows:
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
Fortis Benefits and the Variable Account.......
Calculation of Annuity Payments................
Postponement of Payments.......................
Services.......................................
- Safekeeping of Variable Account Assets.....
- Experts....................................
- Principal Underwriter......................
Taxation Under Certain Retirement Plans........
Withholding....................................
Other Information..............................
Variable Account Financial Statements..........
APPENDIX A--Performance Information............
FORTIS BENEFITS FINANCIAL STATEMENTS
The financial statements of Fortis Benefits that are included in this prospectus
should be considered primarily as bearing on our ability to meet our obligations
under the contracts. The contracts are not entitled to participate in our
earnings, dividends, or surplus.
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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 flows present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL) N.V.
(the Company) at December 31, 2000, and the results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable basis for our opinion. The
financial statements of the Company as of December 31, 1999 and for the two
years in the period then ended were audited by other independent accountants
whose report dated February 17, 2000 expressed an unqualified opinion on those
statements.
[/s/ PRICEWATERHOUSECOOPERS LLP]
February 15, 2001
F-1
28
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheet of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL)
N.V., as of December 31, 1999, and the related statements of income, changes in
shareholder's equity and cash flows for each of the two years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company at December 31, 1999, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
[/s/ ERNST & YOUNG]
Minneapolis, Minnesota
February 17, 2000
F-2
29
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
------------------------
2000 1999
---------- ----------
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
2000 -- $2,543,040; 1999 -- $2,802,697)................ $2,530,480 $2,706,372
Equity securities, at fair value (cost 2000 -- $91,164;
1999 -- $81,554)....................................... 87,912 85,021
Mortgage loans on real estate, less allowance for possible
losses (2000 and 1999 -- $11,085)...................... 810,616 754,514
Policy loans.............................................. 102,308 83,439
Short-term investments.................................... 152,736 115,527
Real estate and other investments......................... 41,712 47,502
---------- ----------
3,725,764 3,792,375
Cash and cash equivalents................................... 13,209 18,670
Receivables:
Uncollected premiums...................................... 66,505 62,938
Reinsurance recoverable on unpaid and paid losses......... 64,182 23,471
Other..................................................... 48,083 19,406
---------- ----------
178,770 105,815
Accrued investment income................................... 52,556 55,464
Deferred policy acquisition costs........................... 473,761 430,192
Property and equipment at cost, less accumulated
depreciation.............................................. 20,891 25,118
Federal income tax recoverable.............................. 7,248 --
Deferred federal income taxes............................... 33,825 52,467
Other assets................................................ 1,677 1,582
Due from affiliates......................................... -- 8,304
Assets held in separate accounts............................ 5,184,083 5,120,152
---------- ----------
Total assets................................................ $9,691,784 $9,610,139
========== ==========
The accompanying notes are an integral part of the financial statements.
F-3
30
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
------------------------
2000 1999
---------- ----------
POLICY RESERVES AND LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance................ $1,170,612 $1,106,269
Interest sensitive and investment products............. 970,591 1,147,657
Accident and health.................................... 1,007,328 940,865
---------- ----------
3,148,531 3,194,791
Unearned revenues......................................... 33,614 28,673
Other policy claims and benefits payable.................. 240,677 265,486
Policyholder dividends payable............................ 7,438 7,939
---------- ----------
3,430,260 3,496,889
Accrued expenses.......................................... 69,476 59,409
Current income taxes payable.............................. -- 1,838
Other liabilities......................................... 181,633 120,110
Due to affiliates......................................... 4,497 --
Deferred gain on LTC sale................................. 15,919 --
Liabilities related to separate accounts.................. 5,159,275 5,082,341
---------- ----------
Total policy reserves and liabilities....................... 8,861,060 8,760,587
---------- ----------
Shareholder's equity:
Common stock, $5 par value: authorized, issued and
outstanding shares -- 1,000,000........................ 5,000 5,000
Additional paid-in capital................................ 468,000 468,000
Retained earnings......................................... 366,644 427,811
Accumulated other comprehensive loss...................... (8,920) (51,259)
---------- ----------
Total shareholder's equity.................................. 830,724 849,552
---------- ----------
Total policy reserves and liabilities and shareholder's
equity.................................................... $9,691,784 $9,610,139
========== ==========
The accompanying notes are an integral part of the financial statements.
F-4
31
STATEMENTS OF INCOME
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
--------------------------------------
2000 1999 1998
---------- ---------- ----------
REVENUES:
Insurance operations:
Traditional life insurance premiums....................... $ 428,641 $ 301,377 $ 260,567
Interest sensitive and investment product policy
charges................................................ 159,728 141,285 119,039
Accident and health insurance premiums.................... 952,015 1,002,867 953,652
---------- ---------- ----------
1,540,384 1,445,529 1,333,258
Net investment income....................................... 279,572 238,698 234,043
Net realized (losses) gains on investments.................. (17,039) 25,962 52,404
Other income................................................ 12,687 11,610 11,183
---------- ---------- ----------
Total revenues.............................................. 1,815,604 1,721,799 1,630,888
BENEFITS AND EXPENSES:
Benefits to policyholders:
Traditional life insurance................................ 335,022 218,993 189,337
Interest sensitive investment products.................... 89,062 93,668 96,178
Accident and health claims................................ 749,945 812,149 798,036
---------- ---------- ----------
1,174,029 1,124,810 1,083,551
Policyholder dividends...................................... 2,685 3,114 3,486
Amortization of deferred policy acquisition costs........... 47,215 43,078 33,365
Insurance commissions....................................... 128,267 124,601 118,710
General and administrative expenses......................... 333,734 302,663 299,492
---------- ---------- ----------
Total benefits and expenses................................. 1,685,930 1,598,266 1,538,604
---------- ---------- ----------
Income before federal income taxes.......................... 129,674 123,533 92,284
Federal income taxes........................................ 41,555 40,327 30,402
---------- ---------- ----------
Net income.................................................. $ 88,119 $ 83,206 $ 61,882
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
F-5
32
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
TOTAL STOCK CAPITAL EARNINGS (LOSS) INCOME
--------- ------ ---------- --------- -------------
Balance, December 31, 1997.......... $ 880,106 $5,000 $468,000 $ 332,723 $ 74,383
Comprehensive income:
Net income..................... 61,882 -- -- 61,882 --
Change in unrealized gain
(losses) on investments,
net.......................... (6,520) -- -- -- (6,520)
---------
Total comprehensive income........ 55,362
Dividend.......................... (50,000) -- -- (50,000) --
--------- ------ -------- --------- ---------
Balance, December 31, 1998.......... 885,468 5,000 468,000 344,605 67,863
Comprehensive income:
Net income..................... 83,206 -- -- 83,206 --
Change in unrealized gain
(losses) on investments,
net.......................... (119,122) -- -- -- (119,122)
---------
Total comprehensive loss.......... (35,916)
--------- ------ -------- --------- ---------
Balance, December 31, 1999.......... 849,552 5,000 468,000 427,811 (51,259)
Comprehensive income:
Net income..................... 88,119 -- -- 88,119 --
Change in unrealized gain
(losses) on investments,
net.......................... 42,339 -- -- -- 42,339
---------
Total comprehensive income........ 130,458
Dividend.......................... (149,286) -- -- (149,286) --
--------- ------ -------- --------- ---------
Balance, December 31, 2000.......... $ 830,724 $5,000 $468,000 $ 366,644 $ (8,920)
========= ====== ======== ========= =========
The accompanying notes are an integral part of the financial statements.
F-6
33
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 88,119 $ 83,206 $ 61,882
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for depreciation.......................... 4,830 12,807 12,409
Amortization of gain on reinsured business.......... (3,100) -- --
Amortization of investment (discounts) premiums,
net............................................... 1,574 1,930 (3,200)
Net realized losses (gains) on sold investments..... 13,910 (25,962) (52,404)
Write-off of investment............................. 3,129 -- --
Policy acquisition costs deferred................... (113,927) (96,308) (73,147)
Amortization of deferred policy acquisition costs... 47,215 43,078 33,365
Provision for deferred federal income taxes......... (4,151) 29,454 417
Decrease in income taxes recoverable................ (9,086) (2,330) (6,381)
Change in receivables, accrued investment income,
unearned premiums, accrued expenses, other assets,
due to and from affiliates and other
liabilities....................................... (48,646) 27,227 (4,455)
Increase (decrease) in future policy benefit
reserves for traditional, interest sensitive and
accident and health policies...................... 158,150 97,931 106,135
(Decrease) increase in other policy claims and
benefits and policyholder dividends payable....... (25,303) 5,012 (2,514)
Other............................................... -- -- 169
----------- ----------- -----------
Net cash provided by operating activities................ 112,714 176,045 72,276
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturity investments.................. (1,546,720) (1,654,104) (2,380,511)
Sales and repayments of fixed maturity investments....... 1,777,428 1,675,488 2,428,207
(Increase) decrease in short-term investments............ (37,208) (83,659) 38,669
Purchases of other investments........................... (363,978) (305,889) (408,998)
Sales of other investments............................... 298,925 353,267 352,873
Purchases of property and equipment...................... (603) (7,213) (356)
Cash received pursuant to reinsurance agreement.......... 17,591 3,374 --
----------- ----------- -----------
Net cash provided by (used in) investing activities...... 145,435 (18,736) 29,884
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Activities related to investment products:
Considerations received................................ 226,139 237,375 215,693
Surrenders and death benefits.......................... (448,349) (416,537) (326,457)
Interest credited to policyholders..................... 32,886 39,855 49,371
Dividend................................................. (74,286) -- (50,000)
----------- ----------- -----------
Net cash used in financing activities.................... (263,610) (139,307) (111,393)
----------- ----------- -----------
(Decrease) increase in cash and cash equivalents......... (5,461) 18,002 (9,233)
Cash and cash equivalents at beginning of year........... 18,670 668 9,901
----------- ----------- -----------
Cash and cash equivalents at end of year................. $ 13,209 $ 18,670 $ 668
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-7
34
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
---------------------------------
2000 1999 1998
-------- --------- --------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Assets and liabilities transferred in reinsurance
transactions (Note 9):
Non-cash assets (ceded) received:
Fixed maturities.......................................... $ -- $ 517,091 $ --
Other investments......................................... -- 121,696 --
Other assets.............................................. (157) 12,763 --
Deferred acquisition costs................................ (20,829) 35,882 --
-------- --------- --------
Total value of assets (ceded) received...................... $(20,986) $ 687,432 $ --
-------- --------- --------
Non-cash liabilities ceded (assumed):
Future policy benefit reserves............................ $ 15,086 $(685,932) $ --
Claim reserves............................................ 7 (4,874) --
Unearned premium reserves................................. 7,641 -- --
Other liabilities......................................... (320) -- --
-------- --------- --------
Total liabilities ceded (assumed)........................... $ 22,414 $(690,806) $ --
======== ========= ========
The accompanying notes are an integral part of the financial statements.
F-8
35
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
(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 (B) and Fortis (NL) N.V. The Company is incorporated in
Minnesota and distributes its products in all states except New York. The
Company's revenues are derived principally from group employee benefits products
and from individual life and annuity products.
Effective October 1, 1999, the Company assumed pre-need life insurance business
from an affiliate on a 100% co-insurance basis. These life insurance and annuity
products are marketed in connection with the advance funding of funeral
expenses. (See Note 9 "Reinsurance" for more information on this reinsurance
transaction.)
Effective March 1, 2000, the Company ceded 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.)
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
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FAS 133," which deferred to January 1, 2001 the effective date
of the accounting and reporting requirements of SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The adoption
of SFAS 133 is not expected to have a material effect on the Company's results
of operations or financial position.
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.
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
36
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
$4,830, $12,807 and $12,409 for the year ended December 31, 2000, 1999 and 1998,
respectively.
INCOME TAXES
Income taxes have been provided using the liability method. Deferred tax assets
and liabilities are determined based on the temporary differences between the
financial reporting and the tax bases and are measured using the enacted tax
rates.
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
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 receives mortality and expense risk fees from the separate accounts.
The Company also deducts monthly cost of insurance charges, and receives minimum
death benefit guarantee fees and issue and administrative fees from the variable
life insurance separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for
F-10
37
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
variable annuities that are in the benefit payment period. The Company also
guarantees that the rates at which administrative fees are deducted from
contract funds will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue 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 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 4% to 15%
in 2000, 3.5% to 12% in 1999 and 2.5% to 8.75% in 1998.
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 1999 and 1998 financial statements have been reclassified
to conform to the 2000 presentation.
F-11
38
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
AT DECEMBER 31, 2000:
Fixed maturities:
Governments.................................. $ 348,795 $15,261 $ 317 $ 363,739
Public utilities............................. 212,371 3,849 3,661 212,559
Industrial and miscellaneous................. 1,794,011 27,815 58,902 1,762,924
Other........................................ 187,863 4,294 899 191,258
---------- ------- -------- ----------
Total fixed maturities......................... 2,543,040 51,219 63,779 2,530,480
Equity securities.............................. 91,164 5,160 8,412 87,912
---------- ------- -------- ----------
Total.......................................... $2,634,204 $56,379 $ 72,191 $2,618,392
========== ======= ======== ==========
AT DECEMBER 31, 1999:
Fixed maturities:
Governments.................................. $ 309,402 $ 46 $ 8,934 $ 300,514
Public utilities............................. 237,579 341 10,375 227,545
Industrial and miscellaneous................. 2,208,281 7,020 81,412 2,133,889
Other........................................ 47,435 184 3,195 44,424
---------- ------- -------- ----------
Total fixed maturities......................... 2,802,697 7,591 103,916 2,706,372
Equity securities.............................. 81,554 5,825 2,358 85,021
---------- ------- -------- ----------
Total.......................................... $2,884,251 $13,416 $106,274 $2,791,393
========== ======= ======== ==========
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 2000, by contractual maturity, are shown below.
AMORTIZED FAIR
COST VALUE
---------- ----------
Due in one year or less..................................... $ 83,263 $ 83,164
Due after one year through five years....................... 610,579 609,360
Due after five years through ten years...................... 786,695 778,801
Due after ten years......................................... 1,062,503 1,059,155
---------- ----------
Total....................................................... $2,543,040 $2,530,480
========== ==========
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 37% and 38% of outstanding principal
is concentrated in the states of New York, California and Florida, at December
31, 2000 and 1999, respectively. Loan commitments outstanding totaled $8,000 at
December 31, 2000.
F-12
39
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. INVESTMENTS (CONTINUED)
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $11,630 and $17,061 at December 31,
2000 and 1999, 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:
TAX
BEFORE-TAX BENEFIT NET-OF-TAX
AMOUNT (EXPENSE) AMOUNT
---------- --------- ----------
DECEMBER 31, 2000:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 93,933 $(32,873) $ 61,060
Increase in amortization of deferred policy acquisition
costs................................................. (2,314) 810 (1,504)
Reclassification adjustment for gains (losses) realized
in net income......................................... (26,488) 9,271 (17,217)
--------- -------- ---------
Other comprehensive gain................................... $ 65,131 $(22,792) $ 42,339
========= ======== =========
DECEMBER 31, 1999:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $(216,270) $ 75,694 $(140,576)
Decrease in amortization of deferred policy acquisition
costs................................................. 9,142 (3,200) 5,942
Reclassification adjustment for gains (losses) realized
in net income......................................... 23,864 (8,352) 15,512
--------- -------- ---------
Other comprehensive loss................................... $(183,264) $ 64,142 $(119,122)
========= ======== =========
DECEMBER 31, 1998:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments.............................................. $ (53,050) $ 18,420 $ (34,630)
Decrease in amortization of deferred policy acquisition
costs.................................................... 414 (145) 269
Reclassification adjustment for gains (losses) realized in
net income............................................... 42,832 (14,991) 27,841
--------- -------- ---------
Other comprehensive loss................................... $ (9,804) $ 3,284 $ (6,520)
========= ======== =========
F-13
40
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. INVESTMENTS (CONTINUED)
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:
2000 1999 1998
-------- -------- --------
NET INVESTMENT INCOME:
Fixed maturities............................................ $193,005 $167,027 $160,163
Equity securities........................................... 14,392 7,320 8,656
Mortgage loans on real estate............................... 68,794 57,684 57,031
Policy loans................................................ 6,617 5,272 4,653
Short-term investments...................................... 522 844 1,701
Real estate and other investments........................... 2,816 6,375 8,194
-------- -------- --------
286,146 244,522 240,398
Expenses.................................................... (6,574) (5,824) (6,355)
-------- -------- --------
$279,572 $238,698 $234,043
======== ======== ========
NET REALIZED (LOSSES) GAINS ON INVESTMENTS:
Fixed maturities............................................ $(31,179) $ (9,750) $ 34,320
Equity securities........................................... 4,691 33,613 8,512
Mortgage loans on real estate............................... -- -- (198)
Short-term investments...................................... -- -- 5
Real estate and other investments........................... 9,449 2,099 9,765
-------- -------- --------
$(17,039) $ 25,962 $ 52,404
======== ======== ========
Proceeds from sales of investments in fixed maturities were $1,756,637,
$1,627,450 and $2,460,316 in 2000, 1999 and 1998, respectively. Gross gains of
$14,851, $11,996 and $44,360 and gross losses of $46,030, $21,746 and $10,040
were realized on the sales in 2000, 1999 and 1998, respectively.
F-14
41
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
4. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows:
INTEREST
TRADITIONAL SENSITIVE AND
AND PRE-NEED INVESTMENT ACCIDENT
LIFE PRODUCTS AND HEALTH TOTAL
------------ ------------- ---------- --------
Balance, December 31, 1998.................... $ 14,560 $314,462 $ 2,916 $331,938
Acquisition costs deferred.................. 33,783 81,016 17,391 132,190
Acquisition costs amortized................. (2,438) (38,831) (1,809) (43,078)
Decreased amortization of deferred
acquisition costs from unrealized losses
on available-for-sale securities......... -- 9,142 -- 9,142
-------- -------- -------- --------
Balance, December 31, 1999.................... 45,905 365,789 18,498 430,192
Acquisition costs deferred.................. 15,882 95,062 2,983 113,927
Acquisition costs amortized................. (14,216) (32,347) (21,481) (68,044)
Increased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities......... -- (2,314) -- (2,314)
-------- -------- -------- --------
Balance, December 31, 2000.................... $ 47,571 $426,190 $ -- $473,761
======== ======== ======== ========
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.
Included in total policy acquisition costs deferred in 1999 is $35,882 of
present value of future profits (PVP) and $1,416 of subsequent acquisition costs
resulting from the reinsurance assumption agreement with United Family Life
Insurance Company, an affiliate, which became effective October 1, 1999. PVP is
being amortized against the expected premium revenue of the pre-need life
insurance business assumed. See Note 9 "Reinsurance" for more information on
this reinsurance transaction.
During 2000, 1999 and 1998, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized net capital gains resulted in increased (decreased) amortization of
deferred acquisition costs of $901, $(224) and $3,357, respectively.
5. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows:
2000 1999
-------- --------
Land........................................................ $ 1,900 $ 1,900
Building and improvements................................... 27,019 26,383
Furniture and equipment..................................... 78,630 81,447
-------- --------
107,549 109,730
Less accumulated depreciation............................... (86,658) (84,612)
-------- --------
Net property and equipment.................................. $ 20,891 $ 25,118
======== ========
F-15
42
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
6. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims is summarized
as follows:
YEARS ENDED DECEMBER 31
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Balance as of January 1, net of reinsurance recoverables.... $1,139,603 $1,061,883 $ 988,036
Add: Incurred losses related to:
Current year.............................................. 753,070 824,949 826,009
Prior years............................................... (25,859) (12,800) (27,973)
---------- ---------- ----------
Total incurred losses....................................... 727,211 812,149 798,036
Deduct: Paid losses related to:
Current year.............................................. 428,725 468,404 469,881
Prior years............................................... 283,782 266,025 254,308
---------- ---------- ----------
Total paid losses........................................... 712,507 734,429 724,189
---------- ---------- ----------
Balance as of December 31, net of reinsurance
recoverables.............................................. $1,154,307 $1,139,603 $1,061,883
========== ========== ==========
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.
Excluded from incurred losses presented above related to current 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 lower medical costs and a reduction of loss reserves due to lower than
anticipated inflation in medical costs.
The liability for unpaid accident and health claims includes $1,042,180 and
$994,651 of total disability income reserves as of December 31, 2000 and 1999,
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-16
43
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
7. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 2000 and 1999 are as follows:
2000 1999
-------- --------
Deferred tax assets:
Separate account assets/liabilities....................... $ 72,599 $ 60,716
Reserves.................................................. 28,244 35,843
Claims and benefits payable............................... 7,445 7,964
Accrued liabilities....................................... 10,811 6,973
Unrealized losses......................................... 5,543 32,500
Investments............................................... 14,373 4,549
Other..................................................... 8,301 6,755
-------- --------
Total deferred tax assets................................... 147,316 155,300
Deferred tax liabilities:
Deferred policy acquisition costs......................... 107,948 98,539
Unrealized gains.......................................... 747 --
Fixed assets.............................................. 3,143 2,963
Investments............................................... 237 1,171
Other..................................................... 1,416 160
-------- --------
Total deferred tax liabilities.............................. 113,491 102,833
-------- --------
Net deferred tax asset...................................... $ 33,825 $ 52,467
======== ========
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:
2000 1999 1998
------- ------- -------
Current..................................................... $45,706 $10,873 $30,232
Deferred.................................................... (4,151) 29,454 170
------- ------- -------
$41,555 $40,327 $30,402
======= ======= =======
Federal income tax payments and refunds resulted in net payments of $54,792,
$13,203 and $36,367 in 2000, 1999 and 1998, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
2000 1999 1998
---- ---- ----
Statutory income tax rate................................... 35.0% 35.0% 35.0%
Other, net.................................................. (3.0) (2.4) (2.1)
---- ---- ----
32.0% 32.6% 32.9%
==== ==== ====
F-17
44
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
8. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows:
2000 1999
---------- ----------
Premium and annuity considerations for the variable annuity
products and variable universal life products for which
the contract holder, rather than the Company, bears the
investment risk........................................... $5,159,275 $5,082,341
Assets of the separate accounts owned by the Company, at
fair value................................................ 24,808 37,811
---------- ----------
$5,184,083 $5,120,152
========== ==========
9. REINSURANCE
In the second quarter of 1996, First Fortis Life Insurance Company (First
Fortis), an affiliate, received approval from the New York State Insurance
Department for a reinsurance agreement with the Company. The agreement, which
became effective as of January 1, 1996, decreased First Fortis' long-term
disability reinsurance retention from a $10 net monthly benefit to a $2 net
monthly benefit for claims incurred on and after January 1, 1996. The Company
has assumed $6,884, $6,580 and $5,601 of premium from First Fortis in 2000, 1999
and 1998, respectively. The Company has assumed $14,366 and $11,047 of reserves
in 2000 and 1999, 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 (as described in Note 4). The Company has assumed premium from UFL of
$63,069 in 2000 and $31,523 during the period October 1, 1999 to December 31,
1999. The Company has assumed $679,969 and $690,806 of reserves in 2000 and
1999, 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 in 2000 was $3,100. The Company ceded $41,309 of
premiums and $32,222 of reserves to John Hancock in 2000.
The maximum amount that the Company retains on any one life is $1,000 of life
insurance including accidental death. Amounts in excess of $1,000 are reinsured
with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums for the year ended December 31 were as follows:
2000 1999 1998
------- ------- -------
Life insurance.............................................. $ 7,413 $ 6,246 $ 6,983
Accident and health insurance............................... 48,403 17,803 13,862
------- ------- -------
$55,816 $24,049 $20,845
======= ======= =======
Recoveries under reinsurance contracts for the year ended December 31 were as
follows:
2000 1999 1998
------- ------- -------
Life insurance.............................................. $ 2,877 $ 478 $ 4,549
Accident and health insurance............................... 8,525 13,669 9,465
------- ------- -------
$11,402 $14,147 $14,014
======= ======= =======
F-18
45
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
9. REINSURANCE (CONTINUED)
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. The Company will have $42,895 free from such
restrictions during 2001. Distributions in excess of this amount would require
regulatory approval. In 2000, the Company declared dividends of $149,286, of
which $100,000 was extraordinary. Approval was sought and received from the
Minnesota Department of Commerce for the distribution of the extraordinary
dividend. The Company paid $74,286 during 2000; $75,000 will be paid in 2001 and
is included in other liabilities.
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 will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification requires adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Minnesota has adopted Codification
effective January 1, 2001.
The cumulative effect of all changes resulting form the Codification guidance
will be recorded as a direct adjustment to statutory surplus on January 1, 2001.
The effect of the adoption is expected to increase statutory surplus by a
material amount.
Insurance enterprises are required by State Insurance Departments to adhere to
minimum risk-based capital (RBC) requirements developed by the NAIC. The Company
exceeds the minimum RBC requirements.
F-19
46
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
11.REGULATORY ACCOUNTING REQUIREMENTS (CONTINUED)
Reconciliations of net income and shareholder's equity on the basis of statutory
accounting to the related amounts presented in the accompanying statements were
as follows:
NET INCOME SHAREHOLDER'S EQUITY
-------------------- ---------------------
2000 1999 1998 2000 1999
-------- -------- ------- --------- --------
Based on statutory accounting practices...... $ 88,911 $ 9,387 $14,841 $ 433,955 $497,858
Deferred policy acquisition costs............ 66,712 54,049 39,782 473,761 430,192
Investment valuation differences............. 368 953 745 (19,310) (103,361)
Deferred and uncollected premiums............ (732) (4,637) 511 (14,399) (13,188)
Policy reserves.............................. (12,092) (20,070) (7,041) (150,668) (127,766)
Commissions.................................. (45,485) 79,067 -- -- --
Current income taxes payable................. 22 (8,882) 925 (8,977) (9,000)
Deferred income taxes........................ 4,151 (18,650) (417) 33,825 52,467
Realized gains on investments................ 439 9 356 -- --
Realized gains (losses) transferred to the
Interest Maintenance Reserve (IMR), net of
tax........................................ (17,873) (6,163) 22,748 -- --
Amortization of IMR, net of tax.............. (5,396) (8,565) (7,128) -- --
Write-off of investment...................... (3,129) -- -- -- --
Pension expense.............................. (2,145) (1,475) 81 (9,985) (8,235)
Property and equipment....................... -- -- -- 3,261 591
Interest maintenance reserve................. -- -- -- 31,482 55,117
Asset valuation reserve...................... -- -- -- 70,955 72,940
Other, net................................... 14,368 8,183 (3,521) (13,176) 1,937
-------- -------- ------- --------- --------
Based on generally accepted accounting
principles................................. $ 88,119 $ 83,206 $61,882 $ 830,724 $849,552
======== ======== ======= ========= ========
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 and other administrative functions. The
fees paid to Fortis, Inc. for these services for years ended December 31, 2000,
1999 and 1998, were $10,094, $11,661 and $13,077, respectively. During 1997,
Fortis, Inc. began providing information technology services to the Company.
Information technology expenses were $47,123, $59,390 and $55,910 for years
ended December 31, 2000, 1999 and 1998, respectively.
In conjunction with the marketing of its fixed and variable annuity and variable
life products, the Company paid $93,107, $79,413 and $72,638 in commissions to
its affiliate, Fortis Investors, Inc., for the years ended December 31, 2000,
1999 and 1998, respectively.
Administrative expenses allocated for the Company may be greater or less than
the expenses that would be incurred if the Company were operating on a separate
company basis.
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
F-20
47
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
13.FAIR VALUE DISCLOSURES (CONTINUED)
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.
DECEMBER 31, 2000 DECEMBER 31, 1999
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Assets:
Investments:
Securities available-for-sale:
Fixed maturities......................... $2,530,480 $2,530,480 $2,706,372 $2,706,372
Equity securities........................ 87,912 87,912 85,021 85,021
Mortgage loans on real estate................. 810,616 844,319 754,514 741,397
Policy loans.................................. 102,308 102,308 83,439 83,439
Short -- term investments..................... 152,736 152,736 115,527 115,527
Assets held in separate accounts.............. 5,184,083 5,184,083 5,120,152 5,120,152
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal).................. 585,905 571,834 789,002 763,861
Liabilities related to separate accounts...... 5,159,275 5,159,275 5,082,341 5,082,341
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
$2,097, $2,225 and $1,627 for 2000, 1999 and 1998, respectively.
The Company participates in a contributory profit sharing plan, sponsored by
Fortis, covering employees and certain agents who meet eligibility requirements
as to age and length of service. Benefits are payable to participants on
retirement or disability and to the beneficiaries of participants in the event
of death. The first three percent of an employee's contribution is matched 200%
by the Company. The amount expensed was approximately $4,573, $3,711 and $3,610
for 2000, 1999 and 1998, respectively.
In addition to retirement benefits, the Company participates in other health
care and life insurance benefit plans (postretirement benefits) for retired
employees, sponsored by Fortis. Health care benefits, either through a Fortis
sponsored retiree plan for retirees under age 65 or through a cost offset for
individually purchased Medigap policies
F-21
48
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)
for retirees over age 65, are available to employees who retire on or after
January 1, 1993, at age 55 or older, with 15 years or more service. Life
insurance, on a retiree pay all basis, is available to those who retire on or
after January 1, 1993.
There were no net postretirement benefit costs allocated to the Company for the
years ended December 31, 2000, 1999 and 1998. The Company made contributions to
the postretirement benefit plans of approximately $0, $19 and $(5) in 2000, 1999
and 1998, respectively, as claims were incurred.
16. EVENTS SUBSEQUENT
On January 25, 2001, Fortis agreed to sell (the "Sale") its Fortis Financial
Group division (the "Division") to The Hartford Financial Services Group ("The
Hartford"). 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 (the "Fund").
To effect the Sale as it relates to the Company, Hartford Life and Annuity
Insurance Company, an indirect wholly owned subsidiary of The Hartford, will
reinsure the Insurance Contracts on a 100% coinsurance basis and perform
administration of such Insurance Contracts. In addition, Hartford Life and
Accident Insurance Company, another indirect wholly owned subsidiary of The
Hartford, will purchase all of the outstanding stock of Fortis Advisers, Inc.,
which is the investment adviser for the Fund. Thus, upon completion of the Sale,
Hartford Life and Accident Insurance Company will own and control Fortis
Advisers, Inc. and its subsidiaries, including Fortis Investors, Inc., which is
the principal distributor of the Fund.
Closing of the Sale is subject to various regulatory and other approvals.
Following the Sale, the Fund expects to enter into new investment advisory,
subadvisory and distribution agreements with affiliates of The Hartford. Such
new agreements will require approvals subsequent to the closing of the Sale by
the Fund's board of directors and shareholders and by Insurance Contract holders
to the extent required by law.
F-22
49
FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information of Fortis Benefits
Insurance Company is being presented in connection with the Company's Sale of
its Fortis Financial Group Division (FFG) to The Hartford on April 1, 2001.
The accompanying unaudited pro forma financial statements of the Company for the
period ended December 31, 2000 present the financial position and results for
the Company as if the Sale and certain transactions and adjustments related to
the Sale had occurred as of January 1, 2000. The unaudited pro forma financial
information does not purport to represent what the Company's financial position
or results of operations actually would have been had the Sale in fact occurred
as of the date indicated, or to project the Company's financial position or
results of operations for any future date or period. The pro forma adjustments
are based on available information and certain assumptions that the Company
currently believes are reasonable under the circumstances. The unaudited pro
forma financial information should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
The unaudited pro forma financial information is provided for informational
purposes only. The Company's financial statements will reflect the actual
effects of the Sale in the 10-Q filing for the period ending June 30, 2001.
Although the actual Sale results will differ, the unaudited pro forma financial
information reflects management's best estimate based on currently available
information.
F-23
50
FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DEC. 31, 2000
ANNUAL REPORT FFG PRO FORMA
------------- --------- -----------
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
2000 -- $2,543,040; 1999 -- $2,802,697)........... $2,530,480 $(158,752) $ 2,371,728
Equity securities, at fair value (cost
2000 -- $91,164; -- 1999 -- $81,554).............. 87,912 -- 87,912
Mortgage loans on real estate, less allowance for
possible losses (2000 and 1999 -- $11,085)........ 810,616 (93,115) 717,501
Policy loans......................................... 102,308 (102,192) 116
Short-term investments............................... 152,736 -- 152,736
Real estate and other investments.................... 41,712 -- 41,712
---------- --------- -----------
3,725,764 (354,059) 3,371,705
Cash and cash equivalents.............................. 13,209 19,299 32,508
--
--
Receivables:
Uncollected premiums................................. 66,505 (260) 66,245
Reinsurance recoverable on unpaid and paid losses.... 64,182 1,077,253 1,141,435
Other................................................ 48,083 (5,934) 42,149
---------- --------- -----------
178,770 1,071,059 1,249,829
Accrued investment income.............................. 52,556 (4,839) 47,717
Deferred policy acquisition costs...................... 473,761 (433,192) 40,569
Property and equipment at cost, less accumulated
depreciation......................................... 20,891 (18,138) 2,753
Federal income tax recoverable......................... 7,248 (528) 6,720
Deferred federal income taxes.......................... 33,825 154,050 187,875
Other assets........................................... 1,677 -- 1,677
Assets held in separate accounts....................... 5,184,083 -- 5,184,083
---------- --------- -----------
Total assets...................................... $9,691,784 $ 433,652 $10,125,436
========== ========= ===========
F-24
51
FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DEC. 31, 2000
ANNUAL REPORT FFG PRO FORMA
------------- -------- -----------
POLICY RESERVES AND LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance............ $1,170,612 $ -- $ 1,170,612
Interest sensitive and investment products......... 970,591 -- 970,591
Accident and health................................ 1,007,328 -- 1,007,328
---------- -------- -----------
3,148,531 -- 3,148,531
Unearned revenues..................................... 33,614 (243) 33,371
Other policy claims and benefits payable.............. 240,677 (7,941) 232,736
Policyholder dividends payable........................ 7,438 (7,438) --
---------- -------- -----------
3,430,260 (15,622) 3,414,638
Accrued expenses...................................... 69,476 (1,061) 68,415
Current income taxes payable.......................... -- 161,290 161,290
Other liabilities..................................... 181,633 (787) 180,846
Due to affiliates..................................... 4,497 -- 4,497
Deferred gain on LTC & FFG sale....................... 15,919 256,308 272,227
Liabilities related to separate accounts.............. 5,159,275 24,808 5,184,083
---------- -------- -----------
Total policy reserves and liabilities.............. 8,861,060 424,936 9,285,996
---------- -------- -----------
Shareholder's equity:
Common stock, $5 par value: authorized, issued and
outstanding shares -- 1,000,000.................... 5,000 -- 5,000
Additional paid-in capital............................ 468,000 -- 468,000
Retained earnings..................................... 366,644 8,716 375,360
Accumulated other comprehensive loss.................. (8,920) -- (8,920)
---------- -------- -----------
Total shareholder's equity......................... 830,724 8,716 839,440
---------- -------- -----------
Total policy reserves and liabilities and
shareholder's equity............................. $9,691,784 $433,652 $10,125,436
========== ======== ===========
F-25
52
FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA STATEMENT OF INCOME
(IN THOUSANDS)
DEC. 31, 2000
ANNUAL REPORT FFG PRO FORMA
------------- --------- ----------
Insurance operations:
Traditional life insurance premiums..................... $ 428,641 (10,267) $ 418,374
Interest sensitive and investment product policy
charges............................................... 159,728 (157,408) 2,320
Accident and health insurance premiums.................. 952,015 -- 952,015
---------- --------- ----------
1,540,384 (167,675) 1,372,709
Net investment income................................... 279,572 (54,622) 224,950
Net realized (losses) gains on investments.............. (17,039) 3,662 (13,377)
Other income............................................ 12,687 17,733 30,420
---------- --------- ----------
Total revenues........................................ 1,815,604 (200,902) 1,614,702
Benefits to policy holders:
Traditional life insurance............................ 335,022 (10,621) 324,401
Interest sensitive investment products................ 89,062 (83,105) 5,957
Accident and health claims............................ 749,945 0 749,945
---------- --------- ----------
1,174,029 (93,726) 1,080,303
Policy holder dividends................................. 2,685 (2,685) 0
Amortization of deferred policy acquisition costs....... 47,215 (36,055) 11,160
Insurance commissions................................... 128,267 (6,566) 121,701
General and administrative expenses..................... 333,734 (68,697) 265,037
---------- --------- ----------
Total benefits and expenses........................... 1,685,930 (207,729) 1,478,201
---------- --------- ----------
Income before federal income taxes...................... 129,674 6,827 136,501
Federal income taxes.................................... 41,555 (1,889) 39,666
---------- --------- ----------
Net income.............................................. $ 88,119 $ 8,716 $ 96,835
========== ========= ==========
F-26
53
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS)
Adjustments to the balance sheet, including invested assets, receivables,
accrued investment income, deferred acquisition costs, reserves, unearned
revenues, policy claims and dividends payable and accrued expenses, along with
adjustments to the income statement, are related to the Division sold to The
Hartford.
Adjustments to cash and cash equivalents and property and equipment represent
the sale of certain personal and real property to The Hartford.
Adjustments to deferred federal income taxes and current income taxes payable
represent the accrual of federal income tax associated with the Sale.
Deferred gain on the Sale will be amortized to income as the business runs off.
For 2000, the pro forma income statement includes pre-tax amortization of
$18,000. An effective tax rate of 35% has been applied and is reflected in the
provision for federal income tax.
Pro forma investment income includes estimated earnings from approximately $500
million of cash proceeds from the Sale (after applicable tax payment).
Separate accounts business is reinsured under a modified coinsurance agreement
with The Hartford.
F-27
54
APPENDIX A--SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
The formula which will be used to determine the Market Value Adjustment is:
1 + I n/12
------------ - 1
( 1 + J + .005 )
Sample Calculation 1: Positive Adjustment
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 7%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment
1 + .08 60/12
$10,000 X -------------- - 1 = $234.73
[( 1 + .07 + .005 ) ]
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$10,234.73
Sample Calculation 2: Negative Adjustment
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 9%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:
1 + .08 60/12
$10,000 X -------------- - 1 = $666.42
[( 1 + .09 + .005 ) ]
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,333.58
Sample Calculation 3: Negative Adjustment
Amount withdrawn or transferred $10,000
Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 7.75%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:
1 + .08 60/12
$10,000 X ---------------- - 1 = $114.94
[( 1 + .0775 + .005 ) ]
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,885.06
- ------------------------------
* Assumed for illustrative purposes only.
A-1
55
APPENDIX B--SAMPLE DEATH BENEFIT CALCULATIONS
(FOR CONTRACTS ISSUED ON AND AFTER MAY 1, 1997 WITH ENHANCED DEATH BENEFIT
RIDER)
EXAMPLE 1 EXAMPLE 2
DATE OF DEATH IS THE 3RD CONTRACT ANNIVERSARY --------- ---------
a. Purchase Payments Made Prior to Date of Death, with 3%
accumulation $20,000 $20,000
b. Contract Value on Date of Death $17,000 $25,000
Death Benefit is larger of a, and b $20,000 $25,000
EXAMPLE 3 EXAMPLE 4 EXAMPLE 5
DATE OF DEATH IS THE 8TH CONTRACT ANNIVERSARY --------- --------- ---------
a. Purchase Payments Made Prior to Date of Death, with 3%
accumulation $20,000 $20,000 $20,000
b. Contract Value on 7th Contract Anniversary $15,000 $30,000 $30,000
c. Contract Value on Date of Death $17,000 $25,000 $35,000
Death Benefit is larger of a, b, and c $20,000 $30,000 $35,000
EXAMPLE 6 EXAMPLE 7 EXAMPLE 8
DATE OF DEATH IS THE 15TH CONTRACT ANNIVERSARY --------- --------- ---------
a. Purchase Payments Made Prior to Date of Death, with 3%
accumulation $20,000 $20,000 $20,000
b. Contract Value on 14th Contract Anniversary $15,000 $40,000 $40,000
c. Contract Value on Date of Death $17,000 $30,000 $50,000
Death Benefit is larger of a, b, and c $20,000 $40,000 $50,000
The numbers do not include any Market Value Adjustments which might be
applicable to the death benefit amount.
B-1
56
APPENDIX C--EXPLANATION OF EXPENSE CALCULATIONS
The expense for a given year is calculated by multiplying the projected
beginning of the year policy value by the total expense rate. The total expense
rate is the sum of the Variable Account expense rate plus the total Series Fund
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Growth Stock Series is calculated as
follows:
- --------------------------------------------------------------------------------
Total Variable Account Annual Expenses 1.35%
- --------------------------------------------------------------------------------
+ Total Series Fund Operating Expenses 0.64%
- --------------------------------------------------------------------------------
= Total Expense Rate 1.99%
- --------------------------------------------------------------------------------
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = 1000.00 X 0.0199 = $19.90
Year 2 Beginning Policy Value = $1030.10
Year 2 Expense = $1030.10 X 0.0199 = $20.50
Year 3 Beginning Policy Value = $1061.11
Year 3 Expense = $1061.11 X 0.0199 = $21.12
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to: $19.90 + 20.50 + 21.12 = $61.52
If the contract is surrendered, the surrender charge is the surrender charge
percentage times the purchase payment minus the 10% free withdrawal amount:
Surrender Charge Percentage X (Initial Premium - 10% Free Withdrawal) =
Surrender Charge
0.05 X ($1000.00 - $100.00) = $45.00
So the total expense if surrendered is $61.52 + $45.00 = $106.52
C-1
57
FORTIS
MASTERS+
VARIABLE
ANNUITY
Contracts Under Flexible
Premium Deferred
Combination Variable and
Fixed Annuity Contracts
PROSPECTUS DATED
May 1, 2001
[FORTIS SOLID PARTNERS, FLEXIBLE SOLUTIONS(SM) LOGO]
99183 (5/01)
FORTIS BENEFITS INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE:
P.O. BOX 64272 500 BIELENBERG DRIVE 1-800-800-2000
ST. PAUL, MINNESOTA 55164 WOODBURY, MINNESOTA 55125 EXTENSION 3057
This prospectus describes interests under flexible premium deferred combination
variable and fixed annuity contracts issued by Fortis Benefits Insurance Company
("Fortis Benefits").
These contracts allow you to accumulate funds on a tax-deferred basis. You may
elect a guaranteed interest accumulation option through a fixed account or a
variable return accumulation option through a variable account, or a combination
of these two options. Under the guaranteed interest accumulation option, you can
choose among ten different guarantee periods, each of which has its own interest
rate.
Under the variable return accumulation option, you can choose among one or more
of the following investment portfolios (those portfolios which have a non-Fortis
subadvisor includes the name of the subadvisor at the beginning of the portfolio
name):
Money Market Series MFS -- Capital Opportunities Series
U.S. Government Securities Series Growth & Income Series
Diversified Income Series Dreyfus -- S&P 500 Index Series
AIM -- Multisector Bond Series T. Rowe Price -- Blue Chip Stock Series
High Yield Series AIM -- Blue Chip Stock Series II
T. Rowe Price -- International Stock Series Alliance -- Large Cap Growth Series
II MFS -- Investors Growth Series
Lazard Freres -- International Stock Series Dreyfus -- Mid Cap Stock Series
Global Growth Series Growth Stock Series
MFS -- Global Equity Series Berger -- Small Cap Value Series
Asset Allocation Series Aggressive Growth Series
Federated -- American Leaders Series
Value Series
The accompanying prospectuses for these investment portfolios describe the
investment objectives, policies and risks of each of the portfolios.
This prospectus gives you information about the contracts that you should know
before investing. This prospectus must be accompanied by a current prospectus of
the available investment portfolios. These prospectuses should be read carefully
and kept for future reference.
A Statement of Additional Information, dated May 1, 2001, about certain aspects
of the contracts has been filed with the Securities and Exchange Commission and
is available without charge from Fortis Benefits at the address and phone number
printed above. The Table of Contents for the Statement of Additional Information
appears on page 25 of this prospectus.
THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK,
CREDIT UNION, BROKER-DEALER OR OTHER FINANCIAL INSTITUTION. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. THEY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
58
TABLE OF CONTENTS
PAGE
Special Terms Used in this Prospectus....................... 3
Information Concerning Fees and Charges..................... 4
Summary of Contract Features................................ 6
- Fortis Benefits...................................... 10
The Variable Account........................................ 10
The Portfolios.............................................. 10
The Fixed Account........................................... 11
- Guaranteed Interest Rates/Guarantee Periods.......... 11
- Market Value Adjustment.............................. 11
- Investments by Fortis Benefits....................... 12
Accumulation Period......................................... 13
- Issuance of a Contract and Purchase Payments......... 13
- Contract Value....................................... 13
- Allocation of Purchase Payments and Contract Value... 14
- Total and Partial Surrenders......................... 14
- Telephone Transactions............................... 15
- Benefit Payable on Death of Contract Owner (or
Annuitant)............................................ 15
The Annuity Period.......................................... 16
- Annuity Commencement Date............................ 16
- Commencement of Annuity Payments..................... 16
- Relationship Between Subaccount Investment
Performance and Amount of Variable Annuity Payments... 16
- Annuity Options...................................... 17
- Death of Annuitant or Other Payee.................... 17
Charges and Deductions...................................... 17
- Premium Taxes........................................ 17
- Charges Against the Variable Account................. 17
- Tax Charge........................................... 18
- Surrender Charge..................................... 18
- Nursing Care/Hospitalization Waiver of Surrender
Charge................................................ 18
- Disability Waiver of Surrender Charges............... 18
- Miscellaneous........................................ 19
- Reduction of Charges................................. 19
General Provisions.......................................... 19
- The Contracts........................................ 19
- Postponement of Payment.............................. 19
- Misstatement of Age or Sex and Other Errors.......... 19
- Assignment........................................... 19
- Beneficiary.......................................... 19
- Reports.............................................. 20
Rights Reserved by Fortis Benefits.......................... 20
Distribution................................................ 20
Federal Tax Matters......................................... 20
Further Information About Fortis Benefits................... 22
- General.............................................. 22
- Ownership of Securities.............................. 22
- Selected Financial Data.............................. 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Voting Privileges........................................... 24
Other Information........................................... 25
Contents of Statement of Additional Information............. 25
Fortis Benefits Financial Statements........................ 25
Appendix A--Sample Market Value Adjustment Calculations..... A-1
Appendix B--Sample Death Benefit Calculations............... B-1
Appendix C--Explanation Of Expense Calculations............. C-1
Appendix D--Pro Rata Adjustments............................ D-1
THE CONTRACTS ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. FORTIS BENEFITS DOES NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS WHICH IS NOT
INCLUDED IN THIS PROSPECTUS, THE RELATED STATEMENT OF ADDITIONAL INFORMATION, OR
ANY SUPPLEMENTS THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY
FORTIS BENEFITS.
59
SPECIAL TERMS USED IN THIS PROSPECTUS
Accumulation PeriodThe time period under a contract between the contract issue
date and the annuity commencement date.
Accumulation Unit A unit of measure used to calculate the owners' interest in
the Variable Account during the Accumulation Period.
Annuitant A person during whose life annuity payments are to be made by
Fortis Benefits under the contract. The Annuitant is the
person named in the application for the contract. If such
person dies before the annuity commencement date and there is
an additional annuitant named in the application, the
additional annuitant shall become the Annuitant. If there is
no named additional annuitant, or the additional annuitant
has predeceased the Annuitant who is named in the
application, the owner, if he or she is a natural person,
shall become the Annuitant.
Annuity Period The time period following the Accumulation Period, during
which annuity payments are made by Fortis Benefits.
Annuity Unit A unit of measurement used to calculate variable annuity
payments.
Fixed Annuity Option
An annuity option under which Fortis Benefits promises to pay
the Annuitant or any other payee that you designate one or
more fixed payments.
Market Value Adjustment
Positive or negative adjustment in fixed account value that
we make if such value is paid out more than fifteen days
before or after the end of a guarantee period in which it was
being held.
Non-Qualified Contracts
Contracts that do not qualify for the special federal income
tax treatment applicable in connection with certain
retirement plans.
Qualified ContractsContracts that are qualified for the special federal income
tax treatment applicable in connection with certain
retirement plans.
Valuation Date All business days except, with respect to any subaccount,
days on which the related portfolio does not value its
shares. Generally, the portfolios value their shares on each
day the New York Stock Exchange is open.
Valuation Period The period that starts at the close of regular trading on the
New York Stock Exchange on a Valuation Date and ends at the
close of regular trading on the exchange on the next
succeeding Valuation Date.
Variable Account The segregated asset account referred to as Variable Account
D of Fortis Benefits Insurance Company established to receive
and invest purchase payments under contracts.
Variable Annuity Option
An annuity option under which Fortis Benefits promises to pay
the Annuitant or any other payee chosen by you one or more
payments which vary in amount in accordance with the net
investment experience of the subaccounts selected by the
Annuitant.
3
60
INFORMATION CONCERNING FEES AND CHARGES
CONTRACT OWNER TRANSACTION CHARGES
Front-End Sales Charge Imposed on Purchases................. 0%
Maximum Surrender Charge for Sales Expenses................. 7% (1)
NUMBER OF YEARS SINCE SURRENDER CHARGE AS A
PURCHASE PAYMENT WAS CREDITED PERCENTAGE OF PURCHASE PAYMENT
- ----------------------------- ------------------------------
Less than 2 7%
At least 2 but less than 4 6%
At least 4 but less than 5 5%
At least 5 but less than 6 3%
At least 6 but less than 7 1%
7 or more 0%
Other Surrender Fees........................................ 0%
Exchange Fee................................................ 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE............................ $0
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge........................... 1.25%
Variable Account Administrative Charge...................... .10%
Total Variable Account Annual Expenses...................... 1.35%
- ------------------------------
(1) This charge does not apply in certain cases such as partial surrenders each
year of up to 10% of "new purchase payments" as defined under the heading
"Surrender Charge," or payment of a death benefit.
MARKET VALUE ADJUSTMENT WITH RESPECT TO FIXED ACCOUNT
Surrenders and other withdrawals from the fixed account more than fifteen days
from the end of a guarantee period other than the one year guarantee period are
subject to a Market Value Adjustment. The Market Value Adjustment may increase
or reduce the fixed account value. We compute this adjustment according to a
formula that we describe in more detail under "Market Value Adjustment."
PORTFOLIO ANNUAL EXPENSES(a)
U.S. MULTI
MONEY GOVERNMENT DIVERSIFIED SECTOR HIGH INTERNATIONAL ASSET AMERICAN
MARKET SECURITIES INCOME BOND YIELD STOCK ALLOCATION LEADERS VALUE
SERIES SERIES SERIES SERIES SERIES SERIES II SERIES SERIES SERIES
------ ---------- ----------- ---------- ------ ------------- ---------- ---------- ------
Investment and
Management Fee....... 0.30% 0.47% 0.48% 0.75% 0.50% 0.90% 0.47% 0.90% 0.70%
Other Expenses......... 0.06% 0.05% 0.05% 0.19% 0.06% 0.16% 0.04% 0.35% 0.06%
Total Fortis Series
Operating Expenses... 0.36% 0.52% 0.53% 0.94% 0.56% 1.06% 0.51% 1.25% 0.76%
GROWTH
CAPITAL & S&P 500
OPPORTUNITIES INCOME INDEX
SERIES SERIES SERIES
------------- -------- -------
Investment and
Management Fee....... 0.90% 0.63% 0.40%
Other Expenses......... 0.41% 0.04% 0.05%
Total Fortis Series
Operating Expenses... 1.31% 0.67% 0.45%
BLUE MID SMALL LARGE
CHIP BLUE CHIP CAP CAP GLOBAL GLOBAL CAP
STOCK STOCK INTERNATIONAL STOCK VALUE GROWTH EQUITY GROWTH
SERIES SERIES II STOCK SERIES SERIES SERIES SERIES SERIES SERIES
------ ------------- ------------- ------ ------ ------ ---------- ------
Investment and Management Fee.......... 0.87% 0.95% 0.83% 0.90% 0.90% 0.70% 1.00% 0.90%
Other Expenses......................... 0.05% 0.43% 0.10% 0.15% 0.13% 0.05% 0.43% 0.06%
Total Fortis Series Operating
Expenses............................. 0.92% 1.38% 0.93% 1.05% 1.03% 0.75% 1.43% 0.96%
INVESTORS GROWTH AGGRESSIVE
GROWTH STOCK GROWTH
SERIES SERIES SERIES
---------- ------ ----------
Investment and Management Fee.......... 0.90% 0.61% 0.62%
Other Expenses......................... 0.49% 0.03% 0.04%
Total Fortis Series Operating
Expenses............................. 1.39% 0.64% 0.66%
- ------------------------------
(a) As a percentage of portfolio average net assets based on 1999 historical
data. The figures set forth above were annualized numbers for the following
portfolios and the total operating expense ratio for them would have been as
follows had there not been a waiver and reimbursement of expense arrangement
in effect: American Leaders Series--1.50%; Blue Chip Series II--1.50%;
Capital Opportunities Series--1.38%; Global Equity Series--1.86%; Investors
Growth Series--1.53%.
4
61
EXAMPLES*
If you surrender your contract in full at the end of any of the time periods
shown below, you would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return on assets:
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
Money Market................................................ $80 $107 $136 $199
US Government Securities.................................... 82 112 145 216
Diversified Income.......................................... 82 112 145 217
Multisector Bond............................................ 86 125 166 259
High Yield.................................................. 82 113 147 220
International Stock Series II............................... 87 128 172 271
Asset Allocation............................................ 82 112 144 215
American Leaders............................................ 89 134 181 290
Value....................................................... 84 119 157 241
Capital Opportunities....................................... 90 136 184 296
Growth & Income............................................. 83 116 152 231
S&P 500 Index............................................... 81 110 141 208
Blue Chip Stock............................................. 86 124 165 257
Blue Chip Stock II.......................................... 90 138 188 303
International Stock......................................... 86 124 165 258
MidCap Stock Series......................................... 87 128 171 270
Small Cap Value Series...................................... 87 127 170 268
Global Growth............................................... 84 119 156 240
Global Equity............................................... 91 139 190 307
Large Cap Growth Series..................................... 86 125 167 261
Investors Growth Series..................................... 90 138 188 304
Growth Stock................................................ 83 116 151 228
Aggressive Growth........................................... 83 116 152 230
If you commence an annuity payment option, or do not surrender your contract,
you would pay the following cumulative expenses on a $1,000 investment, assuming
a 5% annual return on assets:
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------- ------ ------- ------- --------
Money Market................................................ $17 $53 $ 91 $199
US Government Securities.................................... 19 58 100 216
Diversified Income.......................................... 19 58 100 217
Multisector Bond............................................ 23 71 121 259
High Yield.................................................. 19 59 102 220
International Stock Series II............................... 24 74 127 271
Asset Allocation............................................ 19 58 99 215
American Leaders............................................ 26 80 136 290
Value....................................................... 21 65 112 241
Capital Opportunities....................................... 27 82 139 296
Growth & Income............................................. 20 62 107 231
S&P 500 Index............................................... 18 56 96 208
Blue Chip Stock............................................. 23 70 120 257
Blue Chip Stock II.......................................... 27 84 143 303
International Stock......................................... 23 70 120 258
MidCap Stock Series......................................... 24 74 126 270
Small Cap Value Series...................................... 24 73 125 268
Global Growth............................................... 21 65 111 240
Global Equity............................................... 28 85 145 307
Large Cap Growth Series..................................... 23 71 122 261
Investors Growth Series..................................... 27 84 143 304
Growth Stock................................................ 20 62 106 228
Aggressive Growth........................................... 20 62 107 230
- ------------------------------
* Does not include the effect of any Market Value Adjustment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
------------------------------
We have included the foregoing tables and examples to help you understand the
transaction and operating expenses we directly or indirectly impose under the
contracts and under the portfolios. We will also deduct amounts for state
premium taxes or similar assessments where these deductions are applicable.
See Appendix C for an explanation of the calculation of the amounts set forth
above.
5
62
SUMMARY OF CONTRACT FEATURES
The following summary should be read in conjunction with the detailed
information in this prospectus. Variations from the information appearing in
this prospectus due to requirements particular to your state are described in
supplements which are attached to this prospectus, or in endorsements to the
contract as appropriate.
The contracts are designed to provide individuals with retirement benefits
through the accumulation of purchase payments on a fixed or variable basis, and
by the application of such accumulations to provide fixed or variable annuity
payments.
"We," "our," and "us" mean Fortis Benefits Insurance Company. "You" and "your"
mean a reader of this prospectus who is contemplating making purchase payments
or taking any other action in connection with a contract.
Depending on the state that you live in, the contract that is issued to you may
be as a part of a group contract or as an individual contract. Participation in
a group contract will be evidenced by the issuance of a certificate showing your
interest under the group contract. In other states, an individual contract will
be issued to you. Both the certificate and the contract are referred to as a
"contract" in this prospectus.
FREE LOOK
You have the right to examine a contract during a "free look" period after you
receive the contract and return it for a refund of the amount of the then
current contract value. However, in certain states where required by state law
the refund will be in the amount of all purchase payments that have been made,
without interest or appreciation or depreciation. The "free look" period is
generally 10 days unless a longer time is specified on the face page of your
contract.
PURCHASE PAYMENTS
The initial purchase payment under a contract must be at least $5,000 ($2,000
for a contract which is part of a qualified plan). Additional purchase payments
under a contract must be at least $50. See "Issuance of a Contract and Purchase
Payments."
ALLOCATION OF PURCHASE PAYMENTS
On the date that the contract is issued, the initial purchase payment is
allocated, as specified by you in the contract application, among one or more of
the portfolios, or to one or more of the guarantee periods in the fixed account,
or to a combination thereof. Subsequent purchase payments are allocated in the
same way, or pursuant to different allocation percentages that you may request
in writing.
VARIABLE ACCOUNT INVESTMENT OPTIONS
Each of the subaccounts of the Variable Account invests in shares of a
corresponding portfolio. Contract value in each of the subaccounts of the
Variable Account will vary to reflect the investment experience of each of the
corresponding portfolios, as well as deductions for certain charges.
Each portfolio has a separate and distinct investment objective and is managed
by Fortis Advisers, Inc. or a subadviser of Fortis Advisers, Inc. A full
description of the portfolios and their investment objectives, policies, risks
and expenses can be found in the current prospectus for the portfolios, which
accompanies this prospectus, and the portfolios' Statement of Additional
Information which is available upon request from Fortis Benefits at the address
and phone number on the cover of this prospectus.
FIXED ACCOUNT INVESTMENT OPTIONS
Any amount allocated by the owner to the fixed account earns a guaranteed
interest rate. The level of the guaranteed interest rate depends on the length
of the guarantee period selected by the owner. We currently make available ten
different guarantee periods, ranging from one to ten years.
If amounts are transferred, surrendered or otherwise paid out more than fifteen
days before or after the end of the applicable guarantee period other than the
one-year guarantee period, a Market Value Adjustment will be applied to increase
or decrease the amount of fixed account value that is paid out. Accordingly, the
Market Value Adjustment can result in gains or losses to you. There is no Market
Value Adjustment for transfers or surrenders from the one-year guarantee period
of the fixed account.
THE FIXED ACCOUNT INVESTMENT OPTION IS NOT AVAILABLE FOR CONTRACTS ISSUED IN THE
STATE OF PENNSYLVANIA.
For a more complete discussion of the fixed account investment options and the
Market Value Adjustment, see "The Fixed Account."
TRANSFERS
During the Accumulation Period, you can transfer all or part of your contract
value from one subaccount to another or into the fixed account and, subject to
any Market Value Adjustment, from one guarantee period to another or into a
subaccount. There is currently no charge for these transfers. We reserve the
right to restrict the frequency of or otherwise condition, terminate, or impose
charges upon, transfers from a subaccount during the Accumulation Period. During
the Annuity Period the person receiving annuity payments may make up to four
transfers (but not from a Fixed Annuity Option) during each year of the Annuity
Period. For a description of certain limitations on transfer rights, see
"Allocations of Purchase Payments and Contract Value--Transfers."
TOTAL OR PARTIAL SURRENDERS
Subject to certain conditions, all or part of the contract value may be
surrendered by you before the earlier of (1) the annuity commencement date, or
(2) if the owner is a non-natural person the Annuitant's death. Amounts
surrendered may be subject to a surrender charge and, in addition, amounts
surrendered from the fixed account may be subject to a Market Value Adjustment.
See "Total and Partial Surrenders," "Surrender Charge" and "Market Value
Adjustment." Particular attention should be paid to the tax implications of any
surrender, including possible penalties for premature distributions. See
"Federal Tax Matters."
ANNUITY PAYMENTS
The contract provides several types of annuity benefits to you or to other
persons you properly designate to receive such payments, including Fixed and
Variable Annuity Options. The owner has considerable flexibility in choosing the
annuity commencement date. However, the tax implications of an annuity
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63
commencement date must be carefully considered, including the possibility of
penalties for commencing benefits either too soon or too late. See "Annuity
Commencement Date," "Annuity Options" and "Federal Tax Matters" in this
prospectus and "Taxation Under Certain Retirement Plans" in the Statement of
Additional Information.
DEATH BENEFIT
In the event of the death of the owner, or the Annuitant if the owner is a
non-natural person, prior to the annuity commencement date, a death benefit is
payable to the beneficiary. See "Benefit Payable on Death of Contract Owner (or
Annuitant)."
LIMITATIONS IMPOSED BY RETIREMENT PLANS AND EMPLOYERS
Certain rights you would otherwise have under a contract may be limited by the
terms of any applicable employee benefit plan. These limitations may restrict
such things as total and partial surrenders, the amount or timing of purchase
payments that may be made, when annuity payments must start and the type of
annuity options that may be selected. Accordingly, you should familiarize
yourself with these and all other aspects of any retirement plan in connection
with which a contract is issued.
The record owner of the group variable annuity contract pursuant to which group
certificates will be issued will be a bank trustee whose sole function is to
hold record ownership of the contract or an employer (or the employer's
designee) in connection with an employee benefit plan. In the latter cases,
certain rights that an owner otherwise would have under a contract may be
reserved instead by the employer.
TAX IMPLICATIONS
The tax implications for you or any other persons who may receive payments under
a contract, and those of any related employee benefit plan can be quite
important. A brief discussion of some of these is set out under "Federal Tax
Matters" in this prospectus and "Taxation Under Certain Retirement Plans" in the
Statement of Additional Information, but such discussion is not comprehensive.
Therefore, you should consider these matters carefully and consult a qualified
tax adviser before making purchase payments or taking any other action in
connection with a contract or any related employee benefit plan. Failure to do
so could result in serious adverse tax consequences which might otherwise have
been avoided.
QUESTIONS AND OTHER COMMUNICATIONS
Any question about procedures of the contract should be directed to your sales
representative, or Fortis Benefits' home office: P.O. Box 64272, St. Paul,
Minnesota, 55164: 1-800-800-2000, extension 3057. Purchase payments and written
requests should be mailed or delivered to the same home office address. All
communications should include the contract number, the owner's name and, if
different, the Annuitant's name. The number for telephone transfers is
1-800-800-2000 (extension 3057).
Any purchase payment or other communication, except a 10-day cancellation
notice, is deemed received at Fortis Benefit's home office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.
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64
FINANCIAL AND PERFORMANCE INFORMATION
The information presented below reflects the Accumulation Unit information for
subaccounts of the Variable Account through December 31, 2000.
MONEY U.S. GOV'T DIVERSIFIED GLOBAL HIGH INTERNATIONAL ASSET
MARKET SECURITIES INCOME BOND YIELD STOCK II ALLOCATION
------ ---------- ----------- ------ ----- ------------- ----------
December 31, 2000
Accumulation Units in
Force...................... 39,594,550 5,977,686 37,519,171 1,388,496 3,777,913 2,403,196 144,888,821
Accumulation Unit Value...... $1.662 $19.655 $2.118 $12,436 $11.814 $14.633 $3.877
December 31, 1999
Accumulation Units in
Force...................... 59,567,286 6,961,590 46,271,405 1,402,949 4,713,245 152,820,325 3,230,112
Accumulation Unit Values..... $1,587 $17,823 $1,998 $12,092 $12,799 $3,923 $16,150
December 31, 1998
Accumulation Units in
Force...................... 39,532,433 7,577,700 51,323,231 1,236,211 4,984,906 3,315,158 160,803,266
Accumulation Unit Values..... $1.532 $18.421 $2.059 $13.254 $12.823 $16.313 $3.326
December 31, 1997
Accumulation Units in
Force...................... 31,491,629 7,743,923 49,942,498 1,123,401 4,194,544 2,918,483 156,035,843
Accumulation Unit Values..... $1.474617 $17.149938 $1.963344 $11.837281 $12.917282 $14.433538 $2.809839
December 31, 1996
Accumulation Units in
Force...................... 36,220,947 9,635,092 55,653,680 1,088,043 3,337,604 2,330,884 154,525,474
Accumulation Unit Values..... $1.418 $15.935 $1.801 $11.961 $11.928 $12.884 $2.368
January 1, 1996*
Accumulation Unit Values..... -- -- -- -- -- -- --
December 31, 1995
Accumulation Units in
Force...................... 26,915,975 10,989,914 59,213,865 574,142 2,321,419 1,117,596 148,700,081
Accumulation Unit Value...... $1.367 $15.805 $1.753 $11.743 $10.941 $11.590 $2.134
January 2, 1995*
Accumulation Unit Value...... -- -- -- $10.000 -- $10.000 --
December 31, 1994
Accumulation Units in
Force...................... 30,697,754 12,271,738 62,744,615 -- 1,216,957 -- 137,642,102
Accumulation Unit Value...... $1.311 $13.483 $1.515 -- -- $9.834 $1.773
May 1, 1994*
Accumulation Unit Value...... -- -- -- -- -- $10.0000 --
December 31, 1993
Accumulation Units in
Force...................... 21,315,022 15,601,818 56,005,709 -- -- -- 106,834,367
Accumulation Unit Value...... $1.278 $14.609 $1.621 -- -- -- $1.797
December 31, 1992
Accumulation Units in
Force...................... 20,674,556 9,505,984 19,353,521 -- -- -- 49,688,937
Accumulation Unit Value...... $1.261 $13.529 $1.457 -- -- -- $1.664
May 1, 1992*
Accumulation Unit Value...... -- -- -- -- -- -- --
December 31, 1991
Accumulation Units in
Force...................... 7,235,168.03 3,595,759.23 6,056,976.03 -- -- -- 17,772,322.83
Accumulation Unit Value...... $1.237 $12.921 $1.379 -- -- -- $1.577
December 31, 1990
Accumulation Units in
Force...................... 5,632,146.27 747,992.12 2,352,517.74 -- -- -- 8,249,373.75
Accumulation Unit Value...... $1.183 $11.450 $1.219 -- -- -- $1.252
AMERICAN CAPITAL GROWTH &
LEADERS VALUE OPPORTUNITIES INCOME
-------- ----- ------------- --------
December 31, 2000
Accumulation Units in
Force...................... 180,486 4,407,086 763,073 9,221,342
Accumulation Unit Value...... $10.392 $18.559 $8.754 $24.661
December 31, 1999
Accumulation Units in
Force...................... -- 4,744,081 -- 10,994,926
Accumulation Unit Values..... -- $15,875 -- $23,775
December 31, 1998
Accumulation Units in
Force...................... -- 4,869,102 -- 12,171,938
Accumulation Unit Values..... -- $14.768 -- $21.767
December 31, 1997
Accumulation Units in
Force...................... -- 3,402,217 -- 11,003,248
Accumulation Unit Values..... -- $13.651572 -- $19.487584
December 31, 1996
Accumulation Units in
Force...................... -- 1,071,648 -- 7,892,683
Accumulation Unit Values..... -- $11.048 -- $15.468
January 1, 1996*
Accumulation Unit Values..... -- $10.000 --
December 31, 1995
Accumulation Units in
Force...................... -- -- 4,204,164
Accumulation Unit Value...... -- -- $12.904
January 2, 1995*
Accumulation Unit Value...... -- -- --
December 31, 1994
Accumulation Units in
Force...................... -- -- 1,489,517
Accumulation Unit Value...... -- -- $10.083
May 1, 1994*
Accumulation Unit Value...... -- -- $10.0000
December 31, 1993
Accumulation Units in
Force...................... -- -- --
Accumulation Unit Value...... -- -- --
December 31, 1992
Accumulation Units in
Force...................... -- -- --
Accumulation Unit Value...... -- -- --
May 1, 1992*
Accumulation Unit Value...... -- -- --
December 31, 1991
Accumulation Units in
Force...................... -- -- --
Accumulation Unit Value...... -- -- --
December 31, 1990
Accumulation Units in
Force...................... -- -- --
Accumulation Unit Value...... -- -- --
- -------------------------------
* Accumulation Unit value at date of initial registration statement
effectiveness
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65
BLUE INTERNATIONAL GLOBAL GLOBAL GROWTH AGGRESSIVE
S&P 500 BLUE CHIP CHIP II STOCK GROWTH EQUITY STOCK GROWTH
------- --------- ------- ------------- ------ ------ ------ ----------
December 31, 2000
Accumulation Units in Force.... 14,152,174 10,307,005 834,628 5,688,753 9,791,503 280,353 111,543,696 8,239,797
Accumulation Unit Value........ $19.808 $20,758 $8.728 $17.572 $27.039 $9.264 $6.079 $27.382
December 31, 1999
Accumulation Units in Force.... 14,134,177 9,671,527 -- 9,640,858 114,976,011 -- 5,344,248 6,379,981
Accumulation Unit Values....... $22,189 $21,571 -- $33,343 $5,925 -- $19,711 $32,680
December 31, 1998
Accumulation Units in Force.... 10,440,486 7,548,794 -- 4,751,940 11,744,865 -- 136,042,148 6,165,803
Accumulation Unit Values....... $18.689 $18.238 -- $16.113 $21.433 -- $3.870 $15.829
December 31, 1997
Accumulation Units in Force.... 5,491,818 4,149,587 -- 4,239,821 13,725,612 -- 156,975,866 6,551,677
Accumulation Unit Values....... $14.786540 $14.429421 -- $14.021796 $19.507894 -- $3.296005 $13.241215
December 31, 1996
Accumulation Units in Force.... 1,259,758 915,358 -- 3,137,348 13,713,860 -- 169,095,500 5,706,895
Accumulation Unit Values....... $11.326 $11.520 -- $12.690 $18.510 -- $2.971 $13.232
January 1, 1996*
Accumulation Unit Values....... $10.000 $10.000 -- -- -- -- -- --
December 31, 1995
Accumulation Units in Force.... -- 1,157,064 10,769,830 -- 160,247,280 3,033,587
Accumulation Unit Value........ -- $11.271 $15.754 -- $2.587 $12.461
January 2, 1995*
Accumulation Unit Value........ -- $10.000 -- -- -- --
December 31, 1994
Accumulation Units in Force.... -- -- 10,055,959 -- 148,657,108 1,115,647
Accumulation Unit Value........ -- -- $12.236 -- $2.054 $9.723
May 1, 1994*
Accumulation Unit Value........ -- -- -- -- -- $10.0000
December 31, 1993
Accumulation Units in Force.... -- -- 5,108,957 -- 118,720,649 --
Accumulation Unit Value........ -- -- $12.784 -- $2.142 --
December 31, 1992
Accumulation Units in Force.... -- -- 698,720 -- 79,582,321 --
Accumulation Unit Value........ -- -- $10.988 -- $1.996 --
May 1, 1992*
Accumulation Unit Value........ -- -- 10.0000 -- -- --
December 31, 1991
Accumulation Units in Force.... -- -- -- -- 42,946,178.33 --
Accumulation Unit Value........ -- -- -- -- $1.965 --
December 31, 1990
Accumulation Units in Force.... -- -- -- -- 14,690,313.64 --
Accumulation Unit Value........ -- -- -- -- $1.298 --
MID CAP LARGE CAP INVESTORS SMALL CAP
GROWTH GROWTH GROWTH VALUE
------- --------- --------- ---------
December 31, 2000
Accumulation Units in Force.... 2,297,535 5,763,035 508,808 3,045,179
Accumulation Unit Value........ $11.303 $11.946 $8.905 $13.357
December 31, 1999
Accumulation Units in Force.... 1,441,402 3,962,830 -- 2,496,974
Accumulation Unit Values....... $10,538 $14,754 -- $10,659
December 31, 1998
Accumulation Units in Force.... 765,338 842,995 -- 1,098,102
Accumulation Unit Values....... $9.625 $11.755 -- $9.367
December 31, 1997
Accumulation Units in Force.... -- -- -- --
Accumulation Unit Values....... -- -- -- --
December 31, 1996
Accumulation Units in Force.... -- -- -- --
Accumulation Unit Values....... -- -- -- --
January 1, 1996*
Accumulation Unit Values....... -- -- -- --
December 31, 1995
Accumulation Units in Force.... -- -- -- --
Accumulation Unit Value........ -- -- -- --
January 2, 1995*
Accumulation Unit Value........ -- -- -- --
December 31, 1994
Accumulation Units in Force.... -- -- -- --
Accumulation Unit Value........ -- -- -- --
May 1, 1994*
Accumulation Unit Value........ -- -- -- --
December 31, 1993
Accumulation Units in Force.... -- -- -- --
Accumulation Unit Value........ -- -- -- --
December 31, 1992
Accumulation Units in Force.... -- -- -- --
Accumulation Unit Value........ -- -- -- --
May 1, 1992*
Accumulation Unit Value........ -- -- -- --
December 31, 1991
Accumulation Units in Force.... -- -- -- --
Accumulation Unit Value........ -- -- -- --
December 31, 1990
Accumulation Units in Force.... -- -- -- --
Accumulation Unit Value........ -- -- -- --
- -------------------------------
* Accumulation Unit value at date of initial registration statement
effectiveness
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66
Audited financial statements of the Variable Account are included in the
Statement of Additional Information.
Advertising and other sales materials may include yield and total return figures
for the subaccounts of the Variable Account. These figures are based on
historical results and are not intended to indicate future performance. "Yield"
is the income generated by an investment in the subaccount over a period of time
specified in the advertisement. This rate of return is assumed to be earned over
a full year and is shown as a percentage of the investment. "Total Return" is
the total change in value of an investment in the subaccount over a period of
time specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield figures
do not reflect the surrender charge and yield and total return figures do not
reflect premium tax charges. This makes the performance shown more favorable.
Financial information concerning Fortis Benefits is included in this prospectus
under "Additional Information About Fortis Benefits" and "Fortis Benefits
Financial Statements."
FORTIS BENEFITS
Fortis Benefits Insurance Company is the issuer of the contracts. Fortis
Benefits is a Minnesota corporation founded in 1910. It is qualified to sell
life insurance and annuity contracts in the District of Columbia and in all
states except New York. Fortis Benefits is an indirectly wholly-owned subsidiary
of Fortis, Inc., which is itself indirectly owned 50% by Fortis (NL)N.V. and 50%
by Fortis (B). Fortis, Inc. manages the United States operations for these two
companies.
Fortis (NL)N.V. is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
(B) is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis (NL)N.V. and
Fortis (B) have merged their operating companies under the trade name of Fortis.
The Fortis group of companies is active in insurance, banking and financial
services, and real estate development in The Netherlands, Belgium, the United
States, Western Europe, and the Pacific Rim.
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.
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 available
investment 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.
THE VARIABLE ACCOUNT
The Variable Account is a segregated investment account of Fortis Benefits.
Fortis Benefits established Variable Account D under Minnesota insurance law as
of October 14, 1987. The Variable Account is an integral part of Fortis
Benefits. However, the Variable Account is registered with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. Assets in the Variable Account representing reserves and liabilities
under these contracts and other variable annuity contracts issued by Fortis
Benefits will not be chargeable with liabilities arising out of any other
business of Fortis Benefits.
The Variable Account has subaccounts. The assets in each subaccount are invested
exclusively in one of the portfolios listed on the first page of the prospectus,
each of which represents a separate investment portfolio. Income and both
realized and unrealized gains or losses from the assets of each subaccount of
the Variable Account are credited to or charged against that subaccount without
regard to income, gains or losses, from any other subaccount of the Variable
Account or arising out of any other business we may conduct. We may add or
eliminate new subaccounts as new portfolios are added or eliminated.
THE PORTFOLIOS
You may choose from among a number of different portfolios. Each portfolio is a
mutual fund available for purchase only as a funding vehicle for benefits under
variable life insurance and variable annuity products. These variable life
insurance and variable annuity products are issued by Fortis Benefits and by
other life insurance companies. Each portfolio corresponds to one of the
subaccounts of the Variable Account. The assets of each portfolio are separate
from the assets of other portfolios. In addition, each portfolio operates as a
separate investment portfolio whose investment performance has no effect on the
investment performance of any other portfolio. We offer more detailed
information for each investment portfolio. This information includes the
investment policies, investment restrictions, charges, and risks attendant to
investing in each portfolio. This information also includes other aspects of
each portfolio's operations. You may find this information in the current
prospectus for each portfolio. These portfolio prospectuses must accompany this
prospectus, and you should read them in conjunction with it. You may obtain a
copy of each prospectus from us, free of charge, by calling 1-800-800-2000, ext.
3057, or by writing P.O. Box 64272, St. Paul, Minnesota 55164.
As noted, the investment portfolios may be available to registered separate
accounts of other participating insurance companies. These portfolios may also
be available to the Variable Account and other separate accounts of Fortis
Benefits. Although Fortis Benefits does not anticipate any disadvantages to
this, there is a possibility that a material conflict may arise between the
interest of the Variable Account and one or more of the other separate accounts
participating in the portfolios. For example, a conflict may occur due to (1) a
change in law affecting the operations of variable life and variable annuity
separate accounts, (2) differences in the voting instructions of the contract
owners and those of other companies, or (3) some other reason. In the event of
conflict, Fortis Benefits will take any steps necessary to protect the contract
owners and variable annuity payees.
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67
Fortis Benefits purchases and redeems portfolios' shares for the Variable
Account at their net asset value without any sales or redemption charges. We
automatically reinvest dividends or capital gain distributions attributable to
contracts in shares of the portfolio from which they are received at the
portfolio's net asset value on the date paid. These dividends and distributions
will have the effect of reducing the new asset value of each share of the
corresponding portfolio and increasing, by an equivalent value, the number of
shares outstanding of the portfolio. However, the value of your interest in the
corresponding subaccount will not change as a result of any such dividends and
distributions.
The portfolios available for investment by the Variable Account are listed on
the cover page of this prospectus.
THE FIXED ACCOUNT
GUARANTEED INTEREST RATES/GUARANTEE PERIODS
Any amount you allocate to the fixed account 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. At
the end of your guarantee period, your contract value, including accrued
interest, will be allocated to a new guarantee period of equal length. However,
you may reallocate your contract value to a different guarantee period (or
periods) or to one (or more) of the subaccounts of the Variable Account. 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 those for other guarantee
periods. From time to time 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. Please
note, when you allocate or transfer an amount to a guarantee period, a new
guarantee period begins running with respect to that amount. Therefore, the
amount you allocate will earn a guaranteed interest rate that will not change
until the end of that period. In addition, the guaranteed interest rate will
never be less than 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 chosen 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
renewed.
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. See
"Investments by Fortis Benefits". In addition, when we determine guaranteed
interest rates, we may consider: (1) the duration of a guarantee period, (2)
regulatory and tax requirements, (3) sales and administrative expenses we bear,
(4) risks we assume, (5) our profitability objectives, and (6) general economic
trends.
FORTIS BENEFITS' MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED
INTEREST RATES WE DECLARE. WE CANNOT PREDICT OR ASSURE THE LEVEL OF ANY FUTURE
GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL RATE OF 3%.
THE FIXED ACCOUNT INVESTMENT OPTION IS NOT AVAILABLE FOR CONTRACTS ISSUED IN THE
STATE OF PENNSYLVANIA.
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.
MARKET VALUE ADJUSTMENT
Except as described below, we will apply a Market Value Adjustment to any fixed
account value that is:
- surrendered,
- transferred, or
- otherwise paid out
before the end of the guarantee period in which it is being held.
For example, we will apply a Market Value Adjustment to fixed account value that
we pay:
- as an amount applied to an annuity option, and
- as an amount paid as a single sum in lieu of an annuity.
The Market Value Adjustment we apply may increase or decrease the fixed account
value that is withdrawn or transferred. We determine whether the fixed account
value is increased or decreased by performing a comparison of two guaranteed
interest rates.
The first rate we compare is the guaranteed interest rate for the fixed account
value that is withdrawn or transferred from the existing guarantee period. The
second rate we compare is the guaranteed interest rate we are then offering for
new guarantee periods with durations equal to the number of years remaining in
the existing guarantee period. After comparing these two rates, we determine
whether the fixed account value is increased or decreased as follows:
- If the first rate exceeds the second rate by more than 1/2% (1/4% for
contracts issued in the state of Florida), the Market Value Adjustment
produces an increase in the fixed account value withdrawn or transferred.
- If the first rate does not exceed the second rate by at least 1/2% (1/4%
for contracts issued in the state of Florida), the Market Value
Adjustment produces a decrease in the fixed account value withdrawn or
transferred.
We will determine the Market Value Adjustment by multiplying the fixed account
value that is withdrawn or transferred from the
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68
existing guarantee period (before deduction of any applicable surrender charge)
by the following factor:
1 + I n/12
------------ - 1
( 1 + J + .005 )
where,
- I is the guaranteed interest rate we credit to the fixed account value
that is withdrawn or transferred from the existing guarantee period.
- J is the guaranteed interest rate we are then offering for new guarantee
periods with durations equal to the number of years remaining in the
existing guarantee period (rounded up to the next higher number of
years).
- N is the number of months remaining in the existing guarantee period
(rounded up to the next higher number of months).
You will find sample Market Value Adjustment calculations in Appendix A.
We do not apply a Market Value Adjustment to withdrawals and transfers of fixed
account value under four exceptions. We describe these exceptions below.
(1) We will not apply a Market Value Adjustment to fixed account value that we
pay out as a death benefit pursuant to a contract.
(2) We will not apply a Market Value Adjustment to fixed account value that is
withdrawn or transferred from the one-year guarantee period.
(3) We will not apply a Market Value Adjustment to fixed 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
fixed account value was being held,
and that:
- ends 15 days after the end date of the guarantee period in which the
fixed account value was being held.
(4) We will not apply a Market Value Adjustment to fixed 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 Benefits program for the withdrawal or transfer of fixed
account value.
We may impose conditions and limitations on any formal Fortis Benefits program
for the withdrawal or transfer of fixed account value. Ask your Fortis Benefits
representative about the availability of such a program in your state. In
addition, if such a program is available in your state, your Fortis Benefits
representative can inform you about the conditions and limitations that may
apply to that program.
INVESTMENTS BY FORTIS BENEFITS
Fortis Benefits' legal obligations with respect to the fixed account 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 fixed account are the property of Fortis
Benefits, 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 and in the fixed account. Neither our general account nor the
fixed account is subject to registration under the Investment Company Act of
1940.
We will invest amounts in our general account, and amounts in the fixed 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 "Fortis Benefits' 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 fixed
account. However, this return is only one of many factors we consider when we
establish the guaranteed interest rates. See "Guaranteed Interest
Rates/Guarantee Periods".
Generally, we expect to invest amounts allocated to the fixed account 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 fixed account according to any
particular strategy, See "Regulation and Reserves".
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As stated above under the caption "Fortis Benefits" in the "Summary of Contract
Features" section of this prospectus, the contracts are reinsured by Hartford
Life and Annuity Insurance Company. As part of this reinsurance arrangement, the
assets supporting the reserve liabilities of Fortis Benefits associated with the
fixed accounts under the contracts are held by Fortis Benefits; however, these
assets are managed by Hartford Investment Management Company, an affiliate of
Hartford Life and Annuity Insurance Company. Hartford Investment Management
Company generally invests those assets as described above for the contract fixed
account related investments of Fortis Benefits.
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
We reserve the right to reject any application for a contract or any purchase
payment for any reason. If we accept your issuing instructions in the form
received, we will credit the initial purchase payment within two Valuation Dates
after the later of (1) receipt of the issuing instructions or (2) receipt of the
initial purchase payment at our home office. If we cannot apply the initial
purchase payment within five Valuation Dates after receipt because the issuing
instructions are incomplete, we will return the initial purchase payment unless
you consent to our retaining the initial purchase payment and applying it as of
the end of the Valuation Period in which the necessary requirements are
fulfilled. The initial purchase payment must be at least $5,000 ($2,000 for a
contract issued pursuant to a qualified plan).
The date that we apply the initial purchase payment to the purchase of the
contract is also the contract issue date. The contract issue date is the date
used to determine contract years, regardless of when we deliver the contract.
Our crediting of investment experience in the Variable Account, or a fixed rate
of return in the fixed account, generally begins as of the contract issue date.
We will accept additional purchase payments at any time after the contract issue
date and prior to the annuity commencement date, as long as the Annuitant is
living. You must transmit purchase payments (together with any required
information identifying the proper contracts and accounts to be credited with
purchase payments) to our home office. We apply additional purchase payments to
the contract, and add to the contract value as of the end of the Valuation
Period in which we receive the payments.
Each additional purchase payment under a contract must be at least $50. The
total of all purchase payments for all Fortis Benefits annuities having the same
owner or Annuitant, may not exceed $1 million (not more than $500,000 allocated
to the fixed account) without our prior approval. We reserve the right to modify
this limitation at any time.
You may make purchase payments in excess of the initial minimum by monthly draft
against a bank account if you have completed and returned to us a special
authorization form. You may get the form from your sales representative or from
our home office. We can also arrange for you to make purchase payments by wire
transfer, payroll deduction, military allotment, direct deposit and billing.
Purchase payments by check should be made payable to Fortis Benefits Insurance
Company.
If the contract value is less than $1,000, we may cancel the contract on any
Valuation Date. We will notify you of our intention to cancel the contract at
least 90 days in advance of the cancellation date. If we do cancel your
contract, we consider such cancellation a full surrender of the contract.
CONTRACT VALUE
Contract value is the total of any Variable Account value in all the subaccounts
of the Variable Account, plus any fixed account value in all the guarantee
periods.
The contract does not guarantee a minimum Variable Account value. You bear the
entire investment risk for the contract value that you allocate to the Variable
Account.
Determination of Variable Account Value. A contract's Variable Account value is
based on the number of Accumulation Units and on Accumulation Unit values, which
are determined on each Valuation Date. The value of an Accumulation Unit for a
subaccount on any Valuation Date is equal to the previous value of that
subaccount's Accumulation Unit multiplied by that subaccount's net investment
factor (discussed directly below) for the Valuation Period ending on that
Valuation Date. At the end of any Valuation Period, a contract's Variable
Account value in a subaccount is equal to the number of Accumulation Units in
the subaccount times the value of one Accumulation Unit for that subaccount.
The number of Accumulation Units in each subaccount is equal to:
- Accumulation Units purchased at the time that any purchase payments or
transferred amounts are allocated to the subaccount; less
- Accumulation Units redeemed to pay for the portion of any transfers from
or partial surrenders allocated to the subaccount; less
- Accumulation Units redeemed to pay charges under the contract.
Net Investment Factor. The net investment factor for a subaccount is determined
by dividing (1) the net asset value per share of the portfolio shares held by
the subaccount, determined at the end of the current Valuation Period, plus the
per share amount of any dividend or capital gains distribution made with respect
to the portfolio shares held by the subaccount during the current Valuation
Period, minus a per share charge for the increase, plus a per share credit for
the decrease, in any income taxes assessed which we determine to have resulted
from the investment operation of the subaccount or any other taxes which are
attributable to this contract, by (2) the net asset value per share of the
portfolio shares held in the subaccount as determined at the end of the previous
Valuation Period, and subtracting from that result a factor representing the
mortality risk, expense risk and administrative expense charge.
If a subaccount's net investment factor is greater than one, the subaccount's
Accumulation Unit value has increased. If a subaccount's net investment factor
is less than one, the subaccount's Accumulation Unit value has decreased.
Determination of Fixed Account Value. A contract's fixed account value is
guaranteed by Fortis Benefits. Therefore, we bear the investment risk with
respect to amounts allocated to the
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fixed account, 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 fixed account value on any Valuation Date is the sum of its fixed
account values in each guarantee period on that date. The fixed 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 purchase payments or transferred amounts allocated to the
guarantee period; less
- The amount of any transfers or surrenders out of the guarantee period.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Allocation of Purchase Payments. In your application for a contract, you may
allocate purchase payments, or portions of payments, to the:
- available subaccounts of the Variable Account, or
- to the guarantee periods in the fixed account, or
- to a combination of the two previous options.
Percentages must be in whole numbers and the total allocation must equal 100%.
The percentage allocations for future purchase payments may be changed, without
charge, at any time by sending a written request to Fortis Benefits' home
office. Changes in the allocation of future purchase payments will be effective
on the date we receive your written request.
Transfers. You may transfer contract value:
- from one available subaccount to another available subaccount, or
- from one available subaccount to the fixed account, or
- from one guarantee period to another guarantee period, or
- from one guarantee period to an available subaccount
You must request transfers by (1) a written request to Fortis Benefits' home
office, or by (2) a telephone transfer as described below. Currently, we do not
charge for any transfer. However, transfers from a guarantee period, other than
the one-year guarantee period, that are (1) more than 15 days before or 15 days
after the expiration of the existing guarantee period, or are (2) not a part of
a formal Fortis Benefits program for the transfer of fixed account value may be
subject to a Market Value Adjustment. See "Market Value Adjustment".
The minimum transfer from a subaccount or guarantee period is the lesser of:
- $1,000, or
- all of the contract value in the subaccount or guarantee period.
However, we may permit a continuing request for transfers of lesser specified
amounts automatically on a periodic basis. You may not make a transfer into the
one year guarantee period fixed account within six months of a transfer out of
the one year guarantee period fixed account. We reserve the right to
additionally restrict the frequency of transfers or to otherwise condition,
terminate, or impose charges (not to exceed $25 per transfer) upon transfers.
Where you make all your transfer requests at the same time, as part of one
request, we will count all transfers between and among the subaccounts of the
Variable Account and the fixed account as one transfer. We will execute the
transfers, and determine all values in connection with the transfers, at of the
end of the Valuation Period in which we receive the transfer request. The amount
of any positive or negative Market Value Adjustment will be added to or deducted
from the transferred amount.
Certain restrictions on very substantial allocations to any one subaccount are
set forth under "Limitations on Allocations" in the Statement of Additional
Information.
TOTAL AND PARTIAL SURRENDERS
Total Surrenders. You may surrender all of the cash surrender value at any time
during the life of the contract owner (or Annuitant if the contract owner is not
a natural person) to the annuity commencement date. If you choose to make a
total surrender, you must do so by written request sent to our home office. We
reserve the right to require that the contract be returned to us prior to making
payment, although this will not affect our determination of the amount of the
cash surrender value. Cash surrender value is:
- the contract value at the end of the Valuation Period during which we
receive the written request for the total surrender at our home office,
less
- any applicable surrender charge, and
- after we have applied any Market Value Adjustment.
See "Surrender Charge" and "Market Value Adjustment".
We must receive written consent of all collateral assignees and irrevocable
beneficiaries prior to any total surrender. We will generally pay surrenders
from the Variable Account within seven days of the date of receipt by our home
office of the written request. However, we may postpone payments in certain
circumstances. See "Postponement of Payment".
The amount we pay upon total surrender of the cash surrender value (taking into
account any prior partial surrenders) may be more or less than the total
purchase payments you made. After a surrender of the cash surrender value or at
any time the contract value is zero, all rights of the owner, Annuitant, or any
other person will terminate.
Partial Surrenders. At any time during the life of the contract owner (or
Annuitant if the contract owner is not a natural person) and prior to the
annuity commencement date, you may surrender a portion of the fixed account
and/or the Variable Account. You must request partial surrender by a written
request sent to Fortis Benefits' home office. We will not accept a partial
surrender request from you unless the net proceeds payable to you, as a result
of the request, are at least $1,000. We will surrender the entire cash surrender
value under the contract if the total contract value in both the Variable
Account and fixed account would be less than $1,000 after the partial surrender.
You should specify the subaccounts of the Variable Account or guarantee periods
of the fixed account that you wish to partially surrender. If you do not
specify, we take the partial surrender
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from the subaccounts and from the guarantee periods of the fixed account on a
pro rata basis.
We will surrender Accumulation Units from the Variable Account and/or dollar
amounts from the fixed account so that the total amount of the partial surrender
equals the dollar amount of the partial surrender request. We will reduce the
partial surrender by the amount of any applicable surrender charge. In addition,
if the surrender is from a guarantee period other than the one-year guarantee
period, we will reduce the amount payable to you by any negative Market Value
Adjustment, or we will increase the amount payable to you by any positive Market
Value Adjustment unless the surrender is (1) within 15 days before or 15 days
after the expiration of a guarantee period, or (2) is a part of a formal Fortis
Benefits program for the transfer or withdrawal of fixed account value. The
partial surrender will be effective at the end of the Valuation Period in which
we receive the written request for partial surrender at our home office.
Payments will generally be made within seven days of the effective date of such
request, although certain delays are permitted. See "Postponement of Payment".
The Internal Revenue Code provides that a penalty tax will be imposed on certain
premature surrenders. For a discussion of this and other tax implications of
total and partial surrenders, including withholding requirements, see "Federal
Tax Matters". Also, under tax deferred annuity contracts pursuant to Section
403(b) of the Internal Revenue Code, no distributions of voluntary salary
reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.)
TELEPHONE TRANSACTIONS
You or your representative may make certain requests under the contract by
telephone if we have a written telephone authorization on file. These include
requests for (1) transfers, (2) withdrawals, and (3) changes in purchase payment
allocation instructions, dollar-cost averaging, portfolio rebalancing programs
and systematic withdrawals. Our home office will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures may include, among others, (1) requiring some form of personal
identification such as your address and social security number prior to acting
upon instructions received by telephone, (2) providing written confirmation of
such transactions, and/or (3) tape recording of telephone instructions. Your
request for telephone transactions authorizes us to record telephone calls. We
may be liable for any losses due to unauthorized or fraudulent instructions if
we do not employ reasonable procedures. If we do employ reasonable procedures,
we will not be liable for any losses due to unauthorized or fraudulent
instructions. We reserve the right to place limits, including dollar limits, on
telephone transactions.
BENEFIT PAYABLE ON DEATH OF CONTRACT OWNER (OR ANNUITANT)
If the owner dies prior to the annuity commencement date, we will pay a death
benefit to the beneficiary. If the contract owner is a non-natural person, we
will pay a death benefit upon the death of the Annuitant prior to the annuity
commencement date. In such case, if more than one Annuitant has been named, we
will pay the death benefit payable upon the death of an Annuitant only upon the
death of the last survivor of the persons so named.
The term "decedent" in the death benefit description below refers to the death
of the contract owner unless the contract owner is a non-natural person, in
which case it refers to the death of the Annuitant. Also, the death benefit
description refers to the age of the contract owner. If the contract owner is a
non-natural person, the relevant age will instead be that of the Annuitant.
Additionally, the death benefit description makes reference to "Pro Rata
Adjustments." A pro rata adjustment is calculated separately for each
withdrawal, creating a decrease in the death benefit proportional to the
decrease the withdrawal makes in the contract value. Pro rata adjustments are
made for amounts withdrawn for partial surrenders and any associated surrender
charge (which shall be deemed to be an amount withdrawn), but not for any
contract fee-related surrenders.
The death benefit will equal the greatest of (1), (2), or (3):
(1) The contract value as of the date used for valuing the death benefit.
(2) The highest Anniversary Value of each of the contract's anniversaries prior
to the earlier of: (1) the decedent's death, or (2) the owner's attainment
of age 75.
An Anniversary Value is equal to:
(a) the contract value on the anniversary, plus
(b) any purchase payments made since the anniversary, reduced by
(c) pro rata adjustments for any withdrawals made since the anniversary.
(3) If the decedent dies prior to the date the owner reaches age 75, the amount
of the death benefit is the lesser of (a) and (b), as follows:
(a) the sum of:
(i) the accumulation (without interest) of purchase payments, reduced by
pro rata adjustments for any withdrawals; plus
(ii) an amount equal to interest on such net accumulation value, as it is
adjusted for each applicable purchase payment and pro rata
adjustment, at an effective annual rate of 5.0%;
or
(b) 200% of (a)(i).
The resulting amount (the lesser of (a) and (b)) will be referred to as the
"Roll-Up Amount."
If the decedent dies on or after the date the owner reaches age 75, the
amount of the death benefit is equal to:
(a) the "Roll-Up Amount" as of the date the owner reached age 75; plus
(b) the accumulation (without interest) of purchase payments made on or
after the date the owner reached age 75; reduced by
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(c) pro rata adjustments for any withdrawals made on or after the date the
owner reached age 75.
We describe the pro rata adjustments referred to above more fully in Appendix D
at the end of this prospectus.
See also Appendix A for sample death benefit calculations.
The value of the death benefit is determined as of the end of the Valuation
Period in which we receive, at our home office, proof of death and the written
request as to the manner of payment. Upon receipt of these items, the death
benefit generally will be paid within seven days. Under certain circumstances,
payment of the death benefit may be postponed. See "Postponement of Payment." If
we do not receive a written request for a settlement method, we will pay the
death benefit in a single sum, based on values determined at that time.
The beneficiary may (1) receive a single sum payment, which terminates the
contract, or (2) select an annuity option. If the beneficiary selects an annuity
option, he or she will have all the rights and privileges of a payee under the
contract. If the beneficiary desires an annuity option, the election should be
made within 60 days of the date the death benefit becomes payable. Failure to
make a timely election can result in unfavorable tax consequences. For further
information, see "Federal Tax Matters."
We accept any of the following as proof of death: (1) a copy of a certified
death certificate; (2) a copy of a certified decree of a court of competent
jurisdiction as to the finding of death; or (3) a written statement by a medical
doctor who attended the deceased at the time of death.
The Internal Revenue Code requires that a Non-Qualified Contract contain certain
provisions about an owner's death. We discuss these provisions below under
"Federal Tax Matters--Required Distributions for Non-Qualified Contracts." It is
imperative that written notice of the death of the owner be promptly transmitted
to us at our home office, so that we can make arrangements for distribution of
the entire interest in the contract to the beneficiary in a manner that
satisfies the Internal Revenue Code requirements. Failure to satisfy these
requirements may result in the contract not being treated as an annuity contract
for federal income tax purposes with possible adverse tax consequences.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
You may specify an annuity commencement date in your application. The annuity
commencement date marks the beginning of the period during which an Annuitant or
other payee designated by the owner receives annuity payments under the
contract. The annuity commencement date must be at least two years after the
contract issue date. You should consult your sales representative in this
regard.
The Internal Revenue Code may impose penalty taxes on amounts distributed either
too soon or too late depending on the type of retirement arrangement involved.
See "Federal Tax Matters". You should consider this carefully in selecting or
changing an annuity commencement date.
You must submit a written request in order to advance or defer the annuity
commencement date. We must receive the request at our home office at least 30
days before the then-scheduled annuity commencement date. The new annuity
commencement date must also be at least 30 days after we receive the written
request. You have no right to make any total or partial surrender during the
Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
We may pay the entire contract value, rather than apply the amount to an annuity
option if the contract value at the end of the Valuation Period which contains
the annuity commencement date is less than $1,000. We would make the payment in
a single sum to the Annuitant or other payee chosen by the owner and cancel the
contract. We would not impose any charge other than the premium tax charge.
Otherwise, we will apply (1) the fixed account value to provide a Fixed Annuity
Option and (2) the Variable Account value in any subaccount to provide a
Variable Annuity Option using the same subaccount, unless you have notified us
by written request to apply the fixed account value and Variable Account value
in different proportions. We must receive written request at our home office at
least 30 days before the annuity commencement date.
We will make annuity payments under a Fixed or Variable Annuity Option on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If you name more than one person as an
Annuitant, you may elect to name one of such persons to be the sole Annuitant as
of the annuity commencement date. We reserve the right to change the frequency
of any annuity payment so that each payment will be at least $50 ($20 in Texas).
The amount of each annuity payment will depend on (1) the amount of contract
value applied to an annuity option, (2) the form of annuity selected, and (3)
the age of the Annuitant. For information concerning the relationship between
the Annuitant's sex and the amount of annuity payments, including special
requirements in connection with employee benefits plans, see "Calculations of
Annuity Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity option
selected. The dollar amount of variable annuity payments varies during the
Annuity Period based on changes in Annuity Unit values for the subaccounts that
you choose to use in connection with your payments.
RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS
The amount of an annuity payment depends on the average effective net investment
return of a subaccount during the period since the preceding payment as follows:
- if the return is higher than 3% annually, the Annuity Unit value will
increase, and the second payment will be higher than the first; and
- if the return is lower than 3% annually, the Annuity Unit value will
decrease, and the second payment will be lower than the first.
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"Net investment return," for this purpose, refers to the subaccount's overall
investment performance after deduction of the mortality and expense risk and
administrative expense charges, which are assessed at an annual rate of 1.35%.
We guarantee that the amount of each variable annuity payment after the first
payment will not be affected by variations in our mortality experience or our
expenses.
Transfers. A person receiving annuity payments may make up to four transfers a
year among subaccounts. The current procedures for and conditions on these
transfers are the same as we describe above under "Allocation of Purchase
Payments and Contract Value--Transfers". We do not permit transfers from a Fixed
Annuity Option during the Annuity Period.
ANNUITY OPTIONS
You may select an annuity option or change a previous selection by written
request. We must receive your request at least 30 days before the annuity
commencement date. You may select one annuity form, although payments under that
form may be on a combination fixed and variable basis. If no annuity form
selection is in effect on the annuity commencement date, we usually
automatically apply Option B (described below), with payments guaranteed for ten
years. However, federal pension law may require that we make default payments
under certain retirement plans pursuant to plan provisions and/or federal law.
Tax laws and regulations may impose further restrictions to assure that the
primary purpose of the plan is distribution of the accumulated funds to the
employee.
Your contract offers the following options for fixed and variable annuity
payments. Under each of the options, we make payments as of the first Valuation
Date of each monthly period, starting with the annuity commencement date.
Option A, Life Annuity. We do not make payments after the annuitant dies. It is
possible for the annuitant to receive only one payment under this option, if the
annuitant dies before the second payment is due.
Option B, Life Annuity with Payments Guaranteed for 10 Years to 20 Years. We
continue payments as long as the annuitant lives. If the annuitant dies before
we have made all of the guaranteed payments, we continue installments of the
guaranteed payments to the beneficiary.
Option C, Joint and Full Survivor Annuity. We continue payments as long as
either the annuitant or the joint annuitant is alive. We stop payments when both
the annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
Option D, Joint and One-Half Contingent Survivor Annuity. We continue payments
as long as either the annuitant or the joint annuitant is alive. If the
annuitant dies first, we continue payments to the joint annuitant at one-half
the original amount. If the joint annuitant dies first, we continue payments to
the annuitant at the original full amount. We stop payments when both the
annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
We also have other annuity options available. You can get information about them
from your sales representative or by calling or writing to our home office.
DEATH OF ANNUITANT OR OTHER PAYEE
Under most annuity forms offered by us, the amounts, if any, payable on the
death of the Annuitant during the Annuity Period are the continuation of annuity
payments for any remaining guarantee period or for the life of any joint
Annuitant. In all such cases, the person entitled to receive payments also
receives any rights and privileges under the annuity form in effect.
Additional rules applicable to such distributions under Non-Qualified Contracts
are described under "Federal Tax Matters--Required Distributions for
Non-Qualified Contracts". Though the rules there described do not apply to
contracts issued in connection with qualified plans, similar rules apply to the
plans themselves.
CHARGES AND DEDUCTIONS
PREMIUM TAXES
We deduct state premium taxes as follows:
- when imposed on purchase payments, we pay the amount on your behalf and
deduct the amount from your contract value upon (1) our payment of
surrender proceeds or death benefit or (2) annuitization of a contract,
or
- when imposed at the time annuity payments begin, we deduct the amount
from your contract value.
Applicable premium tax rates depend upon your place of residence. Rates can
change by legislation, administrative interpretations, or judicial acts.
CHARGES AGAINST THE VARIABLE ACCOUNT
Mortality and Expense Risk Charge. We assess each subaccount of the Variable
Account with a daily charge for mortality and expense risk. This charge is a
nominal annual rate of 1.25% of the average daily net assets of the Variable
Account. It consists of approximately .8% for mortality risk and approximately
.45% for expense risk. We guarantee not to increase this charge for the duration
of the contract. This charge is assessed during both the Accumulation Period and
the Annuity Period.
The mortality risk borne by us arises from our obligation to make annuity
payments (determined in accordance with the annuity tables and other provisions
contained in the contract) for the full life of all Annuitants regardless of how
long all Annuitants or any individual Annuitant might live. In addition, we bear
a mortality risk in that we guarantee to pay a death benefit upon the death of a
contract owner (or Annuitant if the owner is not a natural person) prior to the
annuity commencement date. We do not impose a surrender charge upon payment of a
death benefit. This places a further mortality risk on us.
The expense risk we assume is that actual expenses incurred in connection with
issuing and administering the contract will exceed the limits on administrative
charges set in the contract.
We or the reinsurer of the contracts bear the loss if the administrative charges
and the mortality and expense risk charge are insufficient to cover the expenses
and costs assumed. Conversely,
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we or the reinsurer of the contracts profit if the amount deducted proves more
than sufficient.
Administrative Expense Charge. We assess each subaccount of the Variable Account
with a daily charge at an annual rate of .10% of the average daily net assets of
the subaccount. We assess this charge during both the Accumulation Period and
the Annuity Period. This charge helps cover administrative costs such as those
incurred in issuing contracts, establishing and maintaining the records relating
to contracts, making regulatory filings and furnishing confirmation notices,
voting materials and other communications, providing computer, actuarial and
accounting services, and processing contract transactions. There is no necessary
relationship between the amount of administrative charges assessed on a given
contract and the amount of expenses actually incurred for that contract.
TAX CHARGE
We currently impose no charge for taxes payable by us in connection with the
contract, other than for applicable premium taxes. We reserve the right to
impose a charge for any other taxes that may become payable by us in the future
for the contracts or the Variable Account.
The annual administrative charge and charges against the Variable Account
described above are for the purposes described. We may receive a profit as a
result of these charges.
SURRENDER CHARGE
We do not deduct a sales charge from purchase payments. We deduct surrender
charges on certain total or partial surrenders. We use the revenues from
surrender charges to partially pay our expenses in the sale of the contracts,
including (1) commissions, (2) promotional, distribution and marketing expenses,
and (3) costs of printing and distribution of prospectuses and sales material.
Free Surrenders. You can withdraw the following amounts from the contract
without a surrender charge:
- Any purchase payments that we received more than seven years before the
surrender date and that you have not previously surrendered;
- Any earnings that you have not previously surrendered;
- In any contract year, up to 10% of the purchase payments that we received
less than seven years before the surrender date (whether or not you have
previously surrendered the purchase payments).
Earnings are deemed to be withdrawn first. After all earnings have been
withdrawn, all purchase payments not subject to a surrender charge are deemed to
be withdrawn. After all purchase payments not subject to a surrender charge have
been withdrawn, all purchase payments subject to a surrender charge are deemed
to be withdrawn.
We do not impose a surrender charge on (1) annuitization or (2) payment of a
single sum because less than the minimum required contract value is available to
provide an annuity at the annuity commencement date or (3) payment of any death
benefit.
In addition, we have an administrative policy to waive surrender charges for
full surrenders of contracts that have been in force for at least ten years if
the amount then subject to the surrender charge is less than 25% of the contract
value. We have offered these contracts since 1991. Therefore, we have made no
waivers. We reserve the right to change or terminate this practice at any time,
both for new and for previously issued contracts.
Amount of Surrender Charge. We only apply surrender charges if the amount being
withdrawn exceeds the sum of the amounts listed above under "Free Surrenders"
(that is, if the amount being withdrawn includes purchase payments made less
than seven years prior to the surrender date). The surrender charges are:
NUMBER OF YEARS SURRENDER CHARGE
SINCE PURCHASE AS A PERCENTAGE OF
PAYMENT WAS APPLIED PURCHASE PAYMENT
------------------- ------------------
Less than 2 7%
At least 2 but less than 4 6%
At least 4 but less than 5 5%
At least 5 but less than 6 3%
At least 6 but less than 7 1%
7 or more 0%
We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent that the surrender charge is insufficient,
we will pay such costs from our general account assets. These assets will
include any profit that we derive from the mortality and expense risk charge.
Nursing Care/Hospitalization Waiver of Surrender Charges. We do not deduct
surrender charges for a total or partial withdrawal:
- after a covered person has been confined in a hospital or skilled health
care facility for at least 60 consecutive days and the covered person
continues to be confined in the hospital or skilled care facility when
the request is made, or
- within 60 days following a covered person's discharge from a hospital or
skilled health care facility after confinement of at least 60 consecutive
days.
Confinement must begin after the effective date of this provision.
Covered persons are the contract owner or owners and the spouse of any contract
owner if the spouse is the Annuitant. We will not waive surrender charges when a
confinement is due to (1) substance abuse, or (2) mental or personality
disorders without a demonstrable organic disease. We consider a degenerative
brain disease such as Alzheimer's Disease an organic disease.
We provide this nursing care/hospitalization waiver of surrender charges by
means of a rider to the contract. This rider has not been approved in all
states. When you apply for a contract, you should check with your Fortis
Benefits representative to determine if this rider is available in your state.
DISABILITY WAIVER OF SURRENDER CHARGES
We will waive surrender charges on total or partial surrenders under the
following circumstances:
(1) if you become totally disabled after the contract is issued, or
(2) if the owner is a non-natural person, and the Annuitant becomes totally
disabled after the contract is issued.
However, waivers of surrender charges are subject to the following conditions:
(1) We will only waive surrender charges on total or partial surrenders of
purchase payments that were made prior to the owner's or the Annuitant's
total disability, and
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(2) the owner's or the Annuitant's total disability must have begun before the
owner or the Annuitant has reached age 64, and
(3) the owner's or the Annuitant's total disability must have been continuous
for a period of twelve months or more.
This benefit terminates on the 65th birthday of the owner, or the 65th birthday
of the Annuitant if the owner is a non-natural person.
"Total Disability" means:
- the inability to engage in an occupation for compensation or profit.
"Occupation" has one of two definitions. The applicable definition depends on
the length of the disability. "Occupation" is defined as:
(1) the inability to perform the substantial and material duties of the owner's
or the Annuitant's regular occupation during the first twelve months of
disability, and
(2) any job suited to the owner's or the Annuitant's education, training, or
experience after the first twelve months of disability.
We provide this "Disability Waiver of Surrender Charges" by attaching a rider to
the contract. This rider has not been approved in all states. You should check
with your sales representative to determine if this rider is available in your
state.
MISCELLANEOUS
The Variable Account invests in shares of the portfolios. Therefore, the net
assets of the Variable Account will reflect the investment advisory fees and
certain other expenses incurred by the portfolios and described in their
prospectus.
REDUCTION OF CHARGES
We will not impose a surrender charge under any contract owned by:
(A) Fortis, Inc. or its subsidiaries, and the following persons associated with
such companies, if at the contract issue date they are:
(1) officers and directors;
(2) employees; or
(3) spouses of any such persons or any of such persons' children,
grandchildren, parents, grandparents, or siblings--or spouses of any of
these persons;
(B) Series Fund directors, officers, or their spouses (or such persons'
children, grandchildren, parents or grandparents, or spouses of any such
persons); and
(C) representatives or employees (or their spouses) of Fortis Investors
(including agencies) or of other broker-dealers having a sales agreement
with Fortis Investors (or such persons' children, grandchildren, parents, or
grandparents, or spouses of any such persons).
GENERAL PROVISIONS
THE CONTRACTS
The entire contract includes any application, amendment, rider, endorsement, and
revised contract pages. Only an officer of Fortis Benefits can agree to change
or waive any provision of a contract. Any change or waiver must be in writing
and signed by an officer of Fortis Benefits.
The contracts are non-participating and do not share in dividends or earnings of
Fortis Benefits.
POSTPONEMENT OF PAYMENT
We may defer for up to 15 days the payment of any amount attributable to a
purchase payment made by check to allow the check reasonable time to clear. For
a description of other circumstances in which amounts payable out of Variable
Account assets could be deferred, see "Postponement of Payments" in the
Statement of Additional Information. We may also defer payment of surrender
proceeds payable out of the fixed account for a period of up to 6 months.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the Annuitant's age or sex was misstated, we pay the amount that the purchase
payments paid would have purchased at the correct age and sex. If we make any
overpayment because of incorrect information about age or sex, or any other
miscalculation, we deduct the overpayment from the next payment due. We add
underpayments to the next payment. We credit or charge the amount of any
adjustment with interest at the rate of 3% annually.
ASSIGNMENT
Owners and payees may assign their rights and interests under a Qualified
Contract only in certain narrow circumstances referred to in the contract.
Owners and other payees may assign their rights and interests under
Non-Qualified Contracts, including their ownership rights.
We take no responsibility for the validity of any assignment. Owners and payees
must make a change in ownership rights in writing and send it to our home
office. The change will be effective on the date made, although we are not bound
by a change until the date we record it.
The rights under a contract are subject to any assignment of record at our home
office. An assignment or pledge of a contract may have adverse tax consequences.
See below under "Federal Tax Matters".
BENEFICIARY
You may name or change a beneficiary or a contingent beneficiary before the
annuity commencement date. You must send a written request of the change to
Fortis Benefits. Certain retirement programs may require spousal consent to name
or change a beneficiary. Applicable tax laws and regulations may limit the right
to name a beneficiary other than the spouse. We are not responsible for the
validity of any change. A change will take effect as of the date it is signed
but will not affect any payments we make or action we take before receiving the
written request. We also need the consent of any irrevocably named person before
making a requested change.
Upon the death of an owner, or Annuitant, if the owner is a non-natural person,
prior to the annuity commencement date, the beneficiary will be deemed as
follows:
- If there is any surviving owner, the surviving owner will be the
beneficiary (this overrides any other beneficiary designation).
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- If there is no surviving owner, the beneficiary will be the beneficiary
designated by the owner.
- If there is no surviving owner and no surviving beneficiary who has been
designated by the owner, then the estate of the last surviving owner will
be the beneficiary.
REPORTS
We will mail to the owner (or to the person receiving payments during the
Annuity Period), at the last known address of record, any report and
communication required by any applicable law or regulation. You should therefore
give us prompt written notice of any address change. This will include annual
audited financial statements of the portfolios, but not necessarily of the
Variable Account or Fortis Benefits.
RIGHTS RESERVED BY FORTIS BENEFITS
We reserve the right to make certain changes if, in our judgment, they would
best serve the interests of owners and Annuitants or would be appropriate in
carrying out the purposes of the contracts. We will make any change only as
permitted by applicable laws. We will obtain your approval of the changes and
approval from any appropriate regulatory authority if required by law. Examples
of the changes we may make include:
- To operate the Variable Account in any form permitted under the
Investment Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any subaccount to another subaccount, or to one
or more separate accounts, or to the fixed account; or to add, combine,
or remove subaccounts in the Variable Account.
- To substitute, for the portfolio shares held in any subaccount, the
shares of another portfolio or the shares of another investment company
or any other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the contract as an
annuity.
- To change the time or time of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the contract in order to
conform with any action the above provisions permit us to take, including
to change the way we assess charges, but without increasing as to any
then outstanding contract the aggregate amount of the types of charges
that we have guaranteed.
DISTRIBUTION
Woodbury Financial Services, Inc. ("Woodbury Financial") is the principal
underwriter of the contracts. The contracts will be sold by individuals who are
licensed by state insurance authorities to sell the contracts of Fortis
Benefits, and (1) are registered representatives of Woodbury Financial, or (2)
are registered representatives of other broker-dealer firms or (3) are
representatives of other firms that are exempt from broker dealer regulation.
Fortis Investors and any other broker-dealer firms are (1) registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 as
broker-dealers, and (2) members of the National Association of Securities
Dealers, Inc.
Woodbury Financial will pay an allowance to its registered representatives and
selling brokers in varying amounts. Woodbury Financial does not expect the
allowances under normal circumstances to exceed 6.25% of purchase payments plus
a servicing fee of .25% of contract value per year, starting in the first
contract year.
Woodbury Financial may, under certain flexible compensation arrangements, pay
lesser or greater selling allowances and larger or smaller service fees to its
registered representatives and other broker dealer firms than as set forth
above. However, in such case, such flexible compensation arrangements will have
actuarial present values that are approximately equivalent to the amounts of the
selling allowances and service fees set forth above. Additionally, registered
representatives, broker-dealer firms and exempt firms may qualify for additional
compensation based upon meeting certain production standards. Woodbury Financial
may charge back commissions paid to others if the contract upon which the
commission was paid is surrendered or cancelled within certain specified time
periods.
Fortis Benefits paid a total of $32,874,801, $48,774,402 and $55,661,956 to
Woodbury Financial for annuity contract distribution services during 1998, 1999
and 2000 respectively, $5,389,151 in 1998, $7,643,966 in 1999 and $9,648,917 was
not reallowed to other broker-dealers or exempt firms. In the distribution
agreement, Fortis Benefits has agreed to indemnify Woodbury Financial (and its
agents, employees, and controlling persons) for certain damages and expenses,
including those arising under federal securities laws.
Fortis Benefits or Woodbury Financial may also provide additional compensation
to broker-dealers in connection with sales of contracts. Compensation may
include financial assistance to broker-dealers in connection with (1)
conferences, (2) sales or training programs for their employees, (3) seminars
for the public, (4) advertising, (5) sales campaigns regarding contracts, and
(6) other broker-dealer sponsored programs or events. Compensation may also
include trips taken by invited sales representatives and their family members to
locations within or without the United States for business meetings or seminars.
Fortis Benefits or Woodbury Financial may pay travel expenses that arise from
these trips.
See Notes to Fortis Benefits' Financial Statements as to amounts it has paid to
Fortis, Inc. for various services.
Woodbury Financial is an indirect subsidiary of The Hartford Financial Services
Group, Inc. Woodbury Financial principal business address is the same as that of
our home office. Fortis Investors is not obligated to sell any specific amount
of interests under the contracts. $110,000,000 of interests in the fixed account
and an indefinite amount of interests in the Variable Account have been
registered with the Securities and Exchange Commission.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes. These rules are based on laws, regulations and
interpretations that are subject to change at any time. This summary is not
comprehensive. We do not intend it as tax advice. Federal estate and gift tax
considerations, as well as
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state and local taxes, may also be material. You should consult a qualified tax
adviser as to the tax implications of taking any action under a contract or
related retirement plan.
NON-QUALIFIED CONTRACTS
Section 72 of the Internal Revenue Code ("Code") governs the taxation of
annuities in general. Neither you nor any other person may exclude or deduct
purchase payments under Non-Qualified Contracts from gross income. However, you
are not currently taxed, until receipt, on any increase in the accumulated value
of a Non-Qualified Contract that results from (1) the investment performance of
the Variable Account, or (2) interest credited to the fixed account. Owners who
are not natural persons ARE taxed annually on any increase in the contract value
subject to exceptions. You may wish to discuss this with your tax adviser.
The following discussion applies generally to contracts owned by natural
persons.
In general, surrenders or partial withdrawals under contracts are taxed as
ordinary income to the extent of the accumulated income or gain under the
contract. If you assign or pledge any part of the value of a contract, you pay
on the value so pledged or assigned to the same extent as a partial withdrawal.
With respect to annuity payment options, the tax consequences may vary depending
on the option elected under the contract. Until the "investment in the contract"
is recovered, generally only the portion of the annuity payment that represents
the amount by which the contract value exceeds the "investment in the contract"
will be taxed. In general, "investment in the contract" is the aggregate amount
of purchase payments made. After recovery of an Annuitant's or other payee's
"investment in the contract," the full amount of any additional annuity payments
is taxable.
For variable annuity payments, in general, the taxable portion of each annuity
payment (prior to recovery of the "investment in the contract") is the amount of
the payment less the nontaxable portion. The nontaxable portion of each payment
is the "investment in the contract" divided by the total number of expected
annuity payments.
For fixed annuity payments, in general, prior to recovery of the "investment in
the contract," there is no tax on the amount of each payment that bears the same
ratio to that payment as the "investment in the contract" bears to the total
expected value of the annuity payments for the term of the payments. However,
the remainder of each annuity payment is taxable. The taxable portion of a
distribution (in the form of an annuity or a single sum payment) is taxed as
ordinary income.
For purposes of determining the amount of taxable income resulting from
distributions, all contracts and other annuity contracts we or our affiliates
issue to you within the same calendar year will be treated as if they were a
single contract.
You, or any other payee, will pay a 10% penalty on the taxable portion of a
"premature distribution." Generally, an amount is a "premature distribution"
unless the distribution is:
- made on or after you or another payee reach age 59 1/2, or is
- made to a beneficiary on or after your death, or is
- made upon your disability or that of another payee, or is
- part of a series of substantially equal annuity payments for your life or
life expectancy, or is
- part of a series of substantially equal annuity payments for the life or
life expectancy of you AND your beneficiary.
Premature distributions may result, for example, from:
- an early annuity commencement date
- an early surrender or partial surrender of a contract
- an assignment of a contract
- the early death of an Annuitant other than you or another person
receiving annuity payments under the contract
If you transfer ownership of a contract, or designate an Annuitant or payee
other than yourself, you may have certain income or gift tax consequences that
are beyond the scope of this discussion. If you are contemplating any transfer
or assignment of a contract, you should contact a competent tax adviser.
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
In order that a Non-Qualified Contract be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires:
- if any person receiving annuity payments dies on or after the annuity
commencement date but prior to the time the entire interest in the
contract has been distributed, the remaining portion of such interest
will be distributed at least as rapidly as under the method of
distribution being used as of the date of the person's death; and
- if you die prior to the annuity commencement date, the entire interest in
the contract will be distributed:
- within five years after your death, or
- as annuity payments that will begin within one year of your death and
will be made over your designated beneficiary's life or over a period
not extending beyond the life expectancy of that beneficiary.
However, if the owner's designated beneficiary is the surviving spouse, the
surviving spouse may continue the contract as the new contract owner. Where the
owner or other person receiving payments is not a natural person, the required
distributions under Section 72(A) apply on the death of the primary Annuitant.
The Internal Revenue Service has not issued regulations interpreting the
requirements of Section 72(s) (although it has issued proposed regulations
interpreting similar requirements for qualified plans). We intend to review and
modify the contract if necessary to ensure that it complies with the
requirements of Section 72(s) when clarified by regulation or otherwise.
Generally, the above requirements will be satisfied with a single sum payment
where the death occurs prior to the annuity commencement date. A single sum
payment will be subject to proof of the owner's death. The beneficiary, however,
may elect by written request to receive an annuity option instead of a lump sum
payment. However, if the election is not made within 60 days of the date the
single sum death benefit otherwise becomes payable, the IRS may disregard the
election for tax
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purposes and tax the beneficiary as if a single sum payment had been made.
QUALIFIED CONTRACTS
The contracts may be used with several types of tax-qualified plans. The tax
rules applicable to owners, Annuitants, and other payees vary according to the
type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a tax qualified plan on your behalf are excludable
from your gross income during the Accumulation Period. The portion, if any, of
any purchase payment that is not excluded from your gross income during the
Accumulation Period constitutes your "investment in the contract".
When annuity payments begin, you will receive back your "investment in the
contract" if any, as a tax-free return of capital. The Code provides which
portion of each payment is taxable and which portion is tax free. These rules
may vary depending on the type of tax qualified plan.
The contracts are available in connection with the following types of retirement
plans:
- Section 403(b) annuity plans for employees of certain tax-exempt
organizations and public education institutions;
- Section 401 or 403(a) qualified pension, profit-sharing, or annuity
plans;
- Individual retirement annuities ("IRAs") under Section 408(b);
- Simplified employee pension plans ("SEPs") under Section 408(k);
- SIMPLE IRA Plans under Section 408(p); and
- Section 457 unfunded deferred compensation plans of tax-exempt
organizations and private employer unfunded deferred compensation plans.
The tax implications of these plans are further discussed in the Statement of
Additional Information under the heading "Taxation Under Certain Retirement
Plans".
WITHHOLDING
Annuity payments and other amounts received under contracts are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Despite the recipient's election, the Code may require withholding from certain
payments outside the United States. The Code may also require withholding from
certain distributions from certain types of qualified retirement plans, unless
the proceeds are transferred directly from the qualified plan to another
qualified retirement plan. Moreover, special "backup withholding" rules may
require us to disregard the recipient's election if the recipient fails to
supply us with a "TIN" or taxpayer identification number (social security number
for individuals), or if the Internal Revenue Service notifies us that the TIN
provided by the recipient is incorrect.
PORTFOLIO DIVERSIFICATION
The United States Treasury Department has adopted regulations under Section
817(h) of the Code that set forth diversification requirements for investments
underlying Non-Qualified Contracts. We believe that the investments will satisfy
these requirements. Failure to do so would result in immediate taxation to you
or another person of all income credited to Non-Qualified Contracts. Also,
current regulations do not provide guidance as to any circumstances in which
control over allocation of values among different investment alternatives may
cause you or another person receiving annuity payments to be treated as the
owners of Variable Account assets for tax purposes. We reserve the right to
amend the contracts in any way necessary to avoid any such result. The Treasury
Department may establish standards in this regard through regulations or
rulings. Such standards may apply only prospectively, although retroactive
application is possible if the Treasury Department considered such standards not
to embody a new position.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized under the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange pursuant to the special
annuity contract exchange form we provide for this purpose is not generally a
taxable event under the Code. Moreover, your investment in the contract will be
the same as your investment in the product you exchanged out of.
Because of the complexity of these and other tax aspects in connection with an
exchange, you should consult a tax adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403 PLANS
Section 403(b)(11) of the Internal Revenue Code restricts the distribution under
Section 403(b) annuity contracts of:
(1) elective contributions made for years beginning after December 31, 1988;
(2) earnings on those contributions; and
(3) earnings on amounts held as of December 31, 1988.
Distribution of these amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, we may not distribute income attributable to elective
contributions made after December 31, 1988.
FURTHER INFORMATION ABOUT FORTIS BENEFITS
GENERAL
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.
OWNERSHIP OF SECURITIES
All of Fortis Benefits' outstanding shares are owned by Interfinancial, Inc.,
which is itself wholly owned by Fortis, Inc., both having an address of One
Chase Manhattan Plaza, New York, N.Y. 10005. Fortis, Inc., in turn is wholly
owned by Fortis International, Inc., which is wholly owned by AMEV/VSB 1990
N.V., both of which share the same address with N.V. AMEV., Archimedeslaan 10,
3584 BA, Utrecht, The Netherlands. AMEV/ VSB 1990 N.V. is 50% owned by Fortis
(NL)N.V. and 50% owned, through certain subsidiaries, by Fortis (B), Boulevard
Emile Jacqmain 53, 1000 Brussels, Belgium.
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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.
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
(IN THOUSANDS) 2000 1999 1998 1997 1996
-------------- ---- ---- ---- ---- ----
INCOME STATEMENT DATA
Premiums and policy charges $1,540,384 $1,445,529 $1,333,258 $1,238,006 $1,295,878
Net investment income............................... 279,572 238,698 234,043 228,724 206,023
Net realized gains (losses) on investment........... (17,039) 25,962 52,404 41,101 25,731
Other income........................................ 12,687 11,610 11,183 36,458 31,725
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES...................................... $1,815,604 $1,721,799 $1,630,888 $1,544,289 $1,559,357
========== ========== ========== ========== ==========
Total benefits and expenses......................... $1,686,930 $1,598,266 $1,538,604 $1,442,059 $1,470,066
Federal Income taxes................................ 41,555 40,327 30,402 35,120 31,099
Net income.......................................... 88,119 83,206 61,882 67,110 58,192
BALANCE SHEET DATA
Total assets........................................ $9,691,784 $9,610,139 $7,578,055 $6,819,484 $5,951,876
Total liabilities................................... 8,861,060 8,760,587 6,692,587 5,939,378 5,171,203
Total shareholder's equity.......................... 830,724 849,552 885,468 880,106 780,673
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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.
EVENTS SUBSEQUENT
On January 25, 2001, Fortis, Inc. agreed to sell (the "Sale") its Fortis
Financial Group division (the "Division") to The Hartford Financial Services
Group ("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, First
Fortis Life Insurance Company, Fortis Insurance Company, John Alden Life
Insurance Company and Houston National Life Insurance Company (the "Companies").
Certain of the Insurance Contracts permit investment in, among other investment
options, various series of the Fortis Series Fund (the "Fund").
To effect the Sale as it relates to the Companies, Hartford Life and Annuity
Insurance Company and Hartford Life Insurance Company, indirect wholly owned
subsidiaries of The Hartford, will reinsure the Insurance Contracts on a 100%
coinsurance
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basis (or a 100% modified coinsurance basis for some of the block) and perform
administration of such Insurance Contracts. In addition, Hartford Life and
Accident Insurance Company, another indirect wholly owned subsidiary of The
Hartford, will purchase all of the outstanding stock of Fortis Advisers, Inc.,
which is the investment adviser for the Fund. Thus, upon completion of the Sale,
Hartford Life and Accident Insurance Company will own and control Fortis
Advisers, Inc. and its subsidiaries, including Fortis Investors, Inc., which is
the principal distributor of the Fund.
The Sale was completed on April 1, 2001. Following the Sale, the Fund entered
into new investment advisory, subadvisory and distribution agreements with
affiliates of the Hartford. These new agreements will require approval of the
Fund's shareholders and by Insurance Contract holders to the extent required by
law.
1999 COMPARED TO 1998
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 $36 million in
gross premium in 1999. Group disability and dental, group medical, group life,
annuity and individual life and pre-need represented 39%,32%, 18%, 8% and 3%,
respectively of premium in 1999 and 38%, 36%, 19%, 7% and 0% respectively in
1998. The Company had less capital gains from fixed income investments in 1999
as compared to 1998. During 1999, the Company decreased its common stock
holdings as a result of investment portfolio realignment which resulted in
equity gains.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1999 and 1998
resulted in recognition of realized gains and losses upon sales of securities.
BENEFITS
The total year-to-date policyholder benefit to premium ratio decreased to 80% in
1999 from 83% in 1998. The group disability and dental, group medical, group
life, annuity and individual life, and pre-need benefit to premium ratios for
the year ended December 31, were 83%, 80%, 70%, 94%, and 87% respectively in
1999 and 83%, 85%, 73%, 108% and 0% respectively in 1998. The group medical
business experienced a lower premium to benefit ratio due to rate increases and
better management of claims. Group life had improved mortality in 1999. The
annuity and individual life business also experienced strong market performance,
in addition to lower interest crediting on the Company's interest sensitive and
investment products.
EXPENSES
Commission rates have decreased from the levels in 1998. 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
slightly to 22% in 1999 down from 23% in 1998. A principal reason for this
expense reduction is the combining of three group medical cost centers into one.
The Company continued to monitor expenses, striving to improve the expense to
premium ratio, while maintaining quality and timely services to policyholders.
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 contractowners
bear the investment risk related to the variable products. Therefore, the risks
associated with the investments supporting the variable separate accounts are
assumed by contractowners, 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
24
81
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 XX% investment grade bonds
as of December 31, 2000 and the Company does not expect this percentage to
change significantly in the future.
VOTING PRIVILEGES
In accordance with our view of current applicable law, we will vote shares of
each of the portfolios attributable to a contract at regular and special
meetings of the shareholders of the portfolios. We will vote those shares in
proportion to instructions we receive from the persons having the voting
interest in the contract as of the record date for the corresponding portfolio
shareholders meeting. Owners have the voting interest during the Accumulation
Period, persons receiving annuity payments have the voting interest during the
Annuity Period, and beneficiaries have the voting interest after the death of
the Annuitant or owner. However, if the Investment Company Act of 1940 or any
rules thereunder should be amended or if the present interpretation thereof
should change, and as a result we determine that we are permitted to vote shares
of the portfolios in our own right, we may elect to do so.
We determine the number of shares of a portfolio attributable to a contract as
follows:
- During the Accumulation Period, we divide the amount of contract value in
a subaccount by the net asset value of one share of the portfolio
corresponding to that subaccount. We make this calculation as of the
record date for the applicable portfolio.
- During the Annuity Period, or after the death of the Annuitant or owner,
we make a similar calculation. However, for subaccount value we use the
liability for future variable annuity payments allocable to that
subaccount as of the record date for the applicable portfolio. We
calculate the liability for future variable annuity payments on the basis
of the following on the record date:
- mortality assumptions,
- the assumed interest rate used in determining the number of Annuity
Units under the contract, and
- the applicable Annuity Unit value
During the Annuity Period, the number of votes attributable to a contract will
generally decrease since funds set aside to make the annuity payments will
decrease.
We will vote shares for which we have not received timely instructions, and any
shares attributable to excess amounts we have accumulated in the related
subaccount, in proportion to the voting instructions which we receive for all
contracts and other variable annuity contracts participating in a portfolio. To
the extent that we or any affiliated company holds any shares of a portfolio,
those shares will be voted in the same proportion as instructions for that
portfolio from all our policy holders holding voting interests in that
portfolio. Shares held by separate accounts other than the Variable Account will
in general be voted in accordance with instructions of owners in such other
separate accounts. This diminishes the relative voting influence of the
contracts.
Each person having a voting interest in a subaccount of the Variable Account
will receive proxy material, reports and other materials relating to the
appropriate portfolio. Under the procedures described above, these persons may
give instructions regarding:
- the election of the Board of Directors of the portfolios,
- ratification of the selection of a portfolio's independent auditors,
- the approval of the investment managers of a portfolio,
- changes in fundamental investment policies of a portfolio, and
- all other matters that are put to a vote of portfolio shareholders
OTHER INFORMATION
We have filed Registration Statements with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
contracts discussed in this prospectus. We have not included in the prospectus
all of the information set forth in the Registration Statement, amendments, and
exhibits thereto. We intend statements contained in this prospectus about the
content of the contracts and other legal instruments to be summaries. For a
complete statement of the terms of these documents, you should refer to the
instruments filed with the Securities and Exchange Commission.
A Statement of Additional Information is available upon request. Its contents
are as follows:
CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION
Fortis Benefits and the Variable Account.......
Calculation of Annuity Payments................
Postponement of Payments.......................
Services.......................................
- Safekeeping of Variable Account Assets.....
- Experts....................................
- Principal Underwriter......................
Taxation Under Certain Retirement Plans........
Withholding....................................
Other Information..............................
Variable Account Financial Statements..........
APPENDIX A--Performance Information............
FORTIS BENEFITS FINANCIAL STATEMENTS
The financial statements of Fortis Benefits that are included in this prospectus
should be considered primarily as bearing on our ability to meet our obligations
under the contracts. The contracts are not entitled to participate in our
earnings, dividends or surplus.
25
82
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 flows present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL) N.V.
(the Company) at December 31, 2000, and the results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable basis for our opinion. The
financial statements of the Company as of December 31, 1999 and for the two
years in the period then ended were audited by other independent accountants
whose report dated February 17, 2000 expressed an unqualified opinion on those
statements.
[/s/ PRICEWATERHOUSECOOPERS LLP]
February 15, 2001
F-1
83
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheet of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL)
N.V., as of December 31, 1999, and the related statements of income, changes in
shareholder's equity and cash flows for each of the two years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company at December 31, 1999, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
[/s/ ERNST & YOUNG]
Minneapolis, Minnesota
February 17, 2000
F-2
84
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
------------------------
2000 1999
---------- ----------
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
2000 -- $2,543,040; 1999 -- $2,802,697)................ $2,530,480 $2,706,372
Equity securities, at fair value (cost 2000 -- $91,164;
1999 -- $81,554)....................................... 87,912 85,021
Mortgage loans on real estate, less allowance for possible
losses (2000 and 1999 -- $11,085)...................... 810,616 754,514
Policy loans.............................................. 102,308 83,439
Short-term investments.................................... 152,736 115,527
Real estate and other investments......................... 41,712 47,502
---------- ----------
3,725,764 3,792,375
Cash and cash equivalents................................... 13,209 18,670
Receivables:
Uncollected premiums...................................... 66,505 62,938
Reinsurance recoverable on unpaid and paid losses......... 64,182 23,471
Other..................................................... 48,083 19,406
---------- ----------
178,770 105,815
Accrued investment income................................... 52,556 55,464
Deferred policy acquisition costs........................... 473,761 430,192
Property and equipment at cost, less accumulated
depreciation.............................................. 20,891 25,118
Federal income tax recoverable.............................. 7,248 --
Deferred federal income taxes............................... 33,825 52,467
Other assets................................................ 1,677 1,582
Due from affiliates......................................... -- 8,304
Assets held in separate accounts............................ 5,184,083 5,120,152
---------- ----------
Total assets................................................ $9,691,784 $9,610,139
========== ==========
The accompanying notes are an integral part of the financial statements.
F-3
85
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
------------------------
2000 1999
---------- ----------
POLICY RESERVES AND LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance................ $1,170,612 $1,106,269
Interest sensitive and investment products............. 970,591 1,147,657
Accident and health.................................... 1,007,328 940,865
---------- ----------
3,148,531 3,194,791
Unearned revenues......................................... 33,614 28,673
Other policy claims and benefits payable.................. 240,677 265,486
Policyholder dividends payable............................ 7,438 7,939
---------- ----------
3,430,260 3,496,889
Accrued expenses.......................................... 69,476 59,409
Current income taxes payable.............................. -- 1,838
Other liabilities......................................... 181,633 120,110
Due to affiliates......................................... 4,497 --
Deferred gain on LTC sale................................. 15,919 --
Liabilities related to separate accounts.................. 5,159,275 5,082,341
---------- ----------
Total policy reserves and liabilities....................... 8,861,060 8,760,587
---------- ----------
Shareholder's equity:
Common stock, $5 par value: authorized, issued and
outstanding shares -- 1,000,000........................ 5,000 5,000
Additional paid-in capital................................ 468,000 468,000
Retained earnings......................................... 366,644 427,811
Accumulated other comprehensive loss...................... (8,920) (51,259)
---------- ----------
Total shareholder's equity.................................. 830,724 849,552
---------- ----------
Total policy reserves and liabilities and shareholder's
equity.................................................... $9,691,784 $9,610,139
========== ==========
The accompanying notes are an integral part of the financial statements.
F-4
86
STATEMENTS OF INCOME
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
--------------------------------------
2000 1999 1998
---------- ---------- ----------
REVENUES:
Insurance operations:
Traditional life insurance premiums....................... $ 428,641 $ 301,377 $ 260,567
Interest sensitive and investment product policy
charges................................................ 159,728 141,285 119,039
Accident and health insurance premiums.................... 952,015 1,002,867 953,652
---------- ---------- ----------
1,540,384 1,445,529 1,333,258
Net investment income....................................... 279,572 238,698 234,043
Net realized (losses) gains on investments.................. (17,039) 25,962 52,404
Other income................................................ 12,687 11,610 11,183
---------- ---------- ----------
Total revenues.............................................. 1,815,604 1,721,799 1,630,888
BENEFITS AND EXPENSES:
Benefits to policyholders:
Traditional life insurance................................ 335,022 218,993 189,337
Interest sensitive investment products.................... 89,062 93,668 96,178
Accident and health claims................................ 749,945 812,149 798,036
---------- ---------- ----------
1,174,029 1,124,810 1,083,551
Policyholder dividends...................................... 2,685 3,114 3,486
Amortization of deferred policy acquisition costs........... 47,215 43,078 33,365
Insurance commissions....................................... 128,267 124,601 118,710
General and administrative expenses......................... 333,734 302,663 299,492
---------- ---------- ----------
Total benefits and expenses................................. 1,685,930 1,598,266 1,538,604
---------- ---------- ----------
Income before federal income taxes.......................... 129,674 123,533 92,284
Federal income taxes........................................ 41,555 40,327 30,402
---------- ---------- ----------
Net income.................................................. $ 88,119 $ 83,206 $ 61,882
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
F-5
87
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
TOTAL STOCK CAPITAL EARNINGS (LOSS) INCOME
--------- ------ ---------- --------- -------------
Balance, December 31, 1997.......... $ 880,106 $5,000 $468,000 $ 332,723 $ 74,383
Comprehensive income:
Net income..................... 61,882 -- -- 61,882 --
Change in unrealized gain
(losses) on investments,
net.......................... (6,520) -- -- -- (6,520)
---------
Total comprehensive income........ 55,362
Dividend.......................... (50,000) -- -- (50,000) --
--------- ------ -------- --------- ---------
Balance, December 31, 1998.......... 885,468 5,000 468,000 344,605 67,863
Comprehensive income:
Net income..................... 83,206 -- -- 83,206 --
Change in unrealized gain
(losses) on investments,
net.......................... (119,122) -- -- -- (119,122)
---------
Total comprehensive loss.......... (35,916)
--------- ------ -------- --------- ---------
Balance, December 31, 1999.......... 849,552 5,000 468,000 427,811 (51,259)
Comprehensive income:
Net income..................... 88,119 -- -- 88,119 --
Change in unrealized gain
(losses) on investments,
net.......................... 42,339 -- -- -- 42,339
---------
Total comprehensive income........ 130,458
Dividend.......................... (149,286) -- -- (149,286) --
--------- ------ -------- --------- ---------
Balance, December 31, 2000.......... $ 830,724 $5,000 $468,000 $ 366,644 $ (8,920)
========= ====== ======== ========= =========
The accompanying notes are an integral part of the financial statements.
F-6
88
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 88,119 $ 83,206 $ 61,882
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for depreciation.......................... 4,830 12,807 12,409
Amortization of gain on reinsured business.......... (3,100) -- --
Amortization of investment (discounts) premiums,
net............................................... 1,574 1,930 (3,200)
Net realized losses (gains) on sold investments..... 13,910 (25,962) (52,404)
Write-off of investment............................. 3,129 -- --
Policy acquisition costs deferred................... (113,927) (96,308) (73,147)
Amortization of deferred policy acquisition costs... 47,215 43,078 33,365
Provision for deferred federal income taxes......... (4,151) 29,454 417
Decrease in income taxes recoverable................ (9,086) (2,330) (6,381)
Change in receivables, accrued investment income,
unearned premiums, accrued expenses, other assets,
due to and from affiliates and other
liabilities....................................... (48,646) 27,227 (4,455)
Increase (decrease) in future policy benefit
reserves for traditional, interest sensitive and
accident and health policies...................... 158,150 97,931 106,135
(Decrease) increase in other policy claims and
benefits and policyholder dividends payable....... (25,303) 5,012 (2,514)
Other............................................... -- -- 169
----------- ----------- -----------
Net cash provided by operating activities................ 112,714 176,045 72,276
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturity investments.................. (1,546,720) (1,654,104) (2,380,511)
Sales and repayments of fixed maturity investments....... 1,777,428 1,675,488 2,428,207
(Increase) decrease in short-term investments............ (37,208) (83,659) 38,669
Purchases of other investments........................... (363,978) (305,889) (408,998)
Sales of other investments............................... 298,925 353,267 352,873
Purchases of property and equipment...................... (603) (7,213) (356)
Cash received pursuant to reinsurance agreement.......... 17,591 3,374 --
----------- ----------- -----------
Net cash provided by (used in) investing activities...... 145,435 (18,736) 29,884
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Activities related to investment products:
Considerations received................................ 226,139 237,375 215,693
Surrenders and death benefits.......................... (448,349) (416,537) (326,457)
Interest credited to policyholders..................... 32,886 39,855 49,371
Dividend................................................. (74,286) -- (50,000)
----------- ----------- -----------
Net cash used in financing activities.................... (263,610) (139,307) (111,393)
----------- ----------- -----------
(Decrease) increase in cash and cash equivalents......... (5,461) 18,002 (9,233)
Cash and cash equivalents at beginning of year........... 18,670 668 9,901
----------- ----------- -----------
Cash and cash equivalents at end of year................. $ 13,209 $ 18,670 $ 668
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-7
89
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
---------------------------------
2000 1999 1998
-------- --------- --------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Assets and liabilities transferred in reinsurance
transactions (Note 9):
Non-cash assets (ceded) received:
Fixed maturities.......................................... $ -- $ 517,091 $ --
Other investments......................................... -- 121,696 --
Other assets.............................................. (157) 12,763 --
Deferred acquisition costs................................ (20,829) 35,882 --
-------- --------- --------
Total value of assets (ceded) received...................... $(20,986) $ 687,432 $ --
-------- --------- --------
Non-cash liabilities ceded (assumed):
Future policy benefit reserves............................ $ 15,086 $(685,932) $ --
Claim reserves............................................ 7 (4,874) --
Unearned premium reserves................................. 7,641 -- --
Other liabilities......................................... (320) -- --
-------- --------- --------
Total liabilities ceded (assumed)........................... $ 22,414 $(690,806) $ --
======== ========= ========
The accompanying notes are an integral part of the financial statements.
F-8
90
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
(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 (B) and Fortis (NL) N.V. The Company is incorporated in
Minnesota and distributes its products in all states except New York. The
Company's revenues are derived principally from group employee benefits products
and from individual life and annuity products.
Effective October 1, 1999, the Company assumed pre-need life insurance business
from an affiliate on a 100% co-insurance basis. These life insurance and annuity
products are marketed in connection with the advance funding of funeral
expenses. (See Note 9 "Reinsurance" for more information on this reinsurance
transaction.)
Effective March 1, 2000, the Company ceded 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.)
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
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FAS 133," which deferred to January 1, 2001 the effective date
of the accounting and reporting requirements of SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The adoption
of SFAS 133 is not expected to have a material effect on the Company's results
of operations or financial position.
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.
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
91
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
$4,830, $12,807 and $12,409 for the year ended December 31, 2000, 1999 and 1998,
respectively.
INCOME TAXES
Income taxes have been provided using the liability method. Deferred tax assets
and liabilities are determined based on the temporary differences between the
financial reporting and the tax bases and are measured using the enacted tax
rates.
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
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 receives mortality and expense risk fees from the separate accounts.
The Company also deducts monthly cost of insurance charges, and receives minimum
death benefit guarantee fees and issue and administrative fees from the variable
life insurance separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for
F-10
92
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
variable annuities that are in the benefit payment period. The Company also
guarantees that the rates at which administrative fees are deducted from
contract funds will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue 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 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 4% to 15%
in 2000, 3.5% to 12% in 1999 and 2.5% to 8.75% in 1998.
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 1999 and 1998 financial statements have been reclassified
to conform to the 2000 presentation.
F-11
93
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
AT DECEMBER 31, 2000:
Fixed maturities:
Governments.................................. $ 348,795 $15,261 $ 317 $ 363,739
Public utilities............................. 212,371 3,849 3,661 212,559
Industrial and miscellaneous................. 1,794,011 27,815 58,902 1,762,924
Other........................................ 187,863 4,294 899 191,258
---------- ------- -------- ----------
Total fixed maturities......................... 2,543,040 51,219 63,779 2,530,480
Equity securities.............................. 91,164 5,160 8,412 87,912
---------- ------- -------- ----------
Total.......................................... $2,634,204 $56,379 $ 72,191 $2,618,392
========== ======= ======== ==========
AT DECEMBER 31, 1999:
Fixed maturities:
Governments.................................. $ 309,402 $ 46 $ 8,934 $ 300,514
Public utilities............................. 237,579 341 10,375 227,545
Industrial and miscellaneous................. 2,208,281 7,020 81,412 2,133,889
Other........................................ 47,435 184 3,195 44,424
---------- ------- -------- ----------
Total fixed maturities......................... 2,802,697 7,591 103,916 2,706,372
Equity securities.............................. 81,554 5,825 2,358 85,021
---------- ------- -------- ----------
Total.......................................... $2,884,251 $13,416 $106,274 $2,791,393
========== ======= ======== ==========
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 2000, by contractual maturity, are shown below.
AMORTIZED FAIR
COST VALUE
---------- ----------
Due in one year or less..................................... $ 83,263 $ 83,164
Due after one year through five years....................... 610,579 609,360
Due after five years through ten years...................... 786,695 778,801
Due after ten years......................................... 1,062,503 1,059,155
---------- ----------
Total....................................................... $2,543,040 $2,530,480
========== ==========
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 37% and 38% of outstanding principal
is concentrated in the states of New York, California and Florida, at December
31, 2000 and 1999, respectively. Loan commitments outstanding totaled $8,000 at
December 31, 2000.
F-12
94
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. INVESTMENTS (CONTINUED)
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $11,630 and $17,061 at December 31,
2000 and 1999, 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:
TAX
BEFORE-TAX BENEFIT NET-OF-TAX
AMOUNT (EXPENSE) AMOUNT
---------- --------- ----------
DECEMBER 31, 2000:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 93,933 $(32,873) $ 61,060
Increase in amortization of deferred policy acquisition
costs................................................. (2,314) 810 (1,504)
Reclassification adjustment for gains (losses) realized
in net income......................................... (26,488) 9,271 (17,217)
--------- -------- ---------
Other comprehensive gain................................... $ 65,131 $(22,792) $ 42,339
========= ======== =========
DECEMBER 31, 1999:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $(216,270) $ 75,694 $(140,576)
Decrease in amortization of deferred policy acquisition
costs................................................. 9,142 (3,200) 5,942
Reclassification adjustment for gains (losses) realized
in net income......................................... 23,864 (8,352) 15,512
--------- -------- ---------
Other comprehensive loss................................... $(183,264) $ 64,142 $(119,122)
========= ======== =========
DECEMBER 31, 1998:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments.............................................. $ (53,050) $ 18,420 $ (34,630)
Decrease in amortization of deferred policy acquisition
costs.................................................... 414 (145) 269
Reclassification adjustment for gains (losses) realized in
net income............................................... 42,832 (14,991) 27,841
--------- -------- ---------
Other comprehensive loss................................... $ (9,804) $ 3,284 $ (6,520)
========= ======== =========
F-13
95
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. INVESTMENTS (CONTINUED)
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:
2000 1999 1998
-------- -------- --------
NET INVESTMENT INCOME:
Fixed maturities............................................ $193,005 $167,027 $160,163
Equity securities........................................... 14,392 7,320 8,656
Mortgage loans on real estate............................... 68,794 57,684 57,031
Policy loans................................................ 6,617 5,272 4,653
Short-term investments...................................... 522 844 1,701
Real estate and other investments........................... 2,816 6,375 8,194
-------- -------- --------
286,146 244,522 240,398
Expenses.................................................... (6,574) (5,824) (6,355)
-------- -------- --------
$279,572 $238,698 $234,043
======== ======== ========
NET REALIZED (LOSSES) GAINS ON INVESTMENTS:
Fixed maturities............................................ $(31,179) $ (9,750) $ 34,320
Equity securities........................................... 4,691 33,613 8,512
Mortgage loans on real estate............................... -- -- (198)
Short-term investments...................................... -- -- 5
Real estate and other investments........................... 9,449 2,099 9,765
-------- -------- --------
$(17,039) $ 25,962 $ 52,404
======== ======== ========
Proceeds from sales of investments in fixed maturities were $1,756,637,
$1,627,450 and $2,460,316 in 2000, 1999 and 1998, respectively. Gross gains of
$14,851, $11,996 and $44,360 and gross losses of $46,030, $21,746 and $10,040
were realized on the sales in 2000, 1999 and 1998, respectively.
F-14
96
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
4. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows:
INTEREST
TRADITIONAL SENSITIVE AND
AND PRE-NEED INVESTMENT ACCIDENT
LIFE PRODUCTS AND HEALTH TOTAL
------------ ------------- ---------- --------
Balance, December 31, 1998.................... $ 14,560 $314,462 $ 2,916 $331,938
Acquisition costs deferred.................. 33,783 81,016 17,391 132,190
Acquisition costs amortized................. (2,438) (38,831) (1,809) (43,078)
Decreased amortization of deferred
acquisition costs from unrealized losses
on available-for-sale securities......... -- 9,142 -- 9,142
-------- -------- -------- --------
Balance, December 31, 1999.................... 45,905 365,789 18,498 430,192
Acquisition costs deferred.................. 15,882 95,062 2,983 113,927
Acquisition costs amortized................. (14,216) (32,347) (21,481) (68,044)
Increased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities......... -- (2,314) -- (2,314)
-------- -------- -------- --------
Balance, December 31, 2000.................... $ 47,571 $426,190 $ -- $473,761
======== ======== ======== ========
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.
Included in total policy acquisition costs deferred in 1999 is $35,882 of
present value of future profits (PVP) and $1,416 of subsequent acquisition costs
resulting from the reinsurance assumption agreement with United Family Life
Insurance Company, an affiliate, which became effective October 1, 1999. PVP is
being amortized against the expected premium revenue of the pre-need life
insurance business assumed. See Note 9 "Reinsurance" for more information on
this reinsurance transaction.
During 2000, 1999 and 1998, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized net capital gains resulted in increased (decreased) amortization of
deferred acquisition costs of $901, $(224) and $3,357, respectively.
5. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows:
2000 1999
-------- --------
Land........................................................ $ 1,900 $ 1,900
Building and improvements................................... 27,019 26,383
Furniture and equipment..................................... 78,630 81,447
-------- --------
107,549 109,730
Less accumulated depreciation............................... (86,658) (84,612)
-------- --------
Net property and equipment.................................. $ 20,891 $ 25,118
======== ========
F-15
97
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
6. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims is summarized
as follows:
YEARS ENDED DECEMBER 31
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Balance as of January 1, net of reinsurance recoverables.... $1,139,603 $1,061,883 $ 988,036
Add: Incurred losses related to:
Current year.............................................. 753,070 824,949 826,009
Prior years............................................... (25,859) (12,800) (27,973)
---------- ---------- ----------
Total incurred losses....................................... 727,211 812,149 798,036
Deduct: Paid losses related to:
Current year.............................................. 428,725 468,404 469,881
Prior years............................................... 283,782 266,025 254,308
---------- ---------- ----------
Total paid losses........................................... 712,507 734,429 724,189
---------- ---------- ----------
Balance as of December 31, net of reinsurance
recoverables.............................................. $1,154,307 $1,139,603 $1,061,883
========== ========== ==========
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.
Excluded from incurred losses presented above related to current 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 lower medical costs and a reduction of loss reserves due to lower than
anticipated inflation in medical costs.
The liability for unpaid accident and health claims includes $1,042,180 and
$994,651 of total disability income reserves as of December 31, 2000 and 1999,
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-16
98
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
7. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 2000 and 1999 are as follows:
2000 1999
-------- --------
Deferred tax assets:
Separate account assets/liabilities....................... $ 72,599 $ 60,716
Reserves.................................................. 28,244 35,843
Claims and benefits payable............................... 7,445 7,964
Accrued liabilities....................................... 10,811 6,973
Unrealized losses......................................... 5,543 32,500
Investments............................................... 14,373 4,549
Other..................................................... 8,301 6,755
-------- --------
Total deferred tax assets................................... 147,316 155,300
Deferred tax liabilities:
Deferred policy acquisition costs......................... 107,948 98,539
Unrealized gains.......................................... 747 --
Fixed assets.............................................. 3,143 2,963
Investments............................................... 237 1,171
Other..................................................... 1,416 160
-------- --------
Total deferred tax liabilities.............................. 113,491 102,833
-------- --------
Net deferred tax asset...................................... $ 33,825 $ 52,467
======== ========
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:
2000 1999 1998
------- ------- -------
Current..................................................... $45,706 $10,873 $30,232
Deferred.................................................... (4,151) 29,454 170
------- ------- -------
$41,555 $40,327 $30,402
======= ======= =======
Federal income tax payments and refunds resulted in net payments of $54,792,
$13,203 and $36,367 in 2000, 1999 and 1998, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
2000 1999 1998
---- ---- ----
Statutory income tax rate................................... 35.0% 35.0% 35.0%
Other, net.................................................. (3.0) (2.4) (2.1)
---- ---- ----
32.0% 32.6% 32.9%
==== ==== ====
F-17
99
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
8. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows:
2000 1999
---------- ----------
Premium and annuity considerations for the variable annuity
products and variable universal life products for which
the contract holder, rather than the Company, bears the
investment risk........................................... $5,159,275 $5,082,341
Assets of the separate accounts owned by the Company, at
fair value................................................ 24,808 37,811
---------- ----------
$5,184,083 $5,120,152
========== ==========
9. REINSURANCE
In the second quarter of 1996, First Fortis Life Insurance Company (First
Fortis), an affiliate, received approval from the New York State Insurance
Department for a reinsurance agreement with the Company. The agreement, which
became effective as of January 1, 1996, decreased First Fortis' long-term
disability reinsurance retention from a $10 net monthly benefit to a $2 net
monthly benefit for claims incurred on and after January 1, 1996. The Company
has assumed $6,884, $6,580 and $5,601 of premium from First Fortis in 2000, 1999
and 1998, respectively. The Company has assumed $14,366 and $11,047 of reserves
in 2000 and 1999, 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 (as described in Note 4). The Company has assumed premium from UFL of
$63,069 in 2000 and $31,523 during the period October 1, 1999 to December 31,
1999. The Company has assumed $679,969 and $690,806 of reserves in 2000 and
1999, 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 in 2000 was $3,100. The Company ceded $41,309 of
premiums and $32,222 of reserves to John Hancock in 2000.
The maximum amount that the Company retains on any one life is $1,000 of life
insurance including accidental death. Amounts in excess of $1,000 are reinsured
with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums for the year ended December 31 were as follows:
2000 1999 1998
------- ------- -------
Life insurance.............................................. $ 7,413 $ 6,246 $ 6,983
Accident and health insurance............................... 48,403 17,803 13,862
------- ------- -------
$55,816 $24,049 $20,845
======= ======= =======
Recoveries under reinsurance contracts for the year ended December 31 were as
follows:
2000 1999 1998
------- ------- -------
Life insurance.............................................. $ 2,877 $ 478 $ 4,549
Accident and health insurance............................... 8,525 13,669 9,465
------- ------- -------
$11,402 $14,147 $14,014
======= ======= =======
F-18
100
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
9. REINSURANCE (CONTINUED)
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. The Company will have $42,895 free from such
restrictions during 2001. Distributions in excess of this amount would require
regulatory approval. In 2000, the Company declared dividends of $149,286, of
which $100,000 was extraordinary. Approval was sought and received from the
Minnesota Department of Commerce for the distribution of the extraordinary
dividend. The Company paid $74,286 during 2000; $75,000 will be paid in 2001 and
is included in other liabilities.
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 will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification requires adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Minnesota has adopted Codification
effective January 1, 2001.
The cumulative effect of all changes resulting form the Codification guidance
will be recorded as a direct adjustment to statutory surplus on January 1, 2001.
The effect of the adoption is expected to increase statutory surplus by a
material amount.
Insurance enterprises are required by State Insurance Departments to adhere to
minimum risk-based capital (RBC) requirements developed by the NAIC. The Company
exceeds the minimum RBC requirements.
F-19
101
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
11.REGULATORY ACCOUNTING REQUIREMENTS (CONTINUED)
Reconciliations of net income and shareholder's equity on the basis of statutory
accounting to the related amounts presented in the accompanying statements were
as follows:
NET INCOME SHAREHOLDER'S EQUITY
-------------------- ---------------------
2000 1999 1998 2000 1999
-------- -------- ------- --------- --------
Based on statutory accounting practices...... $ 88,911 $ 9,387 $14,841 $ 433,955 $497,858
Deferred policy acquisition costs............ 66,712 54,049 39,782 473,761 430,192
Investment valuation differences............. 368 953 745 (19,310) (103,361)
Deferred and uncollected premiums............ (732) (4,637) 511 (14,399) (13,188)
Policy reserves.............................. (12,092) (20,070) (7,041) (150,668) (127,766)
Commissions.................................. (45,485) 79,067 -- -- --
Current income taxes payable................. 22 (8,882) 925 (8,977) (9,000)
Deferred income taxes........................ 4,151 (18,650) (417) 33,825 52,467
Realized gains on investments................ 439 9 356 -- --
Realized gains (losses) transferred to the
Interest Maintenance Reserve (IMR), net of
tax........................................ (17,873) (6,163) 22,748 -- --
Amortization of IMR, net of tax.............. (5,396) (8,565) (7,128) -- --
Write-off of investment...................... (3,129) -- -- -- --
Pension expense.............................. (2,145) (1,475) 81 (9,985) (8,235)
Property and equipment....................... -- -- -- 3,261 591
Interest maintenance reserve................. -- -- -- 31,482 55,117
Asset valuation reserve...................... -- -- -- 70,955 72,940
Other, net................................... 14,368 8,183 (3,521) (13,176) 1,937
-------- -------- ------- --------- --------
Based on generally accepted accounting
principles................................. $ 88,119 $ 83,206 $61,882 $ 830,724 $849,552
======== ======== ======= ========= ========
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 and other administrative functions. The
fees paid to Fortis, Inc. for these services for years ended December 31, 2000,
1999 and 1998, were $10,094, $11,661 and $13,077, respectively. During 1997,
Fortis, Inc. began providing information technology services to the Company.
Information technology expenses were $47,123, $59,390 and $55,910 for years
ended December 31, 2000, 1999 and 1998, respectively.
In conjunction with the marketing of its fixed and variable annuity and variable
life products, the Company paid $93,107, $79,413 and $72,638 in commissions to
its affiliate, Fortis Investors, Inc., for the years ended December 31, 2000,
1999 and 1998, respectively.
Administrative expenses allocated for the Company may be greater or less than
the expenses that would be incurred if the Company were operating on a separate
company basis.
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
F-20
102
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
13.FAIR VALUE DISCLOSURES (CONTINUED)
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.
DECEMBER 31, 2000 DECEMBER 31, 1999
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Assets:
Investments:
Securities available-for-sale:
Fixed maturities......................... $2,530,480 $2,530,480 $2,706,372 $2,706,372
Equity securities........................ 87,912 87,912 85,021 85,021
Mortgage loans on real estate................. 810,616 844,319 754,514 741,397
Policy loans.................................. 102,308 102,308 83,439 83,439
Short -- term investments..................... 152,736 152,736 115,527 115,527
Assets held in separate accounts.............. 5,184,083 5,184,083 5,120,152 5,120,152
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal).................. 585,905 571,834 789,002 763,861
Liabilities related to separate accounts...... 5,159,275 5,159,275 5,082,341 5,082,341
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
$2,097, $2,225 and $1,627 for 2000, 1999 and 1998, respectively.
The Company participates in a contributory profit sharing plan, sponsored by
Fortis, covering employees and certain agents who meet eligibility requirements
as to age and length of service. Benefits are payable to participants on
retirement or disability and to the beneficiaries of participants in the event
of death. The first three percent of an employee's contribution is matched 200%
by the Company. The amount expensed was approximately $4,573, $3,711 and $3,610
for 2000, 1999 and 1998, respectively.
In addition to retirement benefits, the Company participates in other health
care and life insurance benefit plans (postretirement benefits) for retired
employees, sponsored by Fortis. Health care benefits, either through a Fortis
sponsored retiree plan for retirees under age 65 or through a cost offset for
individually purchased Medigap policies
F-21
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NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)
for retirees over age 65, are available to employees who retire on or after
January 1, 1993, at age 55 or older, with 15 years or more service. Life
insurance, on a retiree pay all basis, is available to those who retire on or
after January 1, 1993.
There were no net postretirement benefit costs allocated to the Company for the
years ended December 31, 2000, 1999 and 1998. The Company made contributions to
the postretirement benefit plans of approximately $0, $19 and $(5) in 2000, 1999
and 1998, respectively, as claims were incurred.
16. EVENTS SUBSEQUENT
On January 25, 2001, Fortis agreed to sell (the "Sale") its Fortis Financial
Group division (the "Division") to The Hartford Financial Services Group ("The
Hartford"). 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 (the "Fund").
To effect the Sale as it relates to the Company, Hartford Life and Annuity
Insurance Company, an indirect wholly owned subsidiary of The Hartford, will
reinsure the Insurance Contracts on a 100% coinsurance basis and perform
administration of such Insurance Contracts. In addition, Hartford Life and
Accident Insurance Company, another indirect wholly owned subsidiary of The
Hartford, will purchase all of the outstanding stock of Fortis Advisers, Inc.,
which is the investment adviser for the Fund. Thus, upon completion of the Sale,
Hartford Life and Accident Insurance Company will own and control Fortis
Advisers, Inc. and its subsidiaries, including Fortis Investors, Inc., which is
the principal distributor of the Fund.
Closing of the Sale is subject to various regulatory and other approvals.
Following the Sale, the Fund expects to enter into new investment advisory,
subadvisory and distribution agreements with affiliates of The Hartford. Such
new agreements will require approvals subsequent to the closing of the Sale by
the Fund's board of directors and shareholders and by Insurance Contract holders
to the extent required by law.
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FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information of Fortis Benefits
Insurance Company is being presented in connection with the Company's Sale of
its Fortis Financial Group Division (FFG) to The Hartford on April 1, 2001.
The accompanying unaudited pro forma financial statements of the Company for the
period ended December 31, 2000 present the financial position and results for
the Company as if the Sale and certain transactions and adjustments related to
the Sale had occurred as of January 1, 2000. The unaudited pro forma financial
information does not purport to represent what the Company's financial position
or results of operations actually would have been had the Sale in fact occurred
as of the date indicated, or to project the Company's financial position or
results of operations for any future date or period. The pro forma adjustments
are based on available information and certain assumptions that the Company
currently believes are reasonable under the circumstances. The unaudited pro
forma financial information should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
The unaudited pro forma financial information is provided for informational
purposes only. The Company's financial statements will reflect the actual
effects of the Sale in the 10-Q filing for the period ending June 30, 2001.
Although the actual Sale results will differ, the unaudited pro forma financial
information reflects management's best estimate based on currently available
information.
F-23
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FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DEC. 31, 2000
ANNUAL REPORT FFG PRO FORMA
------------- --------- -----------
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
2000 -- $2,543,040; 1999 -- $2,802,697)........... $2,530,480 $(158,752) $ 2,371,728
Equity securities, at fair value (cost
2000 -- $91,164; -- 1999 -- $81,554).............. 87,912 -- 87,912
Mortgage loans on real estate, less allowance for
possible losses (2000 and 1999 -- $11,085)........ 810,616 (93,115) 717,501
Policy loans......................................... 102,308 (102,192) 116
Short-term investments............................... 152,736 -- 152,736
Real estate and other investments.................... 41,712 -- 41,712
---------- --------- -----------
3,725,764 (354,059) 3,371,705
Cash and cash equivalents.............................. 13,209 19,299 32,508
--
--
Receivables:
Uncollected premiums................................. 66,505 (260) 66,245
Reinsurance recoverable on unpaid and paid losses.... 64,182 1,077,253 1,141,435
Other................................................ 48,083 (5,934) 42,149
---------- --------- -----------
178,770 1,071,059 1,249,829
Accrued investment income.............................. 52,556 (4,839) 47,717
Deferred policy acquisition costs...................... 473,761 (433,192) 40,569
Property and equipment at cost, less accumulated
depreciation......................................... 20,891 (18,138) 2,753
Federal income tax recoverable......................... 7,248 (528) 6,720
Deferred federal income taxes.......................... 33,825 154,050 187,875
Other assets........................................... 1,677 -- 1,677
Assets held in separate accounts....................... 5,184,083 -- 5,184,083
---------- --------- -----------
Total assets...................................... $9,691,784 $ 433,652 $10,125,436
========== ========= ===========
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FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DEC. 31, 2000
ANNUAL REPORT FFG PRO FORMA
------------- -------- -----------
POLICY RESERVES AND LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance............ $1,170,612 $ -- $ 1,170,612
Interest sensitive and investment products......... 970,591 -- 970,591
Accident and health................................ 1,007,328 -- 1,007,328
---------- -------- -----------
3,148,531 -- 3,148,531
Unearned revenues..................................... 33,614 (243) 33,371
Other policy claims and benefits payable.............. 240,677 (7,941) 232,736
Policyholder dividends payable........................ 7,438 (7,438) --
---------- -------- -----------
3,430,260 (15,622) 3,414,638
Accrued expenses...................................... 69,476 (1,061) 68,415
Current income taxes payable.......................... -- 161,290 161,290
Other liabilities..................................... 181,633 (787) 180,846
Due to affiliates..................................... 4,497 -- 4,497
Deferred gain on LTC & FFG sale....................... 15,919 256,308 272,227
Liabilities related to separate accounts.............. 5,159,275 24,808 5,184,083
---------- -------- -----------
Total policy reserves and liabilities.............. 8,861,060 424,936 9,285,996
---------- -------- -----------
Shareholder's equity:
Common stock, $5 par value: authorized, issued and
outstanding shares -- 1,000,000.................... 5,000 -- 5,000
Additional paid-in capital............................ 468,000 -- 468,000
Retained earnings..................................... 366,644 8,716 375,360
Accumulated other comprehensive loss.................. (8,920) -- (8,920)
---------- -------- -----------
Total shareholder's equity......................... 830,724 8,716 839,440
---------- -------- -----------
Total policy reserves and liabilities and
shareholder's equity............................. $9,691,784 $433,652 $10,125,436
========== ======== ===========
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FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA STATEMENT OF INCOME
(IN THOUSANDS)
DEC. 31, 2000
ANNUAL REPORT FFG PRO FORMA
------------- --------- ----------
Insurance operations:
Traditional life insurance premiums..................... $ 428,641 (10,267) $ 418,374
Interest sensitive and investment product policy
charges............................................... 159,728 (157,408) 2,320
Accident and health insurance premiums.................. 952,015 -- 952,015
---------- --------- ----------
1,540,384 (167,675) 1,372,709
Net investment income................................... 279,572 (54,622) 224,950
Net realized (losses) gains on investments.............. (17,039) 3,662 (13,377)
Other income............................................ 12,687 17,733 30,420
---------- --------- ----------
Total revenues........................................ 1,815,604 (200,902) 1,614,702
Benefits to policy holders:
Traditional life insurance............................ 335,022 (10,621) 324,401
Interest sensitive investment products................ 89,062 (83,105) 5,957
Accident and health claims............................ 749,945 0 749,945
---------- --------- ----------
1,174,029 (93,726) 1,080,303
Policy holder dividends................................. 2,685 (2,685) 0
Amortization of deferred policy acquisition costs....... 47,215 (36,055) 11,160
Insurance commissions................................... 128,267 (6,566) 121,701
General and administrative expenses..................... 333,734 (68,697) 265,037
---------- --------- ----------
Total benefits and expenses........................... 1,685,930 (207,729) 1,478,201
---------- --------- ----------
Income before federal income taxes...................... 129,674 6,827 136,501
Federal income taxes.................................... 41,555 (1,889) 39,666
---------- --------- ----------
Net income.............................................. $ 88,119 $ 8,716 $ 96,835
========== ========= ==========
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FORTIS BENEFITS INSURANCE COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS)
Adjustments to the balance sheet, including invested assets, receivables,
accrued investment income, deferred acquisition costs, reserves, unearned
revenues, policy claims and dividends payable and accrued expenses, along with
adjustments to the income statement, are related to the Division sold to The
Hartford.
Adjustments to cash and cash equivalents and property and equipment represent
the sale of certain personal and real property to The Hartford.
Adjustments to deferred federal income taxes and current income taxes payable
represent the accrual of federal income tax associated with the Sale.
Deferred gain on the Sale will be amortized to income as the business runs off.
For 2000, the pro forma income statement includes pre-tax amortization of
$18,000. An effective tax rate of 35% has been applied and is reflected in the
provision for federal income tax.
Pro forma investment income includes estimated earnings from approximately $500
million of cash proceeds from the Sale (after applicable tax payment).
Separate accounts business is reinsured under a modified coinsurance agreement
with The Hartford.
F-27
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APPENDIX A--SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
The formula which will be used to determine the Market Value Adjustment is:
1 + I n/12
------------ - 1
( 1 + J + .005 )
Sample Calculation 1: Positive Adjustment
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 7%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment
1 + .08 60/12
$10,000 X -------------- - 1 = $234.73
[( 1 + .07 + .005 ) ]
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$10,234.73
Sample Calculation 2: Negative Adjustment
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 9%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:
1 + .08 60/12
$10,000 X -------------- - 1 = -- $666.42
[( 1 + .09 + .005 ) ]
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,333.58
Sample Calculation 3: Negative Adjustment
Amount withdrawn or transferred $10,000
Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for new 5-year guarantee (J) 7.75%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:
1 + .08 60/12
$10,000 X ---------------- - 1 = $114.94
[( 1 + .0775 + .005 ) ]
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,885.06
- ------------------------------
* Assumed for illustrative purposes only.
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111
APPENDIX B--SAMPLE DEATH BENEFIT CALCULATIONS
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
DATE OF DEATH IS THE 3RD CONTRACT ANNIVERSARY --------- --------- ---------
a. Purchase Payments Made Prior to Death, accumulated at
5% $32,000 $32,000 $32,000
b. Contract Value on Date of Death $20,000 $36,000 $25,000
c. 1 Year Ratchet Option Value $35,000 $36,000 $31,000
Death Benefit is larger of a, b, and c $35,000 $36,000 $32,000
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
DATE OF DEATH IS THE 5TH CONTRACT ANNIVERSARY --------- --------- ---------
a. Purchase Payments Made Prior to Death, accumulated at
5% $34,000 $34,000 $34,000
b. Contract Value on Date of Death $38,000 $38,000 $28,000
c. 1 Year Ratchet Option Value $38,000 $40,000 $33,000
Death Benefit is larger of a, b, and c $38,000 $40,000 $34,000
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
DATE OF DEATH IS THE 10TH CONTRACT ANNIVERSARY --------- --------- ---------
a. Purchase Payments Made Prior to Death, accumulated at
5% $36,000 $36,000 $36,000
b. Contract Value on Date of Death $39,000 $34,000 $31,000
c. 1 Year Ratchet Option Value $39,000 $37,000 $32,000
Death Benefit is larger of a, b, and c $39,000 $37,000 $36,000
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113
APPENDIX C--EXPLANATION OF EXPENSE CALCULATIONS
The expense for a given year is calculated by multiplying the projected
beginning of the year policy value by the total expense rate. The total expense
rate is the sum of the variable account expense rate plus the total portfolio
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Growth Stock Series is calculated as
follows:
- --------------------------------------------------------------------------------
Total Variable Account Annual Expenses 1.35%
- --------------------------------------------------------------------------------
+ Total Series Fund Operating Expenses 0.64%
- --------------------------------------------------------------------------------
= Total Expense Rate 1.99%
- --------------------------------------------------------------------------------
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = $1000.00 X 0.0199 = $19.90
Year 2 Beginning Policy Value = $1,030.10
Year 2 Expense = $1,030.10 X 0.0199 = $20.50
Year 3 Beginning Policy Value = $1,061.11
Year 3 Expense = $1,061.11 X 0.0199 = $21.12
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to:
$19.90 + $20.50 + $21.12 = $61.52
If the contract is surrendered, the surrender charge is the surrender charge
percentage times the purchase payment minus the 10% free withdrawal amount:
Surrender Charge Percentage X (Initial Premium - 10% Free Withdrawal) =
Surrender Charge
0.06 X ($1000.00 - $100.00) = $54.00
So the total expense if surrendered is $61.52 + $54.00 = $115.52
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115
APPENDIX D--PRO RATA ADJUSTMENTS
Pro rata adjustments are made for withdrawals in calculating the death benefit
payable under the contract. The benefit is described under the section of this
prospectus entitled "Benefit Payable on Death of Contract Owner or Annuitant".
A pro rata adjustment is calculated separately for each withdrawal, creating a
decrease in the death benefit proportional to the decrease the withdrawal makes
in the contract value. Pro rata adjustments are made for amounts withdrawn for
partial surrenders and surrender charges, but not for any contract fee-related
surrenders.
Under the death benefit set forth as (2) in "Benefit Payable on Death of
Contract Owner or Annuitant", the pro rata adjustment for a given withdrawal is
equal to:
(a) the withdrawn amount, divided by
(b) the contract value immediately before the amount was withdrawn, the
result multiplied by
(c) the quality equal to:
(i) the contract value on the anniversary, plus
(ii) purchase payments made since the anniversary and before
withdrawal, minus
(iii) pro rata adjustments for withdrawals made since the anniversary
and before the given withdrawal.
Under the death benefit set forth as (3) in "Benefit Payable on Death of
Contract Owner or Annuitant", the pro rata adjustment for a given withdrawal is
equal to:
(a) the withdrawn amount, divided by
(b) the contract value immediately before the amount was withdrawn, the
result multiplied by
(c) the quantity equal to:
(i) the "Roll-Up Amount" prior to the withdrawal, plus
(ii) any purchase payments made on or after the date either the
contract owner or Annuitant first reaches his or her 75th birthday
and before the given withdrawal, reduced by
(iii) pro rata adjustments for any withdrawals made on or after the date
either the contract owner or Annuitant first reaches his or her
75th birthday and before the given withdrawal.
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CERTIFICATES UNDER
FLEXIBLE PREMIUM DEFERRED
COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
(MASTERS AND MASTERS +)
Issued by
FORTIS BENEFITS INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2001
This Statement of Additional Information is not a Prospectus. It is intended
that this Statement of Additional Information be read in conjunction with the
Prospectus for certificates under flexible premium deferred combination variable
and fixed annuity contracts ("Certificates"), dated May 1, 2001. A copy of the
Prospectus may be obtained without charge from Woodbury Financial Services, Inc.
1-800-800-2000, mailing address: P.O. Box 64272, St. Paul, MN 55164. You have
the option of receiving benefits under a Certificate through Fortis Benefits'
Variable Account D or through Fortis Benefits' Fixed Account.
TABLE OF CONTENTS
Fortis Benefits and the Variable Account.......................................2
Calculation of Annuity Payments................................................2
Postponement of Payments.......................................................3
Services.......................................................................3
- - Safekeeping of Variable Account Assets.....................................3
- - Experts....................................................................4
- - Principal Underwriter .....................................................4
Limitation on Allocations......................................................4
Taxation Under Certain Retirement Plans........................................4
Withholding....................................................................8
Other Information..............................................................9
Variable Account Financial Statements..........................................9
Appendix A -- Performance Information........................................A-1
In order to supplement the description in the Prospectus, the following provides
additional information about the Certificates and other matters which may be of
interest to you. Terms used in this Statement of Additional Information have the
same meanings as are defined in the Prospectus under the heading "Special Terms
Used in This Prospectus."
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FORTIS BENEFITS AND THE VARIABLE ACCOUNT
Fortis Benefits Insurance Company, the issuer of the Certificates, is a
Minnesota corporation qualified to sell life insurance and annuity contracts in
the District of Columbia and in all states except New York. Fortis Benefits is a
wholly-owned subsidiary of Interfinancial, Inc., a stock company organized under
the laws of Georgia, which itself is a wholly-owned subsidiary of Fortis, Inc.
Fortis, Inc. is a corporation based in New York, which manages the United States
operations of Fortis (NL) N.V. and Fortis (B).
Fortis (NL) N.V. has been in business since 1847 and is a publicly-traded,
multi-national insurance, real estate, and financial services group
headquartered in The Netherlands. It is one of the largest holding companies in
Europe, with subsidiary companies in twelve countries on four continents. Fortis
(NL) N.V. is the third largest insurance company in the Netherlands.
Fortis (B) is a multi-national insurance, real estate and financial services
firm that has been in business since 1824. It has subsidiary companies in eight
countries. Fortis (B) is one of the largest life insurance companies in Belgium.
The assets allocated to the Variable Account are the exclusive property of
Fortis Benefits. Registration of the Variable Account under the Investment
Company Act of 1940 does not involve supervision of the management or investment
practices or policies of the Variable Account or of Fortis Benefits by the
Securities and Exchange Commission. Fortis Benefits may accumulate in the
Variable Account proceeds from charges under the Contracts and other amounts in
excess of the Variable Account assets representing reserves and liabilities
under Certificates and other variable annuity contracts issued by Fortis
Benefits. Fortis Benefits may from time to time transfer to its General Account
any of such excess amounts.
Best's Insurance Reports has assigned Fortis Benefits a rating of A (Excellent)
for financial position and operating performance. This rating represents such
rating agency's independent opinion of Fortis Benefits' financial strength and
ability to meet policy holder obligations, but has no relevance to the
performance and quality of the assets in Subaccounts of the Variable Account.
On April 1, 2001, The Hartford Financial Services Group ("Hartford") acquired
facilities and personnel of Fortis Benefits responsible for the administration
of the contracts. This was part of a larger transaction whereby Hartford
acquired all of the individual life insurance and annuity business of Fortis,
Inc. and its affiliates, including Fortis Benefits, for $1.2 billion. The
transaction was generally in the form of an indemnity reinsurance arrangement
under which Hartford Life and Annuity Insurance Company ("Hartford L&A"), a
subsidiary of Hartford, reinsured all of the individual life and annuity
business of Fortis Benefits, although Fortis Benefits remains directly obligated
to contract owners.
As part of this transaction, Fortis Benefits contracted the administrative
servicing obligations for the contracts to Hartford L&A. 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 available investment portfolios)
and overall contract administration. Additionally, as part of the transaction,
Hartford Life and Accident, another subsidiary of Hartford, purchased all of the
stock of Fortis Investors, Inc., now Woodbury Financial Services, Inc., the
principal underwriter of the contracts.
CALCULATION OF ANNUITY PAYMENTS
FIXED ANNUITY OPTION
The amount of each annuity payment under a Fixed Annuity Option is fixed and
guaranteed by Fortis Benefits. Monthly fixed annuity payments will start as of
the end of the Valuation Period that contains the Annuity Commencement Date. At
that time, the Certificate Value, after any Market Value Adjustment, is computed
and that portion of the Certificate Value which will be applied to the Fixed
Annuity Option selected is determined. The amount of the first monthly
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118
payment under the Fixed Annuity Option selected will be at least as large as
would result from using the annuity tables contained in the Certificate to apply
such amount of Certificate Value to the annuity form selected. The dollar
amounts of any fixed annuity payments after the first are specified during the
entire period of annuity payments according to the provisions of the annuity
form selected.
VARIABLE ANNUITY OPTION
Annuity Units. To the extent a Variable Annuity Option has been selected, we
convert the Accumulation Units for each Subaccount of the Variable Account into
Annuity Units for each Subaccount at their values determined as of the end of
the Valuation Period which contains the Annuity Commencement Date. As of such
time, any Fixed Account Value to be applied to a Variable Annuity Option is also
converted, after any Market Value Adjustment, to Annuity Units in the
Subaccounts selected based on the then-current Annuity Unit value. The initial
number of Annuity Units in each Subaccount is determined by dividing the amount
of the initial monthly variable annuity payment (see "Variable Annuity Option --
Variable Annuity Payments," below) allocable to that Subaccount by the value of
one Annuity Unit in that Subaccount as of the time of the conversion. The number
of Annuity Units for each Subaccount will remain constant, as long as an annuity
remains in force and the allocation among the Subaccounts has not changed.
The value of each Subaccount's Annuity Units will vary to reflect the investment
experience of the Subaccount as well as charges deducted from the Subaccount.
The value of each Subaccount's Annuity Units is equal to the prior value of the
Subaccount's Annuity Units multiplied by the net investment factor for that
Subaccount (discussed in the Prospectus under "Certificate Value") for the
Valuation Period ending on that Valuation Date, with an offset for the 4%
assumed interest rate used in the annuity tables of the Certificate.
Variable Annuity Payments. Variable annuity payments start at the end of the
Valuation Period that contains the Annuity Commencement Date, and will vary in
amount as the related Annuity Unit values vary. The amount of the first monthly
payment is shown on the annuity tables contained in the Certificate for each
$1,000 of Certificate Value applied to the Variable Annuity Option selected as
of the end of such Valuation Period. The first variable annuity payment is, in
effect, allocated among the Subaccounts in the same proportion as the
Certificate Value is allocated among the Subaccounts upon commencement of
annuity payments.
Payments after the first will vary in amount and are determined on the first
Valuation Date of each subsequent monthly period. If the monthly payment under
the annuity form selected is based on the value of Annuity Units of a single
Subaccount, the monthly payment is found by multiplying the number of the
Certificate's Annuity Units for the Subaccount by the Annuity Unit value of such
Subaccount as of the first Valuation Date in each monthly period following the
Annuity Commencement Date. If the monthly payment under the Variable Annuity
Option selected is based upon the value of Annuity Units in more than one
Subaccount, this is repeated for each applicable Subaccount. The sum of these
payments is the variable annuity payment.
GENDER OF ANNUITANT
The amount of each annuity payment ordinarily will be higher for a male
Annuitant than for a female Annuitant with an otherwise identical Certificate.
This is because, statistically, females tend to have longer life expectancies
than males. However, there will be no differences between male and female
Annuitants in any jurisdiction, including Montana, where such differences are
not permitted. We will also make available Certificates with no such differences
in connection with certain employer-sponsored benefit plans. Employers should be
aware that, under most such plans, Certificates that make distinctions based on
gender are prohibited by law.
POSTPONEMENT OF PAYMENTS
With respect to amounts in the Subaccounts of the Variable Account, payment of
any amount due upon a total or partial surrender, death or under an annuity
option will ordinarily be made within seven days after all documents required
for such payment are received by Fortis Benefits at its Home Office. However,
Fortis Benefits may defer the determination, application or payment of any death
benefit, transfer, partial or total surrender or annuity payment, to the extent
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119
dependent on Accumulation or Annuity Unit Values, for any period during which
the New York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted as determined
by the Securities and Exchange Commission, for any period during which any
emergency exists as a result of which it is not reasonably practicable for
Fortis Benefits to determine the investment experience for the Certificate, or
for such other periods as the Securities and Exchange Commission may by order
permit for the protection of investors.
SERVICES
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
Title to the assets of the Variable Account is held by Fortis Benefits. The
assets of the Variable Account are kept segregated and held separate and apart
from Fortis Benefits' other assets. Fortis Advisers, Inc., an affiliate of
Fortis
Benefits, maintains records of all purchases and redemptions of shares of Fortis
Series Fund, Inc. held by each of the Subaccounts of the Variable Account.
EXPERTS
The financial statements of Fortis Benefits Insurance Company at December 31,
2000, and for the year then ended, and the statement of net assets of Fortis
Benefits Insurance Company Variable Account D at December 31, 2000 and the
related statements of operations and changes in net assets for the period ended
December 31, 2000, appearing in the Prospectus, this Statement of Additional
Information and Registration Statement have been audited by
PricewaterhouseCoopers LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
authority as experts in accounting and auditing. The financial statements of
Fortis Benefits Insurance Company at December 31, 1999 and for each of the two
years in the period ended December 31, 1999 and the statements of operations and
changes in net assets of Fortis Benefits Variable Account D for the period ended
December 31, 1999 appearing in the Prospectus, this Statement of Additional
Information and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such authority as experts in
accounting and auditing.
PRINCIPAL UNDERWRITER
Woodbury Financial Services, Inc., the principal underwriter of the
Certificates, is a Minnesota corporation and a member of the Securities
Investors Protection Corporation. Certificates generally will be issued for
Participants from ages zero to ninety in all states except New York.
LIMITATIONS ON ALLOCATIONS
Under the Certificate, Fortis Benefits reserves the right to control the amount
of any assets in any investment alternative. Pursuant to this authority, Fortis
Benefits has established the following administrative procedures for the
protection of the interests of all investors participating in Fortis Series'
Portfolios: a Participant may not invest, allocate, transfer or exchange
Certificate Value into any Subaccount if the value allocated to the Subaccount
under the Certificate (and under any other insurance or annuity contracts
directly or indirectly controlled by the same person, jointly or individually)
would immediately thereafter equal 25% or more of the related Fortis Series
Portfolio's net assets. Fortis Benefits reserves the right to modify these
procedures at any time.
TAXATION UNDER CERTAIN RETIREMENT PLANS
Federal income tax information concerning the purchase of Certificates for
specific types of retirement plans is set forth below. You should also refer to
"Federal Tax Matters" in the Prospectus. The tax information provided is not
comprehensive, and you should consult a qualified tax adviser before taking any
action in connection with a retirement plan.
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SECTION 403(B) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS
OR PUBLIC EDUCATIONAL INSTITUTIONS
Purchase Payments. Under Section 403(b) of the Internal Revenue Code ("Code"),
payments made by certain employers (i.e., tax-exempt organizations meeting the
requirements of Section 501(c)(3) of the Code, or public educational
institutions) to purchase Certificates for their employees are excludible from
the gross income of employees to the extent that such aggregate purchase
payments do not exceed certain limitations prescribed by the Code. This is the
case whether the purchase payments are a result of voluntary salary reduction
amounts or employer contributions. Salary reduction payments are, however,
subject to FICA (social security) taxes.
Taxation of Distributions. Distributions from a Section 403(b) tax-deferred
annuity are taxed as ordinary income to the recipient as described under
"Federal Tax Matters" in the Prospectus. Taxable distributions received before
the employee attains age 59 1/2 generally are subject to a 10% penalty tax in
addition to regular income tax. Certain distributions are excepted from this
penalty tax, including distributions following the employee's death, disability,
separation from service after age 55, separation from service at any age if the
distribution is in the form of an annuity for the life (or life expectancy) of
the employee (or the employee and Beneficiary) and distributions not in excess
of deductible medical expenses. In addition, no distributions of voluntary
salary reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.)
Required Distributions. Generally, distributions from Section 403(b) annuities
must commence not later than April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2, and such distributions must be
made over a period that does not exceed the life expectancy of the employee (or
the employee and Beneficiary). A penalty tax of 50% would be imposed on any
amount by which the minimum required distribution in any year exceeded the
amount actually distributed in that year. In addition, in the event that the
employee dies before his or her entire interest in the Certificate has been
distributed, the employee's entire interest must be distributed in accordance
with rules similar to those applicable upon the death of the Participant or
Payee in the case of a Non-Qualified Certificate, as described in the
Prospectus. Certain of these and other provisions are incorporated in a special
endorsement attached to Certificates that are intended to qualify under Section
403(b), and reference should be made to that endorsement for its complete terms.
Tax-Free Exchanges and Rollovers. The Code provides for the tax-free transfer of
one Section 403(b) annuity for another Section 403(b) annuity, and the IRS has
ruled (Revenue Ruling 90-24) that amounts transferred may qualify as tax-free
transfers under certain circumstances. In addition, Section 403(b)(8) of the
code permits tax-free rollovers from Section 403(b) programs to individual
retirement annuities or other Section 403(b) programs under certain
circumstances.
SECTION 401 QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY PLANS
Purchase Payments. Subject to certain limitations prescribed by the Code,
purchase payments made by an employer (or a self-employed individual) under a
pension, profit-sharing or annuity plan qualified under Section 401 or Section
403(a) of the Code are generally deductible by the employer and excluded from
the taxable income of the employee for federal income tax purposes, whether made
under a salary reduction agreement or directly by employer contributions. Salary
reduction payments are, however, subject to FICA (social security) taxes.
Purchase payments made directly by an employee generally are made on an
after-tax basis.
Taxation of Distributions. Distributions from Certificates purchased under these
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions, as described under "Federal Tax
Matters -- Qualified Plans," in the Prospectus. However, if an employee or other
payee receives a "lump sum" distribution, as defined in the Code, from an exempt
employees' trust, the taxable portion of the distribution may be subject to
special tax treatment. For most individuals receiving lump sum distributions
after attaining age 59 1/2, the rate of tax may be determined under a special
5-year income averaging provision. Those who attained age 50 by January 1, 1986
may
5
121
instead elect to use a 10-year income averaging provision based on the income
tax rates in effect for 1986. Taxable distributions received prior to attainment
of age 59 1/2 under a Certificate purchased under a qualified plan are subject
to the same 10% penalty tax (and the same exceptions) as described above with
respect to Section 403(b) annuities.
Required Distributions. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuities.
Tax-Free Rollovers. If, within 60 days of receipt, an employee who receives a
single sum distribution transfers all of the taxable amount received to another
plan qualified under Section 401 or 403(a), or to an individual retirement
account or annuity as provided for under the Code, the transferred amount will
not be taxed in the year of distribution. Certain "partial" distributions may
also qualify for tax-free rollover treatment, but only if transferred to an
individual retirement account or annuity. However, income tax may be withheld
from the distribution unless the distribution is transferred directly from the
qualified plan to the individual retirement account or individual retirement
annuity.
INDIVIDUAL RETIREMENT ANNUITIES
Purchase Payments. Individuals may make contributions for individual retirement
annuity ("IRA") Contracts. Deductible contributions for any year may be made up
to the lesser of $2,000 or 100% of compensation for individuals who (1) are not
(and whose spouses are not) active participants in another retirement plan, (2)
are unmarried and have adjusted gross income of $25,000 or less, or (3) are
married and have adjusted gross income of $40,000 or less. An individual may
also establish an IRA for his or her spouse if they file a joint return for the
taxable year and his or her spouse earns less than the individual does for that
year. The annual purchase payments for both spouses' Contracts cannot exceed the
lesser of $4,000 or 100% of the couple's combined earned income, and no more
than $2,000 may be contributed to either spouse's IRA for any year. Individuals
who are active participants in other retirement plans and whose adjusted gross
income (with certain special adjustment) exceed the cut-off point ($25,000 for
unmarried, $40,000 for married persons filing jointly, and $0 for married
persons filing a separate return) by less than $10,000 are entitled to make
deductible IRA contributions in proportionately reduced amounts. For example, a
married individual who is an active participant in another retirement plan and
files a separate tax return is entitled to a partial IRA deduction if the
individual's adjusted gross income is less than $10,000 and no IRA deduction if
his or her adjusted gross income is equal to or greater than $10,000.
An individual may make non-deductible IRA contributions to the extent of (1) the
lesser of $2,000 ($4,000 in the case of a spousal IRA) or 100% of compensation
over (2) the IRA deductible contribution made with respect to the individual.
An individual may not make any contributions to his/her own IRA for the year in
which he/she reaches age 70 1/2 or for any year thereafter. Contributions to a
spouse's IRA may not be made for any year in which that spouse reaches age 70
1/2 or for any year thereafter.
Taxation of Distributions. Distributions from IRA Contracts are taxed as
ordinary income to the recipient, although special rules exist for the tax-free
return of non-deductible contributions. In addition, taxable distributions
received under an IRA Contract prior to age 59 1/2 are subject to a 10% penalty
tax in addition to regular income tax. Certain distributions are exempted from
this penalty tax including distributions following the owner's death or
disability or distribution in the form of an annuity for the life (or life
expectancy) of the owner (or the owner and beneficiary), or distributions not in
excess of deductible medical expenses or certain distributions to pay health
insurance premiums after an extended period of unemployment.
Required Distributions. The minimum distribution requirements for IRAs are
generally the same as described above with respect to Section 403(b) annuities.
Certain of these and other provisions are incorporated in a special endorsement
attached to IRA Certificates, and reference should be made to that endorsement
for its complete terms.
Tax-Free Rollovers. The Code permits funds to be transferred in a tax-free
rollover from a qualified employer pension, profit-sharing, annuity, bond
purchase or tax-deferred annuity plan to an IRA Certificate if certain
conditions are met,
6
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and if the rollover of assets is completed within 60 days after the distribution
from the qualified plan is received. In addition, not more frequently than once
every twelve months, amounts may be rolled over tax-free from one IRA to
another, subject to the 60-day limitation and other requirements. The
once-per-year limitation on rollovers does not apply to direct transfers of
funds between IRA custodians or trustees.
SIMPLIFIED EMPLOYEE PENSION PLANS
Purchase Payments. Under Section 408(k) of the Code, employers may establish a
type of IRA plan referred to as a simplified employee pension plan (SEP).
Employer contributions to a SEP cannot exceed the lesser of $24,000 or 15% of
the employee's earned income. Employees of certain small employers may have
contributions made to a special kind of SEP (SARSEP) on their behalf on a salary
reduction basis if the SARSEP plan was in effect on December 31, 1996. These
salary reduction contributions may not exceed $10,500 in 2000, which is indexed
for inflation. Employees of tax-exempt organizations and state or local
government agencies have never been eligible for the salary reduction type of
SEP.
Taxation of Distributions. Generally, distribution payments from SEPs are
subject to the same distribution rules described above for IRAs.
Required Distributions. SEP distributions are subject to the same minimum
required distribution rules described above for IRAs.
Tax-Free Rollovers. Generally, rollovers and direct transfers may be made to and
from SEPs in the same manner as described above for IRAs, subject to the same
conditions and limitations. Rollovers to other IRAs, excluding SIMPLE IRAs are
also possible. Special rules apply if the rollover is from a SARSEP IRA.
SECTION 408(P) SIMPLE IRA PLANS
Purchase Payments: Under Section 408(p) of the Code, small employers may
establish a type of IRA plan referred to as a Savings Incentive Match Plan for
Employees (SIMPLE Plan). An employee may contribute annually through his or her
employer a pre-tax salary reduction contribution not to exceed the lesser of
$6,000 or 100% of compensation. The employer must annually either (1) match the
employee contribution dollar for dollar up to 3% of pay, or (2) make a 2% of pay
contribution for each eligible employee regardless of whether the employee makes
any salary reduction contribution. In two out of every five years, the employer
has the option to reduce the matching contribution as low as 1% of pay but
advance notice must be provided to employees.
Taxation of Distributions: Generally, distributions from SIMPLE IRA Plans are
subject to the same distribution rules described above for IRAs. However, if an
individual withdraws any amount from his SIMPLE IRA Plan within the first two
years of his or her commencement of participation in the employer's SIMPLE IRA
Plan, the 10% penalty tax for premature distribution, if such tax applies, will
be increased to 25%.
Required Distributions: SIMPLE distributions are subject to the same minimum
distribution rules described above for IRAs.
Tax-Free Rollovers: Generally, rollovers and direct transfers may be made to and
from SIMPLE IRAs in the same manner as described above for IRAs, subject to the
same conditions and limitations. Rollovers or transfers to other IRAs, other
than SIMPLE IRAs, are also possible but only after the second anniversary of
commencement of participation in the employer's SIMPLE IRA Plan.
SECTION 457 UNFUNDED DEFERRED COMPENSATION PLANS OF PUBLIC EMPLOYERS AND
TAX-EXEMPT ORGANIZATIONS
Purchase Payments. Under Section 457 of the Code, all individuals who perform
services for a state or local government or governmental agency may participate
in a deferred compensation program. Other tax-exempt employers
7
123
may establish unfunded deferred compensation plans under Section 457 for
employees and/or independent contractors.
Though not actually a qualified plan as that term is normally used, this type of
program allows individuals to defer the receipt of compensation that otherwise
would be currently payable and therefore to defer the payment of federal income
taxes on such amounts. Assuming that the program meets the requirements to be
considered an eligible deferred compensation plan (an "EDCP"), an individual may
contribute (and thereby defer from current income for tax purposes) the lesser
of $7,500 or 33-1/3% of the individual's includible compensation. (Includible
compensation means compensation from the employer which would be currently
includible in gross income for federal tax purposes.) In addition, during the
last three years before an individual attains normal retirement age, additional
"catch-up" deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Certificates offered by this Prospectus. The Certificate is owned by the
employer and is subject to the claims of the employer's creditors. The employee
has no rights or interest in the Certificate and is entitled only to payment in
accordance with the EDCP provisions.
Taxation of Distributions. Amounts received by an individual from an EDCP are
includible in gross income for the taxable year in which such amounts are paid
or otherwise made available.
Distributions Before Separation from Service. Distributions generally are not
permitted under an EDCP prior to separation from service or reaching age 70 1/2,
except in cases of severe financial hardship. Hardship distributions are
includible in the gross income of the individual in the year in which paid.
Required Distributions. The distribution requirements for these qualified plans
are generally the same as described above with respect to Section 403(b)
annuities. However, if distributions do not commence before the employee's
death, the entire interest in the Certificate must be distributed within 15
years if the beneficiary is not the employee's surviving spouse.
Tax-Free Transfers. The Code permits the tax-free direct transfer of EDCP
amounts to another EDCP, subject to certain conditions. Any transfer must be
with employer consent
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
Purchase Payments. Private taxable employers may establish unfunded,
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors. Certain
arrangements of tax-exempt employers entered into prior August 16, 1986, and not
subsequently modified, are also subject to the rules for private taxable
employer deferred compensation plans discussed below. (Unfunded deferred
compensation plans of other tax-exempt employers are generally subject to the
requirements of Section 457.)
These types of programs allow individuals to defer receipt of up to 100% of
compensation which would otherwise be includible in income and therefore to
defer the payment of federal income taxes on such amounts. Purchase payments
made by the employer, however are not immediately deductible by the employer,
and the employer is currently taxed on any increase in Certificate Value.
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Certificate is
owned by the employer and is subject to the claims of the employer's creditors.
The individual has no right or interest in the Certificate and is entitled only
to payment from the employer's general assets in accordance with plan
provisions.
Taxation of Distributions. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
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WITHHOLDING
Annuity payments and other amounts received under Certificates are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and, with
respect to certain distributions from certain types of qualified retirement
plans, unless the proceeds are transferred directly to another qualified
retirement plan. Moreover, special "backup withholding" rules may require Fortis
Benefits to disregard the recipient's election if the recipient fails to supply
Fortis Benefits with a "TIN" or taxpayer identification number (social security
number for individuals), or if the Internal Revenue Service notifies Fortis
Benefits that the TIN provided by the recipient is incorrect.
OTHER INFORMATION
Fortis Benefits relies upon an SEC No-action letter dated December 22, 1988
providing relief from certain restrictions provided in the Investment Company
Act of 1940 relative to restrictions on redemptions and it complies with its
conditions.
VARIABLE ACCOUNT FINANCIAL STATEMENTS
125
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 flows present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL) N.V.
(the Company) at December 31, 2000, and the results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable basis for our opinion. The
financial statements of the Company as of December 31, 1999 and for the two
years in the period then ended were audited by other independent accountants
whose report dated February 17, 2000 expressed an unqualified opinion on those
statements.
[/s/ PRICEWATERHOUSECOOPERS LLP]
February 15, 2001
F-1
126
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheet of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL)
N.V., as of December 31, 1999, and the related statements of income, changes in
shareholder's equity and cash flows for each of the two years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company at December 31, 1999, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
[/s/ ERNST & YOUNG]
Minneapolis, Minnesota
February 17, 2000
F-2
127
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
------------------------
2000 1999
---------- ----------
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
2000 -- $2,543,040; 1999 -- $2,802,697)................ $2,530,480 $2,706,372
Equity securities, at fair value (cost 2000 -- $91,164;
1999 -- $81,554)....................................... 87,912 85,021
Mortgage loans on real estate, less allowance for possible
losses (2000 and 1999 -- $11,085)...................... 810,616 754,514
Policy loans.............................................. 102,308 83,439
Short-term investments.................................... 152,736 115,527
Real estate and other investments......................... 41,712 47,502
---------- ----------
3,725,764 3,792,375
Cash and cash equivalents................................... 13,209 18,670
Receivables:
Uncollected premiums...................................... 66,505 62,938
Reinsurance recoverable on unpaid and paid losses......... 64,182 23,471
Other..................................................... 48,083 19,406
---------- ----------
178,770 105,815
Accrued investment income................................... 52,556 55,464
Deferred policy acquisition costs........................... 473,761 430,192
Property and equipment at cost, less accumulated
depreciation.............................................. 20,891 25,118
Federal income tax recoverable.............................. 7,248 --
Deferred federal income taxes............................... 33,825 52,467
Other assets................................................ 1,677 1,582
Due from affiliates......................................... -- 8,304
Assets held in separate accounts............................ 5,184,083 5,120,152
---------- ----------
Total assets................................................ $9,691,784 $9,610,139
========== ==========
The accompanying notes are an integral part of the financial statements.
F-3
128
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
------------------------
2000 1999
---------- ----------
POLICY RESERVES AND LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance................ $1,170,612 $1,106,269
Interest sensitive and investment products............. 970,591 1,147,657
Accident and health.................................... 1,007,328 940,865
---------- ----------
3,148,531 3,194,791
Unearned revenues......................................... 33,614 28,673
Other policy claims and benefits payable.................. 240,677 265,486
Policyholder dividends payable............................ 7,438 7,939
---------- ----------
3,430,260 3,496,889
Accrued expenses.......................................... 69,476 59,409
Current income taxes payable.............................. -- 1,838
Other liabilities......................................... 181,633 120,110
Due to affiliates......................................... 4,497 --
Deferred gain on LTC sale................................. 15,919 --
Liabilities related to separate accounts.................. 5,159,275 5,082,341
---------- ----------
Total policy reserves and liabilities....................... 8,861,060 8,760,587
---------- ----------
Shareholder's equity:
Common stock, $5 par value: authorized, issued and
outstanding shares -- 1,000,000........................ 5,000 5,000
Additional paid-in capital................................ 468,000 468,000
Retained earnings......................................... 366,644 427,811
Accumulated other comprehensive loss...................... (8,920) (51,259)
---------- ----------
Total shareholder's equity.................................. 830,724 849,552
---------- ----------
Total policy reserves and liabilities and shareholder's
equity.................................................... $9,691,784 $9,610,139
========== ==========
The accompanying notes are an integral part of the financial statements.
F-4
129
STATEMENTS OF INCOME
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
--------------------------------------
2000 1999 1998
---------- ---------- ----------
REVENUES:
Insurance operations:
Traditional life insurance premiums....................... $ 428,641 $ 301,377 $ 260,567
Interest sensitive and investment product policy
charges................................................ 159,728 141,285 119,039
Accident and health insurance premiums.................... 952,015 1,002,867 953,652
---------- ---------- ----------
1,540,384 1,445,529 1,333,258
Net investment income....................................... 279,572 238,698 234,043
Net realized (losses) gains on investments.................. (17,039) 25,962 52,404
Other income................................................ 12,687 11,610 11,183
---------- ---------- ----------
Total revenues.............................................. 1,815,604 1,721,799 1,630,888
BENEFITS AND EXPENSES:
Benefits to policyholders:
Traditional life insurance................................ 335,022 218,993 189,337
Interest sensitive investment products.................... 89,062 93,668 96,178
Accident and health claims................................ 749,945 812,149 798,036
---------- ---------- ----------
1,174,029 1,124,810 1,083,551
Policyholder dividends...................................... 2,685 3,114 3,486
Amortization of deferred policy acquisition costs........... 47,215 43,078 33,365
Insurance commissions....................................... 128,267 124,601 118,710
General and administrative expenses......................... 333,734 302,663 299,492
---------- ---------- ----------
Total benefits and expenses................................. 1,685,930 1,598,266 1,538,604
---------- ---------- ----------
Income before federal income taxes.......................... 129,674 123,533 92,284
Federal income taxes........................................ 41,555 40,327 30,402
---------- ---------- ----------
Net income.................................................. $ 88,119 $ 83,206 $ 61,882
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
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130
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
TOTAL STOCK CAPITAL EARNINGS (LOSS) INCOME
--------- ------ ---------- --------- -------------
Balance, December 31, 1997.......... $ 880,106 $5,000 $468,000 $ 332,723 $ 74,383
Comprehensive income:
Net income..................... 61,882 -- -- 61,882 --
Change in unrealized gain
(losses) on investments,
net.......................... (6,520) -- -- -- (6,520)
---------
Total comprehensive income........ 55,362
Dividend.......................... (50,000) -- -- (50,000) --
--------- ------ -------- --------- ---------
Balance, December 31, 1998.......... 885,468 5,000 468,000 344,605 67,863
Comprehensive income:
Net income..................... 83,206 -- -- 83,206 --
Change in unrealized gain
(losses) on investments,
net.......................... (119,122) -- -- -- (119,122)
---------
Total comprehensive loss.......... (35,916)
--------- ------ -------- --------- ---------
Balance, December 31, 1999.......... 849,552 5,000 468,000 427,811 (51,259)
Comprehensive income:
Net income..................... 88,119 -- -- 88,119 --
Change in unrealized gain
(losses) on investments,
net.......................... 42,339 -- -- -- 42,339
---------
Total comprehensive income........ 130,458
Dividend.......................... (149,286) -- -- (149,286) --
--------- ------ -------- --------- ---------
Balance, December 31, 2000.......... $ 830,724 $5,000 $468,000 $ 366,644 $ (8,920)
========= ====== ======== ========= =========
The accompanying notes are an integral part of the financial statements.
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131
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 88,119 $ 83,206 $ 61,882
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for depreciation.......................... 4,830 12,807 12,409
Amortization of gain on reinsured business.......... (3,100) -- --
Amortization of investment (discounts) premiums,
net............................................... 1,574 1,930 (3,200)
Net realized losses (gains) on sold investments..... 13,910 (25,962) (52,404)
Write-off of investment............................. 3,129 -- --
Policy acquisition costs deferred................... (113,927) (96,308) (73,147)
Amortization of deferred policy acquisition costs... 47,215 43,078 33,365
Provision for deferred federal income taxes......... (4,151) 29,454 417
Decrease in income taxes recoverable................ (9,086) (2,330) (6,381)
Change in receivables, accrued investment income,
unearned premiums, accrued expenses, other assets,
due to and from affiliates and other
liabilities....................................... (48,646) 27,227 (4,455)
Increase (decrease) in future policy benefit
reserves for traditional, interest sensitive and
accident and health policies...................... 158,150 97,931 106,135
(Decrease) increase in other policy claims and
benefits and policyholder dividends payable....... (25,303) 5,012 (2,514)
Other............................................... -- -- 169
----------- ----------- -----------
Net cash provided by operating activities................ 112,714 176,045 72,276
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturity investments.................. (1,546,720) (1,654,104) (2,380,511)
Sales and repayments of fixed maturity investments....... 1,777,428 1,675,488 2,428,207
(Increase) decrease in short-term investments............ (37,208) (83,659) 38,669
Purchases of other investments........................... (363,978) (305,889) (408,998)
Sales of other investments............................... 298,925 353,267 352,873
Purchases of property and equipment...................... (603) (7,213) (356)
Cash received pursuant to reinsurance agreement.......... 17,591 3,374 --
----------- ----------- -----------
Net cash provided by (used in) investing activities...... 145,435 (18,736) 29,884
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Activities related to investment products:
Considerations received................................ 226,139 237,375 215,693
Surrenders and death benefits.......................... (448,349) (416,537) (326,457)
Interest credited to policyholders..................... 32,886 39,855 49,371
Dividend................................................. (74,286) -- (50,000)
----------- ----------- -----------
Net cash used in financing activities.................... (263,610) (139,307) (111,393)
----------- ----------- -----------
(Decrease) increase in cash and cash equivalents......... (5,461) 18,002 (9,233)
Cash and cash equivalents at beginning of year........... 18,670 668 9,901
----------- ----------- -----------
Cash and cash equivalents at end of year................. $ 13,209 $ 18,670 $ 668
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-7
132
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
---------------------------------
2000 1999 1998
-------- --------- --------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Assets and liabilities transferred in reinsurance
transactions (Note 9):
Non-cash assets (ceded) received:
Fixed maturities.......................................... $ -- $ 517,091 $ --
Other investments......................................... -- 121,696 --
Other assets.............................................. (157) 12,763 --
Deferred acquisition costs................................ (20,829) 35,882 --
-------- --------- --------
Total value of assets (ceded) received...................... $(20,986) $ 687,432 $ --
-------- --------- --------
Non-cash liabilities ceded (assumed):
Future policy benefit reserves............................ $ 15,086 $(685,932) $ --
Claim reserves............................................ 7 (4,874) --
Unearned premium reserves................................. 7,641 -- --
Other liabilities......................................... (320) -- --
-------- --------- --------
Total liabilities ceded (assumed)........................... $ 22,414 $(690,806) $ --
======== ========= ========
The accompanying notes are an integral part of the financial statements.
F-8
133
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
(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 (B) and Fortis (NL) N.V. The Company is incorporated in
Minnesota and distributes its products in all states except New York. The
Company's revenues are derived principally from group employee benefits products
and from individual life and annuity products.
Effective October 1, 1999, the Company assumed pre-need life insurance business
from an affiliate on a 100% co-insurance basis. These life insurance and annuity
products are marketed in connection with the advance funding of funeral
expenses. (See Note 9 "Reinsurance" for more information on this reinsurance
transaction.)
Effective March 1, 2000, the Company ceded 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.)
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
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FAS 133," which deferred to January 1, 2001 the effective date
of the accounting and reporting requirements of SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The adoption
of SFAS 133 is not expected to have a material effect on the Company's results
of operations or financial position.
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.
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
134
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
$4,830, $12,807 and $12,409 for the year ended December 31, 2000, 1999 and 1998,
respectively.
INCOME TAXES
Income taxes have been provided using the liability method. Deferred tax assets
and liabilities are determined based on the temporary differences between the
financial reporting and the tax bases and are measured using the enacted tax
rates.
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
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 receives mortality and expense risk fees from the separate accounts.
The Company also deducts monthly cost of insurance charges, and receives minimum
death benefit guarantee fees and issue and administrative fees from the variable
life insurance separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for
F-10
135
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
variable annuities that are in the benefit payment period. The Company also
guarantees that the rates at which administrative fees are deducted from
contract funds will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue 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 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 4% to 15%
in 2000, 3.5% to 12% in 1999 and 2.5% to 8.75% in 1998.
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 1999 and 1998 financial statements have been reclassified
to conform to the 2000 presentation.
F-11
136
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
AT DECEMBER 31, 2000:
Fixed maturities:
Governments.................................. $ 348,795 $15,261 $ 317 $ 363,739
Public utilities............................. 212,371 3,849 3,661 212,559
Industrial and miscellaneous................. 1,794,011 27,815 58,902 1,762,924
Other........................................ 187,863 4,294 899 191,258
---------- ------- -------- ----------
Total fixed maturities......................... 2,543,040 51,219 63,779 2,530,480
Equity securities.............................. 91,164 5,160 8,412 87,912
---------- ------- -------- ----------
Total.......................................... $2,634,204 $56,379 $ 72,191 $2,618,392
========== ======= ======== ==========
AT DECEMBER 31, 1999:
Fixed maturities:
Governments.................................. $ 309,402 $ 46 $ 8,934 $ 300,514
Public utilities............................. 237,579 341 10,375 227,545
Industrial and miscellaneous................. 2,208,281 7,020 81,412 2,133,889
Other........................................ 47,435 184 3,195 44,424
---------- ------- -------- ----------
Total fixed maturities......................... 2,802,697 7,591 103,916 2,706,372
Equity securities.............................. 81,554 5,825 2,358 85,021
---------- ------- -------- ----------
Total.......................................... $2,884,251 $13,416 $106,274 $2,791,393
========== ======= ======== ==========
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 2000, by contractual maturity, are shown below.
AMORTIZED FAIR
COST VALUE
---------- ----------
Due in one year or less..................................... $ 83,263 $ 83,164
Due after one year through five years....................... 610,579 609,360
Due after five years through ten years...................... 786,695 778,801
Due after ten years......................................... 1,062,503 1,059,155
---------- ----------
Total....................................................... $2,543,040 $2,530,480
========== ==========
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 37% and 38% of outstanding principal
is concentrated in the states of New York, California and Florida, at December
31, 2000 and 1999, respectively. Loan commitments outstanding totaled $8,000 at
December 31, 2000.
F-12
137
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. INVESTMENTS (CONTINUED)
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $11,630 and $17,061 at December 31,
2000 and 1999, 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:
TAX
BEFORE-TAX BENEFIT NET-OF-TAX
AMOUNT (EXPENSE) AMOUNT
---------- --------- ----------
DECEMBER 31, 2000:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 93,933 $(32,873) $ 61,060
Increase in amortization of deferred policy acquisition
costs................................................. (2,314) 810 (1,504)
Reclassification adjustment for gains (losses) realized
in net income......................................... (26,488) 9,271 (17,217)
--------- -------- ---------
Other comprehensive gain................................... $ 65,131 $(22,792) $ 42,339
========= ======== =========
DECEMBER 31, 1999:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $(216,270) $ 75,694 $(140,576)
Decrease in amortization of deferred policy acquisition
costs................................................. 9,142 (3,200) 5,942
Reclassification adjustment for gains (losses) realized
in net income......................................... 23,864 (8,352) 15,512
--------- -------- ---------
Other comprehensive loss................................... $(183,264) $ 64,142 $(119,122)
========= ======== =========
DECEMBER 31, 1998:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments.............................................. $ (53,050) $ 18,420 $ (34,630)
Decrease in amortization of deferred policy acquisition
costs.................................................... 414 (145) 269
Reclassification adjustment for gains (losses) realized in
net income............................................... 42,832 (14,991) 27,841
--------- -------- ---------
Other comprehensive loss................................... $ (9,804) $ 3,284 $ (6,520)
========= ======== =========
F-13
138
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. INVESTMENTS (CONTINUED)
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:
2000 1999 1998
-------- -------- --------
NET INVESTMENT INCOME:
Fixed maturities............................................ $193,005 $167,027 $160,163
Equity securities........................................... 14,392 7,320 8,656
Mortgage loans on real estate............................... 68,794 57,684 57,031
Policy loans................................................ 6,617 5,272 4,653
Short-term investments...................................... 522 844 1,701
Real estate and other investments........................... 2,816 6,375 8,194
-------- -------- --------
286,146 244,522 240,398
Expenses.................................................... (6,574) (5,824) (6,355)
-------- -------- --------
$279,572 $238,698 $234,043
======== ======== ========
NET REALIZED (LOSSES) GAINS ON INVESTMENTS:
Fixed maturities............................................ $(31,179) $ (9,750) $ 34,320
Equity securities........................................... 4,691 33,613 8,512
Mortgage loans on real estate............................... -- -- (198)
Short-term investments...................................... -- -- 5
Real estate and other investments........................... 9,449 2,099 9,765
-------- -------- --------
$(17,039) $ 25,962 $ 52,404
======== ======== ========
Proceeds from sales of investments in fixed maturities were $1,756,637,
$1,627,450 and $2,460,316 in 2000, 1999 and 1998, respectively. Gross gains of
$14,851, $11,996 and $44,360 and gross losses of $46,030, $21,746 and $10,040
were realized on the sales in 2000, 1999 and 1998, respectively.
F-14
139
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
4. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows:
INTEREST
TRADITIONAL SENSITIVE AND
AND PRE-NEED INVESTMENT ACCIDENT
LIFE PRODUCTS AND HEALTH TOTAL
------------ ------------- ---------- --------
Balance, December 31, 1998.................... $ 14,560 $314,462 $ 2,916 $331,938
Acquisition costs deferred.................. 33,783 81,016 17,391 132,190
Acquisition costs amortized................. (2,438) (38,831) (1,809) (43,078)
Decreased amortization of deferred
acquisition costs from unrealized losses
on available-for-sale securities......... -- 9,142 -- 9,142
-------- -------- -------- --------
Balance, December 31, 1999.................... 45,905 365,789 18,498 430,192
Acquisition costs deferred.................. 15,882 95,062 2,983 113,927
Acquisition costs amortized................. (14,216) (32,347) (21,481) (68,044)
Increased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities......... -- (2,314) -- (2,314)
-------- -------- -------- --------
Balance, December 31, 2000.................... $ 47,571 $426,190 $ -- $473,761
======== ======== ======== ========
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.
Included in total policy acquisition costs deferred in 1999 is $35,882 of
present value of future profits (PVP) and $1,416 of subsequent acquisition costs
resulting from the reinsurance assumption agreement with United Family Life
Insurance Company, an affiliate, which became effective October 1, 1999. PVP is
being amortized against the expected premium revenue of the pre-need life
insurance business assumed. See Note 9 "Reinsurance" for more information on
this reinsurance transaction.
During 2000, 1999 and 1998, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized net capital gains resulted in increased (decreased) amortization of
deferred acquisition costs of $901, $(224) and $3,357, respectively.
5. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows:
2000 1999
-------- --------
Land........................................................ $ 1,900 $ 1,900
Building and improvements................................... 27,019 26,383
Furniture and equipment..................................... 78,630 81,447
-------- --------
107,549 109,730
Less accumulated depreciation............................... (86,658) (84,612)
-------- --------
Net property and equipment.................................. $ 20,891 $ 25,118
======== ========
F-15
140
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
6. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims is summarized
as follows:
YEARS ENDED DECEMBER 31
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Balance as of January 1, net of reinsurance recoverables.... $1,139,603 $1,061,883 $ 988,036
Add: Incurred losses related to:
Current year.............................................. 753,070 824,949 826,009
Prior years............................................... (25,859) (12,800) (27,973)
---------- ---------- ----------
Total incurred losses....................................... 727,211 812,149 798,036
Deduct: Paid losses related to:
Current year.............................................. 428,725 468,404 469,881
Prior years............................................... 283,782 266,025 254,308
---------- ---------- ----------
Total paid losses........................................... 712,507 734,429 724,189
---------- ---------- ----------
Balance as of December 31, net of reinsurance
recoverables.............................................. $1,154,307 $1,139,603 $1,061,883
========== ========== ==========
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.
Excluded from incurred losses presented above related to current 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 lower medical costs and a reduction of loss reserves due to lower than
anticipated inflation in medical costs.
The liability for unpaid accident and health claims includes $1,042,180 and
$994,651 of total disability income reserves as of December 31, 2000 and 1999,
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-16
141
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
7. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 2000 and 1999 are as follows:
2000 1999
-------- --------
Deferred tax assets:
Separate account assets/liabilities....................... $ 72,599 $ 60,716
Reserves.................................................. 28,244 35,843
Claims and benefits payable............................... 7,445 7,964
Accrued liabilities....................................... 10,811 6,973
Unrealized losses......................................... 5,543 32,500
Investments............................................... 14,373 4,549
Other..................................................... 8,301 6,755
-------- --------
Total deferred tax assets................................... 147,316 155,300
Deferred tax liabilities:
Deferred policy acquisition costs......................... 107,948 98,539
Unrealized gains.......................................... 747 --
Fixed assets.............................................. 3,143 2,963
Investments............................................... 237 1,171
Other..................................................... 1,416 160
-------- --------
Total deferred tax liabilities.............................. 113,491 102,833
-------- --------
Net deferred tax asset...................................... $ 33,825 $ 52,467
======== ========
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:
2000 1999 1998
------- ------- -------
Current..................................................... $45,706 $10,873 $30,232
Deferred.................................................... (4,151) 29,454 170
------- ------- -------
$41,555 $40,327 $30,402
======= ======= =======
Federal income tax payments and refunds resulted in net payments of $54,792,
$13,203 and $36,367 in 2000, 1999 and 1998, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
2000 1999 1998
---- ---- ----
Statutory income tax rate................................... 35.0% 35.0% 35.0%
Other, net.................................................. (3.0) (2.4) (2.1)
---- ---- ----
32.0% 32.6% 32.9%
==== ==== ====
F-17
142
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
8. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows:
2000 1999
---------- ----------
Premium and annuity considerations for the variable annuity
products and variable universal life products for which
the contract holder, rather than the Company, bears the
investment risk........................................... $5,159,275 $5,082,341
Assets of the separate accounts owned by the Company, at
fair value................................................ 24,808 37,811
---------- ----------
$5,184,083 $5,120,152
========== ==========
9. REINSURANCE
In the second quarter of 1996, First Fortis Life Insurance Company (First
Fortis), an affiliate, received approval from the New York State Insurance
Department for a reinsurance agreement with the Company. The agreement, which
became effective as of January 1, 1996, decreased First Fortis' long-term
disability reinsurance retention from a $10 net monthly benefit to a $2 net
monthly benefit for claims incurred on and after January 1, 1996. The Company
has assumed $6,884, $6,580 and $5,601 of premium from First Fortis in 2000, 1999
and 1998, respectively. The Company has assumed $14,366 and $11,047 of reserves
in 2000 and 1999, 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 (as described in Note 4). The Company has assumed premium from UFL of
$63,069 in 2000 and $31,523 during the period October 1, 1999 to December 31,
1999. The Company has assumed $679,969 and $690,806 of reserves in 2000 and
1999, 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 in 2000 was $3,100. The Company ceded $41,309 of
premiums and $32,222 of reserves to John Hancock in 2000.
The maximum amount that the Company retains on any one life is $1,000 of life
insurance including accidental death. Amounts in excess of $1,000 are reinsured
with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums for the year ended December 31 were as follows:
2000 1999 1998
------- ------- -------
Life insurance.............................................. $ 7,413 $ 6,246 $ 6,983
Accident and health insurance............................... 48,403 17,803 13,862
------- ------- -------
$55,816 $24,049 $20,845
======= ======= =======
Recoveries under reinsurance contracts for the year ended December 31 were as
follows:
2000 1999 1998
------- ------- -------
Life insurance.............................................. $ 2,877 $ 478 $ 4,549
Accident and health insurance............................... 8,525 13,669 9,465
------- ------- -------
$11,402 $14,147 $14,014
======= ======= =======
F-18
143
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
9. REINSURANCE (CONTINUED)
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. The Company will have $42,895 free from such
restrictions during 2001. Distributions in excess of this amount would require
regulatory approval. In 2000, the Company declared dividends of $149,286, of
which $100,000 was extraordinary. Approval was sought and received from the
Minnesota Department of Commerce for the distribution of the extraordinary
dividend. The Company paid $74,286 during 2000; $75,000 will be paid in 2001 and
is included in other liabilities.
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 will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification requires adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Minnesota has adopted Codification
effective January 1, 2001.
The cumulative effect of all changes resulting form the Codification guidance
will be recorded as a direct adjustment to statutory surplus on January 1, 2001.
The effect of the adoption is expected to increase statutory surplus by a
material amount.
Insurance enterprises are required by State Insurance Departments to adhere to
minimum risk-based capital (RBC) requirements developed by the NAIC. The Company
exceeds the minimum RBC requirements.
F-19
144
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
11.REGULATORY ACCOUNTING REQUIREMENTS (CONTINUED)
Reconciliations of net income and shareholder's equity on the basis of statutory
accounting to the related amounts presented in the accompanying statements were
as follows:
NET INCOME SHAREHOLDER'S EQUITY
-------------------- ---------------------
2000 1999 1998 2000 1999
-------- -------- ------- --------- --------
Based on statutory accounting practices...... $ 88,911 $ 9,387 $14,841 $ 433,955 $497,858
Deferred policy acquisition costs............ 66,712 54,049 39,782 473,761 430,192
Investment valuation differences............. 368 953 745 (19,310) (103,361)
Deferred and uncollected premiums............ (732) (4,637) 511 (14,399) (13,188)
Policy reserves.............................. (12,092) (20,070) (7,041) (150,668) (127,766)
Commissions.................................. (45,485) 79,067 -- -- --
Current income taxes payable................. 22 (8,882) 925 (8,977) (9,000)
Deferred income taxes........................ 4,151 (18,650) (417) 33,825 52,467
Realized gains on investments................ 439 9 356 -- --
Realized gains (losses) transferred to the
Interest Maintenance Reserve (IMR), net of
tax........................................ (17,873) (6,163) 22,748 -- --
Amortization of IMR, net of tax.............. (5,396) (8,565) (7,128) -- --
Write-off of investment...................... (3,129) -- -- -- --
Pension expense.............................. (2,145) (1,475) 81 (9,985) (8,235)
Property and equipment....................... -- -- -- 3,261 591
Interest maintenance reserve................. -- -- -- 31,482 55,117
Asset valuation reserve...................... -- -- -- 70,955 72,940
Other, net................................... 14,368 8,183 (3,521) (13,176) 1,937
-------- -------- ------- --------- --------
Based on generally accepted accounting
principles................................. $ 88,119 $ 83,206 $61,882 $ 830,724 $849,552
======== ======== ======= ========= ========
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 and other administrative functions. The
fees paid to Fortis, Inc. for these services for years ended December 31, 2000,
1999 and 1998, were $10,094, $11,661 and $13,077, respectively. During 1997,
Fortis, Inc. began providing information technology services to the Company.
Information technology expenses were $47,123, $59,390 and $55,910 for years
ended December 31, 2000, 1999 and 1998, respectively.
In conjunction with the marketing of its fixed and variable annuity and variable
life products, the Company paid $93,107, $79,413 and $72,638 in commissions to
its affiliate, Fortis Investors, Inc., for the years ended December 31, 2000,
1999 and 1998, respectively.
Administrative expenses allocated for the Company may be greater or less than
the expenses that would be incurred if the Company were operating on a separate
company basis.
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
F-20
145
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
13.FAIR VALUE DISCLOSURES (CONTINUED)
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.
DECEMBER 31, 2000 DECEMBER 31, 1999
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Assets:
Investments:
Securities available-for-sale:
Fixed maturities......................... $2,530,480 $2,530,480 $2,706,372 $2,706,372
Equity securities........................ 87,912 87,912 85,021 85,021
Mortgage loans on real estate................. 810,616 844,319 754,514 741,397
Policy loans.................................. 102,308 102,308 83,439 83,439
Short -- term investments..................... 152,736 152,736 115,527 115,527
Assets held in separate accounts.............. 5,184,083 5,184,083 5,120,152 5,120,152
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal).................. 585,905 571,834 789,002 763,861
Liabilities related to separate accounts...... 5,159,275 5,159,275 5,082,341 5,082,341
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
$2,097, $2,225 and $1,627 for 2000, 1999 and 1998, respectively.
The Company participates in a contributory profit sharing plan, sponsored by
Fortis, covering employees and certain agents who meet eligibility requirements
as to age and length of service. Benefits are payable to participants on
retirement or disability and to the beneficiaries of participants in the event
of death. The first three percent of an employee's contribution is matched 200%
by the Company. The amount expensed was approximately $4,573, $3,711 and $3,610
for 2000, 1999 and 1998, respectively.
In addition to retirement benefits, the Company participates in other health
care and life insurance benefit plans (postretirement benefits) for retired
employees, sponsored by Fortis. Health care benefits, either through a Fortis
sponsored retiree plan for retirees under age 65 or through a cost offset for
individually purchased Medigap policies
F-21
146
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)
for retirees over age 65, are available to employees who retire on or after
January 1, 1993, at age 55 or older, with 15 years or more service. Life
insurance, on a retiree pay all basis, is available to those who retire on or
after January 1, 1993.
There were no net postretirement benefit costs allocated to the Company for the
years ended December 31, 2000, 1999 and 1998. The Company made contributions to
the postretirement benefit plans of approximately $0, $19 and $(5) in 2000, 1999
and 1998, respectively, as claims were incurred.
16. EVENTS SUBSEQUENT
On January 25, 2001, Fortis agreed to sell (the "Sale") its Fortis Financial
Group division (the "Division") to The Hartford Financial Services Group ("The
Hartford"). 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 (the "Fund").
To effect the Sale as it relates to the Company, Hartford Life and Annuity
Insurance Company, an indirect wholly owned subsidiary of The Hartford, will
reinsure the Insurance Contracts on a 100% coinsurance basis and perform
administration of such Insurance Contracts. In addition, Hartford Life and
Accident Insurance Company, another indirect wholly owned subsidiary of The
Hartford, will purchase all of the outstanding stock of Fortis Advisers, Inc.,
which is the investment adviser for the Fund. Thus, upon completion of the Sale,
Hartford Life and Accident Insurance Company will own and control Fortis
Advisers, Inc. and its subsidiaries, including Fortis Investors, Inc., which is
the principal distributor of the Fund.
Closing of the Sale is subject to various regulatory and other approvals.
Following the Sale, the Fund expects to enter into new investment advisory,
subadvisory and distribution agreements with affiliates of The Hartford. Such
new agreements will require approvals subsequent to the closing of the Sale by
the Fund's board of directors and shareholders and by Insurance Contract holders
to the extent required by law.
F-22
147
FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information of Fortis Benefits
Insurance Company is being presented in connection with the Company's Sale of
its Fortis Financial Group Division (FFG) to The Hartford on April 1, 2001.
The accompanying unaudited pro forma financial statements of the Company for the
period ended December 31, 2000 present the financial position and results for
the Company as if the Sale and certain transactions and adjustments related to
the Sale had occurred as of January 1, 2000. The unaudited pro forma financial
information does not purport to represent what the Company's financial position
or results of operations actually would have been had the Sale in fact occurred
as of the date indicated, or to project the Company's financial position or
results of operations for any future date or period. The pro forma adjustments
are based on available information and certain assumptions that the Company
currently believes are reasonable under the circumstances. The unaudited pro
forma financial information should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
The unaudited pro forma financial information is provided for informational
purposes only. The Company's financial statements will reflect the actual
effects of the Sale in the 10-Q filing for the period ending June 30, 2001.
Although the actual Sale results will differ, the unaudited pro forma financial
information reflects management's best estimate based on currently available
information.
F-23
148
FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DEC. 31, 2000
ANNUAL REPORT FFG PRO FORMA
------------- --------- -----------
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
2000 -- $2,543,040; 1999 -- $2,802,697)........... $2,530,480 $(158,752) $ 2,371,728
Equity securities, at fair value (cost
2000 -- $91,164; -- 1999 -- $81,554).............. 87,912 -- 87,912
Mortgage loans on real estate, less allowance for
possible losses (2000 and 1999 -- $11,085)........ 810,616 (93,115) 717,501
Policy loans......................................... 102,308 (102,192) 116
Short-term investments............................... 152,736 -- 152,736
Real estate and other investments.................... 41,712 -- 41,712
---------- --------- -----------
3,725,764 (354,059) 3,371,705
Cash and cash equivalents.............................. 13,209 19,299 32,508
--
--
Receivables:
Uncollected premiums................................. 66,505 (260) 66,245
Reinsurance recoverable on unpaid and paid losses.... 64,182 1,077,253 1,141,435
Other................................................ 48,083 (5,934) 42,149
---------- --------- -----------
178,770 1,071,059 1,249,829
Accrued investment income.............................. 52,556 (4,839) 47,717
Deferred policy acquisition costs...................... 473,761 (433,192) 40,569
Property and equipment at cost, less accumulated
depreciation......................................... 20,891 (18,138) 2,753
Federal income tax recoverable......................... 7,248 (528) 6,720
Deferred federal income taxes.......................... 33,825 154,050 187,875
Other assets........................................... 1,677 -- 1,677
Assets held in separate accounts....................... 5,184,083 -- 5,184,083
---------- --------- -----------
Total assets...................................... $9,691,784 $ 433,652 $10,125,436
========== ========= ===========
F-24
149
FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DEC. 31, 2000
ANNUAL REPORT FFG PRO FORMA
------------- -------- -----------
POLICY RESERVES AND LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance............ $1,170,612 $ -- $ 1,170,612
Interest sensitive and investment products......... 970,591 -- 970,591
Accident and health................................ 1,007,328 -- 1,007,328
---------- -------- -----------
3,148,531 -- 3,148,531
Unearned revenues..................................... 33,614 (243) 33,371
Other policy claims and benefits payable.............. 240,677 (7,941) 232,736
Policyholder dividends payable........................ 7,438 (7,438) --
---------- -------- -----------
3,430,260 (15,622) 3,414,638
Accrued expenses...................................... 69,476 (1,061) 68,415
Current income taxes payable.......................... -- 161,290 161,290
Other liabilities..................................... 181,633 (787) 180,846
Due to affiliates..................................... 4,497 -- 4,497
Deferred gain on LTC & FFG sale....................... 15,919 256,308 272,227
Liabilities related to separate accounts.............. 5,159,275 24,808 5,184,083
---------- -------- -----------
Total policy reserves and liabilities.............. 8,861,060 424,936 9,285,996
---------- -------- -----------
Shareholder's equity:
Common stock, $5 par value: authorized, issued and
outstanding shares -- 1,000,000.................... 5,000 -- 5,000
Additional paid-in capital............................ 468,000 -- 468,000
Retained earnings..................................... 366,644 8,716 375,360
Accumulated other comprehensive loss.................. (8,920) -- (8,920)
---------- -------- -----------
Total shareholder's equity......................... 830,724 8,716 839,440
---------- -------- -----------
Total policy reserves and liabilities and
shareholder's equity............................. $9,691,784 $433,652 $10,125,436
========== ======== ===========
F-25
150
FORTIS BENEFITS INSURANCE COMPANY
UNAUDITED PRO FORMA STATEMENT OF INCOME
(IN THOUSANDS)
DEC. 31, 2000
ANNUAL REPORT FFG PRO FORMA
------------- --------- ----------
Insurance operations:
Traditional life insurance premiums..................... $ 428,641 (10,267) $ 418,374
Interest sensitive and investment product policy
charges............................................... 159,728 (157,408) 2,320
Accident and health insurance premiums.................. 952,015 -- 952,015
---------- --------- ----------
1,540,384 (167,675) 1,372,709
Net investment income................................... 279,572 (54,622) 224,950
Net realized (losses) gains on investments.............. (17,039) 3,662 (13,377)
Other income............................................ 12,687 17,733 30,420
---------- --------- ----------
Total revenues........................................ 1,815,604 (200,902) 1,614,702
Benefits to policy holders:
Traditional life insurance............................ 335,022 (10,621) 324,401
Interest sensitive investment products................ 89,062 (83,105) 5,957
Accident and health claims............................ 749,945 0 749,945
---------- --------- ----------
1,174,029 (93,726) 1,080,303
Policy holder dividends................................. 2,685 (2,685) 0
Amortization of deferred policy acquisition costs....... 47,215 (36,055) 11,160
Insurance commissions................................... 128,267 (6,566) 121,701
General and administrative expenses..................... 333,734 (68,697) 265,037
---------- --------- ----------
Total benefits and expenses........................... 1,685,930 (207,729) 1,478,201
---------- --------- ----------
Income before federal income taxes...................... 129,674 6,827 136,501
Federal income taxes.................................... 41,555 (1,889) 39,666
---------- --------- ----------
Net income.............................................. $ 88,119 $ 8,716 $ 96,835
========== ========= ==========
F-26
151
FORTIS BENEFITS INSURANCE COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS)
Adjustments to the balance sheet, including invested assets, receivables,
accrued investment income, deferred acquisition costs, reserves, unearned
revenues, policy claims and dividends payable and accrued expenses, along with
adjustments to the income statement, are related to the Division sold to The
Hartford.
Adjustments to cash and cash equivalents and property and equipment represent
the sale of certain personal and real property to The Hartford.
Adjustments to deferred federal income taxes and current income taxes payable
represent the accrual of federal income tax associated with the Sale.
Deferred gain on the Sale will be amortized to income as the business runs off.
For 2000, the pro forma income statement includes pre-tax amortization of
$18,000. An effective tax rate of 35% has been applied and is reflected in the
provision for federal income tax.
Pro forma investment income includes estimated earnings from approximately $500
million of cash proceeds from the Sale (after applicable tax payment).
Separate accounts business is reinsured under a modified coinsurance agreement
with The Hartford.
F-27
152
REPORT OF INDEPENDENT ACCOUNTANTS
To Fortis Benefits Insurance Company and Contract Owners of Fortis Benefits
Insurance Company Variable Account D:
In our opinion, the accompanying statement of net assets and the related
combined and separate statements of operations and changes in net assets
present fairly, in all material respects, the financial position of Fortis
Benefits Insurance Company Variable Account D, comprised of the Fortis Series
Fund, Inc. Growth Stock, U.S. Government Securities, Money Market, Asset
Allocation, Diversified Income, Global Growth, Aggressive Growth, Growth &
Income, High Yield, International Stock II (formerly Global Asset
Allocation), Multisector Bond (formerly Global Bond), International Stock,
Value, S & P 500, Blue Chip Stock, Mid Cap Stock, Large Cap Growth, Small Cap
Value, Global Equity, Investors Growth, Blue Chip II, Capital Opportunities,
and American Leaders Subaccounts; the Wells Fargo Variable Trust Large Cap,
Corporate Bond, Small Cap Stock, Income Equity, Growth, Equity Value, Asset
Allocation and International Subaccounts; the Scudder Variable Life
Investment Fund International Subaccount; the AIM Variable Insurance Funds,
Inc. V.I. Value and V.I. International Equity Subaccounts; the Alliance
Variable Product Series Money Market, International and Premier Growth
Subaccounts; the SAFECO Resource Series Growth and Equity Subaccounts; the
Federated Insurance Series U .S. Government Securities II, High Income Bond
Fund II, Utility II, American Leaders II, Equity Income, Growth Strategies,
International Equity, Money Fund, Strategic Income, Small Cap Strategies,
Quality Bond, Large Cap and International Small Co. Subaccounts; the
Lexington Funds, Inc. Natural Resources and Emerging Markets Subaccounts; the
MFS Variable Insurance Trust Emerging Growth, High Income and World
Government Subaccounts; the Montgomery Variable Fund Emerging Markets and
Growth Subaccounts; the Strong Variable Insurance Funds Discovery II and
International II Subaccounts; the American Century Investments VP Balanced
and VP Growth Subaccounts; the Van Eck Worldwide Insurance Trust Bond and
Hard Assets Subaccounts; the Neuberger & Berman, Inc. AMT Limited Maturity
Bond and AMT Partners Subaccounts; INVESCO, Inc. Health & Sciences,
Industrial Income and Technology Subaccounts; and Kelmoore Strategy Variable
Fund and Variable Eagle Fund Subaccounts thereof at December 31, 2000, and
the results of each of their operations and the changes in each of their net
assets for the year or period then ended, in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of Fortis Benefits Insurance
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial 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 audit, which included confirmation of
securities at December 31, 2000 by correspondence with the custodian,
provides a reasonable basis for our opinion. The financial statements of the
Fortis Benefits Insurance Company Variable Account D as of December 31, 1999,
and for the year then ended were audited by other independent accountants
whose report dated March 29, 2000, expressed an unqualified opinion on those
statements.
PricewaterhouseCoopers LLP
April 6, 2001
1
153
Report of Independent Auditors
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying individual and combined statements of
operations and changes in net assets of the segregated subaccounts of Fortis
Benefits Insurance Company Variable Account D (comprised of, respectively, the
Fortis Series Fund, Inc.'s Growth Stock, U.S. Government Securities, Money
Market, Asset Allocation, Diversified Income, Global Growth, Aggressive Growth,
Growth & Income, High Yield, Global Asset Allocation, Global Bond, International
Stock, Value, S & P 500, Blue Chip Stock, Mid Cap Stock, Large Cap Growth and
Small Cap Value Subaccounts; the Wells Fargo Variable Trust's Large Cap
(formerly Norwest ValuGrowth), Corporate Bond (formerly Norwest Income), Small
Cap Stock (formerly Norwest Small Company Stock), Income Equity (formerly
Norwest Income Equity), Growth, Equity Value, and Asset Allocation Subaccounts;
the Scudder Variable Life Investment Fund's International Subaccount; the AIM
Variable Insurance Funds, Inc.'s V.I. Value and V.I. International Equity
Subaccounts; the Alliance Variable Product Series' Money Market, International
and Premier Growth Subaccounts; the SAFECO Resource Series' Growth and Equity
Subaccounts; the Federated Insurance Series' U.S. Government Securities II, High
Income Bond Fund II, Utility II and American Leaders II, Equity Income, Growth
Strategies, International Equity, Money Fund, Strategic Income and Small Cap
Strategies Subaccounts; the Lexington Funds, Inc.'s Natural Resources Trust and
Emerging Markets Subaccounts; the MFS Variable Insurance Trusts' Emerging
Growth, High Income and World Government Subaccounts; the Montgomery Variable
Fund's Emerging Markets and Growth Subaccounts; the Strong Variable Insurance
Funds' Discovery II and International II Subaccounts; the American Century
Investments' VP Balanced and VP Growth Subaccounts; the Van Eck Worldwide
Insurance Trust's Worldwide Bond Fund and Worldwide Hard Assets Fund
Subaccounts; the Neuberger & Berman, Inc.'s AMT Limited Maturity Bond and AMT
Partners Subaccounts; and INVESCO, Inc.'s Health & Sciences, Industrial Income
and Technology Subaccounts) for the period ended December 31, 1999. These
financial statements are the responsibility of the management of Fortis Benefits
Insurance Company. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 results of operations and changes in net assets of
each individual and combined portfolio subaccounts of Fortis Benefits Insurance
Company Variable Account D for the periods described in the first paragraph, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 29, 2000
2
154
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENT OF NET ASSETS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
ATTRIBUTABLE TO
FORTIS BENEFITS ATTRIBUTABLE TO ACCUMULATION
NET ASSETS AT INSURANCE VARIABLE ANNUITY UNITS
SHARES COST MARKET VALUE COMPANY CONTRACTS OUTSTANDING
Investments in Fortis Series
Fund, Inc.:
Growth Stock 17,808,197 $ 528,387,360 $ 724,147,867 $ - $ 724,147,867 113,790,012
U.S. Government Securities 12,110,096 129,014,386 128,203,771 - 128,203,771 6,939,291
Money Market 7,180,447 81,143,408 81,276,917 - 81,276,917 40,915,690
Asset Allocation 30,439,524 510,693,187 588,037,608 - 588,037,608 147,058,829
Diversified Income 7,570,416 87,671,021 81,712,794 - 81,712,794 37,731,007
Global Growth 11,258,946 227,509,790 286,067,875 - 286,067,875 11,183,345
Aggressive Growth 10,237,728 241,373,747 242,936,424 - 242,936,424 9,405,616
Growth & Income 11,783,252 187,700,869 233,576,004 - 233,576,004 9,751,671
High Yield 6,180,936 60,275,380 47,010,342 - 47,010,342 4,034,364
International Stock II 3,306,072 41,683,341 36,854,580 - 36,854,580 2,586,901
Multisector Bond 1,875,298 20,419,648 19,684,437 - 19,684,437 1,627,384
International Stock 7,227,389 102,497,803 109,086,595 - 109,086,595 6,595,417
Value 4,930,600 67,289,011 85,691,737 - 85,691,737 4,716,881
S & P 500 15,120,075 262,112,748 304,660,448 - 304,660,448 16,104,803
Blue Chip Stock 11,834,163 202,244,063 232,309,355 - 232,309,355 11,868,756
Mid Cap Stock 2,997,970 31,410,550 30,909,670 - 30,909,670 2,711,670
Large Cap Growth 6,772,251 91,732,424 80,331,083 - 80,331,083 6,877,397
Small Cap Value 3,915,718 39,448,223 45,966,619 - 45,966,619 3,442,239
Global Equity 841,798 8,435,490 8,063,079 4,572,122 3,490,957 377,135
Investors Growth 1,223,959 12,341,129 11,446,706 4,444,881 7,001,825 787,044
Blue Chip II 1,450,454 14,541,578 13,234,382 2,861,851 10,372,531 1,189,413
Capital Opportunities 1,480,603 15,004,016 13,870,439 4,443,436 9,427,003 1,077,680
American Leaders 612,280 6,310,253 6,612,074 3,524,436 3,087,638 297,512
Investments in Wells Fargo
Variable Trust:
Large Cap 6,102,213 66,708,311 72,982,467 - 72,982,467 2,985,336
Corporate Bond 2,916,947 31,156,041 29,577,846 - 29,577,846 2,145,925
Small Cap Stock 1,605,751 21,206,141 16,667,693 - 16,667,693 977,178
Equity Income 6,104,379 89,560,710 103,835,486 - 103,835,486 6,073,556
The accompanying notes are an integral part of the financial statements.
3
155
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENT OF NET ASSETS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
Investments in Wells Fargo Variable Trust:
(continued)
Growth 26,637 $ 602,434 $ 507,710 $ -
Equity Value 61,388 570,316 595,462 -
Asset Allocation 549,618 7,956,526 7,595,718 -
International 6,353 59,151 56,800 -
Investments in Scudder Variable Life:
International 501,960 6,868,064 7,157,954 -
Investment in AIM Variable Insurance
Funds, Inc.:
V.I. Value 1,081,354 31,884,052 29,531,789 -
V.I. International Equity 329,028 7,609,179 6,620,039 -
Investments in Alliance Variable Product
Series:
Money Market 23,456,726 23,462,671 23,456,726 -
International 109,994 1,764,646 1,760,999 -
Premier Growth 265,601 9,836,194 8,512,512 -
Investments in SAFECO Resource Series:
Growth 171,492 3,773,743 3,225,768 -
Equity 106,486 3,184,953 2,924,101 -
Investments in Federated Insurance Series:
U.S. Government Securities II 929,598 9,813,550 10,327,832 -
High Income Bond Fund II 1,305,571 12,575,469 11,045,133 -
Utility II 869,754 12,082,355 10,819,740 -
American Leaders II 3,886,419 78,542,950 79,749,313 -
Equity Income 3,565,547 56,053,290 51,058,632 -
Growth Strategies 2,092,424 56,089,350 48,439,624 -
International Equity 1,193,240 26,391,888 22,063,011 -
Money Fund 1,911,011 1,911,395 1,911,011 -
ATTRIBUTABLE TO ACCUMULATION
VARIABLE ANNUITY UNITS
CONTRACTS OUTSTANDING
Investments in Wells Fargo Variable Trust:
(continued)
Growth $ 507,710 54,279
Equity Value 595,462 57,617
Asset Allocation 7,595,718 727,986
International 56,800 6,378
Investments in Scudder Variable Life:
International 7,157,954 368,135
Investment in AIM Variable Insurance
Funds, Inc.:
V.I. Value 29,531,789 2,378,430
V.I. International Equity 6,620,039 610,478
Investments in Alliance Variable Product
Series:
Money Market 23,456,726 1,879,633
International 1,760,999 130,016
Premier Growth 8,512,512 335,713
Investments in SAFECO Resource Series:
Growth 3,225,768 215,448
Equity 2,924,101 200,297
Investments in Federated Insurance Series:
U.S. Government Securities II 10,327,832 910,872
High Income Bond Fund II 11,045,133 1,162,282
Utility II 10,819,740 1,163,164
American Leaders II 79,749,313 7,319,742
Equity Income 51,058,632 4,974,118
Growth Strategies 48,439,624 3,573,213
International Equity 22,063,011 1,648,875
Money Fund 1,911,011 177,179
The accompanying notes are an integral part of the financial statements.
4
156
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENT OF NET ASSETS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
Investments in Federated Insurance Series:
(continued)
Strategic Income 193,000 $ 1,975,801 $ 1,825,784 $ -
Small Cap Strategies 626,853 7,602,927 5,961,373 -
Quality Bond 32,544 339,398 348,875 -
Large Cap 540,860 4,855,067 4,148,393 -
International Small Co. 149,314 1,323,522 1,184,060 -
Investments in Lexington Funds Inc.:
Natural Resources 32,495 441,827 479,305 -
Emerging Markets 7,169 90,558 54,700 -
Investments in MFS Variable Insurance Trust:
Emerging Growth 850,862 24,076,691 24,538,874 -
High Income 758,799 8,528,654 7,466,587 -
World Government 6,782 66,602 67,890 -
Investments in Montgomery Variable Funds:
Emerging Markets 79,851 643,047 619,647 -
Growth 38,647 685,399 600,571 -
Investments in Strong Variable Insurance
Funds:
Discovery II 29,959 373,771 355,917 -
International II 120,726 1,279,380 1,195,189 -
Investments in American Century Investments:
VP Balanced 149,978 1,125,554 1,090,338 -
VP Growth 108,968 1,877,801 1,719,518 -
Investments in Van Eck Worldwide Insurance
Trust:
Bond 23,992 241,233 248,796 -
Hard Assets 16,163 183,851 195,093 -
ATTRIBUTABLE TO ACCUMULATION
VARIABLE ANNUITY UNITS
CONTRACTS OUTSTANDING
Investments in Federated Insurance Series:
(continued)
Strategic Income $ 1,825,784 190,036
Small Cap Strategies 5,961,373 610,913
Quality Bond 348,875 32,779
Large Cap 4,148,393 544,569
International Small Co. 1,184,060 142,959
Investments in Lexington Funds Inc.:
Natural Resources 479,305 32,495
Emerging Markets 54,700 6,857
Investments in MFS Variable Insurance Trust:
Emerging Growth 24,538,874 1,465,462
High Income 7,466,587 781,443
World Government 67,890 6,081
Investments in Montgomery Variable Funds:
Emerging Markets 619,647 81,099
Growth 600,571 33,166
Investments in Strong Variable Insurance
Funds:
Discovery II 355,917 27,483
International II 1,195,189 124,186
Investments in American Century Investments:
VP Balanced 1,090,338 70,538
VP Growth 1,719,518 109,648
Investments in Van Eck Worldwide Insurance
Trust:
Bond 248,796 22,665
Hard Assets 195,093 21,684
The accompanying notes are an integral part of the financial statements.
5
157
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENT OF NET ASSETS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
ATTRIBUTABLE TO
FORTIS BENEFITS
NET ASSETS AT INSURANCE
SHARES COST MARKET VALUE COMPANY
Investments in Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 45,511 $ 594,197 $ 600,292 $ -
AMT Partners 68,739 1,192,959 1,111,505 -
Investments in INVESCO, Inc.:
Health & Sciences 293,477 5,813,094 6,130,745 -
Industrial Income 125,893 2,676,019 2,607,238 -
Technology 428,490 17,136,872 12,156,249 -
Investments in Kelmoore Strategy:
Variable Fund 25,343 254,060 254,190 -
Variable Eagle Fund 9,803 98,221 98,324 -
---------------- ----------------- ------------
Totals $ 3,612,379,309 $ 4,037,173,625 $ 19,846,726
================ ================= ============
ATTRIBUTABLE TO ACCUMULATION
VARIABLE ANNUITY UNITS
CONTRACTS OUTSTANDING
Investments in Neuberger & Berman, Inc.:
AMT Limited Maturity Bond $ 600,292 51,235
AMT Partners 1,111,505 80,103
Investments in INVESCO, Inc.:
Health & Sciences 6,130,745 288,697
Industrial Income 2,607,238 156,986
Technology 12,156,249 431,915
Investments in Kelmoore Strategy:
Variable Fund 254,190 25,381
Variable Eagle Fund 98,324 9,817
--------------- --------------
Totals $ 4,017,326,899 486,494,104
=============== ==============
The accompanying notes are an integral part of the financial statements.
6
158
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
FORTIS FORTIS U.S. FORTIS
GROWTH GOVERNMENT MONEY
STOCK SECURITIES MARKET
OPERATIONS
Dividend income $ 115,436,415 $ 7,617,281 $ 3,765,277
Mortality and expense and administrative
charges (10,598,443) (1,620,635) (1,097,322)
Net realized gain (loss) on investments 19,029,609 (1,167,253) 1,442,396
Net unrealized appreciation (depreciation) of
investments during the year (105,655,263) 6,977,878 (319,174)
-------------- -------------- ---------------
Net increase (decrease) in net assets resulting
from operations $ 18,212,318 $ 11,807,271 $ 3,791,177
============== =============== ===============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 18,212,318 $ 11,807,271 $ 3,791,177
-------------- -------------- ---------------
Capital transactions:
Purchase of Variable Account units 33,341,454 12,879,334 110,060,904
Redemption of Variable Account units (45,423,085) (27,088,145) (140,521,964)
Redemptions for mortality and expense and
administrative charges 10,598,443 1,620,635 1,097,322
Funding of subaccount by Fortis Benefits
Insurance Company - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - -
Dividend income distribution to Fortis
Benefits Insurance Company - - -
-------------- -------------- ---------------
Net increase (decrease) from capital
transactions (1,483,188) (12,588,176) (29,363,738)
-------------- -------------- ---------------
Net increase (decrease) in net assets 16,729,130 (780,905) (25,572,561)
Net assets at beginning of year 707,418,737 128,984,676 106,849,478
-------------- -------------- ---------------
Net assets at end of year $ 724,147,867 $ 128,203,771 $ 81,276,917
============== ============== ===============
FORTIS FORTIS FORTIS FORTIS
ASSET DIVERSIFIED GLOBAL AGGRESSIVE
ALLOCATION INCOME GROWTH GROWTH
OPERATIONS
Dividend income $ 95,504,709 $ 6,689,026 $ 38,539,443 $ 55,510,091
Mortality and expense and administrative
charges (8,176,812) (1,153,452) (4,576,140) (3,674,059)
Net realized gain (loss) on investments 10,604,950 (1,365,648) 28,823,194 10,723,677
Net unrealized appreciation (depreciation) of
investments during the year (105,022,757) 743,006 (130,661,038) (119,258,277)
-------------- -------------- ------------- ---------------
Net increase (decrease) in net assets resulting
from operations $ (7,089,910) $ 4,912,932 $ (67,874,541) $ (56,698,568)
============== ============== ============= ===============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (7,089,910) $ 4,912,932 $ (67,874,541) $ (56,698,568)
-------------- -------------- ------------- ---------------
Capital transactions:
Purchase of Variable Account units 23,901,447 1,758,935 77,997,702 109,499,770
Redemption of Variable Account units (44,808,396) (19,921,354) (65,661,592) (27,062,457)
Redemptions for mortality and expense and
administrative charges 8,176,812 1,153,452 4,576,140 3,674,059
Funding of subaccount by Fortis Benefits
Insurance Company - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - - -
Dividend income distribution to Fortis
Benefits Insurance Company - - - -
-------------- -------------- ------------- ---------------
Net increase (decrease) from capital
transactions (12,730,137) (17,008,967) 16,912,250 86,111,372
-------------- -------------- ------------- ---------------
Net increase (decrease) in net assets (19,820,047) (12,096,035) (50,962,291) 29,412,804
Net assets at beginning of year 607,857,655 93,808,829 337,030,166 213,523,620
-------------- -------------- ------------- ---------------
Net assets at end of year $ 588,037,608 $ 81,712,794 $ 286,067,875 $ 242,936,424
============== ============== ============= ===============
The accompanying notes are an integral part of the financial statements.
7
159
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
FORTIS FORTIS
INTERNATIONAL MULTISECTOR
FORTIS FORTIS STOCK II BOND
GROWTH & HIGH (FORMERLY GLOBAL (FORMERLY
INCOME YIELD ASSET ALLOCATION) GLOBAL BOND)
OPERATIONS
Dividend income $ 34,368,921 $ 5,724,993 $ 3,187,427 $ 343,484
Mortality and expense and administrative
charges (3,272,121) (730,197) (595,577) (238,960)
Net realized gain (loss) on investments 12,183,257 (2,286,046) 611,583 (301,922)
Net unrealized appreciation (depreciation) of
investments during the year (34,620,997) (6,814,869) (7,507,640) 622,597
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets resulting
from operations $ 8,659,060 $ (4,106,119) $ (4,304,207) $ 425,199
=============== =============== =============== ===============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 8,659,060 $ (4,106,119) $ (4,304,207) $ 425,199
--------------- --------------- --------------- ---------------
Capital transactions:
Purchase of Variable Account units 1,512,968 4,013,228 1,702,573 4,041,432
Redemption of Variable Account units (43,616,464) (14,876,144) (14,154,194) (2,781,048)
Redemptions for mortality and expense and
administrative charges 3,272,121 730,197 595,577 238,960
Funding of subaccount by Fortis Benefits
Insurance Company - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - (3,939,373) (5,208,256)
Dividend income distribution to Fortis
Benefits Insurance Company - - - -
--------------- --------------- --------------- ---------------
Net increase (decrease) from capital
transactions (38,831,375) (10,132,719) (15,795,417) (3,708,912)
--------------- --------------- --------------- ---------------
Net increase (decrease) in net assets (30,172,315) (14,238,838) (20,099,624) (3,283,713)
Net assets at beginning of year 263,748,319 61,249,180 56,954,204 22,968,150
--------------- --------------- --------------- ---------------
Net assets at end of year $ 233,576,004 $ 47,010,342 $ 36,854,580 $ 19,684,437
=============== =============== =============== ===============
FORTIS
INTERNATIONAL FORTIS FORTIS
STOCK VALUE S & P 500
OPERATIONS
Dividend income $ 7,768,795 $ 4,990,562 $ 5,970,730
Mortality and expense and administrative
charges (1,490,302) (1,020,012) (4,355,062)
Net realized gain (loss) on investments 1,707,857 1,884,519 7,378,378
Net unrealized appreciation (depreciation) of
investments during the year (20,489,899) 6,156,606 (45,717,365)
---------------- -------------- ---------------
Net increase (decrease) in net assets resulting
from operations $ (12,503,549) $ 12,011,675 $ (36,723,319)
================ ============== ===============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (12,503,549) $ 12,011,675 $ (36,723,319)
---------------- -------------- ---------------
Capital transactions:
Purchase of Variable Account units 23,193,571 8,234,738 64,860,316
Redemption of Variable Account units (12,019,030) (12,167,598) (62,854,725)
Redemptions for mortality and expense and
administrative charges 1,490,302 1,020,012 4,355,062
Funding of subaccount by Fortis Benefits
Insurance Company - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - -
Dividend income distribution to Fortis
Benefits Insurance Company - - -
---------------- -------------- ---------------
Net increase (decrease) from capital
transactions 12,664,843 (2,912,848) 6,360,653
---------------- -------------- ---------------
Net increase (decrease) in net assets 161,294 9,098,827 (30,362,666)
Net assets at beginning of year 108,925,301 76,592,910 335,023,114
---------------- -------------- ---------------
Net assets at end of year $ 109,086,595 $ 85,691,737 $ 304,660,448
================ ============== ===============
The accompanying notes are an integral part of the financial statements.
8
160
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
FORTIS FORTIS FORTIS FORTIS
BLUE CHIP MID CAP LARGE CAP SMALL CAP
STOCK STOCK GROWTH VALUE
OPERATIONS
Dividend income $ 20,376,299 $ 4,642,725 $ 3,557,944 $ 4,167,777
Mortality and expense and administrative
charges (3,167,237) (328,324) (1,125,146) (477,314)
Net realized gain (loss) on investments 6,508,229 191,896 2,216,579 461,021
Net unrealized appreciation (depreciation) of
investments during the year (33,726,821) (3,074,569) (22,859,684) 4,676,172
--------------- --------------- --------------- -------------
Net increase (decrease) in net assets resulting
from operations $ (10,009,530) $ 1,431,728 $ (18,210,307) $ 8,827,656
=============== =============== =============== =============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (10,009,530) $ 1,431,728 $ (18,210,307) $ 8,827,656
--------------- --------------- --------------- -------------
Capital transactions:
Purchase of Variable Account units 32,509,095 15,683,661 40,094,007 11,756,863
Redemption of Variable Account units (11,231,376) (2,615,354) (7,162,995) (3,811,269)
Redemptions for mortality and expense and
administrative charges 3,167,237 328,324 1,125,146 477,314
Funding of subaccount by Fortis Benefits
Insurance Company - - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount (7,081,948) (4,701,693) (5,976,712) (4,203,407)
Dividend income distribution to Fortis
Benefits Insurance Company - - - -
--------------- --------------- --------------- -------------
Net increase (decrease) from capital
transactions 17,363,008 8,694,938 28,079,446 4,219,501
--------------- --------------- --------------- -------------
Net increase (decrease) in net assets 7,353,478 10,126,666 9,869,139 13,047,157
Net assets at beginning of year 224,955,877 20,783,004 70,461,944 32,919,462
--------------- --------------- --------------- -------------
Net assets at end of year $ 232,309,355 $ 30,909,670 $ 80,331,083 $ 45,966,619
=============== =============== =============== =============
FORTIS FORTIS
GLOBAL INVESTORS FORTIS
EQUITY * GROWTH * BLUE CHIP II *
OPERATIONS
Dividend income $ 44,987 $ 10,047 $ -
Mortality and expense and administrative
charges (17,886) (30,817) (45,556)
Net realized gain (loss) on investments (49,132) (55,212) (72,960)
Net unrealized appreciation (depreciation) of
investments during the year (372,411) (894,423) (1,307,196)
--------------- -------------- ---------------
Net increase (decrease) in net assets resulting
from operations $ (394,442) $ (970,405) $ (1,425,712)
=============== ============== ===============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (394,442) $ (970,405) $ (1,425,712)
--------------- -------------- ---------------
Capital transactions:
Purchase of Variable Account units 4,404,264 7,684,732 12,518,100
Redemption of Variable Account units (764,629) (98,438) (1,103,562)
Redemptions for mortality and expense and
administrative charges 17,886 30,817 45,556
Funding of subaccount by Fortis Benefits
Insurance Company 5,600,000 5,600,000 4,000,000
Redemption of Fortis Benefits Insurance
Company investment in subaccount (800,000) (800,000) (800,000)
Dividend income distribution to Fortis
Benefits Insurance Company - - -
--------------- -------------- ---------------
Net increase (decrease) from capital
transactions 8,457,521 12,417,111 14,660,094
--------------- -------------- ---------------
Net increase (decrease) in net assets 8,063,079 11,446,706 13,234,382
Net assets at beginning of year - - -
--------------- -------------- ---------------
Net assets at end of year $ 8,063,079 $ 11,446,706 $ 13,234,382
=============== ============== ===============
* For the period from May 1, 2000 to December 31, 2000.
The accompanying notes are an integral part of the financial statements.
9
161
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
FORTIS FORTIS WELLS FARGO
CAPITAL AMERICAN WELLS FARGO CORPORATE
OPPORTUNITIES * LEADERS * LARGE CAP BOND
OPERATIONS
Dividend income $ - $ 60,370 $ - $ 1,933,709
Mortality and expense and administrative
charges (41,905) (12,550) (1,018,239) (409,922)
Net realized gain (loss) on investments (61,414) 46,521 730,093 (681,957)
Net unrealized appreciation (depreciation) of
investments during the year (1,133,577) 301,821 (1,714,213) 1,685,759
--------------- ------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations $ (1,236,896) $ 396,162 $ (2,002,359) $ 2,527,589
=============== ============= ============== ==============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (1,236,896) $ 396,162 $ (2,002,359) $ 2,527,589
--------------- ------------- -------------- --------------
Capital transactions:
Purchase of Variable Account units 10,321,441 3,135,400 30,403,252 2,474,653
Redemption of Variable Account units (56,011) (132,038) (5,164,724) (6,828,816)
Redemptions for mortality and expense and
administrative charges 41,905 12,550 1,018,239 409,922
Funding of subaccount by Fortis Benefits
Insurance Company 5,600,000 4,000,000 - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount (800,000) (800,000) - -
Dividend income distribution to Fortis
Benefits Insurance Company - - - -
--------------- ------------- -------------- --------------
Net increase (decrease) from capital
transactions 15,107,335 6,215,912 26,256,767 (3,944,241)
--------------- ------------- -------------- --------------
Net increase (decrease) in net assets 13,870,439 6,612,074 24,254,408 (1,416,652)
Net assets at beginning of year - - 48,728,059 30,994,498
--------------- ------------- -------------- --------------
Net assets at end of year $ 13,870,439 $ 6,612,074 $ 72,982,467 $ 29,577,846
=============== ============= ============== ==============
WELLS FARGO
WELLS FARGO EQUITY WELLS FARGO
SMALL CAP INCOME GROWTH
OPERATIONS
Dividend income $ 4,705,602 $ 2,861,486 $ 39,190
Mortality and expense and administrative
charges (297,655) (1,468,529) (5,057)
Net realized gain (loss) on investments 554,437 3,154,772 (3,500)
Net unrealized appreciation (depreciation) of
investments during the year (10,283,591) (4,789,027) (99,650)
---------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations $ (5,321,207) $ (241,298) $ (69,017)
================ ============= =============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (5,321,207) $ (241,298) $ (69,017)
---------------- ------------- -------------
Capital transactions:
Purchase of Variable Account units 4,620,702 6,530,302 592,903
Redemption of Variable Account units (2,368,460) (30,392,095) (82,424)
Redemptions for mortality and expense and
administrative charges 297,655 1,468,529 5,057
Funding of subaccount by Fortis Benefits
Insurance Company - - -
Redemption of Fortis Benefits Insurance
Company investment in subaccount - - -
Dividend income distribution to Fortis
Benefits Insurance Company - - -
---------------- ------------- -------------
Net increase (decrease) from capital
transactions 2,549,897 (22,393,264) 515,536
---------------- ------------- -------------
Net increase (decrease) in net assets (2,771,310) (22,634,562) 446,519
Net assets at beginning of year 19,439,003 126,470,048 61,191
---------------- ------------- -------------
Net assets at end of year $ 16,667,693 $ 103,835,486 $ 507,710
================ ============= =============
* For the period from May 1, 2000 to December 31, 2000.
The accompanying notes are an integral part of the financial statements.
10
162
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
WELLS FARGO WELLS FARGO
EQUITY ASSET WELLS FARGO SCUDDER
VALUE ALLOCATION INTERNATIONAL ** INTERNATIONAL
OPERATIONS
Dividend income $ 2,699 $ 313,740 $ 120 $ 1,021,042
Mortality and expense and administrative
charges (5,404) (68,851) (294) (125,950)
Net realized gain (loss) on investments 5,593 836 (2,914) 286,497
Net unrealized appreciation (depreciation) of
investments during the year 23,525 (397,570) (2,351) (3,584,202)
--------- ----------- --------- ------------
Net increase (decrease) in net assets resulting
from operations $ 26,413 $ (151,845) $ (5,439) $ (2,402,613)
========= =========== ========= ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 26,413 $ (151,845) $ (5,439) $ (2,402,613)
--------- ----------- --------- ------------
Capital transactions:
Purchase of Variable Account units 604,073 6,712,145 100,703 349,636
Redemption of Variable Account units (142,171) (257,132) (38,758) (2,042,633)
Redemptions for mortality and expense and
administrative charges 5,404 68,851 294 125,950
Funding of subaccount by Fortis Benefits
Insurance Company -- -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
--------- ----------- --------- ------------
Net increase (decrease) from capital
transactions 467,306 6,523,864 62,239 (1,567,047)
--------- ----------- --------- ------------
Net increase (decrease) in net assets 493,719 6,372,019 56,800 (3,969,660)
Net assets at beginning of year 101,743 1,223,699 -- 11,127,614
--------- ----------- --------- ------------
Net assets at end of year $ 595,462 $ 7,595,718 $ 56,800 $ 7,157,954
========= =========== ========= ============
AIM V.I. ALLIANCE
AIM V.I. INTERNATIONAL MONEY
VALUE EQUITY MARKET
OPERATIONS
Dividend income $ 1,341,667 $ 449,018 $ 1,244,916
Mortality and expense and administrative
charges (428,274) (96,968) (96,908)
Net realized gain (loss) on investments 93,093 49,405 1,030
Net unrealized appreciation (depreciation) of
investments during the year (6,532,583) (2,661,755) (6,651)
------------ ----------- -------------
Net increase (decrease) in net assets resulting
from operations $ (5,526,097) $(2,260,300) $ 1,142,387
============ =========== =============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (5,526,097) $(2,260,300) $ 1,142,387
------------ ----------- -------------
Capital transactions:
Purchase of Variable Account units 10,576,174 3,766,080 173,722,278
Redemption of Variable Account units (1,274,031) (813,562) (167,666,091)
Redemptions for mortality and expense and
administrative charges 428,274 96,968 96,908
Funding of subaccount by Fortis Benefits
Insurance Company -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
------------ ----------- -------------
Net increase (decrease) from capital
transactions 9,730,417 3,049,486 6,153,095
------------ ----------- -------------
Net increase (decrease) in net assets 4,204,320 789,186 7,295,482
Net assets at beginning of year 25,327,469 5,830,853 16,161,244
------------ ----------- -------------
Net assets at end of year $ 29,531,789 $ 6,620,039 $ 23,456,726
============ =========== =============
** For the period from June 30, 2000 to December 31, 2000.
The accompanying notes are an integral part of the financial statements.
11
163
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
ALLIANCE
ALLIANCE PREMIER SAFECO SAFECO
INTERNATIONAL GROWTH GROWTH EQUITY
OPERATIONS
Dividend income $ 135,256 $ 512,283 $ 351,430 $ 22,519
Mortality and expense and administrative
charges (9,325) (41,358) (17,642) (13,691)
Net realized gain (loss) on investments 175,829 437,155 162,071 (2,692)
Net unrealized appreciation (depreciation) of
investments during the year (108,001) (2,807,043) (759,497) (383,323)
------------ ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations $ 193,759 $(1,898,963) $ (263,638) $ (377,187)
============ =========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 193,759 $(1,898,963) $ (263,638) $ (377,187)
------------ ----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 67,459,692 8,787,469 2,907,659 1,844,172
Redemption of Variable Account units (67,838,597) (6,739,376) (3,572,934) (1,946,070)
Redemptions for mortality and expense and
administrative charges 9,325 41,358 17,642 13,691
Funding of subaccount by Fortis Benefits
Insurance Company -- -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
------------ ----------- ----------- -----------
Net increase (decrease) from capital
transactions (369,580) 2,089,451 (647,633) (88,207)
------------ ----------- ----------- -----------
Net increase (decrease) in net assets (175,821) 190,488 (911,271) (465,394)
Net assets at beginning of year 1,936,820 8,322,024 4,137,039 3,389,495
------------ ----------- ----------- -----------
Net assets at end of year $ 1,760,999 $ 8,512,512 $ 3,225,768 $ 2,924,101
============ =========== =========== ===========
FEDERATED U.S. FEDERATED
GOVERNMENT HIGH INCOME FEDERATED
SECURITIES II BOND FUND II UTILITY II
OPERATIONS
Dividend income $ 314,437 $ 787,392 $ 418,976
Mortality and expense and administrative
charges (82,761) (116,853) (121,580)
Net realized gain (loss) on investments 45,526 (193,467) (125,671)
Net unrealized appreciation (depreciation) of
investments during the year 522,685 (1,529,401) (1,295,762)
------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations $ 799,887 $ (1,052,329) $ (1,124,037)
============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 799,887 $ (1,052,329) $ (1,124,037)
------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 8,220,007 12,607,325 8,699,463
Redemption of Variable Account units (3,580,604) (9,281,299) (3,505,847)
Redemptions for mortality and expense and
administrative charges 82,761 116,853 121,580
Funding of subaccount by Fortis Benefits
Insurance Company -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
------------ ------------ ------------
Net increase (decrease) from capital
transactions 4,722,164 3,442,879 5,315,196
------------ ------------ ------------
Net increase (decrease) in net assets 5,522,051 2,390,550 4,191,159
Net assets at beginning of year 4,805,781 8,654,583 6,628,581
------------ ------------ ------------
Net assets at end of year $ 10,327,832 $ 11,045,133 $ 10,819,740
============ ============ ============
The accompanying notes are an integral part of the financial statements.
12
164
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
FEDERATED FEDERATED FEDERATED FEDERATED
AMERICAN EQUITY GROWTH INTERNATIONAL
LEADERS II INCOME STRATEGIES EQUITY
OPERATIONS
Dividend income $ 1,934,161 $ 345,753 $ 2,539,754 $ 2,213,583
Mortality and expense and administrative
charges (792,002) (555,719) (555,722) (235,792)
Net realized gain (loss) on investments (312) (1,161) (13,712) 2,805
Net unrealized appreciation (depreciation) of
investments during the year 918,150 (6,930,881) (14,020,653) (7,748,997)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations $ 2,059,997 $ (7,142,008) $(12,050,333) $ (5,768,401)
============ ============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 2,059,997 $ (7,142,008) $(12,050,333) $ (5,768,401)
------------ ------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 46,663,203 33,803,679 35,661,750 17,264,219
Redemption of Variable Account units (8,714,497) (162,329) (187,931) (15,291)
Redemptions for mortality and expense and
administrative charges 792,002 555,719 555,722 235,792
Funding of subaccount by Fortis Benefits
Insurance Company -- -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) from capital
transactions 38,740,708 34,197,069 36,029,541 17,484,720
------------ ------------ ------------ ------------
Net increase (decrease) in net assets 40,800,705 27,055,061 23,979,208 11,716,319
Net assets at beginning of year 38,948,608 24,003,571 24,460,416 10,346,692
------------ ------------ ------------ ------------
Net assets at end of year $ 79,749,313 $ 51,058,632 $ 48,439,624 $ 22,063,011
============ ============ ============ ============
FEDERATED FEDERATED FEDERATED
MONEY STRATEGIC SMALL CAP
FUND INCOME STRATEGIES
OPERATIONS
Dividend income $ 79,784 $ 46,925 $ 125,084
Mortality and expense and administrative
charges (18,137) (20,346) (55,360)
Net realized gain (loss) on investments (18) (2,767) (17,300)
Net unrealized appreciation (depreciation) of
investments during the year (383) (166,185) (1,816,876)
----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations $ 61,246 $ (142,373) $(1,764,452)
=========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 61,246 $ (142,373) $(1,764,452)
----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 3,883,841 1,904,485 6,578,134
Redemption of Variable Account units (3,329,935) (558,410) (101,529)
Redemptions for mortality and expense and
administrative charges 18,137 20,346 55,360
Funding of subaccount by Fortis Benefits
Insurance Company -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
----------- ----------- -----------
Net increase (decrease) from capital
transactions 572,043 1,366,421 6,531,965
----------- ----------- -----------
Net increase (decrease) in net assets 633,289 1,224,048 4,767,513
Net assets at beginning of year 1,277,722 601,736 1,193,860
----------- ----------- -----------
Net assets at end of year $ 1,911,011 $ 1,825,784 $ 5,961,373
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
13
165
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
FEDERATED FEDERATED LEXINGTON
QUALITY FEDERATED INTERNATIONAL NATURAL
BOND *** LARGE CAP *** SMALL CO. *** RESOURCES
OPERATIONS
Dividend income $ -- $ -- $ -- $ 1,381
Mortality and expense and administrative
charges (702) (14,320) (4,405) (1,975)
Net realized gain (loss) on investments 290 110 (19) (7,892)
Net unrealized appreciation (depreciation) of
investments during the year 9,477 (706,674) (139,462) 67,824
--------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations $ 9,065 $ (720,884) $ (143,886) $ 59,338
========= =========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 9,065 $ (720,884) $ (143,886) $ 59,338
--------- ----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 350,943 4,858,040 1,326,488 3,203,236
Redemption of Variable Account units (11,835) (3,083) (2,947) (3,703,011)
Redemptions for mortality and expense and
administrative charges 702 14,320 4,405 1,975
Funding of subaccount by Fortis Benefits
Insurance Company -- -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
--------- ----------- ----------- -----------
Net increase (decrease) from capital
transactions 339,810 4,869,277 1,327,946 (497,800)
--------- ----------- ----------- -----------
Net increase (decrease) in net assets 348,875 4,148,393 1,184,060 (438,462)
Net assets at beginning of year -- -- -- 917,767
--------- ----------- ----------- -----------
Net assets at end of year $ 348,875 $ 4,148,393 $ 1,184,060 $ 479,305
========= =========== =========== ===========
LEXINGTON MFS
EMERGING EMERGING MFS HIGH
MARKETS GROWTH INCOME
OPERATIONS
Dividend income $ -- $ 1,369,079 $ 613,809
Mortality and expense and administrative
charges (370) (315,212) (98,883)
Net realized gain (loss) on investments 41,342 1,060,420 (143,003)
Net unrealized appreciation (depreciation) of
investments during the year (71,690) (8,250,615) (989,159)
--------- ------------ -----------
Net increase (decrease) in net assets resulting
from operations $ (30,718) $ (6,136,328) $ (617,236)
========= ============ ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (30,718) $ (6,136,328) $ (617,236)
--------- ------------ -----------
Capital transactions:
Purchase of Variable Account units 211,233 16,409,070 5,082,226
Redemption of Variable Account units (257,728) (8,402,567) (5,305,660)
Redemptions for mortality and expense and
administrative charges 370 315,212 98,883
Funding of subaccount by Fortis Benefits
Insurance Company -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
--------- ------------ -----------
Net increase (decrease) from capital
transactions (46,125) 8,321,715 (124,551)
--------- ------------ -----------
Net increase (decrease) in net assets (76,843) 2,185,387 (741,787)
Net assets at beginning of year 131,543 22,353,487 8,208,374
--------- ------------ -----------
Net assets at end of year $ 54,700 $ 24,538,874 $ 7,466,587
========= ============ ===========
*** For the period from May 1, 2000 to December 31, 2000.
The accompanying notes are an integral part of the financial statements.
14
166
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
MFS MONTGOMERY
WORLD EMERGING MONTGOMERY STRONG
GOVERNMENT MARKETS GROWTH DISCOVERY II
OPERATIONS
Dividend income $ 1,392 $ -- $ 42,084 $ --
Mortality and expense and administrative
charges (257) (4,348) (2,675) (1,991)
Net realized gain (loss) on investments 2,027 (46,084) 9,660 39,390
Net unrealized appreciation (depreciation) of
investments during the year 1,408 (102,787) (117,420) (64,058)
--------- ------------ --------- -----------
Net increase (decrease) in net assets resulting
from operations $ 4,570 $ (153,219) $ (68,351) $ (26,659)
========= ============ ========= ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 4,570 $ (153,219) $ (68,351) $ (26,659)
--------- ------------ --------- -----------
Capital transactions:
Purchase of Variable Account units 366,168 24,155,648 735,169 1,318,611
Redemption of Variable Account units (330,879) (24,412,588) (543,744) (1,213,302)
Redemptions for mortality and expense and
administrative charges 257 4,348 2,675 1,991
Funding of subaccount by Fortis Benefits
Insurance Company -- -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
--------- ------------ --------- -----------
Net increase (decrease) from capital
transactions 35,546 (252,592) 194,100 107,300
--------- ------------ --------- -----------
Net increase (decrease) in net assets 40,116 (405,811) 125,749 80,641
Net assets at beginning of year 27,774 1,025,458 474,822 275,276
--------- ------------ --------- -----------
Net assets at end of year $ 67,890 $ 619,647 $ 600,571 $ 355,917
========= ============ ========= ===========
AMERICAN AMERICAN
STRONG CENTURY VP CENTURY VP
INTERNATIONAL II BALANCED GROWTH
OPERATIONS
Dividend income $ -- $ 55,828 $ 28,522
Mortality and expense and administrative
charges (6,304) (5,658) (6,909)
Net realized gain (loss) on investments 237,170 (28,212) 202,323
Net unrealized appreciation (depreciation) of
investments during the year (481,121) (48,523) (312,209)
------------ ----------- -----------
Net increase (decrease) in net assets resulting
from operations $ (250,255) $ (26,565) $ (88,273)
============ =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (250,255) $ (26,565) $ (88,273)
------------ ----------- -----------
Capital transactions:
Purchase of Variable Account units 13,570,147 1,175,647 6,387,122
Redemption of Variable Account units (14,835,847) (1,547,641) (5,328,715)
Redemptions for mortality and expense and
administrative charges 6,304 5,658 6,909
Funding of subaccount by Fortis Benefits
Insurance Company -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
------------ ----------- -----------
Net increase (decrease) from capital
transactions (1,259,396) (366,336) 1,065,316
------------ ----------- -----------
Net increase (decrease) in net assets (1,509,651) (392,901) 977,043
Net assets at beginning of year 2,704,840 1,483,239 742,475
------------ ----------- -----------
Net assets at end of year $ 1,195,189 $ 1,090,338 $ 1,719,518
============ =========== ===========
The accompanying notes are an integral part of the financial statements.
15
167
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
NEUBERGER &
VAN ECK VAN ECK BERMAN AMT NEUBERGER &
WORLDWIDE WORLDWIDE LIMITED BERMAN AMT
BOND HARD ASSETS MATURITY BOND PARTNERS
OPERATIONS
Dividend income $ 18,879 $ 2,642 $ 34,902 $ 122,965
Mortality and expense and administrative
charges (1,895) (1,447) (2,490) (3,690)
Net realized gain (loss) on investments (32,286) 18,767 (7,160) (17,441)
Net unrealized appreciation (depreciation) of
investments during the year 15,035 (6,262) 10,070 (85,327)
----------- ----------- --------- -----------
Net increase (decrease) in net assets resulting
from operations $ (267) $ 13,700 $ 35,322 $ 16,507
=========== =========== ========= ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (267) $ 13,700 $ 35,322 $ 16,507
----------- ----------- --------- -----------
Capital transactions:
Purchase of Variable Account units 3,291,797 6,535,102 288,928 644,412
Redemption of Variable Account units (3,354,048) (7,173,135) (271,039) (179,313)
Redemptions for mortality and expense and
administrative charges 1,895 1,447 2,490 3,690
Funding of subaccount by Fortis Benefits
Insurance Company -- -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
----------- ----------- --------- -----------
Net increase (decrease) from capital
transactions (60,356) (636,586) 20,379 468,789
----------- ----------- --------- -----------
Net increase (decrease) in net assets (60,623) (622,886) 55,701 485,296
Net assets at beginning of year 309,419 817,979 544,591 626,209
----------- ----------- --------- -----------
Net assets at end of year $ 248,796 $ 195,093 $ 600,292 $ 1,111,505
=========== =========== ========= ===========
INVESCO INVESCO
HEALTH & INDUSTRIAL INVESCO
SCIENCES INCOME TECHNOLOGY
OPERATIONS
Dividend income $ 5,262 $ 134,368 $ 28,375
Mortality and expense and administrative
charges (18,821) (6,109) (68,107)
Net realized gain (loss) on investments 828,420 34,534 2,028,151
Net unrealized appreciation (depreciation) of
investments during the year 172,571 (110,400) (7,977,902)
------------ ----------- ------------
Net increase (decrease) in net assets resulting
from operations $ 987,432 $ 52,393 $ (5,989,483)
============ =========== ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 987,432 $ 52,393 $ (5,989,483)
------------ ----------- ------------
Capital transactions:
Purchase of Variable Account units 19,045,639 2,633,196 38,589,645
Redemption of Variable Account units (15,950,381) (947,744) (33,252,707)
Redemptions for mortality and expense and
administrative charges 18,821 6,109 68,107
Funding of subaccount by Fortis Benefits
Insurance Company -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
------------ ----------- ------------
Net increase (decrease) from capital
transactions 3,114,079 1,691,561 5,405,045
------------ ----------- ------------
Net increase (decrease) in net assets 4,101,511 1,743,954 (584,438)
Net assets at beginning of year 2,029,234 863,284 12,740,687
------------ ----------- ------------
Net assets at end of year $ 6,130,745 $ 2,607,238 $ 12,156,249
============ =========== ============
The accompanying notes are an integral part of the financial statements.
16
168
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
KELMOORE COMBINED
KELMOORE VARIABLE VARIABLE
VARIABLE **** EAGLE **** ACCOUNT
OPERATIONS
Dividend income $ -- $ -- $ 444,477,317
Mortality and expense and administrative
charges (42) (35) (55,070,813)
Net realized gain (loss) on investments -- -- 107,328,257
Net unrealized appreciation (depreciation) of
investments during the year 130 103 (703,633,347)
--------- -------- ---------------
Net increase (decrease) in net assets resulting
from operations $ 88 $ 68 $ (206,898,586)
========= ======== ===============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 88 $ 68 $ (206,898,586)
--------- -------- ---------------
Capital transactions:
Purchase of Variable Account units 254,060 98,221 1,262,374,682
Redemption of Variable Account units -- -- (1,013,565,328)
Redemptions for mortality and expense and
administrative charges 42 35 55,070,813
Funding of subaccount by Fortis Benefits
Insurance Company -- -- 24,800,000
Redemption of Fortis Benefits Insurance
Company investment in subaccount -- -- (35,111,389)
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
--------- -------- ---------------
Net increase (decrease) from capital
transactions 254,102 98,256 293,568,778
--------- -------- ---------------
Net increase (decrease) in net assets 254,190 98,324 86,670,192
Net assets at beginning of year -- -- 3,950,503,433
--------- -------- ---------------
Net assets at end of year $ 254,190 $ 98,324 $ 4,037,173,625
========= ======== ===============
**** For the period from December 12, 2000 to December 31, 2000.
The accompanying notes are an integral part of the financial statements.
17
169
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FORTIS FORTIS U.S. FORTIS FORTIS
GROWTH GOVERNMENT MONEY ASSET
STOCK SECURITIES MARKET ALLOCATION
OPERATIONS
Dividend income $ 156,278,060 $ 7,341,601 $ 2,857,701 $ 52,954,375
Mortality and expense and administrative
charges (7,253,321) (1,829,055) (1,055,231) (7,448,244)
Net realized gain (loss) on investments 38,796,330 (473,995) 417,343 15,517,181
Net unrealized appreciation (depreciation) of
investments during the year 64,391,185 (9,573,286) 566,889 32,399,647
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations $ 252,212,254 $ (4,534,735) $ 2,786,702 $ 93,422,959
============= ============= ============= =============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 252,212,254 $ (4,534,735) $ 2,786,702 $ 93,422,959
------------- ------------- ------------- -------------
Capital transactions:
Purchase of Variable Account units 5,164,180 12,588,731 100,156,439 29,210,874
Redemption of Variable Account units (98,848,155) (22,667,841) (64,268,081) (58,609,370)
Redemptions for mortality and expense and
administrative charges 7,253,321 1,829,055 1,055,231 7,448,244
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
------------- ------------- ------------- -------------
Net increase (decrease) from capital
transactions (86,430,654) (8,250,055) 36,943,589 (21,950,252)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets 165,781,600 (12,784,790) 39,730,291 71,472,707
Net assets at beginning of year 541,637,137 141,769,466 67,119,187 536,384,948
------------- ------------- ------------- -------------
Net assets at end of year $ 707,418,737 $ 128,984,676 $ 106,849,478 $ 607,857,655
============= ============= ============= =============
FORTIS FORTIS FORTIS
DIVERSIFIED GLOBAL AGGRESSIVE
INCOME GROWTH GROWTH
OPERATIONS
Dividend income $ 6,588,253 $ 6,231,012 $ 4,272,056
Mortality and expense and administrative
charges (1,347,702) (3,494,668) (1,633,787)
Net realized gain (loss) on investments (450,747) 27,458,315 8,003,910
Net unrealized appreciation (depreciation) of
investments during the year (7,886,977) 93,670,078 97,554,749
------------- ------------- -------------
Net increase (decrease) in net assets resulting
from operations $ (3,097,173) $ 123,864,737 $ 108,196,928
============= ============= =============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (3,097,173) $ 123,864,737 $ 108,196,928
------------- ------------- -------------
Capital transactions:
Purchase of Variable Account units 6,766,415 13,910,010 24,360,173
Redemption of Variable Account units (17,836,999) (66,121,442) (18,643,812)
Redemptions for mortality and expense and
administrative charges 1,347,702 3,494,668 1,633,787
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
------------- ------------- -------------
Net increase (decrease) from capital
transactions (9,722,882) (48,716,764) 7,350,148
------------- ------------- -------------
Net increase (decrease) in net assets (12,820,055) 75,147,973 115,547,076
Net assets at beginning of year 106,628,884 261,882,193 97,976,544
------------- ------------- -------------
Net assets at end of year $ 93,808,829 $ 337,030,166 $ 213,523,620
============= ============= =============
The accompanying notes are an integral part of the financial statements.
18
170
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FORTIS FORTIS
INTERNATIONAL MULTISECTOR
FORTIS FORTIS STOCK II BOND
GROWTH & HIGH (FORMERLY GLOBAL (FORMERLY
INCOME YIELD ASSET ALLOCATION) GLOBAL BOND)
OPERATIONS
Dividend income $ 16,740,826 $ 5,638,326 $ 4,151,122 $ 934,589
Mortality and expense and administrative
charges (3,525,734) (852,587) (725,621) (233,375)
Net realized gain (loss) on investments 10,556,035 (540,865) 797,158 (163,594)
Net unrealized appreciation (depreciation) of
investments during the year (944,596) (4,416,777) (5,443,279) (2,534,224)
------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations $ 22,826,531 $ (171,903) $ (1,220,620) $ (1,996,604)
============= ============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 22,826,531 $ (171,903) $ (1,220,620) $ (1,996,604)
------------- ------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 6,731,588 7,450,001 5,772,394 6,930,636
Redemption of Variable Account units (35,318,719) (11,427,963) (7,483,000) (4,592,843)
Redemptions for mortality and expense and
administrative charges 3,525,734 852,587 725,621 233,375
Dividend income distribution to Fortis
Benefits Insurance Company -- -- (310,930) (224,878)
------------- ------------ ------------ ------------
Net increase (decrease) from capital
transactions (25,061,397) (3,125,375) (1,295,915) 2,346,290
------------- ------------ ------------ ------------
Net increase (decrease) in net assets (2,234,866) (3,297,278) (2,516,535) 349,686
Net assets at beginning of year 265,983,185 64,546,458 59,470,739 22,618,464
------------- ------------ ------------ ------------
Net assets at end of year $ 263,748,319 $ 61,249,180 $ 56,954,204 $ 22,968,150
============= ============ ============ ============
FORTIS
INTERNATIONAL FORTIS FORTIS
STOCK VALUE S & P 500
OPERATIONS
Dividend income $ 118,653 $ 55,659 $ 47,291
Mortality and expense and administrative
charges (1,171,613) (1,000,548) (3,567,274)
Net realized gain (loss) on investments 2,066,505 1,028,902 2,830,868
Net unrealized appreciation (depreciation) of
investments during the year 17,734,463 5,071,121 47,715,826
------------- ------------ -------------
Net increase (decrease) in net assets resulting
from operations $ 18,748,008 $ 5,155,134 $ 47,026,711
============= ============ =============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 18,748,008 $ 5,155,134 $ 47,026,711
------------- ------------ -------------
Capital transactions:
Purchase of Variable Account units 24,277,772 6,767,673 125,498,102
Redemption of Variable Account units (12,675,634) (8,924,070) (41,233,954)
Redemptions for mortality and expense and
administrative charges 1,171,613 1,000,548 3,567,274
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
------------- ------------ -------------
Net increase (decrease) from capital
transactions 12,773,751 (1,155,849) 87,831,422
------------- ------------ -------------
Net increase (decrease) in net assets 31,521,759 3,999,285 134,858,133
Net assets at beginning of year 77,403,542 72,593,625 200,164,981
------------- ------------ -------------
Net assets at end of year $ 108,925,301 $ 76,592,910 $ 335,023,114
============= ============ =============
The accompanying notes are an integral part of the financial statements.
19
171
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FORTIS FORTIS FORTIS FORTIS
BLUE CHIP MID CAP LARGE CAP SMALL CAP
STOCK STOCK GROWTH VALUE
OPERATIONS
Dividend income $ 3,230,163 $ 21,642 $ 1,132,189 $ 1,423,506
Mortality and expense and administrative
charges (2,402,586) (152,523) (451,055) (251,882)
Net realized gain (loss) on investments 1,198,634 87,767 109,210 114,238
Net unrealized appreciation (depreciation) of
investments during the year 30,746,993 2,028,045 9,195,175 1,783,939
------------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations $ 32,773,204 $ 1,984,931 $ 9,985,519 $ 3,069,801
============= ============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 32,773,204 $ 1,984,931 $ 9,985,519 $ 3,069,801
------------- ------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 49,470,137 8,507,383 45,928,848 17,798,817
Redemption of Variable Account units (5,494,982) (1,224,101) (706,824) (2,200,370)
Redemptions for mortality and expense and
administrative charges 2,402,586 152,523 451,055 251,882
Dividend income distribution to Fortis
Benefits Insurance Company (109,184) (4,648) (105,952) (139,251)
------------- ------------ ------------ ------------
Net increase (decrease) from capital
transactions 46,268,557 7,431,157 45,567,127 15,711,078
------------- ------------ ------------ ------------
Net increase (decrease) in net assets 79,041,761 9,416,088 55,552,646 18,780,879
Net assets at beginning of year 145,914,116 11,366,916 14,909,298 14,138,583
------------- ------------ ------------ ------------
Net assets at end of year $ 224,955,877 $ 20,783,004 $ 70,461,944 $ 32,919,462
============= ============ ============ ============
WELLS FARGO
WELLS FARGO WELLS FARGO SMALL CAP
LARGE CAP CORPORATE BOND (FORMERLY NORWEST
(FORMERLY NORWEST (FORMERLY NORWEST SMALL COMPANY
VALUGROWTH) INCOME EQUITY) STOCK)
OPERATIONS
Dividend income $ 11,571,999 $ 1,501,450 $ --
Mortality and expense and administrative
charges (531,353) (370,235) (177,088)
Net realized gain (loss) on investments 879,862 (183,430) (410,559)
Net unrealized appreciation (depreciation) of
investments during the year (1,863,822) (2,049,455) 8,208,680
------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations $ 10,056,686 $ (1,101,670) $ 7,621,033
============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 10,056,686 $ (1,101,670) $ 7,621,033
------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 6,308,101 12,059,360 1,380,420
Redemption of Variable Account units (3,919,806) (2,490,066) (3,031,763)
Redemptions for mortality and expense and
administrative charges 531,353 370,235 177,088
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
------------ ------------ ------------
Net increase (decrease) from capital
transactions 2,919,648 9,939,529 (1,474,255)
------------ ------------ ------------
Net increase (decrease) in net assets 12,976,334 8,837,859 6,146,778
Net assets at beginning of year 35,751,725 22,156,639 13,292,225
------------ ------------ ------------
Net assets at end of year $ 48,728,059 $ 30,994,498 $ 19,439,003
============ ============ ============
The accompanying notes are an integral part of the financial statements.
20
172
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
WELLS FARGO
EQUITY INCOME WELLS FARGO WELLS FARGO
(FORMERLY NORWEST WELLS FARGO EQUITY ASSET
INCOME EQUITY) GROWTH * VALUE * ALLOCATION *
OPERATIONS
Dividend income $ 1,270,864 $ 7 $ 207 $ 8,345
Mortality and expense and administrative
charges (1,528,635) (128) (253) (2,723)
Net realized gain (loss) on investments 558,248 -- -- 87
Net unrealized appreciation (depreciation) of
investments during the year 5,205,012 4,926 1,622 36,841
------------- -------- --------- -----------
Net increase (decrease) in net assets resulting
from operations $ 5,505,489 $ 4,805 $ 1,576 $ 42,550
============= ======== ========= ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 5,505,489 $ 4,805 $ 1,576 $ 42,550
------------- -------- --------- -----------
Capital transactions:
Purchase of Variable Account units 36,840,158 56,259 99,914 1,182,701
Redemption of Variable Account units (3,461,257) (1) -- (4,275)
Redemptions for mortality and expense and
administrative charges 1,528,635 128 253 2,723
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
------------- -------- --------- -----------
Net increase (decrease) from capital
transactions 34,907,536 56,386 100,167 1,181,149
------------- -------- --------- -----------
Net increase (decrease) in net assets 40,413,025 61,191 101,743 1,223,699
Net assets at beginning of year 86,057,023 -- -- --
------------- -------- --------- -----------
Net assets at end of year $ 126,470,048 $ 61,191 $ 101,743 $ 1,223,699
============= ======== ========= ===========
AIM V.I.
SCUDDER AIM V.I. INTERNATIONAL
INTERNATIONAL VALUE EQUITY
OPERATIONS
Dividend income $ 825,077 $ 410,251 $ 188,386
Mortality and expense and administrative
charges (123,780) (194,130) (40,956)
Net realized gain (loss) on investments 252,120 28,203 39,670
Net unrealized appreciation (depreciation) of
investments during the year 3,033,017 3,720,163 1,649,575
------------ ------------ -----------
Net increase (decrease) in net assets resulting
from operations $ 3,986,434 $ 3,964,487 $ 1,836,675
============ ============ ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 3,986,434 $ 3,964,487 $ 1,836,675
------------ ------------ -----------
Capital transactions:
Purchase of Variable Account units 226,709 16,475,875 2,617,843
Redemption of Variable Account units (1,596,240) (279,283) (238,984)
Redemptions for mortality and expense and
administrative charges 123,780 194,130 40,956
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
------------ ------------ -----------
Net increase (decrease) from capital
transactions (1,245,751) 16,390,722 2,419,815
------------ ------------ -----------
Net increase (decrease) in net assets 2,740,683 20,355,209 4,256,490
Net assets at beginning of year 8,386,931 4,972,260 1,574,363
------------ ------------ -----------
Net assets at end of year $ 11,127,614 $ 25,327,469 $ 5,830,853
============ ============ ===========
* For the period from September 20, 1999 to December 31, 1999
The accompanying notes are an integral part of the financial statements.
21
173
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ALLIANCE ALLIANCE
MONEY ALLIANCE PREMIER SAFECO
MARKET INTERNATIONAL GROWTH GROWTH
OPERATIONS
Dividend income $ 980,514 $ 60,854 $ 99,520 $ --
Mortality and expense and administrative
charges (93,511) (5,299) (35,830) (20,651)
Net realized gain (loss) on investments -- 783,355 1,669,250 (539,748)
Net unrealized appreciation (depreciation) of
investments during the year (1,972) 85,364 257,229 702,775
------------- ------------ ------------ -----------
Net increase (decrease) in net assets resulting
from operations $ 885,031 $ 924,274 $ 1,990,169 $ 142,376
============= ============ ============ ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 885,031 $ 924,274 $ 1,990,169 $ 142,376
------------- ------------ ------------ -----------
Capital transactions:
Purchase of Variable Account units 200,368,900 61,396,606 13,223,689 4,984,999
Redemption of Variable Account units (201,747,571) (61,575,309) (15,623,413) (6,589,089)
Redemptions for mortality and expense and
administrative charges 93,511 5,299 35,830 20,651
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
------------- ------------ ------------ -----------
Net increase (decrease) from capital
transactions (1,285,160) (173,404) (2,363,894) (1,583,439)
------------- ------------ ------------ -----------
Net increase (decrease) in net assets (400,129) 750,870 (373,725) (1,441,063)
Net assets at beginning of year 16,561,373 1,185,950 8,695,749 5,578,102
------------- ------------ ------------ -----------
Net assets at end of year $ 16,161,244 $ 1,936,820 $ 8,322,024 $ 4,137,039
============= ============ ============ ===========
FEDERATED U.S. FEDERATED
SAFECO GOVERNMENT HIGH INCOME
EQUITY SECURITIES II BOND FUND II
OPERATIONS
Dividend income $ 179,477 $ 58,331 $ 384,300
Mortality and expense and administrative
charges (15,168) (19,646) (42,973)
Net realized gain (loss) on investments 137,678 (28,762) (136,499)
Net unrealized appreciation (depreciation) of
investments during the year (20,217) (19,403) (121,670)
----------- ----------- ------------
Net increase (decrease) in net assets resulting
from operations $ 281,770 $ (9,480) $ 83,158
=========== =========== ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 281,770 $ (9,480) $ 83,158
----------- ----------- ------------
Capital transactions:
Purchase of Variable Account units 2,726,246 6,472,452 21,516,246
Redemption of Variable Account units (1,922,280) (2,731,024) (16,700,953)
Redemptions for mortality and expense and
administrative charges 15,168 19,646 42,973
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
----------- ----------- ------------
Net increase (decrease) from capital
transactions 819,134 3,761,074 4,858,266
----------- ----------- ------------
Net increase (decrease) in net assets 1,100,904 3,751,594 4,941,424
Net assets at beginning of year 2,288,591 1,054,187 3,713,159
----------- ----------- ------------
Net assets at end of year $ 3,389,495 $ 4,805,781 $ 8,654,583
=========== =========== ============
The accompanying notes are an integral part of the financial statements.
22
174
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED FEDERATED FEDERATED
FEDERATED AMERICAN EQUITY GROWTH
UTILITY II LEADERS II INCOME STRATEGIES *
OPERATIONS
Dividend income $ 64,933 $ 459,974 $ 35,871 $ --
Mortality and expense and administrative
charges (32,151) (183,354) (106,207) (90,114)
Net realized gain (loss) on investments (5,840) (274,924) 1,692 10,040
Net unrealized appreciation (depreciation) of
investments during the year (17,935) 111,282 1,936,223 6,370,927
----------- ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations $ 9,007 $ 112,978 $ 1,867,579 $ 6,290,853
=========== ============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 9,007 $ 112,978 $ 1,867,579 $ 6,290,853
----------- ------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 7,849,681 80,714,962 22,067,857 18,226,511
Redemption of Variable Account units (2,352,749) (43,728,259) (38,072) (147,062)
Redemptions for mortality and expense and
administrative charges 32,151 183,354 106,207 90,114
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
----------- ------------ ------------ ------------
Net increase (decrease) from capital
transactions 5,529,083 37,170,057 22,135,992 18,169,563
----------- ------------ ------------ ------------
Net increase (decrease) in net assets 5,538,090 37,283,035 24,003,571 24,460,416
Net assets at beginning of year 1,090,491 1,665,573 -- --
----------- ------------ ------------ ------------
Net assets at end of year $ 6,628,581 $ 38,948,608 $ 24,003,571 $ 24,460,416
=========== ============ ============ ============
FEDERATED FEDERATED FEDERATED
INTERNATIONAL MONEY STRATEGIC
EQUITY * FUND * INCOME **
OPERATIONS
Dividend income $ 10,135 $ 45,051 $ --
Mortality and expense and administrative
charges (34,075) (12,240) (1,532)
Net realized gain (loss) on investments (41) -- 9
Net unrealized appreciation (depreciation) of
investments during the year 3,420,120 -- 16,167
------------ ----------- ---------
Net increase (decrease) in net assets resulting
from operations $ 3,396,139 $ 32,811 $ 14,644
============ =========== =========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 3,396,139 $ 32,811 $ 14,644
------------ ----------- ---------
Capital transactions:
Purchase of Variable Account units 6,923,501 8,313,016 586,922
Redemption of Variable Account units (7,023) (7,080,345) (1,362)
Redemptions for mortality and expense and
administrative charges 34,075 12,240 1,532
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
------------ ----------- ---------
Net increase (decrease) from capital
transactions 6,950,553 1,244,911 587,092
------------ ----------- ---------
Net increase (decrease) in net assets 10,346,692 1,277,722 601,736
Net assets at beginning of year -- -- --
------------ ----------- ---------
Net assets at end of year $ 10,346,692 $ 1,277,722 $ 601,736
============ =========== =========
* For the period from February 1, 1999 to December 31, 1999.
** For the period from June 1, 1999 to December 31, 1999.
The accompanying notes are an integral part of the financial statements.
23
175
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FEDERATED LEXINGTON LEXINGTON MFS
SMALL CAP NATURAL EMERGING EMERGING
STRATEGIES ** RESOURCES MARKETS GROWTH
OPERATIONS
Dividend income $ -- $ 5,210 $ 275 $ --
Mortality and expense and administrative
charges (2,128) (3,122) (293) (127,446)
Net realized gain (loss) on investments 74 (87,178) 35,831 969,753
Net unrealized appreciation (depreciation) of
investments during the year 175,321 128,261 25,869 7,798,184
----------- ----------- --------- ------------
Net increase (decrease) in net assets resulting
from operations $ 173,267 $ 43,171 $ 61,682 $ 8,640,491
=========== =========== ========= ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 173,267 $ 43,171 $ 61,682 $ 8,640,491
----------- ----------- --------- ------------
Capital transactions:
Purchase of Variable Account units 1,018,966 2,156,000 135,498 14,159,113
Redemption of Variable Account units (501) (1,817,326) (124,824) (7,363,014)
Redemptions for mortality and expense and
administrative charges 2,128 3,122 293 127,446
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
----------- ----------- --------- ------------
Net increase (decrease) from capital
transactions 1,020,593 341,796 10,967 6,923,545
----------- ----------- --------- ------------
Net increase (decrease) in net assets 1,193,860 384,967 72,649 15,564,036
Net assets at beginning of year -- 532,800 58,894 6,789,451
----------- ----------- --------- ------------
Net assets at end of year $ 1,193,860 $ 917,767 $ 131,543 $ 22,353,487
=========== =========== ========= ============
MFS MONTGOMERY
MFS HIGH WORLD EMERGING
INCOME GOVERNMENT MARKETS
OPERATIONS
Dividend income $ 401,657 $ 14,302 $ 74
Mortality and expense and administrative
charges (77,640) (707) (3,647)
Net realized gain (loss) on investments (43,906) (24,456) 445,265
Net unrealized appreciation (depreciation) of
investments during the year (31,441) (1,365) 74,782
----------- --------- ------------
Net increase (decrease) in net assets resulting
from operations $ 248,670 $ (12,226) $ 516,474
=========== ========= ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 248,670 $ (12,226) $ 516,474
----------- --------- ------------
Capital transactions:
Purchase of Variable Account units 9,777,837 705,250 20,340,446
Redemption of Variable Account units (5,404,573) (990,963) (20,144,272)
Redemptions for mortality and expense and
administrative charges 77,640 707 3,647
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
----------- --------- ------------
Net increase (decrease) from capital
transactions 4,450,904 (285,006) 199,821
----------- --------- ------------
Net increase (decrease) in net assets 4,699,574 (297,232) 716,295
Net assets at beginning of year 3,508,800 325,006 309,163
----------- --------- ------------
Net assets at end of year $ 8,208,374 $ 27,774 $ 1,025,458
=========== ========= ============
** For the period from June 1, 1999 to December 31, 1999.
The accompanying notes are an integral part of the financial statements.
24
176
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
AMERICAN
MONTGOMERY STRONG STRONG CENTURY VP
GROWTH DISCOVERY II INTERNATIONAL II BALANCED
OPERATIONS
Dividend income $ 5,201 $ 27,272 $ 1,845 $ 204,087
Mortality and expense and administrative
charges (4,566) (963) (3,930) (6,370)
Net realized gain (loss) on investments 233,717 (52,371) 606,345 11,391
Net unrealized appreciation (depreciation) of
investments during the year (1,115) 39,168 395,740 (74,370)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations $ 233,237 $ 13,106 $ 1,000,000 $ 134,738
============ ============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 233,237 $ 13,106 $ 1,000,000 $ 134,738
------------ ------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 3,986,865 1,505,925 17,404,182 713,675
Redemption of Variable Account units (4,518,176) (1,729,824) (16,023,839) (700,154)
Redemptions for mortality and expense and
administrative charges 4,566 963 3,930 6,370
Dividend income distribution to Fortis
Benefits Insurance Company -- -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) from capital
transactions (526,745) (222,936) 1,384,273 19,891
------------ ------------ ------------ ------------
Net increase (decrease) in net assets (293,508) (209,830) 2,384,273 154,629
Net assets at beginning of year 768,330 485,106 320,567 1,328,610
------------ ------------ ------------ ------------
Net assets at end of year $ 474,822 $ 275,276 $ 2,704,840 $ 1,483,239
============ ============ ============ ============
AMERICAN VAN ECK VAN ECK
CENTURY VP WORLDWIDE WORLDWIDE
GROWTH BOND HARD ASSETS
OPERATIONS
Dividend income $ - $ 32,424 $ 5,800
Mortality and expense and administrative
charges (1,427) (1,686) (3,390)
Net realized gain (loss) on investments 74,376 (59,331) 19,792
Net unrealized appreciation (depreciation) of
investments during the year 129,007 (13,943) 123,503
------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations $ 201,956 $ (42,536) $ 145,705
============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 201,956 $ (42,536) $ 145,705
------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 1,507,118 1,050,294 5,494,999
Redemption of Variable Account units (1,098,083) (1,582,123) (5,197,598)
Redemptions for mortality and expense and
administrative charges 1,427 1,686 3,390
Dividend income distribution to Fortis
Benefits Insurance Company -- -- --
------------ ------------ ------------
Net increase (decrease) from capital
transactions 410,462 (530,143) 300,791
------------ ------------ ------------
Net increase (decrease) in net assets 612,418 (572,679) 446,496
Net assets at beginning of year 130,057 882,098 371,483
------------ ------------ ------------
Net assets at end of year $ 742,475 $ 309,419 $ 817,979
============ ============ ============
The accompanying notes are an integral part of the financial statements.
25
177
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NEUBERGER &
BERMAN AMT NEUBERGER & INVESCO
LIMITED BERMAN AMT HEALTH &
MATURITY BOND PARTNERS SCIENCES
OPERATIONS
Dividend income $ 34,231 $ 22,384 $ 1,773
Mortality and expense and administrative
charges (2,313) (3,261) (8,720)
Net realized gain (loss) on investments (20,107) (5,353) 58,119
Net unrealized appreciation (depreciation) of
investments during the year (8,853) 32,264 (29,108)
--------------- --------------- ---------------
Net increase (decrease) in net assets resulting
from operations $ 2,958 $ 46,034 $ 22,064
=============== =============== ===============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets resulting
from operations $ 2,958 $ 46,034 $ 22,064
--------------- --------------- ---------------
Capital transactions:
Purchase of Variable Account units 578,191 597,368 4,368,976
Redemption of Variable Account units (714,271) (873,323) (4,238,621)
Redemptions for mortality and expense and
administrative charges 2,313 3,261 8,720
Dividend income distribution to Fortis Benefits
Insurance Company -- -- --
--------------- --------------- ---------------
Net increase (decrease) from capital
transactions (133,767) (272,694) 139,075
--------------- --------------- ---------------
Net increase (decrease) in net assets (130,809) (226,660) 161,139
Net assets at beginning of year 675,400 852,869 1,868,095
--------------- --------------- ---------------
Net assets at end of year $ 544,591 $ 626,209 $ 2,029,234
=============== =============== ===============
INVESCO COMBINED
INDUSTRIAL INVESCO VARIABLE
INCOME TECHNOLOGY ACCOUNT
OPERATIONS
Dividend income $ 15,560 $ - $ 288,944,665
Mortality and expense and administrative
charges (3,233) (18,191) (42,331,871)
Net realized gain (loss) on investments 50,003 1,995,638 114,341,208
Net unrealized appreciation (depreciation) of
investments during the year 22,334 2,842,497 414,351,155
--------------- --------------- ---------------
Net increase (decrease) in net assets resulting
from operations $ 84,664 $ 4,819,944 $ 775,305,157
=============== =============== ===============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets resulting
from operations $ 84,664 $ 4,819,944 $ 775,305,157
--------------- --------------- ---------------
Capital transactions:
Purchase of Variable Account units 1,629,081 24,971,634 1,142,010,519
Redemption of Variable Account units (1,394,230) (18,308,129) (945,768,190)
Redemptions for mortality and expense and
administrative charges 3,233 18,191 42,331,871
Dividend income distribution to Fortis Benefits
Insurance Company -- -- (894,843)
--------------- --------------- ---------------
Net increase (decrease) from capital
transactions 238,084 6,681,696 237,679,357
--------------- --------------- ---------------
Net increase (decrease) in net assets 322,748 11,501,640 1,012,984,514
Net assets at beginning of year 540,536 1,239,047 2,937,518,919
--------------- --------------- ---------------
Net assets at end of year $ 863,284 $ 12,740,687 $ 3,950,503,433
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
26
178
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
1. GENERAL
FORTIS BENEFITS INSURANCE COMPANY
Variable Account D (the "Account") was established as a segregated asset
account of Fortis Benefits Insurance Company ("Fortis Benefits") on
October 14, 1987 under Minnesota law. The Account is registered under the
Investment Company Act of 1940 as a unit investment trust. The variable
annuity contracts are sold under the names of EmPower Variable Annuity,
Opportunity Variable Annuity, Opportunity + Variable Annuity, Wells Fargo
Passage Variable Annuity (formerly known as Norwest Passage Variable
Annuity), Maters + Variable Annuity, TD Waterhouse Variable Annuity,
Income Preferred Variable Annuity, Federated Triple Crown Variable
Annuity and Kelmoore Strategy Variable Annuity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Account are segregated from Fortis Benefits' other
assets. The following is a summary of significant accounting policies
consistently followed by the Account in the preparation of its financial
statements.
INVESTMENT TRANSACTIONS
All assets of each Subaccount of the Account are invested in shares of
the corresponding portfolios of Fortis Series Fund, Inc.; Wells Fargo
Variable Trust; Scudder Variable Life; AIM Variable Insurance Funds,
Inc.; Alliance Variable Product Series; SAFECO Resource Series; Federated
Insurance Series; Lexington Funds, Inc.; MFS Variable Insurance Trust;
Montgomery Variable Funds; Strong Variable Insurance Funds; American
Century Investments; Van Eck Worldwide Insurance Trust; Neuberger &
Berman, Inc.; INVESCO, Inc.; and Kelmoore Funds (collectively known as
"the Funds"). The shares are valued at the Funds' offering and redemption
prices per share.
Purchases and sales of shares of the Fund are recorded on the trade date.
The cost of investments sold and redeemed is determined on the average
cost method.
Dividend income from the Funds is recorded in recorded on the ex-dividend
date. All distributions from the Funds are reinvested upon receipt.
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 reported
amounts of net assets at the date of the financial statements and the
reported results of operations and changes in net assets during the
reporting period. Actual results could differ from these estimates.
27
179
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
3. INVESTMENTS
There were 72 subaccounts within the Account (only 61 of which were
active in 1999).
On September 20, 1999, the Norwest Series Funds changed its name to the
Wells Fargo Variable Trust. As a result of the change from Norwest to
Wells Fargo, the following funds changed names: The Norwest Select Income
Equity Fund changed to Wells Fargo Variable Trust Equity Income Fund, the
Norwest Select Valugrowth Fund changed to Wells Fargo Variable Trust
Large Company Growth Fund, the Norwest Income Fund changed to the Wells
Fargo Variable Trust Corporate Bond Fund, and the Norwest Select Small
Company Stock Fund changed to the Wells Fargo Variable Trust Small Cap
Stock Fund.
The number of shares and aggregate cost of purchases, including
reinvested dividends and realized capital gains, and aggregate cost of
investments sold or redeemed were as follows:
YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------------------------
SHARES
--------------------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
Fortis Series Fund, Inc.:
Growth Stock 3,082,558 952,406 $148,777,870 $ 26,393,476
U.S. Government Securities 2,005,082 2,635,974 20,496,616 28,255,399
Money Market 10,023,019 12,381,426 113,826,181 139,079,568
Asset Allocation 5,842,450 2,089,948 119,406,155 34,203,446
Diversified Income 796,517 1,826,341 8,447,960 21,287,002
Global Growth 3,585,032 2,034,182 116,537,145 36,838,397
Aggressive Growth 4,726,863 808,309 165,009,861 16,338,779
Growth & Income 1,797,955 2,036,596 35,881,888 31,433,207
High Yield 1,169,700 1,724,477 9,738,220 17,162,190
International Stock II 403,820 1,423,246 4,889,999 17,481,984
Multisector Bond 429,023 791,639 4,384,916 8,291,226
International Stock 1,891,745 737,693 30,962,366 10,311,173
Value 809,471 773,454 13,225,300 10,283,080
S & P 500 3,210,751 2,874,803 70,831,046 55,476,346
Blue Chip Stock 2,432,582 848,691 52,885,394 11,805,094
Mid Cap Stock 1,773,991 710,503 20,326,386 7,125,152
Large Cap Growth 3,021,331 920,931 43,651,951 10,923,127
Small Cap Value 3,980,312 762,940 15,924,640 7,553,655
Global Equity 1,002,095 174,260 10,049,251 1,613,761
Investors Growth 1,319,099 95,057 13,294,779 953,650
Blue Chip II 1,643,590 193,136 16,518,100 1,976,522
Capital Opportunities 1,572,079 91,476 15,921,441 917,424
American Leaders 700,693 87,875 7,195,770 885,517
28
180
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------------------------
SHARES
------------------------------ COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
Wells Fargo Variable Trust:
Large Cap 2,461,734 410,066 $ 30,403,252 $ 4,434,630
Corporate Bond 257,438 697,319 4,408,362 7,510,773
Small Cap Stock 253,802 132,702 9,326,305 1,814,023
Equity Income 400,270 1,869,549 9,391,788 27,237,323
Growth 26,104 3,743 632,093 85,924
Equity Value 64,973 14,901 606,772 136,577
Asset Allocation 460,943 17,687 7,025,886 256,295
International 10,480 4,140 100,823 41,672
Scudder Variable Life Investment
Fund:
International 21,828 129,071 1,370,678 1,756,137
AIM Variable Insurance Funds, Inc.:
V.I. Value Fund 317,087 40,230 11,917,841 1,180,938
V.I. International Equity 141,032 32,992 4,215,098 764,157
Alliance Variable Product Series:
Money Market 173,715,616 167,666,091 174,967,194 167,665,061
International 3,338,268 3,324,109 67,594,948 67,662,767
Premier Growth 219,655 172,655 9,299,752 6,302,222
SAFECO Resource Series:
Growth 123,878 154,994 3,259,089 3,410,862
Equity 61,466 65,034 1,866,691 1,948,762
Federated Insurance Series:
U.S. Government Securities II 778,172 334,634 8,534,444 3,535,078
High Income Bond Fund II 1,368,193 993,844 13,394,717 9,474,766
American Leaders II 2,352,628 434,982 9,118,439 3,631,518
Equity Income 2,081,872 10,473 48,597,365 8,714,809
Growth Strategies 1,232,656 7,529 34,149,431 163,490
International Equity II 738,277 637 38,201,504 201,643
Utility II 641,937 263,754 19,477,802 12,486
Money II 3,890,335 3,329,935 3,963,625 3,329,953
Strategic Income II 185,343 54,992 1,951,410 561,177
Small Cap II 541,601 9,244 6,703,218 118,829
Quality Bond 33,653 1,109 350,943 11,545
Large Cap 541,160 300 4,858,040 2,973
International Small Co. 149,630 316 1,326,488 2,966
Lexington Funds, Inc.:
Natural Resources 243,512 284,491 3,204,617 3,710,903
Emerging Markets 15,314 18,414 211,233 216,386
MFS Variable Insurance Trust:
Emerging Growth 456,974 234,532 17,778,149 7,342,148
High Income 470,220 484,225 5,696,035 5,448,662
World Government 37,537 33,676 367,561 328,852
Montgomery Variable Funds:
Emerging Markets 2,392,422 2,406,999 24,155,648 24,458,673
Growth 40,705 30,465 777,253 534,084
29
181
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------------------
SHARES
--------------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
Strong Variable Insurance Funds:
Discovery II 106,240 100,471 $ 1,318,611 $ 1,173,912
International II 978,293 1,022,798 13,570,147 14,598,677
American Century Investments:
VP Balanced 157,445 205,453 1,231,475 1,575,853
VP Capital Appreciation 367,523 310,042 6,415,644 5,126,392
Van Eck Worldwide Insurance Trust:
Bond 326,759 333,634 3,310,676 3,386,334
Hard Assets 570,665 629,402 6,537,744 7,154,369
Neuberger & Berrnan, Inc.:
AMT Limited Maturity Bond 22,706 21,146 323,830 47,481
AMT Partners 39,385 10,749 767,377 196,754
INVESCO, Inc.:
Health & Sciences 1,009,883 843,995 19,050,901 15,121,961
Industrial Income 121,408 43,461 2,767,564 913,210
Technology 915,304 830,776 38,618,020 31,224,556
Investments in Kelmoore Strategy:
Variable Fund 25,343 -- 254,060 --
Variable Eagle Fund 9,803 -- 98,221 --
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------
SHARES
------------------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
Fortis Series Fund, Inc.:
Growth Stock 4,978,132 2,488,571 $161,442,240 $ 60,051,825
U.S. Government Securities 1,916,594 2,147,519 19,930,332 23,141,836
Money Market 9,210,743 5,738,592 103,104,140 63,850,738
Asset Allocation 4,015,172 2,762,388 82,165,249 43,092,189
Diversified Income 1,206,078 1,555,645 13,354,668 18,287,745
Global Growth 770,088 2,667,719 20,141,023 38,663,127
Aggressive Growth 1,237,296 784,771 28,632,229 10,639,902
Growth & Income 1,147,912 1,657,035 23,472,414 24,762,684
High Yield 1,396,065 1,176,380 13,088,327 11,968,830
Global Asset Allocation 730,517 535,027 10,234,446 6,996,772
Global Bond 728,969 425,728 8,090,103 4,981,315
International Stock 1,543,903 815,081 24,396,424 10,609,129
Value 449,284 605,528 6,823,332 7,895,168
S & P 500 6,179,339 2,022,842 125,545,450 38,403,086
Blue Chip Stock 2,679,741 277,993 52,655,703 4,405,532
Mid Cap Stock 891,979 125,899 8,528,073 1,140,982
Large Cap Growth 3,491,409 50,255 47,009,337 703,566
Small Cap Value 1,921,850 222,974 19,193,803 2,225,383
30
182
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------
SHARES
---------------------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
Wells Fargo Variable Trust:
Large Cap 467,130 240,704 $ 17,880,099 $ 3,039,944
Corporate Bond 1,120,765 230,185 13,560,810 2,673,496
Small Cap Stock 122,610 269,659 1,382,121 3,442,322
Equity Income 2,148,439 203,437 38,111,023 2,903,009
Growth 2,183 -- 56,266 --
Equity Value 10,708 -- 100,121 --
Asset Allocation 75,891 302 1,191,046 4,188
Scudder Variable Life Investment
Fund:
International 14,987 101,879 1,051,785 1,344,120
AIM Variable Insurance Funds, Inc.:
V.I. Value Fund 563,265 9,554 16,886,126 251,080
V.I. International Equity 121,509 9,905 2,806,228 199,314
Alliance Variable Product Series:
Money Market 200,370,409 201,747,571 201,349,414 201,747,571
International 3,557,215 3,535,060 61,457,460 60,791,954
Premier Growth 385,714 459,541 13,323,209 13,954,163
SAFECO Resource Series:
Growth 243,582 321,802 5,005,304 7,128,837
Equity 88,378 61,277 2,905,724 1,784,602
Federated Insurance Series:
U.S. Government Securities II 610,469 256,608 6,530,790 2,759,786
High Income Bond Fund II 2,064,857 1,597,032 21,900,547 16,837,452
American Leaders II 3,837,639 2,066,898 81,174,935 44,003,183
Equity Income 1,474,209 2,456 22,103,728 36,380
Growth Strategies 798,642 6,531 18,226,511 137,022
International Equity II 374,118 439 6,933,636 7,065
Utility II 548,821 163,128 7,914,617 2,358,588
Money II 8,313,351 7,080,345 8,358,067 7,080,345
Strategic Income II 58,160 138 586,922 1,353
Small Cap II 85,863 36 1,018,966 427
Lexington Funds, Inc.:
Natural Resources Trust 170,459 145,816 2,161,210 1,904,504
Emerging Markets 135,638 14,322 135,773 105,456
MFS Variable Insurance Trust:
Emerging Growth 249,835 301,231 14,159,112 6,393,261
High Income 455,613 466,550 10,179,495 5,448,479
World Government 67,910 96,403 719,554 1,015,419
Montgomery Variable Funds:
Emerging Markets 2,441,174 2,392,615 20,357,660 19,699,007
Growth 235,480 260,002 3,992,065 4,284,459
Strong Variable Insurance Funds:
Discovery II 150,502 167,330 1,533,197 1,782,195
International II 1,729,393 1,600,904 17,406,027 15,417,494
American Century Investments:
VP Balanced 90,380 88,096 917,761 688,763
VP Capital Appreciation 141,050 105,438 1,507,118 1,023,707
31
183
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------
SHARES
------------------------------ COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
Van Eck Worldwide Insurance Trust:
Bond 96,979 142,677 $ 1,082,718 $ 1,641,454
Hard Assets 523,306 479,248 5,500,799 5,177,805
Neuberger & Berrnan, Inc.:
AMT Limited Maturity Bond 43,964 54,339 612,422 734,378
AMT Partners 30,511 44,921 619,752 878,676
INVESCO, Inc.:
Health & Sciences 289,246 284,870 4,370,749 4,180,502
Industrial Income 81,284 69,977 1,644,642 1,344,227
Technology 1,106,916 850,184 24,971,634 16,312,491
Fortis Benefits' investment in the subaccounts represented the following
number of shares of the Funds held and aggregate cost of amounts invested
at December 31, 2000:
COST OF
SHARES SHARES
Fortis Series Fund, Inc.:
American Leaders 326,364 $3,244,546
Blue Chip II 313,652 3,136,516
Capital Opportunities 474,316 4,743,156
Global Equity 477,337 4,757,565
Investors Growth 475,277 4,749,727
4. ACCOUNT CHARGES
ADMINISTRATION CHARGE
A $35 annual contract administrative charge is deducted each contract
year from the value of each Opportunity Variable Annuity and $30 for each
EmPower Variable Annuity, Opportunity + Variable Annuity, Wells Fargo
Passage Variable Annuity, and TD Waterhouse Annuity on each anniversary
of the contract date and upon total surrender of the contract. This
charge will be waived during the accumulation period if the contract
value at the end of the contract year (or upon total surrender) is
$25,000 or more for the Opportunity Variable Annuity, Masters Variable
Annuity and Wells Fargo Passage Variable Annuity and $100,000 or more for
the EmPower Variable Annuity.
In addition, Fortis Benefits assesses each subaccount of the Opportunity
Variable Annuity, Opportunity + Variable Annuity, Masters Variable
Annuity, Master + Variable Annuity, Income Preferred Variable Annuity,
Federated Triple Crown Variable Annuity and Kelmoore Strategy Variable
Annuity, a daily charge for administrative expense at annual rate of
0.10% of the net assets. For the EmPower Variable Annuity and Wells Fargo
Passage Variable Annuity, the daily charge is assessed at an annual rate
of 0.15%.
32
184
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE
Fortis Benefits assesses each subaccount of the Opportunity Variable
Annuity, Opportunity + Variable Annuity, Masters Variable Annuity,
Masters + Variable Annuity and Wells Fargo Passage Variable Annuity a
daily charge for mortality and expense risk at an annual rate of 1.25% of
the net assets. For the EmPower Variable Annuity, the daily charge is
assessed at an annual rate of 1.10%. For the Income Preferred Variable
Annuity, the daily charge is assessed at an annual rate of 1.40% (reduced
to 1.25% during the annuity period). For the TD Waterhouse Variable
Annuity, the daily charge is assessed at an annual rate of 0.45%. For the
Federated Triple Crown Variable Annuity, the daily charge for contract
owners less than 61 years old is 1.10%, and for contract owners 61 years
or older is 1.30%. For the Kelmoore Strategy Variable Annuity, the daily
charge is assessed at an annual rate of 1.05% (1.50% on enhanced death
benefit contracts).
Fortis Benefits bears an investment risk associated with the Income
Preferred Variable Annuity in relation to the Guaranteed Payout Plan
Benefit. With this benefit Fortis bears the risk that investment
performance is insufficient to cover the guarantee of the return of
purchase payment. Fortis assesses a daily charge at an annual rate of
.35% for this risk.
5. SURRENDER AND PREMIUM TAX CHARGES
AMOUNT OF SURRENDER CHARGE
Surrender charges apply only if the amount being withdrawn exceeds the
sum of the amounts listed below under Free Surrenders. The surrender
charge is based on a percentage of the amount of purchase payments
surrendered. The percentage of payments is set at 5% and slides to zero
during the first five years on the Opportunity Variable Annuity,
Opportunity + Variable Annuity and Wells Fargo Passage Variable Annuity
contracts. The percentage is set at 7% and slides to zero during the
first seven years of the Masters Variable Annuity contracts. The
following contracts have the following surrender charge periods and
percentage charge scales:
Masters + Variable Annuity 8 years 7, 7, 6, 6, 5, 3, 1, 0
Income Preferred Variable Annuity 9 years 8, 8, 7, 7, 6, 5, 3, 2, 1
Federated Triple Crown Variable Annuity 8 years 7, 7, 7, 5, 4, 3, 2, 0
Kelmoore Strategy Variable Annuity 8 years 8, 7, 6, 5, 4, 3, 2, 0
FREE SURRENDERS
The following amounts can be withdrawn from the contract without a
surrender charge:
- For EmPower Variable Annuity and TD Waterhouse Variable Annuity,
there is no surrender charge.
- Any purchase payments received more than five years prior to the
surrender date for Opportunity Variable Annuity and the Wells Fargo
Passage Variable Annuity, seven years for Masters Variable Annuity
and the Federated Triple Crown Variable Annuity, and nine years for
Income Preferred Variable Annuity and have not been previously
surrendered.
33
185
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
- In any contract year, up to 10% of the purchase payments received
less than five years prior to the surrender date for Opportunity
Variable Annuity, Opportunity + Variable Annuity and Wells Fargo
Passage Variable Annuity, seven years prior to the surrender date for
Masters Variable Annuity, Masters + Variable Annuity, Federated
Triple Crown Variable Annuity and Kelmoore Strategy Variable Annuity,
and nine years prior to the surrender date for Income Preferred
Variable Annuity.
- For Masters Variable Annuity, Masters + Variable Annuity, Wells Fargo
Passage Variable Annuity and Federated Triple Crown Variable Annuity
after age 61, any earnings that have not been previously surrendered.
PREMIUM TAXES
Where premium taxes or similar assessments are imposed by states or other
jurisdictions upon receipt of purchase payments, Fortis Benefits pays
such taxes on behalf of the contract owner and will deduct a charge for
these amounts from the contract value upon surrender, death of the
annuitant or contract owner, or annuitization of the contract. In
jurisdictions where premium taxes or similar assessments are imposed at
the time annuity payments begin, Fortis Benefits will deduct a charge on
a pro rata basis from the contract value at that time.
Redemptions are reported prior to deduction surrender and premium tax
charges which are paid directly to Fortis Benefits. The surrender charges
and premium tax charges collected by Fortis Benefits were $4,828,465 and
$6,252,617 in 2000 and 1999, respectively.
6. FEDERAL INCOME TAXES
The operations of the Account form part of, and are taxed with, the
operations of Fortis Benefits, which is taxed as a life insurance company
under the Internal Revenue Code. As a result, the net asset value of the
subaccounts are not affected by income taxes on income distributions
received by the subaccounts.
7. RELATED PARTY TRANSACTIONS
Fortis Advisers, Inc. (Fortis Advisers), an affiliate of Fortis Benefits,
provides investment management services to Fortis Series Fund, Inc. in
exchange for investment advisory and management fees. Investment advisory
and management fees are based on each portfolio's daily net assets and
decrease through reduced percentages as average daily net assets
increase. The fees represent an investment expense to Fortis Series Fund,
Inc. which reduces the portfolios' net assets. The fees charged by Fortis
Advisers are not available on an individual variable account basis. Fees
for all variable accounts to which Fortis Advisers provided investment
management services amounted to $28,398,906 and $21,779,394 in 2000 and
1999, respectively.
34
186
FORTIS BENEFITS INSURANCE COMPANY VARIABLE ACCOUNT D
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
8. SUBSEQUENT EVENT
On April 1, 2001, Fortis, Inc. completed the sale (the "Sale") of its
Fortis Financial Group division (the "Division") to The Hartford
Financial Services Group ("The Hartford"). The Division includes, among
other blocks of business, certain individual life insurance policies
(including variable universal life insurance policies) and all annuity
contracts (collectively, the "Insurance Contracts") written by Fortis
Benefits Insurance Company (the "Company"). Certain of the Insurance
Contracts permit investment in, among other investment options, various
series of the Fortis Series Fund (the "Fund").
To effect the Sale as it relates to the Company, Hartford Life and
Annuity Insurance Company ("Hartford Annuity"), an indirect wholly-owned
subsidiary of The Hartford, reinsured the Insurance Contracts on a 100%
coinsurance basis and agreed to administer the Insurance Contracts going
forward. The Sale also included Hartford Annuity's purchase of certain
real and personal property owned by the Company and used in connection
with the Division's business. Also as part of the Sale, Hartford Life and
Accidence Insurance Company purchased 100% of the outstanding stock of
Fortis Advisers, Inc. ("Fortis Advisers"), which is the investment
adviser for the Fund. The Sale also included 100% of the outstanding
stock of Fortis Investors, Inc., which is a wholly-owned subsidiary of
Fortis Advisers and acts as principal distributor for the Fund. Fortis
and the Company received in connection with the Sale aggregate cash
consideration of approximately $1.15 billion from The Hartford and its
affiliates.
35
187
APPENDIX A
PERFORMANCE INFORMATION
In advertising and other sales material for the Contracts, yield and total
return information for the Subaccounts of the Separate Account may be included.
The information below provides investment results for the indicated Subaccounts
of the Separate Account. The results shown in this section are not an estimate
or guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
YIELD CALCULATIONS
Yield information for the Money Market Subaccount will be based on the seven
days ended on a specified date. It will be computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account (after the deduction of all asset based charges) having a
balance of one Accumulation Unit at the beginning of the period, subtracting a
proportionate amount of the annual administrative charge (based on average
Contract size), and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by (365/7), with the resulting yield figure carried to
the nearest hundredth of one percent. The seven day yield for the Money Market
Subaccount as of December 31, 2000 was 4.69%.
An effective yield may also be quoted for the Money Market Subaccount. Effective
yield is calculated by compounding the current yield as follows:
365/7
....................... Effective Yield = [(Base Period Return + 1) ] - 1
The seven day effective yield for the Money Market Subaccount as of December 31,
2000 was 4.80%.
Yield information for the other Subaccounts will be based on the thirty days
ended on a specified date and carried to the nearest hundredth of a percent,
according to the following formula:
[ ( a-b )6 ]
Yield = 2 [ ( ----- + 1 ) - 1 ]
[ ( cd ) ]
Where: a = net investment income earned during the period by the Portfolio whose
shares are owned by the Subaccount.
b = expenses accrued for the period, including a proportionate amount of
the annual administrative charge (based on average Contract size),
c = the average daily number of Accumulation Units outstanding during the
period, and
d = the offering price per Accumulation Unit at the end of the last day
of the period.
The following table sets forth yield figures for the thirty days ended December
31, 2000:
SUBACCOUNT YIELD
---------- -----
U.S. Government Securities................................ 6.02%
Diversified Income........................................ 8.33%
High Yield................................................ 12.49%
Multisector Bond.......................................... 1.75%
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188
TOTAL RETURN CALCULATIONS
Total return information will be given for the one year and five year periods
ended on a specific date, provided that, if the registration statement has been
effective for a Subaccount only during a shorter period, then such shorter
period will be used.
AVERAGE ANNUAL TOTAL RETURN
Total average annual compounded rates of return for each period will be computed
to the nearest one hundredth of a percent, according to the following formula:
n
P(1 + T) = CSV
Where: P = a hypothetical initial purchase payment of $1000,
T = average annual total return,
n = number of years, and
CSV = end of period Cash Surrender Value of hypothetical $1,000
purchase payment made at the beginning of the period.
SUBACCOUNT ONE YEAR PERIOD FIVE YEAR PERIOD TEN YEAR PERIOD COMMENCEMENT TO
ENDED DEC 31, 2000 ENDED DEC 31, 2000 ENDED DEC 31, 2000 DEC 31, 2000
- ------------------------------------ ---------------------------------------------------------------------------------
Growth Stock -0.90% 16.81% 15.79% 14.66%
U.S. Government Securities 6.78% 1.34% 3.17% 4.00%
Diversified Income 2.51% 0.64% 3.33% 4.27%
Asset Allocation -4.67% 10.42% 10.62% 10.29%
Global Growth -22.41% 9.04% NA 10.75%
High Yield -11.20% -1.98% NA -0.43%
Growth & Income 0.23% 11.66% NA 12.97%
Aggressive Growth -19.71% 15.13% NA 14.92%
International Stock II -12.89% 1.69% NA 3.83%
MultiSector Bond -0.66% -2.44% NA 0.55%
International Stock -14.35% 6.71% NA 7.55%
Value 13.41% NA NA 12.26%
S & P 500 -14.23% NA NA 13.96%
Blue Chip -7.27% NA NA 15.19%
Mid Cap Stock 3.76% NA NA 2.22%
Large Cap Growth -22.53% NA NA 4.50%
Small Cap Value 21.81% NA NA 9.23%
Global Equity NA NA NA NA
Investors Growth NA NA NA NA
Blue Chip II NA NA NA NA
Capital Opportunities NA NA NA NA
American Leaders NA NA NA NA
A-2
189
CUMULATIVE TOTAL RETURN
Total cumulative rates of return for each period will be computed to the nearest
one hundredth of a percent, according to the following formula:
CTR = CSV - P 100
-------
P
Where: P = a hypothetical initial purchase payment of $1,000,
CTR = cumulative total return, and
CSV = end of period Cash Surrender Value of hypothetical $1,000 purchase payment
made at the beginning of the period.
Subaccount One Year Period Five Year Period Ten Year Period Commencement to
Ended Dec 31, 2000 Ended Dec 31, 2000 Ended Dec 31, 2000 Dec 31, 2000
- ------------------------------------ --------------------------------------------------------------------------------
Growth Stock -0.90% 117.48% 333.34% 465.90%
U.S. Government Securities 6.78% 6.86% 36.60% 58.05%
Diversified Income 2.51% 3.25% 38.75% 69.80%
Asset Allocation -4.67% 64.18% 174.42% 245.70%
Global Growth -22.41% 54.13% NA 142.39%
High Yield -11.20% -9.52% NA -2.86%
Growth & Income 0.23% 73.61% NA 125.61%
Aggressive Growth -19.71% 102.24% NA 152.82%
International Stock II -12.89% 8.76% NA 25.33%
MultiSector Bond -0.66% -11.60% NA 3.36%
International Stock -14.35% 38.39% NA 54.72%
Value 13.41% NA NA 71.59%
S & P 500 -14.23% NA NA 84.08%
Blue Chip -7.27% NA NA 93.58%
Mid Cap Stock 3.76% NA NA 6.03%
Large Cap Growth -22.53% NA NA 12.46%
Small Cap Value 21.81% NA NA 26.57%
Global Equity NA NA NA -10.86%
Investors Growth NA NA NA -14.45%
Blue Chip II NA NA NA -16.22%
Capital Opportunities NA NA NA -15.96%
American Leaders NA NA NA 0.42%
Yield figures do not reflect any surrender charge, and yield and total return
figures do not reflect any premium tax charge. Yield and total return figures do
reflect the reimbursement of certain Fortis Series expenses. Current Fixed
Account effective annual rates of interest may also be quoted in advertising and
other sales materials, and these rates do not reflect any deductions or charges.
Fortis Benefits may advertise its relative performance as compiled by outside
organizations. Following is a list of ratings services which may be referred to
in advertisements, along with the category in which the applicable Subaccount is
included:
PORTFOLIO NAME RATING SERVICE CATEGORY
International Stock Morningstar Publications, Inc. Foreign Stock
Subaccount Lipper Analytical Services, Inc. International Fund
Variable Annuity Research & Data Service International Stock
A-3
190
Global Growth Morningstar Publications, Inc. World Stock
Subaccount Lipper Analytical Services, Inc. Global Fund
Variable Annuity Research & Data Service International Stock
Global Asset Morningstar Publications, Inc. International Hybrid
Allocation Subaccount Lipper Analytical Services, Inc. Global Flexible Portfolio
Variable Annuity Research & Data Service Balanced/International
Aggressive Growth Morningstar Publications, Inc. Small Growth
Subaccount Lipper Analytical Services, Inc. Small Cap Fund
Variable Annuity Research & Data Service Aggressive Growth
Small Cap Value Morningstar Publications, Inc. Small Value
Subaccount Lipper Analytical Services, Inc. Small Cap Fund
Variable Annuity Research & Data Service Small Company Funds
Growth Stock Morningstar Publications, Inc. Mid Cap Growth
Subaccount Lipper Analytical Services, Inc. Mid Cap Fund
Variable Annuity Research & Data Service Growth
Mid Cap Stock Morningstar Publications, Inc. Mid Cap Blend
Subaccount Lipper Analytical Services, Inc. Mid Cap Fund
Variable Annuity Research & Data Service All Equity Funds
Large Cap Growth Morningstar Publications, Inc. Large Blend
Subaccount Lipper Analytical Services, Inc. Growth Fund
Variable Annuity Research & Data Service Growth
Blue Chip Stock Morningstar Publications, Inc. Large Blend
Subaccount Lipper Analytical Services, Inc. Growth Fund
Variable Annuity Research & Data Service Growth
S&P 500 Index Morningstar Publications, Inc. Large Blend
Subaccount Lipper Analytical Services, Inc. Index Fund
Variable Annuity Research & Data Service Growth and Income Funds
Growth & Income Morningstar Publications, Inc. Mid Cap Blend
Subaccount Lipper Analytical Services, Inc. Growth & Income
Variable Annuity Research & Data Service Growth and Income
Value Subaccount Morningstar Publications, Inc. Large Blend
Lipper Analytical Services, Inc. Growth & Income
Variable Annuity Research & Data Service Equity-Income
Asset Allocation Morningstar Publications, Inc. Domestic Hybrid
Subaccount Lipper Analytical Services, Inc. Flexible Portfolio
Variable Annuity Research & Data Service Balanced
Multisector Bond Morningstar Publications, Inc. International Bond
Subaccount Lipper Analytical Services, Inc. Global Income
Variable Annuity Research & Data Service International Bonds
High Yield Morningstar Publications, Inc. High Yield Bond
Subaccount Lipper Analytical Services, Inc. High Current Yield
Variable Annuity Research & Data Service Corporate Bond High Yield
Diversified Income Morningstar Publications, Inc. Intermediate-Term Bond
Subaccount Lipper Analytical Services, Inc. Corp Debt BBB Rated
Variable Annuity Research & Data Service Corporate Bond General Funds
A-4
191
U.S. Government Morningstar Publications, Inc. Intermediate Government
Subaccount Lipper Analytical Services, Inc. Intermediate U.S. Govt.
Variable Annuity Research & Data Service Government Bond General Funds
Money Market Morningstar Publications, Inc. Money Market
Subaccount Lipper Analytical Services, Inc. Money Market
Variable Annuity Research & Data Service Money Market
A-5
192
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses of the issuance and distribution of the Contracts, other
than commissions on sales of the Contracts are as follows:
Amount
Securities and Exchange Commission
registration fee $ 0
Printing and engraving $1,500
Accounting fees and expenses $1,500
Legal fees and expenses $3,000
Item 15. Indemnification of Directors and Officers
Section 300.083 of Minnesota Law General Provision provides in part that a
corporation organized under such law shall have power to indemnify anyone made,
or threatened to be made, a party to a threatened, pending or completed
proceeding, whether civil or criminal, administrative or investigative, because
he is or was a director or officer of the corporation, or served as a director
or officer of another corporation at the request of the corporation.
Indemnification in such a proceeding may extend to judgments, penalties, fines
and amounts paid in settlement, as well as to reasonable expenses, including
attorneys' fees and disbursements. In a civil proceeding, there can be no
indemnification under the statute, unless it appears that the person seeking
indemnification has acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and its
shareholders and unless such person has received no improper personal benefit;
in a criminal proceeding, the person seeking indemnification must also have no
reasonable cause to believe his conduct was unlawful.
Article VI Section 5 of the By-laws of the Fortis Benefits Insurance
Company provides as follows:
Section 5. The Company shall indemnify (including therein the prepayment of
expenses) any person who is or was a director, officer or employee, or who
is or was serving at the request of the Company as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise for expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him with
respect to any threatened, pending or completed action, suit or proceedings
against him by reason of the fact that he is or was such a director,
officer or employee to the extent and in the manner permitted by law.
Section 12 of the Principal Underwriter agreement incorporated as exhibit 1 to
this registration statement (which is incorporated herein by this reference)
provides that Woodbury Financial Services, Inc. and Fortis Benefits will
indemnify each other, and each other's officers, directors and controlling
persons, with respect to certain types of misstatements or omissions in
connection with the offer and sale of the Certificates.
Certain officers, directors or controlling persons of Woodbury Financial
Services, Inc. are also officers, directors and controlling persons of Fortis
Benefits.
Pursuant to the Principal Underwriter and Servicing Agreement, Woodbury
Financial Services has agreed to indemnify Variable Account D, Fortis Benefits,
and each of its officers, directors and controlling persons for damages and
expenses (1) arising out of certain material misstatements and omissions in
connection with the offer and sale of the Contracts, if the misstatement or
omission was based on information furnished by Fortis Investors or (2) otherwise
arising out of Fortis Investors' negligence, bad faith, willful misfeasance or
reckless disregard of its responsibilities. Pursuant to its Dealer Sales
Agreements, a form of which is filed as Exhibit 3(b) to this registration
statement and is incorporated herein by this reference, firms that sell the
contracts agree to indemnify Fortis Benefits, Fortis Investors, the Separate
Account, and their officers, directors, employees, agents, and controlling
persons from liabilities and expenses arising out of the wrongful conduct or
omissions of said selling firm or its officers, directors, employees,
controlling persons or agents.
193
Item 16. Exhibits and Financial Statement Schedule
a. Exhibits
1. Form of Principal Underwriter and Servicing Agreement (Incorporated by
reference from Form N-4 Registration Statement of Fortis Benefits and
its Variable Account D filed on January 11, 1994, File No.
33-73986).
Form of Amendment to Principal Underwriting (Incorporated by reference
from Form N-4 Registration Statement of Fortis Benefits and its
Variable Account D filed on January 11, 1994, File No. 33-73986).
2. Form of Asset Transfer and Acquisition Agreement dated August 28, 1991
and supplement thereto dated October 1, 1991 (Incorporated by
reference from Form 8-K filed on October 16, 1991 (as amended by Form
8 filed on October 21, 1991), File No. 33-37576).
3. (a) Articles of Incorporation of Fortis Benefits Insurance Company
(Incorporated by reference from Form S-6 Registration Statement of
Fortis Benefits and its Variable Account C filed on March 17, 1986,
File No. 33-03919);
(b) By-laws of Fortis Benefits Insurance Company (Incorporated by
reference from Form S-6 Registration Statement of Fortis Benefits and
its Variable Account C filed on March 17, 1986, File No. 33-03919);
(c) Amendment to Articles of Incorporation and By-laws dated November
21, 1991. (Incorporated by reference from Post-Effective Amendment No.
1 to the Form N-4 Registration Statement of Fortis Benefits and its
Variable Account D filed on March 2, 1992, File No. 33-37577.)
(d) Certificate of Amendment to Bylaws of depositor dated May 1, 1999
(incorporated by reference from Form 10-K of Fortis Benefits Insurance
Company filed March 29, 2000, File No. 33-37576).
4. (a) Form of Combination Fixed and Variable Group Annuity Contract;
(Incorporated by reference from Post-Effective Amendment No. 1 to the
Form N-4 Registration Statement of Fortis Benefits and its Variable
Account D filed on March 2, 1992, File No. 33-37577).
(b) Form of Certificate to be used in connection with Contract filed
as Exhibit 4(a); (Incorporated by reference from Post-Effective
Amendment No. 1 to Form N-4 Registration Statement of Fortis Benefits
and its Variable Account D filed on March 2, 1992, File No. 33-37577).
(c) Form of Enhanced Variable Annuity Contract--filed simultaneously
herewith as a part of Post-Effective Amendment No. 13 to Form N-4 File
No. 33-37577.
(d) Form of Application to be used in connection with Certificate
filed as Exhibit 4(b). (Incorporated by reference from Post-Effective
Amendment No. 1 to the Form N-4 Registration Statement of Fortis
Benefits and its Variable Account D filed on October 27, 1995, File
No. 33-37577).
(e) Form of IRA Endorsement (Incorporated by reference from
Pre-Effective Amendment No. 1 to the Form N-4 Registration Statement
of Fortis Benefits and its Variable Account D filed on March 28, 1991,
File No. 33-37577.)
(f) Form of Section 403(b) Annuity Endorsement (Incorporated by
reference from Pre-Effective Amendment No. 1 to Form N-4 Registration
Statement of Western Life and its Variable Account D filed on March
28, 1991).
(g) Annuity Contract Exchange Form (Incorporated by reference from
Pre-Effective Amendment No. 1 to the Form N-4 Registration Statement
of Fortis Benefits and its Variable Account D filed on April 18, 1988,
File No. 33-19421).
(h) Form of Endorsement (incorporated by reference from Form N-4
Registration Statement filed by Fortis Benefits and its Variable
Account D on April 27, 1995, File No. 33-37577).
(i) Nursing Care/Hospitalization Waiver of Surrender Charge Rider
(incorporated by reference from Form N-4 Registration Statement filed
by Fortis Benefits and its Variable Account D on April 27, 1995, File
No. 33-19421).
(j) Enhanced Death Benefit Rider (incorporated by reference from Form
N-4 Registration Statement filed by Fortis Benefits and its Variable
Account D April 28, 1997, File No. 33-37577.)
(k) Disability Waiver of Surrender Charge Rider (incorporated by
reference from Form N-4 Registration Statement filed by Fortis
Benefits and its Variable Account D contemporaneously herewith, File
No. 33-37577.)
194
5. Opinion and consent of Douglas R. Lowe, Esq., Assistant General
Counsel of Fortis Benefits Insurance Company, as to the legality of
the securities being registered. (Included as part of the original
filing of this form S-1 Registration Statement filed on March 30,
1992).
10. (a) Fortis, Inc. Executive Incentive Compensation Plan (Incorporated
by reference from
(b) Fortis Appreciation Incentive Rights Plan [incorporated by
reference from Form 10-K of Fortis Benefits Insurance Company filed
March 29, 2000, File No. 33-37576].
Amendment No. 1 to Form S-1 Registration Statement of Fortis Benefits
filed on March 28, 1991, File No. 33-37576).
23. Consent of PricewaterhouseCoopers LLP and Ernst & Young LLP --
filed herewith.
24. Power of Attorney for Mr. Clayton. (Incorporated by reference from
Form S-6 Registration Statement of Fortis Benefits and its Variable
Account C filed on December 17, 1993, File No. 33-73138).
b. Not applicable.
Item 17. Undertakings
The 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;
(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,
including (but not limited to) any addition or deletion of a managing
underwriter.
(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.
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 indemnification provision described in response to
Item 14, 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 governed by the final adjudication of such issue.
195
SIGNATURES
As required by the Securities Act of 1933, the Registrant has caused this
amended Registration Statement to be signed on its behalf in the City of St.
Paul, State of Minnesota on this 17th day of April, 2001.
FORTIS BENEFITS INSURANCE COMPANY
(Registrant)
By: /s/ Robert Brian Pollock
-----------------------------------
Robert Brian Pollock, President
As required by the Securities Act of 1933, this amended Registration Statement
has been signed by the following persons, in the capacities indicated, on April
17, 2001.
Signature Title With Fortis Benefits
* ------------------------------- Chairman of the Board
J. Kerry Clayton
- -------------------------------- Director
Arie Aristide Fakkert
- -------------------------------- Director
Alan W. Feagin
/s/ Robert Brian Pollock President and Director
- -------------------------------- (Chief Executive Officer)
Robert Brian Pollock
/s/ Michael John Peninger
- -------------------------------- Director
Michael John Peninger
/s/
- -------------------------------- Treasurer
Larry M. Cains (Principal Accounting Officer and
Principal Financial Officer)
*By: /s/Robert Brian Pollock
---------------------------
Robert Brian Pollock
Attorney-in-fact
196
EXHIBIT INDEX
Item
Number Description
- ------ -----------
23. Consent of PricewaterhouseCoopers LLP
23.1 Consent of Ernst & Young LLP