[Federal Register Volume 62, Number 232 (Wednesday, December 3, 1997)]
[Notices]
[Pages 63993-63996]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31622]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22906; File No. 812-10752]


Fortis Benefits Insurance Company, et al.; Notice of Application

November 24, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

ACTION: Notice of Application for an order pursuant to Section 26(b) of 
the Investment Company Act of 1940 (the ``1940 Act'').

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SUMMARY OF APPLICATION: Applicants seek an order approving the 
substitution of shares of the Limited Maturity Bond Portfolio of the 
Neuberger & Berman Advisers Management Trust (``N & B Bond Portfolio'') 
for shares of the Strong Advantage Fund II series (``Strong Advantage 
Portfolio'') of the Strong Variable Insurance Funds, Inc. (``Strong 
Funds'') and the substitution of shares of the Federated Fund for U.S. 
Government Securities II portfolio of Federated Insurance Series 
(``Federated Government Portfolio'') for shares of the Strong 
Government Securities Fund II series of the Strong Funds (``Strong 
Government Portfolio'').
    Applicants: Fortis Benefits Insurance Company (``Fortis Benefits'') 
and Variable Account D of Fortis Benefits Insurance Company (the 
``Variable Account'').
    Filing Date: The application was filed on August 11, 1997, and 
amended on October 31, 1997 .
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing on this application by writing 
to the Secretary of the SEC and serving Applicants with a copy of the 
request, in person or by mail. Hearing requests must be received by the 
Commission by 5:30 p.m. on December 19, 1997, and accompanied by proof 
of service on the Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the requester's interest, the reason for the request and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Secretary of the SEC.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, 500 Bielenberg Drive, Woodbury, Minnesota 55125.

FOR FURTHER INFORMATION CONTACT: Susan M. Olson, Attorney, or Kevin M. 
Kirchoff, Branch Chief, Office of Insurance Products, Division of 
Investment Management, at (202) 942-0670.

SUPPLEMENTARY INFORMATION: Following is a summary of the application. 
The complete application is available for a fee from the Public 
Reference Branch of the SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Fortis Benefits, a stock life insurance company organized under 
the laws of Minnesota, is qualified to sell life insurance contracts in 
the District of Columbia and all states except New York. Fortis 
Benefits is an indirect wholly-owned subsidiary of Fortis, Inc., which 
is owned, indirectly, 50% by Fortis AMEV and 50% by Fortis AG. Fortis 
AMEV is a diversified financial

[[Page 63994]]

services company headquartered in Utrecht, the Netherlands. Fortis AG 
is a diversified financial services company headquartered in Brussels, 
Belgium. Fortis AMEV and Fortis AG have merged their operating 
companies under the trade name of Fortis. Fortis Benefits is the 
depositor and sponsor of the Variable Account.
    2. The Variable Account is a segregated investment account of 
Fortis Benefits and was established under the insurance laws of 
Minnesota. The Variable Account is registered with the Commission as a 
unit investment trust under the 1940 Act. The Variable Account issues 
flexible premium deferred combination variable and fixed annuity 
contracts on either a group basis or as individual contracts 
(``Contracts'', and owners of which are referred to as ``Holders''). 
Interests in the Variable Account are offered through the sale of the 
Contracts and are registered under the Securities Act of 1933 (``1933 
Act''). The Contracts are structured to allow Holders to elect an 
interest accumulation option through a fixed account (the ``Fixed 
Account'') or a variable return accumulation option through the 
Variable Account, or a combination of these two options.
    3. The Variable Account is divided into subaccounts 
(``Subaccounts''). Assets held in each Subaccount pursuant to the 
Contracts are invested exclusively in one of the funds or portfolios 
available for investment. The portfolios are registered investment 
companies available for purchase only as a funding vehicle for variable 
life insurance and variable annuities issued by Fortis Benefits and 
other insurance companies (the ``Portfolios''). For Holders who were 
issued Contracts on or after December 1, 1996, there are 22 Subaccounts 
available for investment. The Strong Advantage Portfolio and the Strong 
Government Portfolio are not available for investment to Holders issued 
Contracts on or after December 1, 1996. For Holders issued Contracts 
before December 1, 1996, there are 30 Subaccounts available for 
investment, including the Strong Advantage Portfolio and the Strong 
Government Portfolio.
    4. Strong Funds is registered under the 1940 Act as a diversified, 
open-end management investment company and currently issues seven 
series of shares, each of which is a separate open-end diversified 
investment management company. Each series of the Strong Funds is 
managed by Strong Capital Management.
    5. Neuberger & Berman Advisers Management Trust is registered under 
the 1940 Act as a diversified, open-end management investment company 
and currently is comprised of seven portfolios, each of which is a 
separate open-end diversified management investment company. Each 
portfolio invests all of its net assets in its corresponding series of 
Advisers Managers Trust, an open end management investment company, in 
each case receiving a beneficial interest in that series. The 
corresponding series for the N & B Bond Portfolio is AMT Limited 
Maturity Bond Investment. AMT Limited Maturity Bond Investments invests 
in securities in accordance with an investment objective, policies and 
limitations identical to those of the N & B Bond Portfolio. The 
investment performance of the N & B Bond Portfolio will directly 
correspond with the investment performance of AMT Limited Maturity Bond 
Investments. This master/feeder fund structure is different from that 
of many investment companies which directly acquire and manage their 
own portfolio of securities. AMT Limited Maturity Bond Investment is 
managed by Neuberger & Berman Management Incorporated.
    6. Federated Insurance Series is registered under the 1940 Act as a 
diversified management investment company. The Federated Government 
Portfolio is a diversified investment portfolio of the Federated 
Insurance Series.
    7. Applicants are seeking to substitute shares of the N & B Bond 
Portfolio for shares of the Strong Advantage Portfolio and to 
substitute shares of the Federated Government Portfolio for shares of 
the Strong Government Portfolio.
    8. Applicants represent that as of June 30, 1997, the assets 
attributable to Holders of the Subaccounts holding shares of the Strong 
Advantage Portfolio and the Strong Government Portfolio were relatively 
small, $152,580 and $96,408, respectively.
    9. Applicants represent that as of June 30, 1997, the total net 
asset value of the Strong Advantage Portfolio and Strong Government 
Portfolio were relatively small, $192,723 and $96,453 , respectively.
    10. Applicants represent that there has been a decrease in net 
asset value during 1997, as of June 30, 1997. From December 31, 1996 to 
June 30, 1997, the Strong Advantage Portfolio has decreased in size 
from $587,615 to $192,723 and the Strong Government Portfolio has 
decreased from $199,328 to $96,453.
    11. The investment objective of the Strong Advantage Portfolio is 
to seek current income with a very low degree of share price 
fluctuation, which is pursued by investing in very short term, 
investment grade debt obligations. The investment objective of the 
Strong Government Portfolio is to seek total return by investing for a 
high level of current income with a moderate degree of share price 
fluctuation, which is pursued by normally investing at least 80% of 
total assets in U.S. government securities.
    12. The investment objective of the N & B Bond Portfolio is to seek 
the highest current income consistent with low risk to principal and 
liquidity and secondarily, total return. The investment objective of 
the N & B Bond Portfolio is pursued by investing in a diversified 
portfolio of short to intermediate term U.S. government and agency 
securities and debt securities issued by financial institutions, 
corporations and others, primarily investment grade. The investment 
objective of the Federated Government Portfolio is to seek current 
income, which is pursued by normally investing at least 65% of total 
assets in securities issued or guaranteed as to payment of principal 
and interest by the U.S. government, its agencies or instrumentalities.
    13. For several reasons, Applicants believe that it is not in the 
best interests of the Holders to continue to utilize the Strong 
Advantage Portfolio and Strong Government Portfolio (collectively, the 
``Replaced Portfolios'') as investment options and further believe that 
the Applicants can better serve the interest of the Holders by 
utilizing investment alternative that may be better suited to their 
needs and interests.
    14. Applicants represent that the proposed substitution of shares 
of the N & B Bond Portfolio for shares of the Strong Advantage 
Portfolio and the proposed substitution of shares of the Federated 
Government Portfolio for shares of the Strong Government Portfolio 
involve the substitution of Portfolios whose objectives, policies and 
restrictions are sufficiently similar to those of the Replaced 
Portfolios so as to continue fulfilling Holders' objectives and risk 
expectations.
    15. Applicants represent that the performance of each Portfolio in 
which Holders will be invested following the proposed substituon is 
comparable or superior to the investment performance of the replaced 
Portfolios. The following chart sets forth the comparative average 
annual total returns for the periods listed below for the Replaced 
Portfolios and the N & B Bond Portfolio and the Federated Government 
Portfolio.

[[Page 63995]]



                                Average Annual Total Return for Specified Periods                               
                                                  [In percent]                                                  
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                                                                                                       Since    
                                                   For 6 months,     For year        For five       inception** 
                   Portfolios                     ending 6/30/97   ending 12/30/   years, ending  through  12/30/
                                                                        96           12/30/96           96      
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Strong Advantage Portfolio......................           *2.30            4.92             N/A            5.24
N & B Bond Portfolio............................           *2.96            4.31            5.32             N/A
Strong Government Portfolio.....................           *2.60             N/A             N/A           -0.41
Federated Government Portfolio..................           *3.01            4.20             N/A            5.62
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* Not Annualized.                                                                                               
** Strong Advantage Portfolio, inception date 11/30/95. Strong Government Portfolio, inception date 1/31/96.    
  Federated Government Portfolio, inception date 3/28/94.                                                       

    16. Applicants represent that the ratio of expenses to net assets 
for the Subaccounts in which Holders will be invested after the 
substitution will be no greater than the ratio of expenses to net 
assets, after reimbursements and waivers, for the Subaccounts proposed 
to be eliminated. Therefore Holders will not be exposed to higher 
expenses following the substitution. The investment advisers to the 
Strong Advantage Portfolio, the Strong Government Portfolio and the 
Federated Government Portfolio have arrangements under which each may 
voluntarily waive a portion of their fees or reimburse the Portfolios 
for certain operating expenses. The investment adviser to the N & B 
Bond Portfolio has contractually agreed, subject to termination on 60 
days prior written notice, to limit certain of the N & B Bond 
Portfolio's operating expenses by reimbursing certain expenses that 
exceed 1% of the average daily net asset value of the N & B Bond 
Portfolio. The following chart summarizes the ratio of expenses to net 
assets for the Portfolios for the year ended December 31, 1996 before 
and after reimbursements and waivers.

  Ratio of Expenses to Net Assets for the Year Ended December 31, 1996  
                              [In percent]                              
------------------------------------------------------------------------
                                          Total expenses  Total expenses
                                               after          before    
                Portfolio                 reimbursements  reimbursements
                                            and waivers     and waivers 
------------------------------------------------------------------------
Strong Advantage Portfolio..............          2.00            2.87  
N & B Bond Portfolio....................          0.78            0.78  
Strong Government Portfolio.............         *1.70           *3.90  
Federated Government Portfolio..........          0.80            1.81  
------------------------------------------------------------------------
* Calculated on an annualized basis (commenced operations on January 31,
  1996).                                                                

    17. Applicant states that the small amount of assets attributable 
to Holders of the Subaccounts holding shares of the Replaced 
Portfolios, the relatively small total net asset values of the Replaced 
Portfolios, the relatively small overall size of the Replaced 
Portfolios with the decrease in net asset value during the first 6 
months of 1997 and the fact that the Replaced Portfolios are not 
available as investment options to Holders of Contracts issued after 
December 1, 1996, will tend to strain the ability of the Replaced 
Portfolios to maintain an acceptable expense ratio compared to the 
larger N & B Bond Portfolio and the Federated Government Portfolio 
(collectively, the ``Substitute Portfolios''). Accordingly, the 
proposed substitution is expected to confer economic benefits to 
Holders by virtue of the enhanced asset size and the reduced expense 
ratios of the Substitute Portfolios.
    18. The comparative total net assets as of June 30, 1997 were 
$252,284,067 for the N & B Bond Portfolio, compared to $192,723 for the 
Strong Advantage Portfolio, and $44,369,652 for the Federated 
Government Portfolio, compared to $96,453 for the Strong Government 
Portfolio.
    19. Applicants state that since the N & B Bond Portfolio and the 
Federated Government Portfolio are available for investment under the 
Contracts, all of the affected Holders have received a current 
prospectus relating to the N & B Bond Portfolio and the Federated 
Government Portfolio.
    20. Applicants state that notice will be sent to Holders 30 days 
prior to the proposed substitution which informs them that Fortis 
Benefits has filed an application for an order allowing Applicants to 
undertake the substitution described in their application and that they 
may elect at any time prior to the close of business on the closing 
date of the transactions to transfer their interest in either or both 
of the two current Subaccounts to any other Subaccount or to the Fixed 
Account, without charge. The notice will also inform Holders of the 
approximate date of the substitution. Once the substitution is 
completed, a confirmation will be mailed to the Holders reflecting the 
transfer of the Contract value from the Subaccount investing in the 
Strong Advantage Portfolio to the Subaccount investing in the N & B 
Bond Portfolio and/or the transfer of Contract value from the 
Subaccount investing in the Strong Government Portfolio to the 
Subaccount investing in the Federated Government Portfolio. The 
confirmation will be sent within 5 days of the substitution.
    21. Applicants represent that the substitution will be effected by 
redeeming all shares held by the Variable Account in the Strong 
Advantage Portfolio and the Strong Government Portfolio and an 
equivalent purchase of shares in the N & B Bond Portfolio and the 
Federated Government Portfolio, respectively, at net asset value on the 
same date. The values under each Contract will be identical immediately 
before and after the transactions. All administrative and other costs 
of the transactions will be borne by Fortis Benefits. There will be no 
tax consequences to Holders and no adverse tax consequences to the 
Variable Account or Fortis Benefits relating to the transactions. The 
proposed substitution will not be counted as a transfer for the purpose 
of any restrictions on the number of transfers that may now or in the 
future apply to Holders. The proposed substitution will not alter the 
insurance benefits or other rights or benefits of Holders or the 
contractual obligations of Fortis Benefits.

Applicants' Legal Analysis

    1. Section 26(b) provides, in pertinent part, that ``[i]t shall be 
unlawful for any depositor or trustee of a registered unit investment 
trust holding the security of a single issuer to substitute another 
security for such security unless the Commission shall have approved 
such substitution.'' Section 26(b) of the 1940

[[Page 63996]]

Act also provides that the Commission shall issue an order approving 
such substitution if the evidence establishes that the substitution is 
consistent with the protection of investors and the purposes fairly 
intended by the policies and provisions of the 1940 Act.
    2. Applicants request an order pursuant to Section 26(b) of the 
1940 Act approving the substitution of the Replaced Portfolios with the 
Substitute Portfolios.
    3. The Contracts provide that Fortis Benefits retains the right to 
make certain changes, if, in its judgment, they would best serve the 
interests of the Holders or would be appropriate in carrying out the 
purposes of the Contracts. Examples of the changes Fortis Benefits may 
make are to transfer assets in any Subaccount to another Subaccount, or 
to one or more separate accounts, or to add, combine or remove 
Subaccounts in the Variable Account or 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.
    4. Applicants submit that the proposed substitution will meet the 
requirements of Section 26(b) for the following reasons:

    (a) The investment objectives of the Replaced Portfolios are 
sufficiently similar to those of the Substitute Portfolios, 
respectively, to be appropriate for substitution.
    (b) The investment performance of the Substitute Portfolios is 
comparable or superior to the investment performance of the Replaced 
Funds.
    (c) The comparative ratio of expenses to net assets (following 
reimbursement) for the Substitute Portfolios will be no greater than 
that of the Replaced Portfolios.
    (d) The proposed substitution will result in the investment of 
assets, currently in Portfolios which have not increased to a level 
which would make each investment alternative viable for Holders, 
into substantially larger and more stable underlying Portfolios.

Conclusion

    For the reasons stated above, Applicants submit that the proposed 
substitution is consistent with the protection of investors and the 
purposes fairly intended by the policy and the provisions of the 1940 
Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-31622 Filed 12-2-97; 8:45 am]
BILLING CODE 8010-01-M