<PAGE>   1

FORTIS

EMPOWER
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]
99185 (5/01)

FORTIS BENEFITS INSURANCE COMPANY

<TABLE>
<S>              <C>                   <C>
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
</TABLE>

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):

<TABLE>
<S>                                           <C>
Money Market Series                           T. Rowe Price -- Blue Chip Stock Series
U.S. Government Securities Series             AIM -- Blue Chip Stock Series II
Diversified Income Series                     Lazard Freres -- International Stock
AIM -- Multisector Bond Series                Series
High Yield Series                             Dreyfus -- Mid Cap Stock Series
T. Rowe Price -- International Stock Series   Berger -- Small Cap Value Series
II                                            Global Growth Series
Asset Allocation Series                       MFS -- Global Equity Series
Federated -- American Leaders Series          Alliance -- Large Cap Growth Series
Value Series                                  MFS -- Investors Growth Series
MFS -- Capital Opportunities Series           Growth Stock Series
Growth & Income Series                        Aggressive Growth Series
Dreyfus -- S&P 500 Index Series
</TABLE>

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 xx of this prospectus.
THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK,
CREDIT UNION, BROKER-DEALER OR OTHER FINANCIAL INSTITUTION. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. THEY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>   2


TABLE OF CONTENTS

<TABLE>
<S>                                                             <C>
Special Terms Used in this Prospectus.......................      3
Information Concerning Fees and Charges.....................      4
Summary of Contract Features................................      6
     - Fortis Benefits/Fortis Financial Group Member........      8
The Variable Account........................................      8
The Portfolios..............................................      8
The Fixed Account...........................................      9
     - Guaranteed Interest Rates/Guarantee Periods..........      9
     - Market Value Adjustment..............................      9
     - Investments by Fortis Benefits.......................     10
Accumulation Period.........................................     11
     - Issuance of a Contract and Purchase Payments.........     11
     - Contract Value.......................................     11
     - Allocation of Purchase Payments and Contract Value...     12
     - Total and Partial Surrenders.........................     12
     - Telephone Transactions...............................     13
     - Benefit Payable on Death of Contract Owner (or
      Annuitant)............................................     13
The Annuity Period..........................................     13
     - Annuity Commencement Date............................     13
     - Commencement of Annuity Payments.....................     14
     - Relationship Between Subaccount Investment
      Performance and Amount of Variable Annuity Payments...     14
     - Annuity Options......................................     14
     - Death of Annuitant or Other Payee....................     15
Charges and Deductions......................................     15
     - Premium Taxes........................................     15
     - Annual Administrative Charge.........................     15
     - Charges Against the Variable Account.................     15
     - Tax Charge...........................................     16
     - Miscellaneous........................................     16
General Provisions..........................................     16
     - The Contracts........................................     16
     - Postponement of Payment..............................     16
     - Misstatement of Age or Sex and Other Errors..........     16
     - Assignment...........................................     16
     - Beneficiary..........................................     16
     - Reports..............................................     16
Rights Reserved by Fortis Benefits..........................     16
Distribution................................................     17
Federal Tax Matters.........................................     17
Further Information About Fortis Benefits...................     19
     - General..............................................     19
     - Ownership of Securities..............................     19
     - Selected Financial Data..............................     20
     - Management's Discussion and Analysis of Financial
      Condition and Results of Operations...................     20
Voting Privileges...........................................     22
Other Information...........................................     22
Contents of Statement of Additional Information.............     22
Fortis Benefits Financial Statements........................     22
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
</TABLE>


THE CONTRACTS ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. FORTIS BENEFITS DOES NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS WHICH IS NOT
INCLUDED IN THIS PROSPECTUS, THE RELATED STATEMENT OF ADDITIONAL INFORMATION, OR
ANY SUPPLEMENTS THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY
FORTIS BENEFITS.
<PAGE>   3

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 contract 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 contract 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.

Five Year Anniversary
                   The fifth anniversary of a contract issue date, and each
                   subsequent fifth anniversary of that date.

Fixed Annuity Option
                   An annuity option under which Fortis Benefits promises to pay
                   the Annuitant or any other 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
<PAGE>   4

INFORMATION CONCERNING FEES AND CHARGES

CONTRACT OWNER TRANSACTION CHARGES

<TABLE>
<S>  <C>                                                             <C>     <C>
     Front-End Sales Charge Imposed on Purchases.................       0%
     Maximum Surrender Charge for Sales Expenses.................       0%
     Other Surrender Fees........................................       0%
     Exchange Fee................................................       0%
     ANNUAL CONTRACT ADMINISTRATION CHARGE.......................      $30(1)
</TABLE>

<TABLE>
<S>                                                             <C>   <C>
VARIABLE ACCOUNT ANNUAL EXPENSES
  (AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
     Mortality and Expense Risk Charge......................     1.10%
     Variable Account Administrative Charge.................      .15%
       Total Variable Account Annual Expenses...............     1.25%
</TABLE>

------------------------------
(1) This charge, which is otherwise applied at each contract anniversary and
    total surrender of the contract, will not be charged during the Accumulation
    Period if the contract value as of such anniversary or surrender is $100,000
    or more. Currently, Fortis Benefits waives this charge during the Annuity
    Period. This charge is also subject to any applicable limitations under the
    law of any state.

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. It is computed pursuant to a formula that is
described in more detail under "Market Value Adjustment."

PORTFOLIO ANNUAL EXPENSES(a)

<TABLE>
<CAPTION>
                                             U.S.                    MULTI
                                 MONEY    GOVERNMENT   DIVERSIFIED   SECTOR    HIGH    INTERNATIONAL     ASSET      AMERICAN
                                 MARKET   SECURITIES     INCOME       BOND    YIELD        STOCK       ALLOCATION   LEADERS
                                 SERIES     SERIES       SERIES      SERIES   SERIES     SERIES II       SERIES      SERIES
                                 ------   ----------   -----------   ------   ------   -------------   ----------   --------
<S>                              <C>      <C>          <C>           <C>      <C>      <C>             <C>          <C>
Investment Advisory and
  Management Fee...............   0.30%      0.47%        0.48%       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 Series Fund Operating
  Expenses.....................   0.36%      0.52%        0.53%       0.94%    0.56%       1.06%          0.51%       1.25%

<CAPTION>
                                                           GROWTH      S&P
                                             CAPITAL         &         500
                                 VALUE    OPPORTUNITIES    INCOME     INDEX
                                 SERIES      SERIES        SERIES    SERIES
                                 ------   -------------   --------   -------
<S>                              <C>      <C>             <C>        <C>
Investment Advisory and
  Management Fee...............   0.70%       0.90%         0.63%     0.40%
Other Expenses.................   0.06%       0.41%         0.04%     0.05%
Total Series Fund Operating
  Expenses.....................   0.76%       1.31%         0.67%     0.45%
</TABLE>


<TABLE>
<CAPTION>
                                                          BLUE                       MID     SMALL                      LARGE
                                            BLUE CHIP     CHIP                       CAP      CAP     GLOBAL   GLOBAL    CAP
                                              STOCK       STOCK     INTERNATIONAL   STOCK    VALUE    GROWTH   EQUITY   GROWTH
                                             SERIES     SERIES II   STOCK SERIES    SERIES   SERIES   SERIES   SERIES   SERIES
                                            ---------   ---------   -------------   ------   ------   ------   ------   ------
<S>                                         <C>         <C>         <C>             <C>      <C>      <C>      <C>      <C>
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 Series Fund Operating Expenses......    0.92%       1.38%         0.93%        1.05%    1.03%    0.75%    1.43%    0.96%

<CAPTION>

                                            INVESTORS   GROWTH   AGGRESSIVE
                                             GROWTH     STOCK      GROWTH
                                             SERIES     SERIES     SERIES
                                            ---------   ------   ----------
<S>                                         <C>         <C>      <C>
Investment and Management Fee.............    0.90%      0.61%      0.62%
Other Expenses............................    0.49%      0.03%      0.04%
Total Series Fund Operating Expenses......    1.39%      0.64%      0.66%
</TABLE>


------------------------------

(a) As a percentage of Portfolio 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%.


                                        4
<PAGE>   5

EXAMPLES*

If you commence an annuity payment option, or whether you do or do not surrender
your contract, you would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return on assets:


<TABLE>
<CAPTION>
       IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO:            1 YEAR    3 YEARS    5 YEARS    10 YEARS
       ---------------------------------------------            ------    -------    -------    --------
<S>                                                             <C>       <C>        <C>        <C>
Money Market................................................     $17        $51       $ 88        $192
US Government Securities....................................      18         56         96         209
Diversified Income..........................................      18         56         97         210
Multisector Bond............................................      22         69        118         253
High Yield..................................................      19         57         99         214
International Stock Series II...............................      24         72        124         265
Asset Allocation............................................      18         56         96         208
American Leaders............................................      25         78        133         284
Value.......................................................      21         63        109         234
Capital Opportunities.......................................      26         80        136         290
Growth & Income.............................................      20         61        104         225
S&P 500 Index...............................................      17         54         93         202
Blue Chip Stock.............................................      22         68        117         251
Blue Chip Stock II..........................................      27         82        140         297
International Stock.........................................      22         68        117         252
MidCap Stock Series.........................................      23         72        123         264
Small Cap Value Series......................................      23         71        122         262
Global Growth...............................................      20         63        108         233
Global Equity...............................................      27         83        142         302
Large Cap Growth Series.....................................      23         69        119         255
Investors Growth Series.....................................      27         82        140         298
Growth Stock................................................      19         60        103         222
Aggressive Growth...........................................      20         60        104         224
</TABLE>


------------------------------
* For purposes of these examples, the effect of the annual contract
  administration charge has been computed based on the average total Contract
  Value during the year ended December 31, 2000 for similar contracts and the
  total actual amount of annual contract administration charges collected during
  the year. For the purpose of these examples, Portfolio annual expenses are
  assumed to continue at the rates set forth in the table above. Also, the
  examples do 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 the portfolios. We will deduct amounts for state premium taxes or
similar assessments where these are applicable.

See Appendix C for an explanation of the calculation of the amounts set forth
above.

                                        5
<PAGE>   6

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 $25,000 ($10,000
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 the owner may
subsequently 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.

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 any 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.

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 (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," 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

                                        6
<PAGE>   7

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.

FINANCIAL AND PERFORMANCE INFORMATION

The information presented below reflects the Accumulation Unit information for
subaccounts of the Separate Account through December 31, 1999.
<TABLE>
<CAPTION>
                                  MONEY      U.S. GOV'T   DIVERSIFIED   MULTISECTOR     HIGH      INTERNATIONAL      ASSET
                                  MARKET     SECURITIES     INCOME         BOND         YIELD       STOCK II      ALLOCATION
                                  ------     ----------   -----------   -----------     -----     -------------   ----------
<S>                             <C>          <C>          <C>           <C>           <C>         <C>             <C>
December 31, 2000
 Accumulation Units in
   Force......................
 Accumulation Unit Values.....
December 31, 1999
 Accumulation Units in
   Force......................     572,289     442,615       134,641        64,476       81,390        79,963         584,816
 Accumulation Unit Values.....  $   10.640   $  10.243    $   10.015     $  10.021    $   9.699     $  10.103     $    12.888
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

<CAPTION>
                                AMERICAN                  CAPITAL       GROWTH &
                                LEADERS      VALUE     OPPORTUNITIES     INCOME
                                --------     -----     -------------    --------
<S>                             <C>        <C>         <C>             <C>
December 31, 2000
 Accumulation Units in
   Force......................
 Accumulation Unit Values.....
December 31, 1999
 Accumulation Units in
   Force......................     --        113,583         --           202,247
 Accumulation Unit Values.....    $--      $  10.435        $--        $   11.113
December 31, 1998
 Accumulation Units in
   Force......................     --      4,869,102         --        12,171,938
 Accumulation Unit Values.....    $--      $  14.768        $--        $   21.767
</TABLE>
<TABLE>
<CAPTION>
                                               BLUE       BLUE     INTERNATIONAL     GLOBAL     GLOBAL     GROWTH      AGGRESSIVE
                                 S&P 500       CHIP      CHIP II       STOCK         GROWTH     EQUITY      STOCK        GROWTH
                                 -------       ----      -------   -------------     ------     ------     ------      ----------
<S>                             <C>          <C>         <C>       <C>             <C>          <C>      <C>           <C>
December 31, 2000
 Accumulation Units in
   Force......................
 Accumulation Unit Values.....
December 31, 1999
 Accumulation Units in
   Force......................     857,907     635,603      --         270,261        117,470     --         153,315     216,039
 Accumulation Unit Values.....  $   13.031   $  13.021     $--       $  12.023     $   14.823    $--     $    15.898   $  21.505
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

<CAPTION>
                                MID CAP   LARGE CAP   INVESTORS   SMALL CAP
                                 STOCK     GROWTH      GROWTH       VALUE
                                -------   ---------   ---------   ---------
<S>                             <C>       <C>         <C>         <C>
December 31, 2000
 Accumulation Units in
   Force......................
 Accumulation Unit Values.....
December 31, 1999
 Accumulation Units in
   Force......................  107,955    359,451        --        186,047
 Accumulation Unit Values.....  $10.555    $14.779       $--      $  10.677
December 31, 1998
 Accumulation Units in
   Force......................  765,338    842,995        --      1,098,102
 Accumulation Unit Values.....  $ 9.625    $11.755       $--      $   9.367
</TABLE>

                                        7
<PAGE>   8

Financial statements for the subaccounts 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 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 FINANCIAL GROUP MEMBER


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   , 2001, Fortis Benefits contracted the administrative
servicing obligations for the contracts to Hartford Life and Annuity Insurance
Company ("Hartford L&A"), a subsidiary of The Hartford Financial Services Group
("Hartford"). Although Fortis Benefits remains responsible for all contract
terms and conditions, Hartford L&A is responsible for servicing the contracts,
including the payment of benefits, oversight of investment management (i.e., the
Portfolios) and overall contract administration. This was part of a larger
transaction whereby Hartford L&A reinsured all of the individual life insurance
and annuity business of Fortis Benefits.

Additionally, as part of the transaction, Hartford Life and Accident, another
subsidiary of Hartford, purchased all of the stock of Fortis Advisers, Inc., the
investment manager for the Portfolios and Fortis Investors, Inc., the principal
underwriter of the contracts.

THE 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.
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 ac-

                                        8
<PAGE>   9

counts, (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.

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
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 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.

                                        9
<PAGE>   10

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:

<TABLE>
         <S>  <C>           <C>  <C>     <C>
                 1 + I           n/12
              ------------               - 1
         (    1 + J + .005  )
</TABLE>

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,

     - real estate, and

     - certain other investments.

See "Fortis Benefits' Financial Statements" for information on our investments.
Investment management for amounts in our general account and in the fixed
account is provided to us by Fortis Advisors, Inc.

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".

                                        10
<PAGE>   11

ACCUMULATION PERIOD

ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS

We reserve the right to reject any application for a contract or any purchase
payment for any reason. If we accept your issuing instructions in the form
received, we will credit the initial purchase payment within two Valuation Dates
after the later of (1) receipt of the issuing instructions or (2) receipt of the
initial purchase payment at our home office. If we cannot apply the initial
purchase payment within five Valuation Dates after receipt because the issuing
instructions are incomplete, we will return the initial purchase payment unless
you consent to our retaining the initial purchase payment and applying it as of
the end of the Valuation Period in which the necessary requirements are
fulfilled. The initial purchase payment must be at least $25,000 ($10,000 for a
contract issued 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 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.

                                        11
<PAGE>   12

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 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 contract owner (or Annuitant if the contract owner is not
a natural person) 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 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 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. 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 sur-

                                        12
<PAGE>   13

render 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 death benefit will be equal to the greater of (1), (2), or (3) as follows:

(1) The contract value as of the date used for valuing the death benefit.

(2) The sum of all purchase payments made less pro rata adjustments for each
    partial withdrawal.

(3) The highest anniversary value of each of the contract's Five Year
    Anniversaries prior to the earlier of: (1) the decedent's death, or (2) the
    contract owner's attainment of age 75.

     An Anniversary Value is equal to:

     (a) the contract value on the anniversary, plus,

     (b) any purchase payment made since the anniversary, reduced by

     (c) pro rata adjustments for any withdrawals made since the anniversary.

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

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<PAGE>   14

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.

"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 1.25%.

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.

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<PAGE>   15

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.

ANNUAL ADMINISTRATIVE CHARGE

A $30 annual administrative charge is deducted from the contract value on each
anniversary of the contract date. Some states require a lower administration
charge. Therefore, your annual administrative charge may be lower. This charge
helps to cover administrative costs incurred in:

     - issuing contracts,

     - establishing and maintaining records relating to contracts,

     - making regulatory filings and furnishing confirmation notices,

     - voting materials and other communications,

     - providing computer, actuarial and accounting services, and

     - processing contract transactions.

We will initially waive this charge during the Annuity Period, although we
reserve the right to reinstate it at any time. In addition, we will waive this
charge during the Accumulation Period if the contract value is $100,000 or more
at the end of the contract year. We will also waive this charge upon total
surrender.

We will deduct the annual administrative charge by redeeming Accumulation Units
from each subaccount of the Variable Account and by redeeming Accumulation Units
from the fixed account. Contract value is the total value of the Variable
Account and the fixed account. We will redeem Accumulation Units in proportion
to the allocation of contract value among both:

     - the subaccounts of the Variable Account, and

     - the fixed account

If you totally surrender the contract and the contract value is less than
$100,000, we will deduct the full annual administration charge at the time of
surrender.

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 1.10% of the average daily net assets of the Variable
Account. It consists of approximately .80% for mortality risk and approximately
 .30% 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 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, 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 .15% 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

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<PAGE>   16

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.

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.

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).

     - 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.

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<PAGE>   17

     - 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

Fortis Investors, Inc. ("Fortis Investors") is the principal underwriter of the
contracts. The contracts will be sold by individuals who are licensed by state
insurance authorities to sell the contracts of Fortis Benefits, and (1) are
registered representatives of Fortis Investors, or (2) are registered
representatives of other broker-dealer firms or (3) are representatives of other
firms that are exempt from broker dealer regulation. Fortis Investors and any
other broker-dealer firms are (1) registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as broker-dealers, and (2)
members of the National Association of Securities Dealers, Inc.

Fortis Investors will pay an allowance to its registered representatives and
selling brokers in varying amounts. Fortis Investors does not expect the
allowances under normal circumstances to exceed 2.15% of purchase payments plus
a servicing fee of 1% of contract value per year, starting in the second
contract year.

Fortis Investors may, under certain flexible compensation arrangements, pay
lesser or greater selling allowances and larger or smaller service fees to its
registered representatives and other broker dealer firms than as set forth
above. However, in such case, such flexible compensation arrangements will have
actuarial present values that are approximately equivalent to the amounts of the
selling allowances and service fees set forth above. Additionally, registered
representatives, broker-dealer firms and exempt firms may qualify for additional
compensation based upon meeting certain production standards. Fortis Investors
may 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
Fortis Investors for annuity contract distribution services during 1998, 1999
and 2000 respectively, $5,389,151 of which 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 Fortis
Investors (and its agents, employees, and controlling persons) for certain
damages and expenses, including those arising under federal securities laws.


Fortis Benefits or Fortis Investors may also provide additional compensation to
broker-dealers in connection with sales of contracts. Compensation may include
financial assistance to broker-dealers in connection with (1) conferences, (2)
sales or training programs for their employees, (3) seminars for the public, (4)
advertising, (5) sales campaigns regarding contracts, and (6) other
broker-dealer sponsored programs or events. Compensation may also include trips
taken by invited sales representatives and their family members to locations
within or without the United States for business meetings or seminars. Fortis
Benefits or Fortis Investors may pay travel expenses that arise from these
trips.

See the Notes to Fortis Benefits' Financial Statements as to amounts it has paid
to Fortis, Inc. for various services.

Fortis Investors is an indirect subsidiary of Fortis (NL)N.V. and Fortis (B).
Fortis Investors is under common control with Fortis Benefits. Fortis Investors'
principal business address is the same as that of our home office. Fortis
Investors is not obligated to sell any specific amount of interests under the
contracts. $45,000,000 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.

                                        17
<PAGE>   18

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 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

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<PAGE>   19

     - 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(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
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 the 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.

                                        19
<PAGE>   20

SELECTED FINANCIAL DATA

The following is a summary of certain financial data of Fortis Benefits. This
summary has been derived in part from the financial statements of Fortis
Benefits included elsewhere in this prospectus. You should read the following
along with these financial statements.


<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                          ------------------------------------------------------------------
                    (IN THOUSANDS)                           2000          1999          1998          1997          1996
                    --------------                           ----          ----          ----          ----          ----
<S>                                                       <C>           <C>           <C>           <C>           <C>
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.........................    $1,685,930    $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
</TABLE>


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


                                        20
<PAGE>   21


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.



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.



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

                                        21
<PAGE>   22

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 96% 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

<TABLE>
<S>                                                <C>
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............
</TABLE>

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.


                                        22
<PAGE>   23


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
<PAGE>   24

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
<PAGE>   25


BALANCE SHEETS


FORTIS BENEFITS INSURANCE COMPANY


(IN THOUSANDS, EXCEPT SHARE DATA)



<TABLE>
<CAPTION>
                                                                      DECEMBER 31
                                                                ------------------------
                                                                   2000          1999
                                                                ----------    ----------
<S>                                                             <C>           <C>
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
                                                                ==========    ==========
</TABLE>



    The accompanying notes are an integral part of the financial statements.


                                       F-3
<PAGE>   26

BALANCE SHEETS


FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)


(IN THOUSANDS, EXCEPT SHARE DATA)



<TABLE>
<CAPTION>
                                                                      DECEMBER 31
                                                                ------------------------
                                                                   2000          1999
                                                                ----------    ----------
<S>                                                             <C>           <C>
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
                                                                ==========    ==========
</TABLE>



    The accompanying notes are an integral part of the financial statements.


                                       F-4
<PAGE>   27


STATEMENTS OF INCOME


FORTIS BENEFITS INSURANCE COMPANY


(IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31
                                                                --------------------------------------
                                                                   2000          1999          1998
                                                                ----------    ----------    ----------
<S>                                                             <C>           <C>           <C>
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
                                                                ==========    ==========    ==========
</TABLE>



    The accompanying notes are an integral part of the financial statements.


                                       F-5
<PAGE>   28


STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY


FORTIS BENEFITS INSURANCE COMPANY


(IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                                           ACCUMULATED
                                                               ADDITIONAL                     OTHER
                                                     COMMON     PAID-IN      RETAINED     COMPREHENSIVE
                                          TOTAL      STOCK      CAPITAL      EARNINGS     (LOSS) INCOME
                                        ---------    ------    ----------    ---------    -------------
<S>                                     <C>          <C>       <C>           <C>          <C>
Balance, 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)
                                        =========    ======     ========     =========      =========
</TABLE>



    The accompanying notes are an integral part of the financial statements.


                                       F-6
<PAGE>   29


STATEMENTS OF CASH FLOWS


FORTIS BENEFITS INSURANCE COMPANY


(IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31
                                                             -----------------------------------------
                                                                2000           1999           1998
                                                             -----------    -----------    -----------
<S>                                                          <C>            <C>            <C>
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
                                                             ===========    ===========    ===========
</TABLE>



    The accompanying notes are an integral part of the financial statements.


                                       F-7
<PAGE>   30


STATEMENTS OF CASH FLOWS


FORTIS BENEFITS INSURANCE COMPANY


(IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31
                                                                -----------------------------
                                                                  2000        1999       1998
                                                                --------    ---------    ----
<S>                                                             <C>         <C>          <C>
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)    $--
                                                                ========    =========     ==
</TABLE>



    The accompanying notes are an integral part of the financial statements.


                                       F-8
<PAGE>   31


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
<PAGE>   32

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
<PAGE>   33

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
<PAGE>   34

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:



<TABLE>
<CAPTION>
                                                                   GROSS         GROSS
                                                   AMORTIZED     UNREALIZED    UNREALIZED       FAIR
                                                      COST         GAINS         LOSSES        VALUE
                                                   ----------    ----------    ----------    ----------
<S>                                                <C>           <C>           <C>           <C>
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
                                                   ==========     =======       ========     ==========
</TABLE>



The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 2000, by contractual maturity, are shown below.



<TABLE>
<CAPTION>
                                                                AMORTIZED        FAIR
                                                                   COST         VALUE
                                                                ----------    ----------
<S>                                                             <C>           <C>
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
                                                                ==========    ==========
</TABLE>



Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.



MORTGAGE LOANS


The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 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
<PAGE>   35

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:



<TABLE>
<CAPTION>
                                                                                TAX
                                                               BEFORE-TAX     BENEFIT     NET-OF-TAX
                                                                 AMOUNT      (EXPENSE)      AMOUNT
                                                               ----------    ---------    ----------
<S>                                                            <C>           <C>          <C>
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)
                                                               =========     ========     =========
</TABLE>


                                       F-13
<PAGE>   36

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:



<TABLE>
<CAPTION>
                                                                  2000        1999        1998
                                                                --------    --------    --------
<S>                                                             <C>         <C>         <C>
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
                                                                ========    ========    ========
</TABLE>



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
<PAGE>   37

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:



<TABLE>
<CAPTION>
                                                                 INTEREST
                                                TRADITIONAL    SENSITIVE AND
                                                AND PRE-NEED    INVESTMENT      ACCIDENT
                                                    LIFE         PRODUCTS      AND HEALTH    TOTAL
                                                ------------   -------------   ----------   --------
<S>                                             <C>            <C>             <C>          <C>
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
                                                  ========       ========       ========    ========
</TABLE>



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:



<TABLE>
<CAPTION>
                                                                  2000        1999
                                                                --------    --------
<S>                                                             <C>         <C>
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
                                                                ========    ========
</TABLE>


                                       F-15
<PAGE>   38

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:



<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31
                                                                --------------------------------------
                                                                   2000          1999          1998
                                                                ----------    ----------    ----------
<S>                                                             <C>           <C>           <C>
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
                                                                ==========    ==========    ==========
</TABLE>



The table above differs from the amounts reported on the balance sheet in the
following respects: (1) the table above is presented net of ceded reinsurance
and the accident and health reserves reported on the balance sheet are gross of
ceded reinsurance; and (2) the table above includes accident and health benefits
payable which are included with other policy claims and benefits payable
reported on the balance sheet.



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
<PAGE>   39

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:



<TABLE>
<CAPTION>
                                                                  2000        1999
                                                                --------    --------
<S>                                                             <C>         <C>
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
                                                                ========    ========
</TABLE>



The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets, and, therefore, no such valuation
allowance has been established.



The Company's tax expense (benefit) for the year ended December 31 is shown as
follows:



<TABLE>
<CAPTION>
                                                                 2000       1999       1998
                                                                -------    -------    -------
<S>                                                             <C>        <C>        <C>
Current.....................................................    $45,706    $10,873    $30,232
Deferred....................................................     (4,151)    29,454        170
                                                                -------    -------    -------
                                                                $41,555    $40,327    $30,402
                                                                =======    =======    =======
</TABLE>



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:



<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                                ----       ----       ----
<S>                                                             <C>        <C>        <C>
Statutory income tax rate...................................    35.0%      35.0%      35.0%
Other, net..................................................    (3.0)      (2.4)      (2.1)
                                                                ----       ----       ----
                                                                32.0%      32.6%      32.9%
                                                                ====       ====       ====
</TABLE>


                                       F-17
<PAGE>   40

NOTES TO FINANCIAL STATEMENTS


FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)



8. ASSETS HELD IN SEPARATE ACCOUNTS


Separate account assets at December 31 were as follows:



<TABLE>
<CAPTION>
                                                                 2000         1999
                                                              ----------   ----------
<S>                                                           <C>          <C>
Premium and annuity considerations for the variable annuity
  products and variable universal life products for which
  the contract holder, rather than the Company, bears the
  investment risk...........................................  $5,159,275   $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
                                                              ==========   ==========
</TABLE>



9.   REINSURANCE


In the second quarter of 1996, First Fortis Life Insurance Company (First
Fortis), an affiliate, received approval from the New York State Insurance
Department for a reinsurance agreement with the Company. The agreement, which
became 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:



<TABLE>
<CAPTION>
                                                                 2000       1999       1998
                                                                -------    -------    -------
<S>                                                             <C>        <C>        <C>
Life insurance..............................................    $ 7,413    $ 6,246    $ 6,983
Accident and health insurance...............................     48,403     17,803     13,862
                                                                -------    -------    -------
                                                                $55,816    $24,049    $20,845
                                                                =======    =======    =======
</TABLE>



Recoveries under reinsurance contracts for the year ended December 31 were as
follows:



<TABLE>
<CAPTION>
                                                                 2000       1999       1998
                                                                -------    -------    -------
<S>                                                             <C>        <C>        <C>
Life insurance..............................................    $ 2,877    $   478    $ 4,549
Accident and health insurance...............................      8,525     13,669      9,465
                                                                -------    -------    -------
                                                                $11,402    $14,147    $14,014
                                                                =======    =======    =======
</TABLE>


                                       F-18
<PAGE>   41

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
<PAGE>   42

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:



<TABLE>
<CAPTION>
                                                      NET INCOME                    SHAREHOLDER'S EQUITY
                                                 --------------------               ---------------------
                                                   2000        1999       1998        2000         1999
                                                 --------    --------    -------    ---------    --------
<S>                                              <C>         <C>         <C>        <C>          <C>
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
                                                 ========    ========    =======    =========    ========
</TABLE>



12.TRANSACTIONS WITH AFFILIATED COMPANIES


The Company receives various services from Fortis and its affiliates. These
services include assistance in benefit plan administration, corporate insurance,
accounting, tax, auditing, investment 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
<PAGE>   43

NOTES TO FINANCIAL STATEMENTS


FORTIS BENEFITS INSURANCE COMPANY (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.



<TABLE>
<CAPTION>
                                                       DECEMBER 31, 2000           DECEMBER 31, 1999
                                                    ------------------------    ------------------------
                                                     CARRYING        FAIR        CARRYING        FAIR
                                                      AMOUNT        VALUE         AMOUNT        VALUE
                                                    ----------    ----------    ----------    ----------
<S>                                                 <C>           <C>           <C>           <C>
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
</TABLE>



14.COMMITMENTS AND CONTINGENCIES


The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.



15. RETIREMENT AND OTHER EMPLOYEE BENEFITS


The Company is an indirect wholly-owned subsidiary of Fortis, which sponsors a
defined benefit pension plan covering employees and certain agents who meet
eligibility requirements as to age and length of service. The benefits are based
on years of service and career compensation. Fortis Inc.'s funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes, and to charge each subsidiary an allocable amount based on its
employee census. Pension cost allocated to the Company amounted to approximately
$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 for retirees over age 65, are available
to employees who retire on or after January 1, 1993, at age 55 or older, with


                                       F-21
<PAGE>   44

NOTES TO FINANCIAL STATEMENTS


FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)



15. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)


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
<PAGE>   45

APPENDIX A--SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS

The formula which will be used to determine the Market Value Adjustment is:

<TABLE>
         <S>  <C>           <C>  <C>     <C>
                 1 + I           n/12
              ------------               - 1
         (    1 + J + .005  )
</TABLE>

Sample Calculation 1: Positive Adjustment

<TABLE>
<S>                                                      <C>
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
</TABLE>

<TABLE>
<S>        <C>  <C>             <C>  <C>      <C>  <C>    <C>
                   1 + .08           60/12
$10,000 X       --------------                - 1         = $234.73
           [(   1 + .07 + .005  )                  ]
</TABLE>

    Amount transferred or withdrawn (adjusted for Market Value Adjustment):
                                   $10,234.73

Sample Calculation 2: Negative Adjustment

<TABLE>
<S>                                                      <C>
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:
</TABLE>

<TABLE>
<S>        <C>  <C>             <C>  <C>      <C>  <C>    <C>
                   1 + .08           60/12
$10,000 X       --------------                - 1         = -$666.42
           [(   1 + .09 + .005  )                  ]
</TABLE>

    Amount transferred or withdrawn (adjusted for Market Value Adjustment):
                                   $9,333.58

Sample Calculation 3: Negative Adjustment

<TABLE>
<S>                                                      <C>
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:
</TABLE>

<TABLE>
<S>        <C>  <C>               <C>  <C>      <C>  <C>    <C>
                    1 + .08            60/12
$10,000 X       ----------------                - 1         = -$114.94
           [(   1 + .0775 + .005  )                  ]
</TABLE>

    Amount transferred or withdrawn (adjusted for Market Value Adjustment):
                                   $9,885.06
------------------------------
* Assumed for illustrative purposes only.

                                       A-1
<PAGE>   46

APPENDIX B--SAMPLE DEATH BENEFIT CALCULATIONS

<TABLE>
<CAPTION>
                                                                EXAMPLE 1    EXAMPLE 2
DATE OF DEATH IS THE 3RD CONTRACT ANNIVERSARY                   ---------    ---------
<S>                                                             <C>          <C>
  a. Purchase Payments Made Prior to Date of Death               $30,000      $30,000
  b. Contract Value on Date of Death                             $20,000      $32,000
Death Benefit is larger of a, and b                              $30,000      $32,000
</TABLE>

<TABLE>
<CAPTION>
                                                                EXAMPLE 1    EXAMPLE 2
DATE OF DEATH IS THE 5TH CONTRACT ANNIVERSARY                   ---------    ---------
<S>                                                             <C>          <C>
  a. Purchase Payments Made Prior to Date of Death               $30,000      $30,000
  b. Contract Value on Date of Death                             $34,000      $32,000
  c. 5 Year Ratchet Option Value                                 $34,000      $32,000
Death Benefit is larger of a, b, and c                           $34,000      $32,000
</TABLE>

<TABLE>
<CAPTION>
                                                                EXAMPLE 1    EXAMPLE 2
DATE OF DEATH IS THE 7TH CONTRACT ANNIVERSARY                   ---------    ---------
<S>                                                             <C>          <C>
  a. Purchase Payments Made Prior to Date of Death               $30,000      $30,000
  b. Contract Value on Date of Death                             $32,000      $40,000
  c. 5 Year Ratchet Option Value                                 $33,000      $32,000
Death Benefit is larger of a, b, and c                           $33,000      $40,000
</TABLE>

<TABLE>
<CAPTION>
                                                                EXAMPLE 1    EXAMPLE 2
DATE OF DEATH IS THE 10TH CONTRACT ANNIVERSARY                  ---------    ---------
<S>                                                             <C>          <C>
  a. Purchase Payments Made Prior to Date of Death               $30,000      $30,000
  b. Contract Value on Date of Death                             $32,000      $38,000
  c. 5 Year Ratchet Option Value                                 $32,000      $38,000
Death Benefit is larger of a, b, and c                           $32,000      $38,000
</TABLE>

                                       B-1
<PAGE>   47

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:


<TABLE>
<S> <C>  <C>                                                           <C>   <C>
--------------------------------------------------------------------------------
         Total Variable Account Annual Expenses                        1.25%
--------------------------------------------------------------------------------
     +   Total Series Fund Operating Expenses                          0.64%
--------------------------------------------------------------------------------
     +   Annual Administrative Charge Rate (See Below)                 0.04%
--------------------------------------------------------------------------------
     =   Total Expense Rate                                            1.93%
--------------------------------------------------------------------------------
</TABLE>


The Annual Administrative Charge Rate is calculated by dividing the total Annual
Contract Charges we collected in 2000 on similar policies by the average policy
value in force in 2000 on these similar policies.

Year 1 Beginning Policy Value = $1000.00

Year 1 Expense = 1000.00 x 0.0193 = $19.30



Year 2 Beginning Policy Value = $1030.70


Year 2 Expense = 1030.70 x 0.0193 = $19.89



Year 3 Beginning Policy Value = $1062.35


Year 3 Expense = 1062.35 x 0.0193 = $20.50



So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to $19.30 + $19.89 + $20.50 = $59.69


                                       C-1
<PAGE>   48

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 aggregate amount of all prior purchase payments less pro rata
         adjustments for all prior withdrawals

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 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.

                                       D-1