<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1998
Registration No. 333-20345
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST FORTIS LIFE INSURANCE COMPANY
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(Exact name of registrant as specified in its charter)
New York
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(State or other jurisdiction of incorporation or organization)
63
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(Primary Standard Industrial Classification Code Number)
13-2699219
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(I.R.S. Employer Identification No.)
220 Salina Meadows Parkway
Syracuse, New York 13220
315-451-0066
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(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
David A. Peterson, Esquire
P. O. Box 64284
Saint Paul, Minnesota 55164
612-738-5080
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(Name, address including zip code, and telephone number, including
area code, of agent for service)
<PAGE>
Approximate Date of Commencement of Proposed Sale to Public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box:
/X/
---
-----------------------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Title of each Proposed Proposed maximum
class of securities Amount to be maximum offering aggregate Amount of
to be registered registered price per unit offering price registration fee
- ------------------------------------------------------------------------------------------------------------------------
Interests under flexible * * None registered herewith.
premium deferred
fixed annuity
contracts
</TABLE>
- ----------------------
* The maximum aggregate offering price is estimated solely for the purpose of
determining the registration fee. The amount being registered and the proposed
maximum offering price per unit are not applicable in that these securities are
not issued in predetermined amounts or units.
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
Cross-Reference Sheet
Pursuant to Regulation S-K
Item 501(b)
Form S-1 Item Number Prospectus Caption
- -------------------- ------------------
1. Forepart of the Registration Cover Page; Table of Contents;
Statement and Outside Front Distribution and Servicing
Cover Page of Prospectus
2. Inside Front and Back Other Information; Reports
Cover Pages of Prospectus
3. Summary Information,Risk Summary of Contract Features
Factors and Ratio of ratio of earnings to fixed charges, Not
Earnings to Fixed Applicable
Charges
4. Use of Proceeds The Variable Account; The
Portfolios; The Fixed Account
5. Determination of Offering Not Applicable
Price
6. Dilution Not Applicable
7. Selling Security Holders None
8. Plan of Distribution Distribution and Servicing
9. Description of Securities Cover Page; The Variable Account; The
to be Registered Portfolios; The Fixed Account;
Accumulation Period; Charges and
Deductions; General Provisions
10. Interests of Named Legal Matters
Experts and Counsel
11. Information with Respect First Fortis Life Insurance
to the Registrant Company; Further Information About
First Fortis; Financial
Statements; Distribution and
Servicing
<PAGE>
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities
Not Applicable
<PAGE>
VALUE
ADVANTAGE
PLUS
VARIABLE
ANNUITY
Contracts Under Flexible
Premium Deferred
Combination Variable and
Fixed Annuity Contracts
[LOGO]
PROSPECTUS DATED
May 1, 1998
FORTIS-Registered Trademark-
FIRST FORTIS LIFE INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE: 1-800-591-7333
P.O. BOX 3249 SUITE 255
SYRACUSE 220 SALINA MEADOWS
NEW YORK 13220 PARKWAY
SYRACUSE
NEW YORK 13212
This Prospectus describes interests under flexible premium deferred combination
variable and fixed annuity contracts issued by First Fortis Life Insurance
Company ("First Fortis"). The minimum initial purchase payment is generally
$5,000 and is $500 for each subsequent purchase payment.
A Contract allows you to accumulate funds on a tax-deferred basis. You may elect
a guaranteed interest accumulation option through the Fixed Account or a
variable return accumulation option through Separate Account A (the "Variable
Account") of First Fortis, or a combination of these two options. Under the
variable rate accumulation option, you can choose among the following Portfolios
(see "The Portfolios" for limitations on the availability of certain Portfolios
in certain states):
Alliance Money Market Portfolio Lexington Natural Resources Trust
Alliance International Portfolio Lexington Emerging Markets Fund
Alliance Premier Growth Portfolio MFS Emerging Growth Series
American Century VP Balanced Fund MFS High Income Series
American Century VP Capital Appreciation MFS World Governments Series
Fund Montgomery Emerging Markets Fund
Federated High Income Bond Fund II Montgomery Growth Fund
Federated Utility Fund II Neuberger & Berman Limited Maturity
Federated American Leaders Fund II Bond
Federated Fund for U.S. Government Portfolio
Securities II Neuberger & Berman Partners Portfolio
Fortis S & P 500 Index Series SAFECO Equity Portfolio
INVESCO Industrial Income Portfolio SAFECO Growth Portfolio
INVESCO Health Services Portfolio Strong Discovery Fund II
INVESCO Technology Portfolio Strong International Stock Fund II
Van Eck Worldwide Bond Fund
Van Eck Worldwide Hard Assets Fund
The accompanying Prospectus for these Portfolios describes the investment
objectives, policies and risks of each of the Portfolios. You can choose among
10 different guarantee periods under the guaranteed interest accumulation
option, each of which has its own interest rate.
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. The "free look" period is 10 days.
The Contract provides several different types of retirement and death benefits,
including fixed and variable annuity income options. You may make partial
surrenders of the Contract Value or may totally surrender the Contract for its
Cash Surrender Value.
This Prospectus gives prospective investors information about the Contracts that
they should know before investing. This Prospectus must be accompanied by a
current Prospectus of the Portfolios. These Prospectuses should be read
carefully and kept for future reference.
A Statement of Additional Information, dated May 1, 1998, about certain aspects
of the Contracts has been filed with the Securities and Exchange Commission and
is available without charge, from First Fortis at the address and phone number
printed above. The Table of Contents for the Statement of Additional Information
appears on page 23 of this Prospectus.
THESE POLICIES 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; AND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FORTIS-Registered Trademark- and Fortis-Registered Trademark- are registered
servicemarks of Fortis AMEV and Fortis AG.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms Used in this Prospectus................................. 3
Information Concerning Fees and Charges............................... 4
Summary of Contract Features.......................................... 6
First Fortis Life Insurance Company................................... 8
The Variable Account.................................................. 8
The Portfolios........................................................ 8
The Fixed Account..................................................... 8
- Guarantee Interest Rates/Guarantee Periods...................... 8
- Market Value Adjustment......................................... 9
- Investments by First Fortis..................................... 9
Fixed Account Value................................................... 10
Accumulation Period................................................... 10
- Issuance of a Contract and Purchase Payments.................... 10
- Contract Value.................................................. 10
- Allocation of Purchase Payments and Contract Value.............. 11
- Total and Partial Surrenders.................................... 11
- Benefit Payable on Death of Annuitant or Contract Owner......... 12
The Annuity Period.................................................... 13
- Annuity Commencement Date....................................... 13
- Commencement of Annuity Payments................................ 13
- Relationship Between Subaccount Investment Performance and
Amount of Variable Annuity Payments............................ 13
- Annuity Forms................................................... 13
- Death of Annuitant or Other Payee............................... 14
Charges and Deductions................................................ 14
- Premium Taxes................................................... 14
- Charges Against the Variable Account............................ 14
- Annual Administrative Charge.................................... 14
- Tax Charge...................................................... 15
- Miscellaneous................................................... 15
General Provisions.................................................... 15
- The Contracts................................................... 15
- Postponement of Payments........................................ 15
- Misstatement of Age or Sex and Other Errors..................... 15
- Assignment...................................................... 15
- Beneficiary..................................................... 15
- Reports......................................................... 15
Rights Reserved By First Fortis....................................... 15
Distribution.......................................................... 16
Federal Tax Matters................................................... 16
Further Information about First Fortis................................ 19
- General......................................................... 19
- Selected Financial Data......................................... 19
- Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 19
- Liquidity and Capital Resources................................. 20
- Competition.....................................................
- Regulation and Reserves.........................................
- Employees and Facilities........................................
- Directors and Executive Officers................................ 21
- Executive Compensation.......................................... 22
- Ownership of Securities......................................... 22
Voting Privileges..................................................... 22
Legal Matters......................................................... 23
Other Information..................................................... 23
Contents of Statement of Additional Information....................... 23
First Fortis Financial Statements..................................... 23
Appendix A--Sample Market Value Adjustment Calculations............... A-1
Appendix B--Explanation of Expense Calculations....................... B-1
Appendix C--Participating Portfolios.................................. C-1
</TABLE>
THE CONTRACTS ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. FIRST FORTIS 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
FIRST FORTIS.
<PAGE>
SPECIAL TERMS USED IN THIS PROSPECTUS
<TABLE>
<S> <C>
ACCUMULATION The time period under a Contract between the Contract Issue Date and the Annuity Commencement
PERIOD Date.
ACCUMULATION A unit of measure used to calculate the Contract Owners' interest in the Variable Account
UNIT during the Accumulation Period.
ANNUITANT A person during whose life annuity payments are to be made by First Fortis under the Contract.
ANNUITY The date on which the Annuity Period commences.
COMMENCEMENT
DATE
ANNUITY PERIOD The time period following the Accumulation Period, during which annuity payments are made by
First Fortis.
ANNUITY UNIT A unit of measurement used to calculate variable annuity payments.
BENEFICIARY The person entitled to receive benefits under the terms of the Contract.
CASH SURRENDER The amount payable to the Contract Owner on surrender of the Contract after all applicable
VALUE adjustments and deduction of all applicable charges.
CERTIFICATE The date on which the Contract becomes effective as shown on the Contract Data Page.
ISSUE DATE
CERTIFICATE The sum of the Fixed Account Value and the Variable Account Value.
VALUE
CONTRACT OWNER The person or company named in the application for a Contract, who is entitled to exercise all
rights and privileges of ownership under the Contract during the Accumulation Period.
FIXED ACCOUNT The name of the alternative under which purchase payments are allocated to First Fortis'
General Account.
FIXED ACCOUNT The amount of your Contract Value which is in the Fixed Account.
VALUE
FIXED ANNUITY An annuity option under which First Fortis promises to pay the Annuitant or any other payee
OPTION that you designate one or more fixed payments.
GENERAL ACCOUNT All assets of First Fortis other than those in the Variable Account, and other than those in
any other legally segregated separate account established by First Fortis.
GUARANTEED The rate of interest we credit during any Guarantee Period, on an effective annual basis.
INTEREST RATE
GUARANTEE The period for which a Guaranteed Interest Rate is credited.
PERIOD
HOME OFFICE Our office at 220 Salina Meadows Parkway, Syracuse, New York 13212; 1-800-591-7333; Mailing
address: P.O. Box 3249, Syracuse NY 13220.
MARKET VALUE Positive or negative adjustment in Fixed Account Value that we make if such value is paid out
ADJUSTMENT more than fifteen days before or after the end of a Guarantee Period in which it was being
held.
NET PURCHASE The gross amount of a purchase payment less any applicable premium taxes or similar
PAYMENT governmental assessments.
NON-QUALIFIED Contracts that do not qualify for the special federal income tax treatment applicable in
CERTIFICATES connection with certain retirement plans.
PORTFOLIO Each separate investment portfolio eligible for investment by the Variable Account.
QUALIFIED Contracts that are qualified for the special federal income tax treatment applicable in
CONTRACTS connection with certain retirement plans.
SUBACCOUNTS The several Subaccounts of the Variable Account, each of which invests its assets in a
different Portfolio.
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 The period that starts at the close of regular trading on the New York Stock Exchange on a
PERIOD Valuation Date and ends at the close of regular trading on the exchange on the next succeeding
Valuation Date.
VARIABLE The segregated asset account referred to as Variable Account A of First Fortis Life Insurance
ACCOUNT Company established to receive and invest purchase payments under Contracts.
VARIABLE The amount of your Contract Value in the Subaccounts of the Variable Account.
ACCOUNT VALUE
VARIABLE An annuity option under which First Fortis promises to pay the Annuitant or any other payee
ANNUITY OPTION 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.
WRITTEN REQUEST A written, signed and dated request, in form and substance satisfactory to First Fortis and
received at our Home Office.
</TABLE>
3
<PAGE>
INFORMATION CONCERNING FEES AND CHARGES
CONTRACT OWNER TRANSACTION CHARGES
<TABLE>
<S> <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
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge......................... .45%
Variable Account Administrative Charge.................... 0%
----
Total Variable Account Annual Expenses.................. .45%
</TABLE>
MARKET VALUE ADJUSTMENT WITH RESPECT TO FIXED ACCOUNT
Surrenders and other withdrawals from the Fixed Account more than fifteen days
from the end of a Guarantee Period are subject to a Market Value Adjustment. The
Market Value Adjustment may increase or reduce the Fixed Account Value. It is
computed pursuant to a formula that is described in more detail under "Market
Value Adjustment."
PORTFOLIO ANNUAL EXPENSES (A) (B)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
OPERATING
INVESTMENT EXPENSES
ADVISORY AND OTHER (*AFTER EXPENSE
MANAGEMENT FEE EXPENSES REIMBURSEMENT)
-------------- -------- -----------------
<S> <C> <C> <C>
Alliance Money Market Portfolio............................. 0.50% 0.14% 0.64%
Alliance International Portfolio............................ 0.53% 0.42% 0.95%
Alliance Premier Growth Portfolio........................... 0.85% 0.10% 0.95%
American Century VP Balanced Fund........................... 1.00% 0.00% 1.00%
American Century VP Capital Appreciation Fund............... 1.00% 0.00% 1.00%
Federated High Income Bond Fund II.......................... 0.51% 0.29% 0.80%
Federated Utility Fund II................................... 0.48% 0.37% 0.85%
Federated American Leaders Fund II.......................... 0.66% 0.19% 0.85%
Federated Fund for U.S. Government Securities II............ 0.15% 0.65% 0.80%
Fortis S & P 500 Index Series............................... 0.40% 0.11% 0.51%
INVESCO Industrial Income Portfolio......................... 0.48% 0.47% 0.95%
INVESCO Health Sciences Portfolio........................... 0.66% 0.42% 1.08%
INVESCO Technology Portfolio................................ 0.66% 0.39% 1.05%
Lexington Natural Resources Trust........................... 1.00% 0.25% 1.25%
Lexington Emerging Markets Fund............................. 0.85% 0.99% 1.84%
MFS Emerging Growth Series.................................. 0.75% 0.12% 0.87%
MFS High Income Series...................................... 0.75% 0.25% 1.00%
MFS World Governments Series................................ 0.75% 0.25% 1.00%
Montgomery Emerging Markets Fund............................ 1.24% 0.51% 1.75%
Montgomery Growth Fund...................................... 0.28% 0.97% 1.25%
Neuberger & Berman Limited Maturity Bond Portfolio.......... 0.65% 0.12% 0.77%
Neuberger & Berman Partners Portfolio....................... 0.80% 0.06% 0.86%
SAFECO Equity Portfolio..................................... 0.73% 0.02% 0.75%
SAFECO Growth Portfolio..................................... 0.74% 0.03% 0.77%
Strong Discovery Fund....................................... 1.00% 0.18% 1.18%
Strong International Stock Fund............................. 1.00% 0.51% 1.51%
Van Eck Worldwide Bond Fund................................. 1.00% 0.12% 1.12%
Van Eck Worldwide Hard Assets Fund.......................... 1.00% 0.11% 1.11%
</TABLE>
- ------------------------
(a) As a percentage of Portfolio average net assets based on historical data
for the fiscal year ended December 31, 1997. In the absence of expense and
fee waivers or expense reimbursements by the Portfolio investment adviser,
the total expenses of the following Portfolios would have been as hereafter
indicated rather than as listed above: Alliance International
Portfolio--1.42%; Alliance Premier Growth Portfolio--1.10%; Federated High
Income Bond Fund II--.89%; Federated Utility Fund II--1.12%; Federated
American Leaders Fund II--.94%; Federated Fund for U.S. Government
Securities Fund II--1.25%; Lexington Emerging Markets Fund--1.91%; MFS High
Income Series--1.15%; and MFS World Governments Series--1.15%; Montgomery
Emerging Markets Fund--1.76%; Montgomery Growth Fund--1.97%. The
information set forth in this table was provided to Fortis Benefits by the
Portfolio managers and Fortis Benefits has not independently verified such
information.
(b) Certain of the unaffiliated investment advisers of the Portfolios reimburse
First Fortis for costs incurred in connection with administering the
Portfolios as variable funding options by payment of an amount based on
assets in the Portfolios attributable to the Contracts. These amounts are
not charged to the Portfolios or the holders of the Contracts.
4
<PAGE>
EXAMPLES*
If you COMMENCE AN ANNUITY payment option, or whether you DO or DO NOT surrender
your Contract or commence an annuity payment option, 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>
Alliance Money Market Portfolio............................. 11 36 62 136
Alliance International Portfolio............................ 15 45 78 171
Alliance Premier Growth Portfolio........................... 15 45 78 171
American Century VP Balanced Fund........................... 15 47 81 176
American Century VP Capital Appreciation Fund............... 15 47 81 176
Federated High Income Fund II............................... 13 41 70 154
Federated Utility Fund II................................... 14 42 73 160
Federated American Leaders Fund II.......................... 14 42 73 160
Federated Fund for U.S. Government Securities II............ 13 41 70 154
Fortis S & P 500 Index Series............................... 10 32 55 121
INVESCO Health Sciences Portfolio........................... 16 49 85 185
INVESCO Industrial Income Portfolio......................... 15 45 78 171
INVESCO Technology Portfolio................................ 16 48 83 182
Lexington Natural Resources Trust........................... 18 54 93 203
Lexington Emerging Markets Fund............................. 23 72 123 264
MFS Emerging Growth Series.................................. 14 43 74 162
MFS High Income Series...................................... 15 47 81 176
MFS World Governments Series................................ 15 47 81 176
Montgomery Emerging Markets Fund............................ 23 69 119 255
Montgomery Growth Fund...................................... 18 54 93 203
Neuberger & Berman Limited Maturity Bond Portfolio.......... 13 40 68 151
Neuberger & Berman Partners Portfolio....................... 14 42 73 161
SAFECO Equity Portfolio..................................... 13 39 67 148
SAFECO Growth Portfolio..................................... 13 40 68 151
Strong Discovery Fund II.................................... 17 52 90 196
Strong International Stock Fund II.......................... 20 62 107 230
Van Eck Worldwide Bond Fund................................. 16 50 87 189
Van Eck Worldwide Hard Assets Fund.......................... 16 50 86 188
</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, 1996 of similar contracts issued by
an affiliated company and the total actual amount of annual contract
administration charges collected during the year on those contracts. For the
purpose of these examples, Portfolio annual expenses are assumed to continue
at the rates set forth in the table above.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
------------------------
The foregoing tables and examples are included to assist you in understanding
the transaction and operating expenses imposed directly or indirectly under the
Contracts and the Portfolios. Amounts for state premium taxes or similar
assessments will also be deducted, where applicable.
See Appendix B for an explanation of the calculation of the amounts set forth
above.
5
<PAGE>
SUMMARY OF CONTRACT FEATURES
The following summary should be read in conjunction with the detailed
information in this Prospectus.
The Contracts are designed to provide individuals with retirement benefits
through the accumulation of Net 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 First Fortis Life 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.
PURCHASE PAYMENTS
The initial purchase payment under a Contract must be at least $5,000 ($2,000
for a Contract pursuant to a qualified contract). Additional purchase payments
under a Contract must be at least $500. See "Issuance of a Contract and Purchase
Payments."
On the Contract Issue Date, except as hereafter explained, the initial purchase
payment is allocated, as specified by the Contract Owner in the Contract
application, among one or more of the Subaccounts of the Variable Account, 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 Contract Owner may subsequently
request In Writing.
VARIABLE ACCOUNT INVESTMENT OPTIONS
Each of the Subaccounts of the Variable Account invests in shares of a
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. A full
description of the Portfolios and their investment objectives, policies, risks
and expenses can be found in the current Prospectus for the Portfolio, which
accompanies this Prospectus, and the Statement of Additional Information for the
Portfolio which is available upon request.
FIXED ACCOUNT INVESTMENT OPTIONS
Any amount allocated by the Contract 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 Contract Owner. We currently
make available ten different Guarantee Periods, ranging from one to ten years.
If amounts are transferred, surrendered or otherwise paid out more than fifteen
days before or after the end of the applicable Guarantee Period, a Market Value
Adjustment will be applied to increase or decrease the amount that is paid out.
Accordingly, the Market Value Adjustment can result in gains or losses to you.
For a more complete discussion of the Fixed Account investment option 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 of the Fixed Account 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 the Contract Owner before the earlier of the Annuitant's death or
the Annuity Commencement Date. 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."
CHARGES AND DEDUCTIONS
First Fortis deducts daily charges at a rate of .45 % per annum of the value of
the average net assets in the Variable Account for the mortality and expense
risks it assumes. There is also an annual administrative charge each year for
Contract administration and maintenance. This charge is $30 per year (subject to
any applicable state law limitations) and is deducted on each anniversary of the
Contract Issue Date and upon total surrender of the Contract. Also, there may be
state premium tax charges deducted from your Contract Value. See "Charges and
Deductions."
ANNUITY PAYMENTS
The Contract provides several types of annuity benefits to Contract Owners or
other persons they properly designate to receive such payments, including Fixed
and Variable Annuity Options. The Contract Owner has considerable flexibility in
choosing the Annuity Commencement Date. However, the tax implications of an
Annuity Commencement Date must be carefully considered, including the
possibility of penalties for commencing benefits either too soon or too late.
See "Annuity Commencement Date," "Annuity Forms" and "Federal Tax Matters" in
this Prospectus and "Taxation Under Certain Retirement Plans" in the Statement
of Additional Information.
DEATH BENEFIT
In the event that the Annuitant or Contract Owner dies prior to the Annuity
Commencement Date, a death benefit is payable to the Beneficiary. See "Benefit
Payable on Death of Annuitant or Contract Owner."
6
<PAGE>
RIGHT TO EXAMINE THE CONTRACT
A Contract Owner may elect during a "free look" period to cancel the Contract
and receive a refund. See the cover page of this Prospectus.
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
Contracts may 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 a Contract Owner otherwise would have under a Contract may be reserved
instead by the employer.
TAX IMPLICATIONS
The tax implications for Contract Owners 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 First Fortis' Home Office: P.O. Box 3249, Syracuse NY 13220;
1-800-591-7333. Purchase payments and Written Requests should be mailed or
delivered to the same Home Office address. All communications should include the
Contract number, the Contract Owner's name and, if different, the Annuitant's
name. The number for telephone transfers is 1-800-591-7333.
Any purchase payment or other communication, except a free-look cancellation
notice, is deemed received at First Fortis' 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
the available Subaccounts of the Variable Account through December 31, 1997.
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE
------------- ------------
<S> <C> <C>
Alliance Money Market Portfolio......... 19,606 10.861561
Alliance International Portfolio........ 4,147 10.818424
Alliance Premier Growth Portfolio....... 17,972 15.729195
American Century VP Balanced Fund....... 615 12.639353
American Century VP Capital Appreciation
Fund................................... 0 9.061024
Federated Fund for U.S. Government
Securities II.......................... 1,710 10.704721
Federated High Income Bond Fund II...... 29,708 12.441253
Federated Utility Fund II............... 0 13.550370
Federated American Leaders Fund II...... 0 15.012052
Fortis S & P 500 Index Series........... 47 12.896250
INVESCO Health Services Portfolio....... 273 11.006864
INVESCO Industrial Income Portfolio..... 1,157 12.136873
INVESCO Technology Portfolio............ 192 11.445543
Lexington Natural Resources Trust....... 0 12.853076
Lexington Emerging Markets Fund......... 0 8.299614
MFS Emerging Growth Series.............. 10,745 13.756132
MFS High Income Series.................. 39,079 12.342449
MFS World Governments Series............ 0 10.248705
Montgomery Emerging Markets Fund........ 434 10.526513
Montgomery Growth Fund.................. 1,398 16.232262
Neuberger & Berman Limited Maturity Bond
Portfolio.............................. 0 10.497834
Neuberger & Berman
Partners Portfolio..................... 1,201 12.477670
SAFECO Equity Portfolio................. 18,571 12.151817
SAFECO Growth Portfolio................. 1,217 14.992831
Strong Discovery Fund................... 1,015 11.153400
Strong International Stock Fund......... 3,909 9.049000
Van Eck Worldwide Bond Fund............. 0 10.492666
Van Eck Worldwide Hard Assets Fund...... 0 9.774884
</TABLE>
Audited financial statements of the available Subaccounts of the Variable
Account, are included in the Statement of Additional Information.
Advertising and other sales materials may include yield and total return figures
for the Subaccounts of the Variable Account. These figures are based on
historical results and are not intended to indicate future performance. "Yield"
is the income generated by an investment in the Subaccount over a period of time
specified in the advertisement. This rate of return is assumed to be earned over
a full year and is shown as a percentage of the investment. "Total return" is
the total change in value of an investment in the Subaccount over a period of
time specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield and
total return figures do not reflect premium tax charges. This makes the
performance shown more favorable.
7
<PAGE>
Financial information concerning First Fortis is included in this Prospectus
under "Additional Information About First Fortis" and "First Fortis Financial
Statements."
FIRST FORTIS LIFE INSURANCE COMPANY
First Fortis Life Insurance Company, the issuer of the Contracts, was founded in
1971. At the end of 1996, First Fortis had approximately $5.5 billion of total
life insurance in force. First Fortis is a New York corporation and is qualified
to sell life insurance, accident and health and annuity contracts in New York.
First Fortis is a wholly-owned subsidiary of Fortis, Inc., which is itself
indirectly owned 50% by Fortis AMEV and 50% by Fortis AG. Fortis, Inc. manages
the United States operations for these two companies.
First Fortis is a member of the Fortis Financial Group, a joint effort by First
Fortis, Fortis Benefits Insurance Company, Fortis Advisers, Inc., Fortis
Investors, Inc., and Time Insurance Company, offering financial products through
the management, marketing and servicing of mutual funds, annuities and life
insurance and disability income products.
Fortis AMEV is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis AMEV and Fortis AG
have merged their operating companies under the trade name of Fortis. The Fortis
group of companies is active in insurance, banking and financial services, and
real estate development in The Netherlands, Belgium, the United States, Western
Europe, and the Pacific Rim. The Fortis group of companies has assets in excess
of $167 billion.
All of the guarantees and commitments under the Contracts are general
obligations of First Fortis, regardless of whether the Contract Value has been
allocated to the Variable Account or to the Fixed Account. None of First Fortis'
affiliated companies has any legal obligation to back First Fortis' obligations
under the Contracts.
THE VARIABLE ACCOUNT
The Variable Account, which is a segregated investment account of First Fortis,
was established as Variable Account A by First Fortis pursuant to the insurance
laws of New York as of October 1, 1993. Although the Variable Account is an
integral part of First Fortis, 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 Contracts and other variable annuity contracts
issued by First Fortis will not be chargeable with liabilities arising out of
any other business of First Fortis.
There are a number of Subaccounts in the Variable Account. The assets in each
Subaccount are invested exclusively in one of the Portfolios listed on page one
of this 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. New Subaccounts may be added as new Portfolios are added and made
available. Correspondingly, if any Portfolios are eliminated, Subaccounts may be
eliminated from the Variable Account.
THE PORTFOLIOS
Contract holders may choose from among a number of different Portfolios, each of
which is a mutual fund available for purchase only as a funding vehicle for
benefits under variable life insurance and variable annuities issued by First
Fortis and other life insurance companies. (See Appendix C which contains a
summary of the investment objectives of each Portfolio.) Each Portfolio
corresponds to one of the Subaccounts of the Variable Account. The assets of
each Portfolio are separate from the others and each Portfolio operates as a
separate investment portfolio whose performance has no effect on the investment
performance of any other Portfolio. More detailed information for each Portfolio
offered, such as its investment policies and restrictions, charges, risks
attendant to investing in it, and other aspects of its operations, may be found
in the current prospectus for each Portfolio. Such a prospectus for the
Portfolios being considered must accompany this Prospectus and should be read in
conjunction herewith. A copy of each prospectus may be obtained without charge
from First Fortis by calling 1-800-523-4374, or writing P.O. Box 3249, Syracuse,
NY 13220.
First Fortis purchases and redeems Portfolios' shares for the Variable Account
at their net asset value without the imposition of any sales or redemption
charges. Any dividend or capital gain distributions attributable to Contracts
are automatically reinvested in shares of the Portfolio from which they are
received at the Portfolio's net asset value on the date paid. Such dividends and
distributions will have the effect of reducing the net asset value of each share
of the corresponding Portfolio and increasing, by an equivalent value, the
number of shares outstanding of the Portfolio. However, the value of your
interest in the corresponding Subaccount will not change as a result of any such
dividends and distributions.
As indicated, Portfolios may also be available to registered separate accounts
offering variable annuity and variable life products of other participating
insurance companies, as well as to the Variable Account and other separate
accounts of First Fortis. Although First Fortis 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. A conflict may occur due to a
change in law affecting the operations of variable life and variable annuity
separate accounts, differences in the voting instructions of the Contract Owners
and those of other companies, or some other reason. In the event of conflict,
First Fortis will take any steps necessary to protect the Contract Owners and
variable annuity payees.
THE FIXED ACCOUNT
GUARANTEE INTEREST RATES/GUARANTEE PERIODS
Any amount allocated by the Contract Owner to the Fixed Account earns a
Guaranteed Interest Rate commencing with the date of such allocation. This
Guaranteed Interest Rate continues for a number of
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<PAGE>
years (not to exceed ten) selected by the Contract Owner. At the end of this
Guarantee Period, the Contract Owner's Contract Value in that Guarantee Period,
including interest accrued thereon, will be allocated to a new Guarantee Period
of the same length unless First Fortis has received a Written Request from the
Contract Owner to allocate this amount to a different Guarantee Period or
periods or to one or more of the Subaccounts. We must receive this Written
Request at least three business days prior to the end of the Guarantee Period.
The first day of the new Guarantee Period (or other reallocation) will be the
day after the end of the prior Guarantee Period. We will notify the Contract
Owner at least 45 days and not more than 60 days prior to the end of any
Guarantee Period.
We currently make available ten different Guarantee Periods, ranging 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 of
various lengths. These changes will not affect the Guaranteed Interest Rates
being paid on Guarantee Periods that have already commenced. Each allocation or
transfer of an amount to a Guarantee Period commences the running of a new
Guarantee Period with respect to that amount, which will earn a Guaranteed
Interest Rate that will continue unchanged until the end of that period. The
Guaranteed Interest Rate will never be less than an effective annual rate of 3%.
First Fortis declares the Guaranteed Interest Rates from time to time as market
conditions dictate. First Fortis advises a Contract Owner of the Guaranteed
Interest Rate for a chosen Guarantee Period at the time a purchase payment is
received, a transfer is effectuated or a Guarantee Period is renewed.
First Fortis has no specific formula for establishing the Guaranteed Interest
Rates for the Guarantee Periods. The rate may be influenced by, but not
necessarily correspond to, interest rates generally available on the types of
investments acquired with amounts allocated to the Guarantee Period. See
"Investments by First Fortis." First Fortis in determining Guaranteed Interest
Rates, may also consider, among other factors, the duration of a Guarantee
Period, regulatory and tax requirements, sales and administrative expenses borne
by First Fortis, risks assumed by First Fortis, First Fortis' profitability
objectives, and general economic trends.
FIRST FORTIS' MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED
INTEREST RATES TO BE DECLARED. FIRST FORTIS CANNOT PREDICT OR ASSURE THE LEVEL
OF ANY FUTURE GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL RATE OF
3%.
Information concerning the Guaranteed Interest Rates applicable to the various
Guarantee Periods at any time may be obtained from our Home Office or from your
sales representative.
MARKET VALUE ADJUSTMENT
Except as described below, if any Fixed Account Value is surrendered,
transferred or otherwise paid out before the end of the Guarantee Period in
which it is being held, a Market Value Adjustment will be applied. This
generally includes amounts applied to an annuity option, and amounts paid as a
single sum in lieu of an annuity. However, NO Market Value Adjustment will be
applied to amounts that are paid out during the period beginning fifteen days
before and ending fifteen days after the end of a Guarantee Period in which it
was being held. Additionally, no Market Value Adjustment will be applied to
amounts that are withdrawn from a Guarantee Period and paid out to the Contract
Owner, or transferred to the Variable Account, on an automatic periodic basis
under a formal First Fortis program for the withdrawal or transfer of the
earnings of the Fixed Account. (There may be conditions and limitations imposed
by First Fortis associated with such a program. See your First Fortis
representative for the availability of any such program, and the conditions and
limitations of such a program, in your state.)
The Market Value Adjustment may increase or decrease the amount of Fixed Account
Value being withdrawn or transferred. The comparison of two Guaranteed Interest
Rates determines whether the Market Value Adjustment produces an increase or a
decrease. The first rate to compare is the Guaranteed Interest Rate for the
amount being transferred or withdrawn. The second rate is the Guaranteed
Interest Rate then being offered for new Guarantee Periods of the same duration
as that remaining in the Guarantee Period from which the funds are being
withdrawn or transferred. If the first rate exceeds the second by more than
1/2%, the Market Value Adjustment produces an increase. If the first rate does
not exceed the second by at least 1/2%, the Market Value Adjustment produces a
decrease. Sample calculations are shown in Appendix A.
The Market Value Adjustment will be determined by multiplying the amount being
withdrawn or transferred from the Guarantee Period (before deduction of any
applicable surrender charge) by the following factor:
( 1 + I ) n / 12
----------- - 1
( 1 + J + .0025 )
where,
- I is the Guaranteed Interest Rate being credited to the amount being
withdrawn from the existing Guarantee Period,
- J is the Guaranteed Interest Rate then being offered 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),
and
- N is the number of months remaining in the existing Guarantee Period
(rounded up to the next higher number of months).
INVESTMENTS BY FIRST FORTIS
Our obligations with respect to the Fixed Account are legal obligations of First
Fortis and are supported by our General Account assets, which also support
obligations incurred by us under other insurance and annuity contracts.
Investments purchased with amounts allocated to both Fixed Accounts are the
property of First Fortis and Contract Owners 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.
Amounts in the First Fortis' General Account and the Fixed Account will be
invested 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
9
<PAGE>
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 First
Fortis' Financial Statements" for information on First Fortis' investments.
Investment management for amounts in the General Account and in the Fixed
Account is provided to First Fortis by Fortis Advisers, Inc.
First Fortis intends to consider the return available on the instruments in
which it intends to invest amounts allocated to the Fixed Account when it
establishes Guaranteed Interest Rates. Such return is only one of many factors
considered in establishing the Guaranteed Interest Rates. See "Guarantee Periods
Fixed Account."
First Fortis expects that amounts allocated to the Fixed Account generally will
be invested in debt instruments that approximately match First Fortis'
liabilities with regard to the Guarantee Periods. First Fortis expects that
these will include primarily the following types of debt instruments: (1)
securities issued by the United States Government or its agencies or
instrumentalities, which securities may or may not be guaranteed by the United
States Government; (2) debt securities which have an investment grade, at the
time of purchase, within the four highest grades assigned by Moody's Investors
Services, Inc. ("Moody's") (Aaa, Aa, A or Baa), Standard & Poor's Corporation
("Standard & Poor's") (AAA, AA, A or BBB), or any other nationally recognized
rating service; (3) other debt instruments including, but not limited to, issues
of or guaranteed by banks or bank holding companies and corporations, which
obligations although not rated by Moody's or Standard & Poor's, are deemed by
First Fortis to have an investment quality comparable to securities which may be
purchased as stated above; and (4) other evidences of indebtedness secured by
mortgages or deeds of trust representing liens upon real estate. Notwithstanding
the foregoing, First Fortis is not obligated to invest amounts allocated to the
Fixed Account according to any particular strategy, except as may be required by
applicable state insurance laws and regulations. See "Regulation and Reserves."
FIXED ACCOUNT VALUE
The Contract's Fixed Account Value on any Valuation Date is the sum of the Net
Purchase Payments allocated to the Fixed Account, plus any transfers from the
Variable Account, plus interest credited to the Fixed Account, less any
surrender charges or annual administrative charges allocated to the Fixed
Account or transfers to the Variable Account.
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
First Fortis reserves the right to reject any application for a Contract or any
purchase payment for any reason. If the issuing instructions can be accepted in
the form received, the initial purchase payment will be credited within two
Valuation Dates after the later of receipt of the issuing instructions or
receipt of the initial purchase payment at First Fortis' Home Office. If the
initial purchase payment cannot be credited within five Valuation Dates after
receipt because the issuing instructions are incomplete, the initial purchase
payment will be returned unless the applicant consents to our retaining the
initial purchase payment and crediting it as of the end of the Valuation Period
in which the necessary requirements are fulfilled. The initial purchase payment
must be at least $5,000 ($2,000 for a Contract issued pursuant to a qualified
plan).
The date that the initial purchase payment is applied 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 the Contract is delivered.
The crediting of investment experience in the Variable Account, or a fixed rate
of return in the Fixed Account, begins as of the Contract Issue Date.
The Contract Owner may make 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. Purchase payments (together with any required information
identifying the proper Contracts and account to be credited with purchase
payments) must be transmitted to our Home Office. Additional purchase payments
are credited to the Contract and added to the Contract Value as of the end of
the Valuation Period in which they are received in good order.
Each additional purchase payment under a Contract must be at least $500. The
total of all purchase payments for all First Fortis annuities having the same
owner or participant, or annuitant, may not exceed $1 million (not more than
$500,000 allocated to the Fixed Account) without First Fortis' prior approval,
and we reserve the right to modify this limitation at any time.
Purchase payments in excess of the initial minimum may be made by monthly draft
against the bank account of any Contract Owner who has completed and returned to
us a special "Thrift-O-Matic" authorization form that may be obtained from your
sales representative or from our Home Office. Arrangements can also be made for
purchase payments by wire transfer, payroll deduction, military allotment,
direct deposit and billing. Purchase payments by check should be made payable to
First Fortis Life Insurance Company.
If the Contract Value is less than $1,000, we may cancel the Contract on any
Valuation Date. We will notify the Contract Owner at least 90 days in advance of
our intention to cancel the Contract. Such cancellation would be considered 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 pursuant to the Contract, plus any Fixed Account Value.
There is no guaranteed minimum Variable Account Value. To the extent Contract
Value is allocated to the Variable Account, you bear the entire investment risk.
DETERMINATION OF VARIABLE ACCOUNT VALUE. A Contract's Variable Account Value is
based 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
10
<PAGE>
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 Net 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. If a Subaccount's net investment factor is greater than
one, the Subaccount's Accumulation Unit value has increased. If the net
investment factor is less than one, the Subaccount's Accumulation Unit value has
decreased. 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.
DETERMINATION OF FIXED ACCOUNT VALUE. A Contract's Fixed Account Value is
guaranteed by First Fortis. Therefore, First Fortis bears the investment risk
with respect to amounts allocated to the Fixed Account, except to the extent
that (a) First Fortis may vary the Guaranteed Interest Rate for future Guarantee
Periods (subject to the 3% effective annual minimum) and (b) the Market Value
Adjustment for Fixed Accounts imposes investment risks on the Contract Owner.
The Contract's Fixed Account Value on any Valuation Date is equal to the
following amounts, in each case increased by accrued interest:
- The amount of Net Purchase Payments or transferred amounts allocated to
the Fixed Account; less
- The amount of any transfers or surrenders out of the Fixed Account.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
ALLOCATION OF PURCHASE PAYMENTS. In the application for a Contract, the Contract
Owner can allocate Net Purchase Payments, or portions thereof, to the available
Subaccounts of the Variable Account or to the Fixed Account (and to Guarantee
Periods within the Fixed Account), or a combination thereof. Percentages must be
in whole numbers and the total allocation must equal 100%. The percentage
allocations for future Net Purchase Payments may be changed, without charge, at
any time by sending a Written Request to First Fortis' Home Office. Changes in
the allocation of future Net Purchase Payments will be effective on the date we
receive the Contract Owner's Written Request.
TRANSFERS. Transfers of Contract Value from one available Subaccount to another
or into the Fixed Account, or from the Fixed Account to one of the available
Subaccounts, or from one Guarantee Period to another Guarantee Period, can be
made by the Contract Owner in Written Request to First Fortis' Home Office, or
by telephone transfer as described below. There is currently no charge for any
transfer, although transfers from a Guarantee Period of a Guarantee Period Fixed
Account that are (1) more than 15 days before or after the expiration thereof,
or (2) are not a part of a formal First Fortis program for the transfer of
earnings of the Fixed Account, 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 Fixed Account.
Irrespective of the above we may permit a continuing request for transfers of
lesser specified amounts automatically on a periodic basis. However, we reserve
the right to impose charges (not to exceed $25 per transfer) upon transfers.
Nevertheless, we will not impose a transfer charge on the first six transfers
between Guaranty Periods of the Fixed Account, between the Fixed Account and the
Subaccounts, or between the Subaccounts in any calendar year. We will count all
transfers between and among the Subaccounts of the Variable Account and the
Fixed Account as one transfer, if all the transfer requests are made at the same
time as part of one request. We will execute the transfers and determine all
values in connection with transfers as of the end of the Valuation Period in
which we receive the transfer request. The amount of any positive or negative
Market Value Adjustment associated with a transfer from a Guarantee Period,
respectively, will be added to or deducted from the transferred amount.
If you complete and return the Telephone Transfer Authorization Form, transfers
may be made pursuant to telephone instructions. We will honor telephone transfer
instructions from any person who provides the correct identifying information.
First Fortis will not be responsible for, and you will bear the risk of loss
from, oral instructions, including fraudulent instructions, which are reasonably
believed to be genuine. We will employ reasonable procedures to confirm that
telephone instructions are genuine, but if such procedures are not deemed
reasonable, we may be liable for any losses due to unauthorized or fraudulent
instructions. Our procedures are to verify address and social security number
and provide written confirmation of the transaction. We may modify or terminate
our telephone transfer procedures at any time. The number for telephone
transfers is 1-800-591-7333.
Certain restrictions on very substantial investments in any one Subaccount are
set forth under "Limitations on Allocations" in the Statement of Additional
Information.
TOTAL AND PARTIAL SURRENDERS
TOTAL SURRENDERS. The Contract Owner may surrender all of the Cash Surrender
Value at any time during the life of the Annuitant and prior to the Annuity
Commencement Date by a Written Request sent to First Fortis' Home Office. We
reserve the right to require that the Contract
11
<PAGE>
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 the Written
Request for the total surrender is received by First Fortis at its Home Office,
plus or minus any applicable Market Value Adjustment. See "Market Value
Adjustment."
The written consent of all collateral assignees and irrevocable beneficiaries
must be obtained prior to any total surrender. Surrenders from the Variable
Account will generally be paid within seven days of the date of receipt by First
Fortis' Home Office of the Written Request. Postponement of payments may occur,
however, in certain circumstances. See "Postponement of Payment."
The amount paid upon total surrender of the Cash Surrender Value (taking into
account any prior partial surrenders) may be more or less than the total Net
Purchase Payments made. After a surrender of the Cash Surrender Value or at any
time the Contract Value is zero, all rights of the Contract Owner, Annuitant, or
any other person will terminate.
PARTIAL SURRENDERS. At any time prior to the Annuity Commencement Date and
during the lifetime of the Annuitant, the Contract Owner may surrender a portion
of the Fixed Account Value and/or the Variable Account Value by sending to First
Fortis' Home Office a Written Request. We will not accept a partial surrender
request unless the net proceeds payable to you as a result of the request are at
least $1,000. If the total Contract Value in both the Variable Account and Fixed
Account would be less than $1,000 after the partial surrender, First Fortis will
surrender the entire Cash Surrender Value under the Contract.
In order for a request to be processed, the Contract Owner must specify from
which Subaccounts of the Variable Account or Guarantee Periods of the Fixed
Account, if applicable, a partial surrender should be made.
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, the amount payable to the Contract Owner will be
reduced by any applicable negative Market Value Adjustment, or increased by any
positive Market Value Adjustment unless the surrender is (1) within 15 days
before or after the expiration of a Guarantee Period, or (2) is a part of a
formal First Fortis program for the transfer of earnings from the Fixed Account.
The partial surrender will be effective at the end of the Valuation Period in
which First Fortis receives the Written Request for partial surrender at its
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.)
BENEFIT PAYABLE ON DEATH OF ANNUITANT OR CONTRACT OWNER
If the Annuitant or Contract Owner dies prior to the Annuity Commencement Date,
a death benefit will be paid to the Beneficiary. If more than one Annuitant has
been named, the death benefit payable upon the death of an Annuitant will only
be paid upon the death of the last survivor of the persons so named. The death
benefit will equal the greater of:
(1) the sum of all Net Purchase Payments made less all prior
surrenders and any applicable prior negative Market Value Adjustments, or
(2) the Contract Value as of the date used for valuing the death
benefit.
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 (a) receive a single sum payment, which terminates the
Contract, or (b) 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: a copy of a certified death
certificate; a copy of a certified decree of a court of competent jurisdiction
as to the finding of death; or a written statement by a medical doctor who
attended the deceased at the time of death.
If the Contract Owner dies before the Annuitant and before the Annuity
Commencement Date with respect to a Non-Qualified Contract certain additional
requirements are mandated by the Internal Revenue Code, which are discussed
below under "Federal Tax Matters-- Required Distributions for Non-Qualified
Contracts." It is imperative that Written Notice of the death of the Contract
Owner be promptly transmitted to First Fortis at its Home Office, so that
arrangements can be made 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, which
could have adverse tax consequences.
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THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
The Contract Owner may specify an Annuity Commencement Date in the application
not later than the Annuitant's 90th birthday. The Annuity Commencement Date
marks the beginning of the period during which an Annuitant or other payee
designated by the Contract Owner receives annuity payments under the Contract.
We reserve the right to not permit an Annuity Commencement Date which is on or
after the Annuitant's 75th birthday.
Depending on the type of retirement arrangement involved, amounts that are
distributed either too soon or too late may be subject to penalty taxes under
the Internal Revenue Code. See "Federal Tax Matters." You should consider this
carefully in selecting or changing an Annuity Commencement Date.
In order to advance or defer the Annuity Commencement Date, the Contract Owner
must submit a Written Request during the Annuitant's lifetime. The request must
be received 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 the Written Request is received. There is no right to make
any total or partial surrender during the Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
If the Contract Value at the end of the Valuation Period which contains the
Annuity Commencement Date is less than $1,000, we may pay the entire Contract
Value, without the imposition of any charges other than the premium tax charge,
if applicable, in a single sum payment to the Annuitant or other payee chosen by
the Contract Owner and cancel the Contract.
Otherwise, First Fortis 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 the Contract
Owner has notified us by Written Request to apply the Fixed Account Value and
Variable Account Value in different proportions. Any such Written Request must
be received by us at our Home Office at least 30 days before the Annuity
Commencement Date.
Annuity payments under a Fixed or Variable Annuity Option will be made on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If more than one person is named as an
Annuitant, the Contract Owner 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. There is no right to make any total or partial surrender during the
Annuity Period.
The amount of each annuity payment will depend on the amount of Contract Value
applied to an annuity option, the form of annuity selected and the age of the
Annuitant. Information concerning the relationship between the Annuitant's sex
and the amount of annuity payments, including special requirements in connection
with employee benefits plans, is set forth under "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 form
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
If a Subaccount on which a variable annuity payment is based has an average
effective net investment return higher than 3% per annum during the period
between two such annuity payments, the Annuity Unit Value will increase, and the
second payment will be higher than the first. Conversely, if the Subaccount's
average effective net investment return over the period between the annuity
payments is less than 3% per annum, 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, net of
the mortality and expense risk and administrative expense charges, which are
assessed at a nominal aggregate annual rate of .45%. 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. During the Annuity Period, the 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 described above under
"Allocation of Purchase Payments and Contract Value Transfers." Transfers from a
Fixed Annuity Option are not permitted during the Annuity Period.
ANNUITY FORMS
The Contract Owner may select an annuity form or change a previous selection by
Written Request, which must be received by us at least 30 days before the
Annuity Commencement Date. One annuity form may be selected, although as
discussed above, payments under that form may be received on a combination fixed
and variable basis. If no annuity form selection is in effect on the Annuity
Commencement Date, in most cases we automatically apply Option B (described
below), with payments guaranteed for 10 years. If the Contract is issued under
certain retirement plans, however, federal pension law may require that payments
be made pursuant to Option D (described below), unless otherwise elected. 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.
The following options are available for fixed annuity payments and for variable
annuity payments.
OPTION A, LIFE ANNUITY. Payments are made as of the first Valuation Date of each
monthly period during the Annuitant's life, starting with the Annuity
Commencement Date. No payments will be made after the
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Annuitant dies. It is possible for the payee 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. Payments are made as of the first Valuation Date of each monthly period
starting on the Annuity Commencement Date. Payments will continue as long as the
Annuitant lives. If the Annuitant dies before all of the guaranteed payments
have been made, we will continue installments of the guaranteed payments to the
Beneficiary.
OPTION C, JOINT AND FULL SURVIVOR ANNUITY. Payments are made as of the first
Valuation Date of each monthly period starting with the Annuity Commencement
Date. Payments will continue as long as either the Annuitant or the joint
Annuitant is alive. Payments will stop when both the Annuitant and the joint
Annuitant have died. It is possible for the payee or payees under this option to
receive only one payment, if both Annuitants die before the second payment is
due.
OPTION D, JOINT AND ONE-HALF CONTINGENT SURVIVOR ANNUITY. Payments are made as
of the first Valuation Date of each monthly period starting with the Annuity
Commencement Date. Payments will continue as long as either the Annuitant or the
joint Annuitant is alive. If the Annuitant dies first, payments will continue to
the joint Annuitant at one-half the original amount. If the joint Annuitant dies
first, payments will continue to the Annuitant at the original full amount.
Payments will stop when both the Annuitant and the joint Annuitant have died. It
is possible for the payee or payees under this option to receive only one
payment if both Annuitants die before the second payment is due.
We also have other annuity forms available and information about them can be
obtained 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 First Fortis, 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
First Fortis will deduct a charge for state premium taxes or similar assessments
from the Contract Value at the time that annuity payments begin. The charge will
be deducted on a pro-rata basis from the then-current Fixed Account Value and,
by redemption of Accumulation Units, the then-current Variable Account Value in
each Subaccount. Similarly, First Fortis may deduct premium taxes from Contract
Value when no deduction was made from purchase payments, but is subsequently
determined to be due. Conversely, First Fortis will credit to the Contract Value
the amount of any deductions for premium taxes or similar assessments that are
subsequently determined not to be owed.
Applicable premium tax rates depend upon the Contract Owner's then-current place
of residence. Applicable rates are subject to change by legislation,
administrative interpretations or judicial acts.
CHARGES AGAINST THE VARIABLE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE. We will assess each Subaccount of the
Variable Account with a daily charge for mortality and expense risk at a nominal
annual rate of .45% of the average daily net assets of the Variable Account
(consisting of approximately .30% for mortality risk and approximately .15% for
expense risk). This charge is assessed during both the Accumulation Period and
the Annuity Period. We guarantee not to increase this charge for the duration of
the Contract.
The mortality risk borne by First Fortis arises from its 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, First Fortis bears a mortality risk in that it guarantees to pay a
death benefit upon the death of an Annuitant or Contract Owner prior to the
Annuity Commencement Date.
The expense risk assumed is that actual expenses incurred in connection with
issuing and administering the Contract will exceed the limits on administrative
charges set in the Contract.
If the administrative charges and the mortality and expense risk charge are
insufficient to cover the expenses and costs assumed, the loss will be borne by
the Company. Conversely, if the amount deducted proves more than sufficient, the
excess will be profit to the Company.
ANNUAL ADMINISTRATIVE CHARGE
A $30 annual administrative charge is deducted each Contract year from the
Contract Value on each anniversary of the Contract Issue Date. (This charge will
be lower to the extent legally required in some states.) This charge is to help
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. This charge will initially be waived during
the Annuity Period, although First Fortis reserves the right to reinstitute it
at any time.
The annual administrative charge will be deducted by redemption of Accumulation
Units from each Subaccount of the Variable Account and from the Fixed Account in
the same proportion as the then-current Contract Value is then allocated among
those alternatives pursuant to the Contract. If the Contract is totally
surrendered, the full annual administrative charge will be deducted at the time
of surrender.
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The annual administrative charge and charges against the Separate Account
described above are for the purposes described and First Fortis may receive a
profit as a result of these charges.
TAX CHARGE
We currently impose no charge for taxes payable by us in connection with the
Contract, other than for premium taxes and similar assessments when applicable.
We reserve the right to impose a charge for any other taxes that may become
payable by us in the future in connection with the Contracts or the Variable
Account.
MISCELLANEOUS
Because the Variable Account invests in shares of the Portfolios, the net assets
of the Variable Account will reflect the investment advisory fees and certain
other expenses incurred by the Portfolios that are described in their
prospectuses.
GENERAL PROVISIONS
THE CONTRACTS
The Contract, copies of any applications, amendments, riders, or endorsements
attached to the Contract and copies of any supplemental applications,
amendments, endorsements, or revised Contract pages which are mailed to you are
the entire Contract. Only an officer of First Fortis can agree to change or
waive any provisions of a Contract. Any change or waiver must be in writing and
signed by an officer of First Fortis. The Contracts are non-participating and do
not share in dividends or earnings of First Fortis.
POSTPONEMENT OF PAYMENT
First Fortis 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. First Fortis 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 age or sex of the Annuitant has been misstated, any amount payable will
be that which the purchase payments paid would have purchased at the correct age
and sex. If we have made any overpayments because of incorrect information about
age or sex, or any other miscalculation, First Fortis will deduct the
overpayment from the next payment or payments due. We add underpayments to the
next payment. The amount of any adjustment will be credited or charged with
interest at the effective annual rate of 3% per year.
ASSIGNMENT
Rights and interests under a Qualified Contract may be assigned only in certain
narrow circumstances referred to in the Contract. Contract Owners and other
payees may assign their rights and interests under Non-Qualified Contracts,
including their ownership rights.
We take no responsibility for the validity of any assignment. A change in
ownership rights must be made in writing and a copy must be sent to First
Fortis' Home Office. The change will be effective on the date it was 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 the Home
Office of First Fortis. An assignment or pledge of a Contract may have adverse
tax consequences. See below under "Federal Tax Matters."
BENEFICIARY
Before the Annuity Commencement Date and while the Annuitant is living, the
Contract Owner may name or change a beneficiary or a contingent beneficiary by
sending a Written Request of the change to First Fortis. Under certain
retirement programs, however, spousal consent may be required to name or change
a beneficiary, and the right to name a beneficiary other than the spouse may be
subject to applicable tax laws and regulations. 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.
In the event of the death of a Contract Owner or Annuitant prior to the Annuity
Commencement date the Beneficiary will be determined as follows:
- If upon the death of a Contract Owner there is one or more surviving
Contract Owners, the surviving Contract Owner(s) will be the beneficiary
(these override any other beneficiary designations).
- If upon the death of a Contract Owner there are no surviving Contract
Owners, and upon the death of the Annuitant, the Beneficiary will be the
beneficiary designated by the Contract Owner. If there is no surviving
beneficiary who has been designated by the Contract Owner, then the
Contract Owner, or the Contract Owner's estate, will be the Beneficiary.
REPORTS
We will mail to the Contract Owner (or to the person receiving payments during
the annuity period), at the last known address of record, any reports and
communications 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 First Fortis.
RIGHTS RESERVED BY FIRST FORTIS
First Fortis reserves the right to make certain changes if, in its judgment,
they would best serve the interests of Contract Owners and Annuitants or would
be appropriate in carrying out the purposes of the Contracts. Any changes will
be made only to the extent and in the manner permitted by applicable laws. Also,
when required by law, First Fortis will obtain your approval of the changes and
approval from any
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appropriate regulatory authority. Such approval may not be required in all
cases, however. Examples of the changes First Fortis may make include:
- To operate the Variable Account in any form permitted under the Investment
Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any Subaccount to another Subaccount, or to one
or more separate accounts, or to the Fixed Account; or to add, combine or
remove Subaccounts in the Variable Account.
- To substitute, for the Portfolio shares held in any Subaccount, the shares
of another Portfolio or the shares of another investment company or any
other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the Contract as an
annuity.
- To change the time or time of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the Contract in order to
conform with any action the above provisions permit First Fortis to take,
including to change the way First Fortis assesses charges, but without
increasing as to any then outstanding Contract the aggregate amount of the
types of charges which First Fortis has guaranteed.
DISTRIBUTION
The Contracts will be sold by individuals who, in addition to being licensed by
state insurance authorities to sell the Contracts of First Fortis, are also
registered representatives of Jack White & Company, an unaffiliated
broker-dealer. The selling activities of Jack White & Company are by means of a
dealer agreement with Fortis Investors, Inc., the principal underwriter of the
Contracts. Fortis Investors and Jack White & Company are registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 as
broker-dealers and are members of the National Association of Securities
Dealers, Inc.
As compensation for distributing the Contracts, First Fortis pays Fortis
Investors, who in turn pays Jack White & Company, a fee not in excess of .40%
per annum of the average daily Contract Value of the Contracts sold by it.
First Fortis did not pay any amount to Fortis Investors in 1996 or 1997
associated with distribution of the Contracts. In the distribution agreement,
First Fortis 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.
See Note 9 to the Notes to First Fortis' Financial Statements as to amounts it
has paid to Fortis, Inc., Fortis Advisers, Inc. and Fortis Benefits Insurance
Company, affiliates of First Fortis, for various services.
Fortis Investors is an indirect subsidiary of Fortis AMEV and Fortis AG and is
therefore under common control with First Fortis. Fortis Investors' principal
business address is 500 Bielenberg Drive, Woodbury Minnesota 55125 and its
mailing address is P.O. Box 64284, St. Paul MN 55164. Fortis Investors is not
obligated to sell any specific amount of interests under the Contracts.
$20,000,000 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, which in the opinion of First Fortis are
currently in effect. These rules are based on laws, regulations and
interpretations which are subject to change at any time. This summary is not
comprehensive and is not intended 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. Purchase payments made under Non-Qualified Contracts are
not excludible or deductible from the gross income of the Contract Owner or any
other person. However, any increase in the accumulated value of a Non-Qualified
Contract resulting from the investment performance of the Variable Account or
interest credited to the Fixed Account is generally not taxable to the Contract
Owner or other payee until received by him or her, as surrender proceeds, death
benefit proceeds, or otherwise. The exception to this rule is that, generally,
Contract Owners who are not natural persons are taxed annually on any increase
in the Contract Value. However, this exception does not apply in all cases, and
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 a Contract Owner assigns or pledges any part of the value of a
Contract, the value so pledged or assigned is taxed to the Contract Owner as
ordinary income to the same extent as a partial withdrawal.
With respect to annuity payment options, although 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, a person's "investment in the Contract" is
the aggregate amount of purchase payments made by him or her. After an
Annuitant's or other payee's "investment in the Contract" is recovered, the full
amount of any additional annuity payments is taxable. For variable annuity
payments, in general, the taxable portion of each annuity payment (prior to
recovery of the "investment in the Contract") is determined by a formula which
establishes the specific
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dollar amount of each annuity payment that is not taxed. This dollar amount is
determined by dividing the "investment in the Contract" 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 which 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 issued by us or our
affiliates to the Contract Owner within the same calendar year will be treated
as if they were a single Contract.
There is a 10% penalty under the Code on the taxable portion of a "premature
distribution." Generally, an amount is a "premature distribution" unless the
distribution is (1) made on or after the Contract Owner or other payee reaches
age 59 1/2, (2) made to a Beneficiary on or after death of the Contract Owner,
(3) made upon the disability of the Contract Owner or other payee, or (4) part
of a series of substantially equal annuity payments for the life or life
expectancy of the Contract Owner or the Contract Owner and Beneficiary.
Premature distributions may result, for example, from an early Annuity
Commencement Date, an early surrender, partial surrender or assignment of a
Contract or the early death of an Annuitant who is not also the Contract Owner
or other person receiving annuity payments under the Contract.
A transfer of ownership of a Contract, or designation of an Annuitant or other
payee who is not also the Contract Owner, may result in certain income or gift
tax consequences to the Contract Owner that are beyond the scope of this
discussion. A Contract Owner contemplating any transfer or assignment of a
Contract should contact a competent tax adviser with respect to the potential
tax effects of such transaction.
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 (a) 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 (b) if any Contract Owner dies prior to the Annuity Commencement
Date, the entire interest in the Contract will be distributed (1) within five
years after the date of that person's death or (2) as annuity payments which
will begin within one year of that Contract Owner's death and which will be made
over the life of the Contract Owner's designated Beneficiary or over a period
not extending beyond the life expectancy of that Beneficiary. However, if the
Contract Owner's designated Beneficiary is the surviving spouse of the Contract
Owner, the Contract may be continued with the surviving spouse deemed to be the
new Contract Owner. Where the Contract Owner or other person receiving payments
is not a natural person, the required distributions provided by Section 72(s)
apply upon the death of the primary Annuitant.
No regulations interpreting the requirements of Section 72(s) have yet been
issued (although proposed regulations have been issued interpreting similar
requirements for qualified plans). First Fortis intends 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, unless the Beneficiary elects otherwise, the above requirements will
be satisfied where the death occurs prior to the Annuity Commencement Date by
paying the death benefit in a single sum, subject to proof of the Contract
Owner's death. The Beneficiary, however, may elect by Written Request to receive
an annuity option instead of a lump sum payment. However, if the election is not
made within 60 days of the date the single sum death benefit otherwise becomes
payable, particularly where the annuitant dies and the annuitant is not the
Contract Owner, 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 Contract Owners, Annuitants and other payees vary according
to the type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a retirement program recognized under the Code on
behalf of an individual are excludable from the individual's gross income for
tax purposes during the Accumulation Period. The portion, if any, of any
purchase payment made by or on behalf of an individual under a Contract that is
not excluded from the individual's gross income for tax purposes during the
Accumulation Period constitutes the individual's "investment in the Contract."
Aggregate deferrals under all plans at the employee's option may be subject to
limitations.
When annuity payments begin, the individual will receive back his or her
"investment in the Contract" if any, as a tax-free return of capital. The dollar
amount of annuity payments received in any year in excess of such return is
taxable as ordinary income. When payments are received as an annuity, the
tax-free return of capital is treated as if received ratably over the entire
period of the annuity until fully recovered (as described above with respect to
Non-Qualified Contracts).
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 educational 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); Section 457 unfunded deferred compensation plans
of public employers and 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
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have taxes withheld. The amounts withheld will vary among recipients depending
on the tax status of the individual and the type of payments from which taxes
are withheld.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and with
respect to certain distributions from certain types of qualified retirement
plans, unless the proceeds are transferred directly from the qualified plan to
another qualified retirement plan. Moreover, special "backup withholding" rules
may require First Fortis to disregard the recipient's election if the recipient
fails to supply First Fortis with a "TIN" or taxpayer identification number
(social security number for individuals), or if the Internal Revenue Service
notifies First Fortis 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 which set standards of diversification for the investments
underlying the Contracts, in order for the Contracts to be treated as annuities.
First Fortis believes that these diversification standards will be satisfied.
Failure to do so would result in immediate taxation to Contract Owners or
persons receiving annuity payments of all returns credited to Contracts, except
in the case of certain 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 Contract Owners or
persons receiving annuity payments to be treated as the owners of Variable
Account assets for tax purposes. First Fortis reserves 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 such standards were considered 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 from one of these types of
products into a Contract pursuant to the special annuity contract exchange form
we provide for this purpose is not generally a taxable event under the Code, and
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)(12) 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, income attributable to elective contributions made after
December 31, 1988 may not be distributed in the case of hardship.
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FURTHER INFORMATION ABOUT FIRST FORTIS
GENERAL
First Fortis is engaged in the offer and sale of insurance products, including
fixed life insurance policies, fixed and variable annuity contracts, and group
life, accident and health insurance policies. The Company markets its products
to small business and individuals through a national network of independent
agents, brokers, and financial institutions.
SELECTED FINANCIAL DATA
The following is a summary of certain financial data of First Fortis. This
summary has been derived in part from, and should be read in conjunction with,
the financial statements of First Fortis included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums........................................................ $ 51,846 $ 67,516 $ 81,201 $ 92,056 $ 75,393
Net investment income........................................... 7,907 7,891 7,466 6,261 6,074
Realized investment gains (losses).............................. 361 (3) 2,683 (1,057) 3,062
Other income.................................................... 682 336 298 287 533
--------- --------- --------- --------- ---------
TOTAL REVENUES................................................ 60,796 75,740 91,648 97,547 85,062
--------- --------- --------- --------- ---------
Benefits and expenses........................................... 60,983 75,596 96,371 104,582 85,170
Income tax expense (benefit).................................... (63) (39) (1,563) (999) (686)
--------- --------- --------- --------- ---------
Net income (loss)............................................... $ (124) $ 183 $ (3,160) $ (6,036) $ 578
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA
Total assets.................................................... $ 170,898 $ 142,742 $ 139,913 $ 123,954 $ 132,077
Total liabilities............................................... $ 133,817 $ 107,050 $ 101,523 $ 97,913 $ 92,863
Total shareholder's equity...................................... $ 37,081 $ 35,692 $ 38,390 $ 26,041 $ 39,214
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
REVENUES
First Fortis' (the "Company") insurance premiums decreased in 1997 as compared
to 1996. This decrease was substantially attributable to the following: (1)
effective January 1, 1996, the Company ceased new sales of group medical
policies; however, the Company continues to service the existing group medical
business. The decision to effectively exit the group medical business has
reduced premiums associated with this line from a peak in 1996 of $26 million
inforce to a current inforce of $5.8 million in premium; and, (2) during the
last six months of 1996, the annualized premium of group life insurance ($2.6
M), group LTD insurance ($1.4 M) and group dental insurance ($7.0 M) of business
written through a third party administrator was lapsed. Historically, the
benefit loss experience related to this business was worse than the experience
from the Company's remaining business. The loss of this business should have
minimal impact on overall operating results. Accident and health premiums are
principally composed of group accident and health coverages. The discontinuance
of group medical sales and strong dental sales have caused the group accident
and health premium mix to shift. The disability income, dental, and medical
premium represented 39%, 39% and 22%, respectively, of total group accident and
health premium in 1997 compared to 40%, 25% and 35%, respectively, in 1996.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1997 and 1996
resulted in recognition of realized gains and losses upon sales of securities.
BENEFITS
During the first three quarters of 1996, the Company's group life claims ratio
was higher than expected as a result of increased mortality and larger average
claim amounts. Consistent with the last quarter of 1996, the Company's group
life mortality experience and average claim amounts remained low in 1997. The
decrease in accident and health benefits in 1997 as compared to 1996 is
consistent with the decrease in accident and health premium. During 1997, group
disability claims decreased as compared to 1996. The Company's group dental
claims ratio was higher than expected during 1997 as a result of higher benefit
utilization rates and an increase in dental care costs.
EXPENSES
The Company continues to monitor its commission rate structures, and, as
indicated by market conditions, periodically adjusts rates paid. Rates paid vary
by product type, group size and duration.
As the Company's inforce medical lives continue to decrease, the Company
continues to experience a reduction in medical insurance related administrative
expenses. Some fixed costs related to the medical business remain with the
Company.
19
<PAGE>
YEAR 2000
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company and any of
its businesses or subsidiaries. All of the Company's major businesses are
processed by computer systems of affiliates, and many have significant
interaction with systems of third parties.
A comprehensive review of each of the affiliate computer systems and business
processes has been conducted to identify the major systems that could be
affected by the Year 2000 issue. Steps are being taken to resolve any potential
problems including modification to existing software and the purchase of new
software. These measures are scheduled to be completed and tested on a timely
basis. Each affiliate's goal is to complete internal remediation and testing of
each system by early 1999.
Factors that could influence the total costs to be incurred by the Company in
connection with the Year 2000 issue include the ability of the Company to
successfully identify systems containing two-digit year codes, the nature and
amount of programming required to fix the affected programs, the related labor
and consulting costs for such remediation, and the ability of third parties that
interface with the Company to successfully address their Year 2000 issues.
The Company is evaluating the Year 2000 readiness of advisors and other third
parties whose system failures could have an impact on the Company's operations.
The potential materiality of any such impact is not entirely known at this time.
The Company is closely monitoring these entities to avoid any unforeseen
circumstances.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company have been met by funds provided from
operations, including investment income. Funds are principally used to provide
for policy benefits, operating expenses, commissions and investment purchases.
The impact of the declining inforce medical business has been considered in
evaluating the Company's future liquidity needs. The Company expects its
operating activities to continue to generate sufficient funds.
The National Association of Insurance Commissioners has implemented risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of risk-based capital amount which is then compared to a
company's actual total adjusted capital. Based upon current calculation 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 has no long or short term debt. As of December 31, 1997, 97% of the
Company's fixed maturity investments consisted of investment grade bonds, and
the Company does not expect this percentage to change significantly in the
future.
REGULATION
The Company is subject to the laws and regulations established by the New York
State Insurance Department governing insurance business conducted in New York
State. Periodic audits are conducted by the New York Insurance Department
related to the Company's compliance with these laws and regulations. To date
there have been no adverse findings regarding the Company's operations.
20
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Set forth is information concerning First Fortis' directors and executive
officers, together with their business experience and principal occupations for
the past five years:
<TABLE>
<S> <C>
Zafar Rashid, 48 President and Chief Executive Officer; Senior
Vice President and Chief Financial Officer of
Fortis, Inc.
Larry M. Cains, 51 Treasurer; Senior Vice President of Fortis,
Director since 1995 Inc.
Allen R. Freedman, 58 Chairman of the Board; Chairman and Chief
Director Since 1989 Executive Officer of Fortis, Inc.
Thomas M. Keller, 50 President of Time Insurance Company;
Director Since 1994 President--Fortis Healthcare of Fortis
Benefits Insurance Company; before that Senior
Vice President of Fortis, Inc.
Dean C. Kopperud, 45 Chief Executive Officer of Fortis Advisers,
Director Since 1994 Inc. and President of Fortis Investors, Inc.;
President--Fortis Financial Group of Fortis
Benefits Insurance Company
Terry J. Kryshak, 47 Senior Vice President and Chief Administrative
Director Since 1991 Officer
Susie Gharib, 47 Anchorwoman, Cable NBC; before that,
Director Since 1991 Anchorwoman, Financial News Network
Guy Gerard Rutherfurd, Jr., 58 Senior Vice President, Dean Witter
Director Since 1989 Intercapital; before that Executive Vice
President and Chief Investment Officer of
Nomura Asset Management, Inc.
Dale Edward Gardner, 67 President, Gardner & Bull
Director Since 1989
Kenneth W. Nelson, 76 President, Tech Products, Inc.
Director Since 1989
Clarence Elkus Galston, 88 Attorney at Law
Director Since 1989
Robert B. Pollock, 43 President and Chief Executive Officer of
Director Since 1995 Fortis Benefits Insurance Company
Barbara R. Hege, 54 Assistant Treasurer and Chief Financial
Officer
Jerome A. Atkinson, 48 Secretary; Vice President, Secretary and
General Counsel of Fortis, Inc.; before that
Senior Vice President, Secretary and General
Counsel of American Security Insurance Company
</TABLE>
First Fortis' officers serve at the pleasure of the Board of Directors, and
members of the Board who are also officers or employees of First Fortis serve
without compensation. All Directors serve until their successors are duly
elected and qualified. The compensation of members of the Board who are not also
officers or employees of First Fortis or its affiliates is as follows. The
Director receives $1,000 for attendance at the annual Board meeting. If the
Director is also a member of the Audit Committee and/or the Investment
Committee, the Director also receives $1,000 for attending any meeting of such
committee unless the committee meeting date is the same as the annual meeting,
in which case the committee meeting compensation is $500.
Mr. Freedman is also a director of Systems and Computer Technology Corporation
and Genesis Health Ventures and the following registered investment companies:
Fortis Equity Portfolios, Inc.; Fortis Growth Fund, Inc.; Fortis Fiduciary Fund,
Inc.; Fortis Income Portfolios, Inc.; Fortis Securities, Inc.; Fortis Tax-Free
Portfolios, Inc.; Fortis Money Portfolios, Inc.; Fortis Advantage Portfolios,
Inc.; Fortis Worldwide Portfolios, Inc.; Fortis Series Fund, Inc.; Special
Portfolios, Inc.
21
<PAGE>
EXECUTIVE COMPENSATION
Set forth below is certain information concerning the compensation of the named
executive officers of First Fortis. Mr. Rashid and Mr. Freedman are compensated
by other affiliates of First Fortis.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION (1)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- ------------------------------------------------------- ---- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Zafar Rashid 1997 $ 0 $ 0 $ 0 $ 0
President
Allen R. Freedman 1997 0 0 0 0
President 1996 0 0 0 0
1995 0 0 0 0
Terry J. Kryshak 1997 115,000 34,000 0 8,940
Senior Vice President and Chief Administrative Officer 1996 111,000 34,000 0 6,660
1995 107,350 25,764 0 8,288
</TABLE>
- ------------------------
1 This column includes contributions made by First Fortis for the year for the
benefit for the named individual to defined contribution retirement plans.
As additional compensation to its employees and executive officers, First Fortis
has an Employees' Uniform Retirement Plan and an Executive Retirement Plan which
generally provide an annual annuity benefit upon retirement at age 65 (or a
reduced benefit upon early retirement) equal to: .9% of the employee's Average
Annual compensation up to the employee's social security covered compensation,
plus 1.3% of Average Annual compensation above the employee's social security
covered compensation up to $235,840, as adjusted by an index, multiplied by the
employee's years of credited services.
The following table illustrates the combined estimated life annuity benefit
payable from the Employees Uniform Retirement Plan and the Executive Retirement
Plan to employees with the specified Final Average Salary and Years of Service
upon retirement.
PENSION TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------
FINAL AVERAGE EARNINGS 10 15 20 25 30 35
- ----------------------------------- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
125,000 15,078 22,617 30,156 37,695 45,234 52,772
150,000 18,328 27,492 36,656 45,820 54,984 64,147
175,000 21,578 32,367 43,156 53,945 64,734 75,522
200,000 24,828 37,242 49,656 62,070 74,484 86,897
225,000 28,078 42,117 56,156 70,195 84,234 98,272
250,000 30,695 46,042 61,389 76,737 92,084 107,432
275,000+ 31,163 46,744 62,326 77,907 93,489 109,070
</TABLE>
The table above excludes social security benefits. In general, for the purposes
of these plans compensation includes salary and bonuses. The credited years of
service with First Fortis for those individuals named in the Summary
Compensation Table above are as follows: 0, 0, and 7.
OWNERSHIP OF SECURITIES
All of First Fortis' outstanding shares are owned by Fortis, Inc., 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 AMEV and
50% owned, through certain subsidiaries, by Fortis AG, Boulevard Emile Jacqmain
53, 1000 Brussels, Belgium.
VOTING PRIVILEGES
In accordance with its view of current applicable law, First Fortis will vote
shares of each of the Portfolios which are attributable to a Contract at regular
and special meetings of the shareholders of the Portfolios in proportion to
instructions received from the persons having the voting interest in the
Contract as of the record date for the corresponding Portfolio shareholders
meeting. Contract Owners have the voting interest during the Accumulation
Period, persons receiving annuity payments during the Annuity Period, and
Beneficiaries after the death of the Annuitant or Contract Owner. However, if
the Investment Company Act of 1940 or any rules thereunder should be amended or
if the present interpretation thereof should change, and as a result First
Fortis determines that it is permitted to vote shares of the Portfolios in its
own right, it may elect to do so.
During the Accumulation Period, the number of shares of a Portfolio attributable
to a Contract is determined by dividing the amount of Contract Value in the
corresponding Subaccount pursuant to the Contract as of the record date for the
shareholders meeting by the net asset value of one Portfolio share as of that
date. During the Annuity Period, or after the death of the Annuitant or Contract
Owner, the number of Portfolio shares deemed attributable to the Contract will
be computed in a comparable manner, based on the liability for future variable
annuity payments allocable to that Subaccount under the
22
<PAGE>
Contract as of the record date. Such liability for future payments will be
calculated on the basis of the mortality assumptions and the assumed interest
rate used in determining the number of Annuity Units credited to the Contract
and the applicable Annuity Unit value on the record date. 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.
First Fortis will vote shares for which it has received no timely instructions,
and any shares attributable to excess amounts First Fortis has accumulated in
the related Subaccount, in proportion to the voting instructions which it
receives with respect to all Contracts and other variable annuity contracts
participating in a Portfolio. To the extent that First Fortis or any affiliated
company holds any shares of a Portfolio, they will be voted in the same
proportion as instructions for that Portfolio that are received from persons
holding the voting interest with respect to all First Fortis separate accounts
participating in that Portfolio. Shares held by separate accounts other than the
Variable Account will in general be voted in accordance with instructions of
participants in such other separate accounts. This diminishes the relative
voting influence of the Contracts.
Each person having a voting interest in a Subaccount of the Separate Account
will receive proxy material, reports and other materials relating to the
appropriate Portfolio. Pursuant to 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 its 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
by Portfolio shareholders.
LEGAL MATTERS
The legality of the Contracts described in this Prospectus has been passed upon
by David A. Peterson, Esquire, Assistant General Counsel with the law department
of Fortis Benefits Insurance Company. Messrs. Freedman, Levy, Kroll & Simonds,
Washington, D.C., have advised First Fortis on certain federal securities law
matters.
OTHER INFORMATION
Registration Statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Prospectus. Not all of the information set forth in
the Registration Statement, amendments and exhibits thereto has been included in
this Prospectus. Statements contained in this Prospectus concerning the content
of the Contracts and other legal instruments are intended to be summaries. For a
complete statement of the terms of these documents, reference should be made to
the instruments filed with the Securities and Exchange Commission.
A Statement of Additional Information is available upon request. Its contents
are as follows:
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
First Fortis and the Variable Account.......... 1
Calculation of Annuity Payments................ 2
Postponement of Payments....................... 3
Services....................................... 3
- Safekeeping of Variable Account Assets..... 3
- Experts.................................... 3
- Principal Underwriter...................... 4
Taxation Under Certain Retirement Plans........ 4
Withholding.................................... 7
Miscellaneous.................................. 7
Variable Account Financial Statements.......... 8
APPENDIX A--Performance Information............ A-1
</TABLE>
FIRST FORTIS FINANCIAL STATEMENTS
The financial statements of First Fortis that are included in this Prospectus
should be considered primarily as bearing on the ability of First Fortis to meet
its obligations under the Contracts. The Contracts are not entitled to
participate in earnings, dividends or surplus of First Fortis.
23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
First Fortis Life Insurance Company
We have audited the accompanying balance sheets of First Fortis Life Insurance
Company, an indirect, wholly-owned subsidiary of Fortis AMEV and Fortis AG, as
of December 31, 1997 and 1996, and the related statements of income, changes in
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 generally accepted auditing
standards. 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 First Fortis Life Insurance
Company at December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ernst& Young LLP
Minneapolis, Minnesota
February 27, 1998
F-1
<PAGE>
BALANCE SHEETS
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost 1997--$102,284;
1996--$111,970).................................................... $ 105,776 $ 113,137
Short-term investments.............................................. 11,697 --
------------ ------------
117,473 113,137
Cash and cash equivalents............................................. 7,453 1,545
Receivables:
Uncollected premiums, less allowance (1997 and 1996--$100).......... 2,358 3,890
Reinsurance recoverable on unpaid and paid losses................... 19,764 14,731
Other............................................................... 1,402 2,141
------------ ------------
23,524 20,762
Accrued investment income............................................. 1,700 1,739
Deferred policy acquisition costs..................................... 1,413 247
Property and equipment at cost, less accumulated depreciation
(1997--$1,853; 1996--$1,396)......................................... 676 1,028
Deferred federal income tax........................................... 2,079 1,527
Goodwill, less accumulated amortization (1997--$322; 1996--$276)...... 508 554
Assets held in separate accounts...................................... 16,072 2,203
------------ ------------
TOTAL ASSETS.......................................................... $ 170,898 $ 142,742
------------ ------------
------------ ------------
POLICY RESERVES, LIABILITIES, AND SHAREHOLDER'S EQUITY
POLICY RESERVES AND LIABILITIES:
Future policy benefit reserves:
Life insurance.................................................... $ 27,671 $ 25,089
Interest sensitive and investment products........................ 6,878 136
Accident and health............................................... 61,175 60,774
------------ ------------
95,724 85,999
Unearned revenues................................................... 5,223 3,978
Other policy claims and benefits payable............................ 10,304 10,821
Income taxes payable................................................ 911 --
Other liabilities..................................................... 5,583 4,049
Liabilities related to separate accounts.............................. 16,072 2,203
------------ ------------
TOTAL POLICY RESERVES AND LIABILITIES................................. 133,817 107,050
SHAREHOLDER'S EQUITY:
Common stock, $20 par value: Authorized, issued, and outstanding
shares--100,000.................................................... 2,000 2,000
Additional paid-in capital.......................................... 37,440 37,440
Retained deficit.................................................... (4,642) (4,517)
Unrealized gains (losses) on investments, net....................... 2,283 769
------------ ------------
TOTAL SHAREHOLDER'S EQUITY............................................ 37,081 35,692
------------ ------------
TOTAL POLICY RESERVES, LIABILITIES, AND SHAREHOLDER'S EQUITY.......... $ 170,898 $ 142,742
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-2
<PAGE>
STATEMENTS OF OPERATIONS
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1997 1996 1995
----------- ------ -----------
<S> <C> <C> <C>
REVENUES
Insurance operations:
Life insurance premiums........................................... $ 19,158 $ 22,791 $ 18,879
Interest sensitive and investment products policy charges......... 4 59 --
Accident and health premiums...................................... 32,684 44,666 62,322
Net investment income............................................... 7,907 7,891 7,466
Net realized gains (losses) on investments.......................... 361 (3) 2,683
Other income........................................................ 682 336 298
----------- ------ -----------
TOTAL REVENUES.................................................. 60,796 75,740 91,648
BENEFITS AND EXPENSES
Benefits to policyholders:
Life insurance.................................................... 14,597 19,720 16,207
Interest sensitive and investment products........................ 196 72 --
Accident and health............................................... 29,090 37,988 56,592
----------- ------ -----------
43,883 57,780 72,799
Amortization of deferred policy acquisition costs................... (56) (92) 4,595
Insurance commissions............................................... 4,457 5,214 5,071
General and administrative expenses................................. 12,699 12,694 13,906
----------- ------ -----------
TOTAL BENEFITS AND EXPENSES..................................... 60,983 75,596 96,371
----------- ------ -----------
(Loss) income before federal income taxes........................... (187) 144 (4,723)
Federal income tax benefit.......................................... (63) (39) (1,563)
----------- ------ -----------
NET (LOSS) INCOME................................................... $ (124) $ 183 $ (3,160)
----------- ------ -----------
----------- ------ -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAINS
ADDITIONAL (LOSSES)
COMMON PAID-IN RETAINED ON INVESTMENTS
STOCK CAPITAL DEFICIT NET TOTAL
----------- ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Balance January 1,1995................................... $ 2,000 $ 30,440 $ (1,540) $ (4,858) $ 26,042
Additional paid-in capital from Fortis AMEV.............. -- 7,000 -- -- 7,000
Net loss................................................. -- -- (3,161) -- (3,161)
Change in unrealized gains (losses) on investment, net... -- -- -- 8,509 8,509
----------- ----------- ----------- ------ ---------
Balance December 31, 1995................................ 2,000 37,440 (4,701) 3,651 38,390
Net income............................................... -- -- 183 -- 183
Change in unrealized gains (losses) on investment, net... -- -- -- (2,882) (2,882)
----------- ----------- ----------- ------ ---------
Balance December 31, 1996................................ 2,000 37,440 (4,518) 769 35,691
Net loss................................................. -- -- (124) -- (124)
Change in unrealized gains (losses) on investment, net... -- -- -- 1,514 1,514
----------- ----------- ----------- ------ ---------
Balance December 31, 1997................................ $ 2,000 $ 37,440 $ (4,642) $ 2,283 $ 37,081
----------- ----------- ----------- ------ ---------
----------- ----------- ----------- ------ ---------
</TABLE>
See accompanying notes.
F-4
<PAGE>
STATEMENTS OF CASH FLOWS
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.................................... $ (124) $ 183 $ (3,160)
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Change in deferred tax valuation allowance....... (1,338) -- (178)
Depreciation, amortization and accretion......... 707 804 750
Net realized (gains) losses on investments....... (361) 4 (2,683)
Decrease (increase) in uncollected premiums,
accrued investment income and other............. 2,309 (1,076) 113
Increase in reinsurance recoverable.............. (5,033) (5,395) (461)
Increase (decrease) in income taxes payable...... 883 1,772 (1,569)
Amortization of policy acquisition costs......... (56) (92) 4,595
Policy acquisition costs deferred................ (1,110) (155) --
Increase in future policy benefit reserves and
other policy claims and benefits................ 1,769 5,265 3,481
Increase (decrease) in other liabilities......... 1,533 (1,939) 128
-------------- -------------- --------------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES.................................... (821) (629) 1,016
INVESTING ACTIVITIES
Purchases of fixed maturity investments.............. (127,426) (140,954) (122,290)
Sales and maturities of fixed maturity investments... 137,273 135,352 120,298
(Increase) decrease in equity securities and
short-term investments.............................. (11,697) 6,942 (5,042)
Purchase of property and equipment................... (107) (310) (321)
-------------- -------------- --------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES.................................... (1,957) 1,030 (7,355)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received.......................... 10,679
Surrenders and death benefits.................... (2,152)
Interest credited to policyholders............... 159
Additional paid-in capital from shareholder...... -- 7,000
-------------- -------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 8,686 -- 7,000
-------------- -------------- --------------
Increase in cash and cash equivalents................ 5,908 401 661
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR.......................................... 1,545 1,144 483
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR....... $ 7,453 $ 1,545 $ 1,144
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
First Fortis Life Insurance Company ("the Company") is an affiliate of the
worldwide Fortis group of companies owned by Fortis AMEV of the Netherlands and
Fortis AG of Belgium. Prior to April 30, 1997, First Fortis was wholly-owned by
Fortis AMEV, while the other U.S. subsidiaries of Fortis AMEV and Fortis AG
operated under the holding company of Fortis, Inc. Upon regulatory approval by
the New York State Insurance Department in April 1997, the Company became a
wholly-owned subsidiary of Fortis, Inc. The Company was organized to enable the
Fortis group of companies to distribute their products to the New York State
marketplace. To date, the Company's revenues have been derived primarily from
group employee benefits products. During 1997, the Company had $1,120,000 of
direct premium written principally by third party administrators ("TPA's").
Effective January 1, 1996, the Company stopped offering its group medical
products; however, the Company will continue to renew and service existing
medical business, which represented $7,297,000, $17,871,000, and $34,011,000 of
1997, 1996 and 1995 accident and health premiums, respectively.
BASIS OF STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which practices differ in certain
respects from statutory accounting practices prescribed or permitted by the
Department of Insurance of the State of New York. The more significant of these
principles are:
REVENUE RECOGNITION AND FUTURE POLICY BENEFIT RESERVES
Premiums for credit life insurance included in life insurance premiums and
accident and health insurance premiums are recognized as revenues when due
over the estimated coverage period. Premiums for traditional life insurance
are recognized as revenue 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 credit rates for universal life and investment products
ranged from 3.5% to 10.0% in 1997 and 1996.
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 1964 Commissioners
Disability Table at 6% interest. Calculated reserves are modified based on
the Company's actual experience.
CLAIMS AND BENEFITS PAYABLE
Other policy claims and benefits payable for reported and incurred but not
reported claims and related claims adjustment expenses are determined using
case-basis estimates and past experience. The methods of making such
estimates and establishing the related liabilities are continually reviewed
and updated. Any adjustments resulting therefrom are reflected in income
currently.
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 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 pattern of amortization of deferred policy acquisition costs are
reported directly in shareholder's equity as unrealized gains (losses) on
investments and, accordingly, have no effect on net income.
Short term investments are at cost which approximates fair value.
Realized gains and losses on sales of investments, and declines in value
judged to be other-than-temporary, are recognized on the specific
identification basis. Investment income is recorded as earned.
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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 credit life, disability and accident and
health insurance products, such costs are amortized over an appropriate
period in proportion to premium revenue. 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.
GOODWILL
Goodwill represents the excess of the purchase price paid over net assets
acquired in connection with the purchase of the shell of Metropolitan Life.
Goodwill is amortized on a straight line basis over 18 years.
INCOME TAXES
Income taxes have been provided using the liability method in accordance
with Financial Accounting Standards Board ("FASB") Statement 109, ACCOUNTING
FOR INCOME TAXES. Deferred tax assets and liabilities are determined based
on the differences between the financial reporting and the tax bases and are
measured using the enacted tax rates.
SEPARATE ACCOUNTS
The Company began selling variable annuity products July 1, 1996. Assets and
liabilities associated with separate accounts relate to deposit and annuity
considerations for which the contractholder, rather than the Company, bears
the investment risk. Separate account assets are reported at fair value.
Revenues and expenses related to the separate account assets and
liabilities, to the extent of benefits paid, are provided to the separate
account policyholders and are excluded from the amounts reported in the
accompanying statements of operations.
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.
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.
NEW FINANCIAL ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 defines the financial statement presentation for all
changes in a company's equity during a period except those resulting from
investments by owners and distributions to owners. SFAS No. 130 will be
adopted by the Company in the first quarter of 1998. Because the statement
is merely a change in presentation, the Company does not expect the adoption
of this statement to have a significant impact on the financial statements.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation.
2. AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS
On October 1, 1991, First Fortis Life Insurance Company and an affiliate, Fortis
Benefits Insurance Company, (the "Companies") entered into an Asset Transfer and
Acquisition Agreement (the "Agreement") with Mutual Benefit Life Insurance
Company in Rehabilitation ("MBL"). Pursuant to the Agreement, the Companies
acquired certain assets and assumed certain liabilities of MBL relating to the
group life, disability, dental and medical insurance business (the "Business")
of MBL. That portion of the Business conducted in New York was assumed by First
Fortis, while the most substantial portion of the Business was assumed by Fortis
Benefits Insurance Company. First Fortis paid $10,166,000 for its portion of the
Business acquired including contingent Promissory Note ("Note") payments
aggregating $1,366,000 from 1992 to 1994 which were based on the persistency of
the acquired Business through September 30, 1994. No additional payments will be
made. Note payments were added to deferred policy acquisition costs ("DPAC")
when made. The DPAC amortization period, which was originally scheduled through
September 30, 1997, was completed December 31, 1995 (an acceleration of
$2,749,000 into 1995), based on the overall experience of the acquired block of
business.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
3. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAIN LOSS FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1997:
Governments................................... $ 3,599 $ 125 $ 2 $ 3,722
Public utilities.............................. 8,212 247 -- 8,459
Industrial and miscellaneous.................. 90,473 3,197 75 93,595
----------- ----------- ----------- -----------
Total....................................... $ 102,284 $ 3,569 $ 77 $ 105,776
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1996:
Governments................................... $ 13,463 $ 92 $ 44 $ 13,511
Public utilities.............................. 6,446 67 25 6,488
Industrial and miscellaneous.................. 92,061 1,426 350 93,137
----------- ----------- ----------- -----------
Total....................................... $ 111,970 $ 1,585 $ 419 $ 113,136
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The amortized cost and fair value of fixed maturity securities at December 31,
1997, by contractual maturity, are shown below (in thousands):
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due in one year or less............................................... $ 1,257 $ 1,264
Due after one year through five years................................. 43,155 43,938
Due after five years through ten years................................ 19,424 20,051
Due after ten years................................................... 38,448 40,523
----------- -----------
$ 102,284 $ 105,776
----------- -----------
----------- -----------
</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.
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Major categories of net investment income and realized gains (losses) on
investments for each year were as follows (in thousands):
<TABLE>
<CAPTION>
NET REALIZED GAINS
NET INVESTMENT INCOME (LOSSES) ON
INVESTMENTS
---------------------- --------------------
1997 1996 1995 1997 1996 1995
------ ------ ------ ----- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities.................................. $7,744 $7,941 $7,579 $ 361 $(3) $2,683
Short-term investments............................ 302 231 152 -- -- --
------ ------ ------ ----- ---- ------
8,046 8,172 7,731 $ 361 $(3) $2,683
----- ---- ------
----- ---- ------
Expenses.......................................... (139) (281) (265)
------ ------ ------
Net investment income............................. $7,907 $7,891 $7,466
------ ------ ------
------ ------ ------
</TABLE>
Proceeds from sales of investments were $134,234,000, $135,352,000 and
$120,298,000 in 1997, 1996 and 1995, respectively. Gross gains of $1,136,000,
$1,551,000 and $3,374,000 and gross losses of $775,000, $1,554,000 and $691,000
were realized on the sales in 1997, 1996 and 1995, respectively.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
3. INVESTMENTS (CONTINUED)
NET UNREALIZED GAINS (LOSSES)
The adjusted net unrealized gains (losses) recorded in shareholder's equity for
the years ended December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Change in unrealized gains (losses) before
adjustments........................................... $ 2,405 $ (4,367) $ 10,390
Deferred income tax (expense) benefit.................. (891) 1,485 (1,881)
----------- ----------- -----------
Change in net unrealized gains (losses)................ 1,514 (2,882) 8,509
Net unrealized gains (losses) beginning of year........ 769 3,651 (4,858)
----------- ----------- -----------
Net unrealized gains, end of year...................... $ 2,283 $ 769 $ 3,651
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
4. LEASES
The Company leases office space under operating lease arrangements that have
various renewal options and are subject to escalation clauses for real estate
taxes and operating expenses. Rent expense was $661,000, $692,000 and $673,000
in 1997, 1996, and 1995, respectively. Future minimum payments required under
operating lease arrangements that have initial or noncancelable terms in excess
of one year or more are: 1998--$769,000, 1999--$602,000, 2000--$51,000, and
2001--$43,000.
5. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims and claims
adjustment expenses is summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance
recoverables.......................................... $ 61,482 $ 65,764 $ 66,136
Add: Incurred losses related to:
Current year......................................... 25,424 38,798 57,400
Prior years.......................................... 3,666 (810) (808)
----------- ----------- -----------
Total incurred losses.............................. 29,090 37,988 56,592
----------- ----------- -----------
Deduct: Paid losses related to:
Current year......................................... 15,393 23,727 35,779
Prior years.......................................... 14,681 18,543 21,185
----------- ----------- -----------
Total paid losses.................................. 30,074 42,270 56,964
----------- ----------- -----------
Balance as of December 31, net of reinsurance
recoverable........................................... $ 60,498 $ 61,482 $ 65,764
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The table above compares to the amounts reported on the balance sheet in the
following respects: (1) the table above is presented net of ceded reinsurance
and the accident and health reserves reported on the balance sheet are gross of
ceded reinsurance; (2) the table above includes claims adjustment expense
liabilities that are included in other liabilities on the balance sheet; and (3)
the table above includes accident and health benefits payable which are included
with other policy claims and benefits payable reported on the balance sheet.
As discussed in Note 1, the Company stopped offering group medical products in
1996 but continues to service and renew existing business, resulting in lower
incurred and paid loss activity for the year ended December 31, 1997 and 1996.
The liability for unpaid accident and health losses and loss expense allowance
includes $55,956,000, $55,152,000 and $53,953,000 of long-term disability income
reserves as of December 31, 1997, 1996, and 1995, respectively, which were
discounted for anticipated interest earnings assuming a 6.0% interest rate.
The 1997 claims incurred related to prior years is principally additional
payments and increases to the discounted accident and health reserves based on
actual experience of claims liabilities through the current year. For 1996 and
1995, the claims incurred related to prior years resulted from favorable
experience mitigated by increases to the discounted accident and health reserves
based on actual experience of claims liabilities through the current year.
6. FEDERAL INCOME TAXES
As of May 1, 1997, the Company reports its taxable income in a consolidated
federal income tax return along with other affiliated subsidiaries of Fortis,
Inc. 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-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
6. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax assets and liabilities
as of December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserves............................................................ $ 2,437 $ 2,006
Separate account assets/liabilities................................. 229 34
Deferred policy acquisition costs................................... 228 555
Alternative minimum tax credit carryforward......................... 392 392
Net operating loss carryforward..................................... 598 216
Other............................................................... 493 265
--------- ---------
Total gross deferred tax assets................................... 4,377 3,468
Valuation allowance................................................... -- (1,338)
--------- ---------
Deferred tax assets................................................... 4,377 2,130
Deferred tax liabilities:
Unrealized gains.................................................... 1,287 396
Other............................................................... 1,011 207
--------- ---------
Total gross deferred tax liabilities.............................. 2,298 603
--------- ---------
Net deferred tax asset............................................ $ 2,079 $ 1,527
--------- ---------
--------- ---------
</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. As of
December 31, 1997 and 1996, the Company had a deferred tax asset valuation
allowance of $0 and $1,338,000, respectively. The valuation allowance decrease
of $1,338,000 in 1997 was offset by a corresponding increase in the current
liability.
The Company's tax benefit for the year ended December 31 is shown as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--- --------- ---------
<S> <C> <C> <C>
Current................................................................... $ (35) $ (131) $ 393
Deferred.................................................................. (28) 92 (1,954)
--- --------- ---------
$ (63) $ (39) $ (1,561)
--- --------- ---------
--- --------- ---------
</TABLE>
Federal income tax payments and refunds resulted in net payments of $382,000,
$32,000 and $252,000 in 1997, 1996 and 1995, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--- --------- ---------
<S> <C> <C> <C>
Statutory income tax rate................................................. 35.0% 34.0% 34.0%
Other, including provision for prior year adjustments..................... (1.3) (61.3) 0.9%
--- --------- ---------
33.7% (27.3)% 33.1%
--- --------- ---------
--- --------- ---------
</TABLE>
As of May 1, 1997, the Company is included as a member of a federal consolidated
group that has a statutory federal rate of 35%.
At December 31, 1997, the Company has net operating loss carryforwards relating
to periods ending before May 1, 1997, for federal income tax purposes of
$1,708,000 which are available to offset future federal taxable income of the
Company, if any, through 2011. The Company also has alternative minimum tax
credit carryforwards of $392,000 relating to periods before May 1, 1997, which
are available to reduce future federal regular income taxes of the Company, if
any, over an indefinite period of time.
7. REINSURANCE
The maximum amounts that the Company retains on any one life are $500,000 for
group life; $250,000 for group accidental death; $2,000 net monthly benefit for
long-term disability; from 10% to 50% of possible benefits payable under credit
life and credit disability insurance; and none of a closed block of individual
life business. Amounts in excess of these limits are reinsured with various
insurance companies on a yearly renewable term, coinsurance or other basis.
In the second quarter of 1996, the Company received approval from the New York
State Insurance Department for a reinsurance agreement with Fortis Benefits
Insurance Company ("Fortis Benefits"), an affiliate. The agreement, which became
effective as of January 1, 1996, decreased the Company's long-term disability
reinsurance retention from a $10,000 net monthly benefit to a $2,000 net monthly
benefit for claims incurred on and
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
7. REINSURANCE (CONTINUED)
after January 1, 1996. The Company has ceded $5,472,000 and $6,144,000 of
premium to Fortis Benefits in 1997 and 1996, respectively. Fortis Benefits has
assumed $5,452,000 and $3,599,000 of reserves in 1997 and 1996, respectively,
from the Company. In the future, the agreement is expected to reduce the
variability of financial results for this product line.
Future policy benefits and other policy claims and benefits payable are reported
gross of reinsurance. The reinsured portion of future policy benefits and other
policy claims and benefits payable are $19,764,000 and $14,731,000 in 1997 and
1996, respectively.
Ceded reinsurance premiums for the year ended December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Life insurance.......................................................... $ 3,249 $ 1,366 $ 1,497
Accident and health insurance........................................... 8,768 7,085 1,375
--------- --------- ---------
$ 12,017 $ 8,451 $ 2,872
--------- --------- ---------
--------- --------- ---------
</TABLE>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Life insurance.......................................................... 1,628 1,021 706
Accident and health insurance........................................... 2,310 348 350
--------- --------- ---------
$ 3,938 $ 1,369 $ 1,056
--------- --------- ---------
--------- --------- ---------
</TABLE>
Ceded reinsurance would become a liability of the Company in the event the
reinsurers are unable to meet the obligations assumed under the reinsurance
agreements. 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.
8. DIVIDEND RESTRICTIONS
The Company is subject to insurance regulatory restrictions that limit cash
dividends which can be paid from the Company to its Parent. All dividends
require prior approval by the New York State Insurance Department.
9. REGULATORY ACCOUNTING REQUIREMENTS
The Company prepares its statutory-basis financial statements in accordance with
accounting practices prescribed or permitted by the Department of Insurance of
the State of New York. 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 that
are not prescribed; such practices may differ from company to company within a
state, and may change in the future. The NAIC is currently in the process of
recodifying statutory accounting practices. This project, which is not expected
to be completed before 1999, may result in changes to the accounting practices
that insurance enterprises use to prepare their statutory-basis financial
statements.
Insurance enterprises are required by state insurance departments to adhere to
minimum risk-based capital ("RBC") requirements developed by the NAIC. The
Company exceeds minimum RBC requirements.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
9. REGULATORY ACCOUNTING REQUIREMENTS (CONTINUED)
Reconciliations of net income (loss) and shareholder's equity on the basis of
statutory accounting to the related amounts presented in the accompanying
statements were as follows (in thousands):
<TABLE>
<CAPTION>
SHAREHOLDER'S EQUITY
NET INCOME (LOSS)
------------------------------------- ------------------------
1997 1996 1995 1997 1996
----------- ----- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices........... $ (296) $ (428) $ (1,628) $ 27,358 $ 27,467
Deferred policy acquisition costs................. 1,180 247 (4,595) 1,413 247
Deferred and uncollected premiums................. 246 76 -- 425 358
Policy reserves................................... (660) 476 68 (92) 659
Investment valuation difference................... (47) -- -- 3,492 1,166
Realized gains (losses) on investments............ 235 (3) 2,683 -- --
Amortization of goodwill.......................... (46) (46) (46) 508 554
Income taxes...................................... 28 115 675 778 2,865
Deferred tax valuation allowance.................. -- 178 -- (1,338)
Pension........................................... (275) -- -- (301) --
Amortization of IMR............................... (348) (426) (433) -- --
Interest maintenance reserve ("IMR").............. -- -- -- 1,888 2,001
Asset valuation reserve........................... -- -- -- 717 998
Property and equipment............................ -- -- -- 318 482
Agents balances................................... -- -- -- 456 166
Other............................................. (141) 172 (63) 121 67
----------- ----- ----------- ----------- -----------
$ (124) $ 183 $ (3,161) $ 37,081 $ 35,692
----------- ----- ----------- ----------- -----------
----------- ----- ----------- ----------- -----------
</TABLE>
10. TRANSACTIONS WITH AFFILIATED COMPANIES
In 1995, the Company received cash of $7,000,000 representing additional paid-in
capital from Fortis AMEV.
The Company received various services from Fortis, Inc. and its affiliates.
These services include assistance in benefit plan administration, corporate
insurance, accounting, tax, auditing, investment, information systems, actuarial
and other administration functions. The fees paid for these services for the
years ended December 31, 1997, 1996 and 1995, were $2,568,000, $1,648,000 and
$1,581,000, 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.
11. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS
The fair values for fixed maturity 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.
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.
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
--------------------------------------------------
1997 1996
------------------------ ------------------------
CARRYING CARRYING
AMOUNT FAIR AMOUNT AMOUNT FAIR AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities................................ $ 105,776 $ 105,776 $ 113,137 $ 113,137
Short-term investments............................ 11,697 11,697 -- --
Cash.............................................. 7,453 7,453 1,545 1,545
Assets held in separate accounts.................. 16,072 16,072 2,203 2,203
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal)........................ 6,877 6,554 $ 2,355 $ 2,346
</TABLE>
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
12. RETIREMENT AND OTHER EMPLOYEE BENEFITS
Fortis, Inc., the Company's parent, 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. As a matter of policy, pension costs are funded as they accrue and
vested benefits are fully funded. 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 $61,000,
$72,000 and $63,000 for 1997, 1996 and 1995, respectively. As of January 1,
1997, the Plan's total accumulated benefit obligation determined in accordance
with ERISA was $56,838,000. This amount was based on an assumed interest rate of
8.00% and included vested benefits of $54,831,000. The fair market value of the
Plan assets as of January 1, 1997 was $60,004,000.
The Company has a contributory profit sharing plan, sponsored by Fortis, Inc.,
covering employees and certain agents who meet eligibility requirements as to
age and length of service. The Company matches 200% up to 3% of the employee's
contribution. Benefits are payable to participants on retirement or disability
and to the beneficiaries of participants in the event of death. The amount
expensed for 1997 was $122,000 compared to $182,000 and $169,000 for 1996 and
1995, 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, Inc. Health care benefits, either through a
Fortis-sponsored retiree plan for retirees under age 65 or through a cost offset
for individually purchased Medigap policies for retirees over age 65, are
available to employees who retire on or after January 1, 1993, at age 55 or
older, with 15 years or more service. Life insurance, on a retiree pay all
basis, is available to those who retire on or after January 1, 1993.
13. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.
14. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company and any of
its businesses or subsidiaries. All of the Company's major businesses are
processed by computer systems of Fortis affiliates, and many have significant
interaction with systems of third parties.
A comprehensive review of each of the Fortis affiliate computer systems and
business processes has been conducted to identify the major systems that could
be affected by the Year 2000 issue. Steps are being taken to resolve any
potential problems including modification to existing software and the purchase
of new software. These measures are scheduled to be completed and tested on a
timely basis. Each affiliate's goal is to complete internal remediation and
testing of each system by early 1999.
The costs related to the Year 2000 issue are not expected to have a material
impact on the Company's results of operations or financial condition. This
expectation is subject to uncertainties that could cause actual results to
differ materially. Factors that could influence the total costs to be incurred
by the Company in connection with the Year 2000 issue include the ability of the
Company to successfully identify systems containing two-digit year codes, the
nature and amount of programming required to fix the affected programs, the
related labor and consulting costs for such remediation, and the ability of
third parties that interface with the Company to successfully address their Year
2000 issues.
The Company is evaluating the Year 2000 readiness of advisors and other third
parties whose system failures could have an impact on the Company's operations.
The potential materiality of any such impact is not entirely known at this time.
The Company is closely monitoring these entities to avoid any unforeseen
circumstances.
F-13
<PAGE>
APPENDIX A--SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
The formula which will be used to determine the Market Value Adjustment is:
( 1 + I ) n/12
----------- - 1
( 1 + J + .0025 )
Sample Calculation 1: Positive Adjustment
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing
Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for
new 5-year guarantee (J) 7%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment
1 + .08 60/12
$10,000 x ------------- - 1] = $354.57
[( 1 + .07 + .0025 )
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $10,354.57
Sample Calculation 2: Negative Adjustment
Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing
Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for
new 5-year guarantee (J) 9%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:
1 + .08 60/12
$10,000 x ------------- - 1] = - $559.14
[( 1 + .09 + .0025 )
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $9,440.86
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>
1 + .08 60/12
$10,000 x --------------- - 1] = 0
[( 1 + .0775 + .0025 )
Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $10,000.00
- ------------------------
*Assumed for illustrative purposes only.
A-1
<PAGE>
APPENDIX B--EXPLANATION OF EXPENSE CALCULATIONS
The expense for a given year is calculated by multiplying the projected
beginning of the year policy value by the total expense rate. The total expense
rate is the sum of the variable account expense rate plus the total Portfolio
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Alliance Money Market Portfolio is
calculated as follows:
<TABLE>
<S> <C> <C>
Total Variable Account Annual Expenses 0.45%
+ Total Portfolio Operating Expenses 0.64%
+ Annual Administrative Charges (see below) 0.05%
= Total Expense Rate 1.14%
</TABLE>
The Annual Administrative Charge rate is calculated by dividing the total Annual
Contract Charges collected in 1996 on similar contracts by an affiliated company
by the average policy value in force in 1996 on such contracts.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = 1000.00 x 0.0114 = $11.41
Year 2 Beginning Policy Value = $1038.59
Year 2 Expense = 1038.59 x 0.0114 = $11.85
Year 3 Beginning Policy Value = $1078.67
Year 3 Expense = 1078.67 x 0.0114 = $12.31
So the cumulative expenses for years 1-3 for the Alliance Money Market Portfolio
are equal to:
$11.41 + $11.85 + $12.31 = $35.57
B-1
<PAGE>
APPENDIX C--PARTICIPATING FUNDS
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
The Alliance Variable Products Series Fund, Inc. is an open-ended series
investment company. It was incorporated under Maryland law on November 17, 1987.
Alliance Capital Management L.P. serves as the Fund's manager.
ALLIANCE MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE: Seeks safety of principal, maintenance of liquidity and
maximum current income by investing in a broadly diversified portfolio of money
market securities.
ALLIANCE INTERNATIONAL PORTFOLIO
INVESTMENT OBJECTIVE: Seeks to obtain a total return on its assets from
long-term growth of capital and from income principally through a broad
portfolio of marketable securities of established non-United States companies
(or United States companies having their principal activities and interests
outside the United States), companies participating in foreign economies with
prospects for growth, and foreign government securities.
ALLIANCE PREMIER GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based upon their
potential for capital appreciation, current income will be incidental to the
objective of capital growth.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century Variable Portfolios, Inc. is a open-end management investment
company. It was organized as a Maryland corporation on June 4, 1987. American
Century Investment Management, Inc., serves as the investment manager of
American Century Portfolios.
AMERICAN CENTURY VP BALANCED FUND
INVESTMENT OBJECTIVE: Capital growth and current income. Seeks to achieve its
investment objective by maintaining approximately 60% of the assets in common
stocks that are considered to have better-then-average prospects for
appreciation and the remaining assets in bonds and other fixed income
securities.
FEDERATED INSURANCE SERIES
Federated Insurance Series is an open-end management investment company. It was
established as a Massachusetts business trust under a Declaration of Trust dated
September 15, 1993. Federated Advisers is the investment adviser.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
INVESTMENT OBJECTIVE: Seeks to provide current income. Under normal
circumstances, the portfolio pursues its investment objective by investing at
least 65% of the value of its total assets in securities issued or guaranteed as
to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities.
AMERICAN LEADERS FUND II
INVESTMENT OBJECTIVE: To achieve long-term growth of capital and to provide
income.
UTILITY FUND II
INVESTMENT OBJECTIVE: To achieve high current income and moderate capital
appreciation.
HIGH INCOME BOND FUND II
INVESTMENT OBJECTIVE: To seek high current income.
FORTIS SERIES FUND, INC.
The Fortis Series Fund, Inc. is an open-end series investment fund. It was
incorporated under Minnesota law in 1986. Fortis Advisers, Inc. serves as the
fund's manager.
C-1
<PAGE>
FORTIS S & P 500 INDEX SERIES
INVESTMENT OBJECTIVE: Seeks to replicate the total return of the Standard &
Poor's 500 Composite Stock Price Index primarily through investment in equity
securities.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
The INVESCO Variable Investment Funds, Inc. is an open-end series management
investment company. It was incorporated under Maryland law on August 19, 1993.
INVESCO Funds Group, Inc. serves as the Fund's manager.
INVESCO INDUSTRIAL INCOME PORTFOLIO
INVESTMENT OBJECTIVE: Seeks the best possible current income while following
sound investment practices. Capital growth potential is an additional
consideration in the selection of the portfolio securities. The portfolio
normally invests at least 65% of its total assets in dividend-paying common
stocks.
INVESCO HEALTH SERVICES PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation. The portfolio normally invests
at least 80% of its total assets in equity securities of companies that develop,
produce, or distribute products or services related to health care.
INVESCO TECHNOLOGY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital appreciation. The portfolio normally invests
at least 80% of its total assets in equity securities of companies in
technology-related industries such as computers, communications, video,
electronics, oceanography, office and factory automation, and robotics.
LEXINGTON NATURAL RESOURCES TRUST
The Lexington Natural Resources Trust is an open-end management investment
company. It was organized as a Massachusetts business trust on October 7, 1988.
Lexington Management Corporation is the Investment Adviser of the fund.
INVESTMENT OBJECTIVE: To seek long-term growth of capital through investment
primarily in common stocks of companies that own or develop natural resources
and other basic commodities, or supply goods and services to such companies.
LEXINGTON EMERGING MARKETS FUND, INC.
The Lexington Emerging Markets Fund, Inc. is an open-end management investment
company. It was organized as a corporation under Maryland law on December 27,
1993. Lexington Management Corporation is the fund's investment adviser.
INVESTMENT OBJECTIVE: To seek long-term growth of capital primarily through
investment in equity securities of companies domiciled in, or doing business in,
emerging countries and emerging markets.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST
MFS Variable Insurance Trust is an open-end management investment company. It
was organized as a business trust under the laws of the Commonwealth of
Massachusetts by a Declaration of Trust dated February 1, 1994. Massachusetts
Financial Services Company manages each series.
MFS EMERGING GROWTH SERIES
INVESTMENT OBJECTIVE: Seeks to provide long-term growth of capital. The series'
policy is to invest primarily in common stocks of small and medium-sized
companies that are early in their life cycle but which have the potential to
become major enterprises.
MFS HIGH INCOME SERIES
INVESTMENT OBJECTIVE: Seeks high current income by investing primarily in a
professionally managed portfolio of fixed income securities, some of which may
involve equity features.
C-2
<PAGE>
MFS WORLD GOVERNMENTS SERIES
INVESTMENT OBJECTIVE: Seeks preservation and growth of capital, together with
moderate current income. The series attempts to provide investors with an
opportunity to enhance the value and increase the protection of their investment
against inflation and otherwise by taking advantage of investment opportunities
in the U.S. as well as in other countries where opportunities may be more
rewarding.
THE MONTGOMERY FUNDS III
The Montgomery Funds III is an open-end investment company. This Delaware
business trust was organized on August 24, 1994. The trust is managed by
Montgomery Asset Management, L.P.
MONTGOMERY VARIABLE SERIES: GROWTH FUND
INVESTMENT OBJECTIVE: Seeks capital appreciation by investing primarily in
equity securities, usually common stock, of domestic companies of all sizes.
MONTGOMERY VARIABLE SERIES: EMERGING MARKETS FUND
INVESTMENT OBJECTIVE: Seeks capital appreciation by investing primarily in
equity securities of companies in countries having economies and markets
generally considered by the World Bank or the United Nations to be emerging or
developing.
NEUBERGER & BERMAN ADVISERS MANAGERS TRUST
Neuberger & Berman Advisers Managers Trust is an open-end diversified series
management investment company. It was established as a Delaware business trust
on May 23, 1994. Neuberger & Berman Management Incorporated serves as manager of
the Fund.
NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO
INVESTMENT OBJECTIVE: Seeks highest current income consistent with low risk to
principal and liquidity; and secondarily, total return. Principal investments
are short-to-intermediate term debt securities, primarily investment grade.
NEUBERGER & BERMAN PARTNERS PORTFOLIO
INVESTMENT OBJECTIVE: Seeks capital growth. Principal investments are common
stocks and other equity securities of established companies.
SAFECO RESOURCE SERIES TRUST
The SAFECO Resource Series Trust is an open-end series management investment
company. It is a Delaware business trust established by a trust instrument dated
May 13, 1993. SAFECO Asset Management Company is the fund's manager.
SAFECO EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: Seeks long-term growth of capital and reasonable current
income. The Equity Portfolio ordinarily invests principally in common stocks or
securities convertible into common stocks.
SAFECO GROWTH PORTFOLIO
INVESTMENT OBJECTIVE: Seeks growth of capital and the increased income that
ordinarily follows from such growth. The Growth Portfolio ordinarily invests a
preponderance of its assets in common stock selected for potential appreciation.
STRONG VARIABLE INSURANCE FUNDS, INC.
The Strong Variable Insurance Funds, Inc. is an open-end management investment
company. It was incorporated in Wisconsin. Strong Capital Management, Inc. is
the investment adviser.
THE STRONG DISCOVERY FUND II
INVESTMENT OBJECTIVE: Seeks to identify emerging investment trends and
attractive growth opportunities.
THE STRONG INTERNATIONAL STOCK FUND II
INVESTMENT OBJECTIVE: Seeks capital growth. The fund invests primarily in the
equity securities of issuers located outside of the United States.
C-3
<PAGE>
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is an open-end management investment company.
It was organized as a business trust under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Van Eck Associates Corporation serves as
investment adviser and manager to the two funds listed below.
WORLDWIDE HARD ASSETS FUND
INVESTMENT OBJECTIVE: Seeks long-term capital appreciation by investing
globally, primarily in (i) precious metals, (ii) ferrous and non-ferrous metals,
(iii) oil and gas, (iv) forest products, (v) real estate, and (vi) other basic
non-agricultural commodities.
WORLDWIDE BOND FUND
INVESTMENT OBJECTIVE: Seeks high total return through a flexible policy of
investing globally, primarily in debt securities.
C-4
<PAGE>
CONTRACTS UNDER
FLEXIBLE PREMIUM DEFERRED
COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
VALUE ADVANTAGE PLUS VARIABLE ANNUITY
Issued by
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
This Statement of Additional Information is not a Prospectus. It is intended
that this Statement of Additional Information be read in conjunction with the
Prospectus for certificates under flexible premium deferred combination variable
and fixed annuity contracts ("Contracts"), dated May 1, 1998. A copy of the
Prospectus may be obtained without charge from Fortis Investors, Inc. 1-800-827-
5877, mailing address: P.O. Box 64272, St. Paul, MN 55164. You have the option
of receiving benefits under a Contract through First Fortis' Variable Account A
or through First Fortis' Fixed Account.
TABLE OF CONTENTS
First Fortis and the Variable Account. . . . . . . . . . . . . . . . . . .1
Calculation of Annuity Payments. . . . . . . . . . . . . . . . . . . . . .2
Postponement of Payments . . . . . . . . . . . . . . . . . . . . . . . . .3
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
- Safekeeping of Variable Account Assets . . . . . . . . . . . . . . . .3
- Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
- Principal Underwriter . . . . . . . . . . . . . . . . . . . . . . . .4
Taxation Under Certain Retirement Plans. . . . . . . . . . . . . . . . . .4
Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Variable Account Financial Statements. . . . . . . . . . . . . . . . . . .8
Appendix A -- Performance Information. . . . . . . . . . . . . . . . . .A-1
In order to supplement the description in the Prospectus, the following provides
additional information about the Contracts and other matters which may be of
interest to you. Terms used in this Statement of Additional Information have
the same meanings as are defined in the Prospectus under the heading "Special
Terms Used in This Prospectus."
FIRST FORTIS AND THE VARIABLE ACCOUNT
First Fortis Life Insurance Company, the issuer of the Contracts, is a New York
corporation qualified to sell life insurance and annuity contracts in the state
of New York. First Fortis is a wholly-owned subsidiary of Fortis, Inc. Fortis,
Inc. is a corporation based in New York, which manages the United States
operations of Fortis AMEV and Fortis AG.
<PAGE>
Fortis AMEV has been in business since 1847 and is a publicly-traded, multi-
national insurance, real estate, and financial services group headquartered in
The Netherlands. It is one of the largest holding companies in Europe, with
subsidiary companies in twelve countries on four continents. Fortis AMEV is the
third largest insurance company in the Netherlands.
Fortis AG is a multi-national insurance, real estate and financial services firm
that has been in business since 1824. It has subsidiary companies in eight
countries. Fortis AG is one of the largest life insurance companies in Belgium.
Fortis AMEV and Fortis AG have combined assets of approximately $167 billion.
The assets allocated to the Variable Account are the exclusive property of First
Fortis. Registration of the Variable Account under the Investment Company Act
of 1940 does not involve supervision of the management or investment practices
or policies of the Variable Account or of First Fortis by the Securities and
Exchange Commission. First Fortis may accumulate in the Variable Account
proceeds from charges under the Contracts and other amounts in excess of the
Variable Account assets representing reserves and liabilities under Contracts
and other variable annuity contracts issued by First Fortis. First Fortis may
from time to time transfer to its General Account any of such excess amounts.
Under certain remote circumstances the assets of one Subaccount may not be
insulated from liability associated with another Subaccount.
Best's Insurance Reports has assigned First Fortis a rating of A (Excellent) for
financial position and operating performance. First Fortis has a rating of AA
from Standard & Poor's. As defined by Standard & Poor's, insurers rated AA
offer "excellent financial security." These ratings represent such rating
agencies' independent opinion of First Fortis' financial strength and ability to
meet policy holder obligations, but have no relevance to the performance and
quality of the assets in Subaccounts of the Variable Account.
CALCULATION OF ANNUITY PAYMENTS
FIXED ANNUITY OPTION
The amount of each annuity payment under a Fixed Annuity Option is fixed and
guaranteed by First Fortis. Monthly fixed annuity payments will start as of the
end of the Valuation Period that contains the Annuity Commencement Date. At
that time, the Contract Value , after any Market Value Adjustment, is computed
and that portion of the Contract Value which will be applied to the Fixed
Annuity Option selected is determined. The amount of the first monthly payment
under the Fixed Annuity Option selected will be at least as large as would
result from using the annuity tables contained in the Contract to apply such
amount of Contract Value to the annuity form selected. The dollar amounts of
any fixed annuity payments after the first are specified during the entire
period of annuity payments according to the provisions of the annuity form
selected.
VARIABLE ANNUITY OPTION
ANNUITY UNITS. To the extent a Variable Annuity Option has been selected, we
convert the Accumulation Units for each Subaccount of the Variable Account into
Annuity Units for each Subaccount at their values determined as of the end of
the Valuation Period which contains the Annuity Commencement Date. As of such
time, any Fixed Account Value to be applied to a Variable Annuity Option is also
converted, after any Market Value Adjustment, to Annuity Units in the
Subaccounts selected based on the then-current Annuity Unit value. The initial
number of Annuity Units in each Subaccount is determined by dividing the amount
of the initial monthly variable annuity payment (see "Variable Annuity Option --
Variable Annuity Payments," below) allocable to that Subaccount by the value of
one Annuity Unit in that Subaccount as of the time of the conversion. The
number of Annuity Units for each Subaccount will remain constant, as long as an
annuity remains in force and the allocation among the Subaccounts has not
changed.
The value of each Subaccount's Annuity Units will vary to reflect the investment
experience of the Subaccount as well as charges deducted from the Subaccount.
The value of each Subaccount's Annuity Units is equal to the prior value of the
Subaccount's Annuity Units multiplied by the net investment factor for that
Subaccount (discussed in the Prospectus
2
<PAGE>
under "Contract Value") for the Valuation Period ending on that Valuation Date,
with an offset for the 4% assumed interest rate used in the annuity tables of
the Contract.
VARIABLE ANNUITY PAYMENTS. Variable annuity payments start at the end of the
Valuation Period that contains the Annuity Commencement Date, and will vary in
amount as the related Annuity Unit values vary. The amount of the first monthly
payment is shown on the annuity tables contained in the Contract for each $1,000
of Contract Value applied to the Variable Annuity Option selected as of the end
of such Valuation Period. The first variable annuity payment is, in effect,
allocated among the Subaccounts in the same proportion as the Contract Value is
allocated among the Subaccounts upon commencement of annuity payments.
Payments after the first will vary in amount and are determined on the first
Valuation Date of each subsequent monthly period. If the monthly payment under
the annuity form selected is based on the value of Annuity Units of a single
Subaccount, the monthly payment is found by multiplying the number of the
Contract's Annuity Units for the Subaccount by the Annuity Unit value of such
Subaccount as of the first Valuation Date in each monthly period following the
Annuity Commencement Date. If the monthly payment under the Variable Annuity
Option selected is based upon the value of Annuity Units in more than one
Subaccount, this is repeated for each applicable Subaccount. The sum of these
payments is the variable annuity payment.
GENDER OF ANNUITANT
The amount of each annuity payment ordinarily will be higher for a male
Annuitant than for a female Annuitant with an otherwise identical Contract.
This is because, statistically, females tend to have longer life expectancies
than males. However, there will be no differences between male and female
Annuitants in any jurisdiction, including Montana, where such differences are
not permitted. We will also make available Contracts with no such differences
in connection with certain employer-sponsored benefit plans. Employers should
be aware that, under most such plans, Contracts that make distinctions based on
gender are prohibited by law.
POSTPONEMENT OF PAYMENTS
With respect to amounts in the Subaccounts of the Variable Account, payment of
any amount due upon a total or partial surrender, death or under an annuity
option will ordinarily be made within seven days after all documents required
for such payment are received by First Fortis at its Home Office. However,
First Fortis may defer the determination, application or payment of any death
benefit, transfer, partial or total surrender or annuity payment, to the extent
dependent on Accumulation or Annuity Unit Values, for any period during which
the New York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted as determined
by the Securities and Exchange Commission, for any period during which any
emergency exists as a result of which it is not reasonably practicable for First
Fortis to determine the investment experience for the Contract, or for such
other periods as the Securities and Exchange Commission may by order permit for
the protection of investors.
SERVICES
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
Title to the assets of the Variable Account is held by First Fortis. The assets
of the Variable Account are kept segregated and held separate and apart from
First Fortis' other assets. Fortis Advisers, Inc., an affiliate of First
Fortis, maintains records of all purchases and redemptions of shares of the
Portfolios held by each of the Subaccounts of the Variable Account.
EXPERTS
The financial statements of First Fortis Life Insurance Company appearing in the
Prospectus and those of Variable Account A appearing in this Statement of
Additional Information and Registration Statement have been audited by Ernst
3
<PAGE>
& Young LLP, independent auditors, as set forth in their reports thereon also
appearing in the Prospectus or this Statement of Additional Information and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing. The New York address of Ernst & Young LLP
is 787 Seventh Avenue, New York, New York 10019.
PRINCIPAL UNDERWRITER
Fortis Investors, Inc. ("Fortis Investors"), the principal underwriter of the
Contracts, is a Minnesota corporation and a member of the Securities Investors
Protection Corporation. The address of Fortis Investors is 500 Bielenberg
Drive, Woodbury, Minnesota 55125. The offering of the Contracts is continuous,
and Fortis Investors does not anticipate discontinuing the offering of the
Contracts, although it reserves the right to do so. Contracts generally will be
issued for Annuitants from ages zero to ninety in all states.
TAXATION UNDER CERTAIN RETIREMENT PLANS
Federal income tax information concerning the purchase of Contracts for specific
types of retirement plans is set forth below. You should also refer to "Federal
Tax Matters" in the Prospectus. The tax information provided is not
comprehensive, and you should consult a qualified tax adviser before taking any
action in connection with a retirement plan.
SECTION 403(b) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS
OR PUBLIC EDUCATIONAL INSTITUTIONS
PURCHASE PAYMENTS. Under Section 403(b) of the Internal Revenue Code ("Code"),
payments made by certain employers (i.e., tax-exempt organizations meeting the
requirements of Section 501(c)(3) of the Code, or public educational
institutions) to purchase Contracts for their employees are excludible from the
gross income of employees to the extent that such aggregate purchase payments do
not exceed certain limitations prescribed by the Code. This is the case whether
the purchase payments are a result of voluntary salary reduction amounts or
employer contributions. Salary reduction payments are, however, subject to FICA
(social security) taxes.
TAXATION OF DISTRIBUTIONS. Distributions from a Section 403(b) tax-deferred
annuity are taxed as ordinary income to the recipient as described under
"Federal Tax Matters" in the Prospectus. Taxable distributions received before
the employee attains age 59 1/2 generally are subject to a 10% penalty tax in
addition to regular income tax. Certain distributions are excepted from this
penalty tax, including distributions following the employee's death, disability,
separation from service after age 55, separation from service at any age if the
distribution is in the form of an annuity for the life (or life expectancy) of
the employee (or the employee and Beneficiary) and distributions not in excess
of deductible medical expenses. In addition, no distributions of voluntary
salary reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death , disability or hardship. (Hardship distributions will be
limited to the lesser of the amount of the hardship or the amount of salary
reduction contributions, exclusive of earnings thereon.)
REQUIRED DISTRIBUTIONS. Generally, distributions from Section 403(b) annuities
must commence not later than April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2, and such distributions must be
made over a period that does not exceed the life expectancy of the employee (or
the employee and Beneficiary). A penalty tax of 50% would be imposed on any
amount by which the minimum required distribution in any year exceeded the
amount actually distributed in that year. In addition, in the event that the
employee dies before his or her entire interest in the Contract has been
distributed, the employee's entire interest must be distributed in accordance
with rules similar to those applicable upon the death of the Contract Owner or
Payee in the case of a Non-Qualified Contract, as described in the Prospectus.
Certain of these and other provisions are incorporated in a special endorsement
attached to Contracts that are intended to qualify under Section 403(b), and
reference should be made to that endorsement for its complete terms.
4
<PAGE>
TAX-FREE EXCHANGES AND ROLLOVERS. The Code provides for the tax-free transfer
of one Section 403(b) annuity for another Section 403(b) annuity, and the IRS
has ruled (Revenue Ruling 90-24) that amounts transferred may qualify as tax-
free transfers under certain circumstances. In addition, Section 403(b)(8) of
the code permits tax-free rollovers from Section 403(b) programs to individual
retirement annuities or other Section 403(b) programs under certain
circumstances.
SECTION 401 QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY PLANS
PURCHASE PAYMENTS. Subject to certain limitations prescribed by the Code,
purchase payments made by an employer (or a self-employed individual) under a
pension, profit-sharing or annuity plan qualified under Section 401 or Section
403(a) of the Code are generally deductible by the employer and excluded from
the taxable income of the employee for federal income tax purposes, whether made
under a salary reduction agreement or directly by employer contributions.
Salary reduction payments are, however, subject to FICA (social security) taxes.
Purchase payments made directly by an employee generally are made on an after-
tax basis.
TAXATION OF DISTRIBUTIONS. Distributions from Contracts purchased under these
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions, as described under "Federal Tax
Matters -- Qualified Plans," in the Prospectus. However, if an employee or
other payee receives a "lump sum" distribution, as defined in the Code, from an
exempt employees' trust, the taxable portion of the distribution may be subject
to special tax treatment. For most individuals receiving lump sum distributions
after attaining age 59 1/2, the rate of tax may be determined under a special 5-
year income averaging provision. Those who attained age 50 by January 1, 1986
may instead elect to use a 10-year income averaging provision based on the
income tax rates in effect for 1986. Taxable distributions received prior to
attainment of age 59 1/2 under a Contract purchased under a qualified plan are
subject to the same 10% penalty tax (and the same exceptions) as described above
with respect to Section 403(b) annuities.
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuities.
TAX-FREE ROLLOVERS. If, within 60 days of receipt, an employee who receives a
single sum distribution transfers all of the taxable amount received to another
plan qualified under Section 401 or 403(a), or to an individual retirement
account or annuity as provided for under the Code, the transferred amount will
not be taxed in the year of distribution. Certain "partial" distributions may
also qualify for tax-free rollover treatment, but only if transferred to an
individual retirement account or annuity. However, income tax may be withheld
from the distribution unless the distribution is transferred directly from the
qualified plan to the individual retirement account or individual retirement
annuity.
SECTION 408(p) SIMPLE IRA PLANS
PURCHASE PAYMENTS: Under Section 408(p) of the Code, small employers may
establish a type of IRA plan referred to as a Savings Incentive Match Plan for
Employees (SIMPLE Plan). An employee may contribute annually through his or her
employer a pre-tax salary reduction contribution not to exceed the lesser of
$6,000 or 100% of compensation. The employer must annually either (1) match the
employee contribution dollar for dollar up to 3% of pay, or (2) make a 2% of pay
contribution for each eligible employee regardless of whether the employee makes
any salary reduction contribution. In two out of every five years, the employer
has the option to reduce the matching contribution as low as 1% of pay but
advance notice must be provided to employees.
TAXATION OF DISTRIBUTIONS: Generally, distributions from SIMPLE IRA Plans are
subject to the same distribution rules described above for IRAs. However, if an
individual withdraws any amount from his SIMPLE IRA Plan within the first two
years of his or her commencement of participation in the employer's SIMPLE IRA
Plan, the 10% penalty tax for premature distribution, if such tax applies, will
be increased to 25%.
REQUIRED DISTRIBUTIONS: SIMPLE distributions are subject to the same minimum
distribution rules described above for IRAs.
5
<PAGE>
TAX-FREE ROLLOVERS: Generally, rollovers and direct transfers may be made to
and from SIMPLE IRAs in the same manner as described above for IRAs, subject to
the same conditions and limitations. Rollovers or transfers to other IRAs, other
than SIMPLE IRAs, are also possible but only after the second anniversary of
commencement of participation in the employer's SIMPLE IRA Plan.
SECTION 457 UNFUNDED DEFERRED COMPENSATION PLANS OF PUBLIC EMPLOYERS
AND TAX-EXEMPT ORGANIZATIONS
PURCHASE PAYMENTS. Under Section 457 of the Code, all individuals who perform
services for a state or local government or governmental agency may participate
in a deferred compensation program. Other tax-exempt employers may establish
unfunded deferred compensation plans under Section 457 for employees and/or
independent contractors.
Though not actually a qualified plan as that term is normally used, this type of
program allows individuals to defer the receipt of compensation that otherwise
would be currently payable and therefore to defer the payment of federal income
taxes on such amounts. Assuming that the program meets the requirements to be
considered an eligible deferred compensation plan (an "EDCP"), an individual may
contribute (and thereby defer from current income for tax purposes) the lesser
of $7,500 or 33-1/3% of the individual's includible compensation. (Includible
compensation means compensation from the employer which would be currently
includible in gross income for federal tax purposes.) In addition, during the
last three years before an individual attains normal retirement age, additional
"catch-up" deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Contracts offered by this Prospectus. The Contract is owned by the employer and
is subject to the claims of the employer's creditors. The employee has no
rights or interest in the Contract and is entitled only to payment in accordance
with the EDCP provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from an EDCP are
includible in gross income for the taxable year in which such amounts are paid
or otherwise made available.
DISTRIBUTIONS BEFORE SEPARATION FROM SERVICE. Distributions generally are not
permitted under an EDCP prior to separation from service or reaching age 70 1/2,
except in cases of severe financial hardship. Hardship distributions are
includible in the gross income of the individual in the year in which paid.
REQUIRED DISTRIBUTIONS. The distribution requirements for these qualified plans
are generally the same as described above with respect to Section 403(b)
annuities. However, if distributions do not commence before the employee's
death, the entire interest in the Contract must be distributed within 15 years
if the beneficiary is not the employee's surviving spouse.
TAX-FREE TRANSFERS. The Code permits the tax-free direct transfer of EDCP
amounts to another EDCP, subject to certain conditions. Any transfer must be
with employer consent. Any transfer must be with employer consent.
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
PURCHASE PAYMENTS. Private taxable employers may establish unfunded, non-
qualified deferred compensation plans for a select group of management or highly
compensated employees and/or for independent contractors. Certain arrangements
of tax-exempt employers entered into prior August 16, 1986, and not subsequently
modified, are also subject to the rules for private taxable employer deferred
compensation plans discussed below. (Unfunded deferred compensation plans of
other tax-exempt employers are generally subject to the requirements of Section
457.)
These types of programs allow individuals to defer receipt of up to 100% of
compensation which would otherwise be includible in income and therefore to
defer the payment of federal income taxes on such amounts. Purchase payments
made by the employer, however are not immediately deductible by the employer,
and the employer is currently taxed on any increase in Contract Value.
6
<PAGE>
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Contract is owned
by the employer and is subject to the claims of the employer's creditors. The
individual has no right or interest in the Contract and is entitled only to
payment from the employer's general assets in accordance with plan provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
EXCESS DISTRIBUTIONS--15% TAX.
Certain persons, particularly those who participate in more than one tax-
qualified retirement plan, may be subject to an additional tax of 15% on certain
excess aggregate distributions from those plans. In general, excess
distributions are taxable distributions for all tax qualified plans in excess of
a specified annual limit for payments made in the form of an annuity (currently
$160,000) or five times the annual limit for lump sum distributions.
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.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and, with
respect to certain distributions from certain types of qualified retirement
plans, unless the proceeds are transferred directly to another qualified
retirement plan. Moreover, special "backup withholding" rules may require First
Fortis to disregard the recipient's election if the recipient fails to supply
First Fortis with a "TIN" or taxpayer identification number (social security
number for individuals), or if the Internal Revenue Service notifies First
Fortis that the TIN provided by the recipient is incorrect.
MISCELLANEOUS
The computer systems Fortis Benefits uses to process policy transactions and
valuations need to be adjusted to be able to continue to administer its policies
after Year 2000. Fortis Benefits is devoting all resources necessary to make
these systems modifications and expects that the necessary changes will be
completed on time and in a way that will result in no disruption to its policy
servicing operations. However, as is the case with most system conversion
projects, risks and uncertainties exist, due in part to reliance on third party
vendors. Nonperformance by any of these entities, or other unforeseen
circumstances, could have a material adverse impact on Fortis Benefits' ability
to perform its policy servicing operations. Fortis Benefits is closely
monitoring these entities to avoid any unforeseen circumstances.
VARIABLE ACCOUNT FINANCIAL STATEMENTS
7
<PAGE>
Report of Independent Auditors
Board of Directors
First Fortis Life Insurance Company
We have audited the accompanying statement of net assets of First Fortis Life
Insurance Company Variable Account A (comprising, respectively, the Fortis
Series Fund, Inc.'s Growth Stock, U.S. Government Securities, Money Market,
Asset Allocation, Diversified Income, Global Growth, Aggressive Growth, Growth &
Income, High Yield, Global Asset Allocation, Global Bond, International Stock,
Value, S & P 500 and Blue Chip Stock Subaccounts; the Alliance Variable
Product's Money Market, International and Premier Growth Subaccounts; the SAFECO
Resource Series' Growth and Equity Subaccounts; the Federated Insurance Series'
U.S. Government Securities Fund II and High Income Fund II Subaccounts; the
MFS Variable Insurance Trust's Emerging Growth and High Income Subaccounts; the
Montgomery Variable Funds' Emerging Markets and Growth Subaccounts; the Strong
Variable Annuity Funds' Discovery II and International II Subaccounts; the
American Century Investments' VP Balanced Subaccount; the Neuberger & Berman,
Inc.'s AMT Partners Subaccount; and INVESCO, Inc.'s Health & Sciences,
Industrial Income and Technology Subaccounts) as of December 31, 1997, and the
related statements of changes in net assets for the year ended December 31, 1997
and the period from July 1, 1996 to December 31, 1996, except for the Alliance
Variable Product's Money Market, International and Premier Growth Subaccounts;
the SAFECO Resource Series' Growth and Equity Subaccounts; the Federated
Insurance Series' U.S. Government Securities Fund II and High Income Fund II
Subaccounts; the MFS Variable Insurance Trust's Emerging Growth and High Income
Subaccounts; the Montgomery Variable Funds' Emerging Markets and Growth
Subaccounts; the Strong Variable Annuity Funds' Discovery II and International
II Subaccounts; the American Century Investments' VP Balanced Subaccount; the
Neuberger & Berman, Inc.'s AMT Partners Subaccount; and INVESCO, Inc.'s Health &
Sciences, Industrial Income and Technology Subaccounts which are for the period
from September 1, 1997 to December 31, 1997. These financial statements are the
responsibility of the management of First Fortis Life Insurance Company. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of
1
<PAGE>
December 31, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the portfolio
subaccounts constituting First Fortis Life Insurance Company Variable Account A
at December 31, 1997, and the results of their operations and the changes in the
net assets for the periods described in the first paragraph, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 27, 1998
2
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
NET ASSET VALUE FOR
VARIABLE ANNUITY
NET ASSETS ACCUMULATION CONTRACTS PER
AT MARKET UNITS ACCUMULATION
SHARES COST VALUE OUTSTANDING UNIT
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments in Fortis Series Fund, Inc.:
Growth Stock 21,666 $ 766,581 $ 793,817 240,842 $ 3.30
U.S. Government Securities 20,827 220,228 222,446 12,970 17.15
Money Market 22,857 254,410 252,121 170,961 1.47
Asset Allocation 86,519 1,645,224 1,524,354 542,582 2.81
Diversified Income 24,352 288,690 291,817 148,631 1.96
Global Growth 45,541 879,339 924,063 47,369 19.51
Aggressive Growth 45,611 603,825 630,047 47,583 13.24
Growth & Income 142,979 2,483,303 2,681,680 137,613 19.49
High Yield 56,717 591,517 610,807 47,286 12.92
Global Asset Allocation 27,504 357,643 365,431 25,318 14.43
Global Bond 6,541 71,367 69,640 5,883 11.84
International Stock 38,102 511,095 509,063 36,305 14.02
Value 56,714 721,917 761,129 55,753 13.65
S & P 500 95,828 1,330,959 1,431,250 96,773 14.79
Blue Chip Stock 72,602 975,206 1,070,869 74,226 14.43
Investments in Alliance Variable Product:
Money Market 212,973 212,973 212,973 19,606 10.86
International 2,988 45,113 44,879 4,147 10.82
Premier Growth 13,470 279,932 282,729 17,972 15.73
Investments in SAFECO Resource Series:
Growth 781 21,000 18,233 1,217 14.98
Equity 8,963 238,507 225,697 18,571 12.15
Investments in Federated Insurance Series:
U.S. Government Securities Fund II 1,738 18,160 18,313 1,710 10.71
High Income Fund II 33,763 364,369 369,709 29,708 12.44
Investments in MFS Variable Insurance Trust:
Emerging Growth 9,159 147,501 147,828 10,745 13.76
High Income 39,067 476,216 482,476 39,080 12.35
Investments in Montgomery Variable Funds:
Emerging Markets 432 4,510 4,569 434 10.53
Growth 1,533 24,260 23,131 1,398 16.55
Investments in Strong Variable Annuity Funds:
Discovery II 941 11,871 11,323 1,015 11.16
International II 3,797 35,961 35,382 3,909 9.05
Investments in American Century Investments:
VP Balanced 944 7,704 7,779 615 12.65
Investments in Neuberger & Berman, Inc.:
AMT Partners 728 14,808 14,994 1,202 12.47
Investments in INVESCO, Inc.:
Health & Sciences 272 2,991 3,004 273 11.00
Industrial Income 825 14,795 14,050 1,157 12.14
Technology 192 2,111 2,199 192 11.45
----------- ----------- -----------
Total Net Assets $13,624,086 $14,057,802 1,843,046
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statement of Changes in Net Assets
Year ended December 31, 1997
<TABLE>
<CAPTION>
FORTIS
FORTIS U.S. FORTIS FORTIS FORTIS
GROWTH GOVERNMENT MONEY ASSET DIVERSIFIED
STOCK SECURITIES MARKET ALLOCATION INCOME
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 57 $ 8,101 $ 11,383 $ 192,549 $ 16,326
Mortality and expense charges (6,272) (1,066) (3,107) (7,853) (1,961)
Net realized gain (loss) on investments 22,406 (1,976) 3,214 8,609 (2)
Net change in unrealized appreciation
(depreciation) of investments 26,263 2,353 (2,658) (117,203) 2,118
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 42,454 7,412 8,832 76,102 16,481
CAPITAL TRANSACTIONS
Purchase of Variable Account units 809,304 315,010 2,580,624 1,460,620 236,355
Redemption of Variable Account units (274,309) (107,853) (2,385,564) (169,600) (235)
Mortality and expense charges redeemed 6,272 1,066 3,107 7,853 1,961
--------------------------------------------------------------------------------
Increase from capital transactions 541,267 208,223 198,167 1,298,873 238,081
Net assets at beginning of year 210,096 6,811 45,122 149,379 37,255
--------------------------------------------------------------------------------
Net assets at end of year $793,817 $222,446 $252,121 $1,524,354 $291,817
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<CAPTION>
FORTIS FORTIS FORTIS
GLOBAL AGGRESSIVE GROWTH & FORTIS
GROWTH GROWTH INCOME HIGH YIELD
----------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ - $ 7 $ 76,880 $ 646
Mortality and expense charges (7,355) (5,186) (16,770) (4,468)
Net realized gain (loss) on investments (12,952) 755 23,492 1,165
Net change in unrealized appreciation
(depreciation) of investments 43,191 33,963 191,974 24,198
----------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 22,884 29,539 275,576 21,541
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,198,499 481,066 2,676,915 535,464
Redemption of Variable Account units (432,388) (76,978) (510,526) (68,118)
Mortality and expense charges redeemed 7,355 5,186 16,770 4,468
----------------------------------------------------------------
Increase from capital transactions 773,466 409,274 2,183,159 471,814
Net assets at beginning of year 127,713 191,234 222,945 117,452
--------------------------------------------------------------
Net assets at end of year $924,063 $630,047 $2,681,680 $610,807
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
FORTIS
GLOBAL FORTIS FORTIS
ASSET GLOBAL INTERNATIONAL FORTIS FORTIS
ALLOCATION BOND STOCK VALUE S&P 500
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 17,421 $ 2,110 $ 19,136 $ 43,484 $ 21,704
Mortality and expense charges (2,913) (518) (3,619) (5,646) (7,708)
Net realized gain (loss) on investments 3,379 (110) 9,811 12,634 8,202
Net change in unrealized appreciation
(depreciation) of investments 8,407 (1,467) (4,635) 31,692 98,868
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 26,294 15 20,693 82,164 121,066
CAPITAL TRANSACTIONS
Purchase of Variable Account units 294,716 98,951 462,256 626,949 1,365,385
Redemption of Variable Account units (56,351) (45,993) (117,125) (127,016) (121,189)
Mortality and expense charges redeemed 2,913 518 3,619 5,646 7,708
--------------------------------------------------------------------------------
Increase from capital transactions 241,278 53,476 348,750 505,579 1,251,904
Net assets at beginning of year 97,859 16,149 139,620 173,386 58,280
--------------------------------------------------------------------------------
Net assets at end of year $365,431 $69,640 $509,063 $761,129 $1,431,250
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<CAPTION>
FORTIS ALLIANCE ALLIANCE
BLUE CHIP MONEY ALLIANCE PREMIER
STOCK MARKET* INTERNATIONAL* GROWTH*
----------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 4,348 $ 735 $ - $ -
Mortality and expense charges (6,433) (46) (13) (80)
Net realized gain (loss) on investments 5,163 - - -
Net change in unrealized appreciation
(depreciation) of investments 93,112 - (234) 2,797
----------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 96,190 689 (247) 2,717
CAPITAL TRANSACTIONS
Purchase of Variable Account units 925,855 303,796 45,113 279,932
Redemption of Variable Account units (66,571) (91,558) - -
Mortality and expense charges redeemed 6,433 46 13 80
----------------------------------------------------------------
Increase from capital transactions 865,717 212,284 45,126 280,012
Net assets at beginning of year 108,962 - - -
----------------------------------------------------------------
Net assets at end of year $1,070,869 $212,973 $44,879 $282,729
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
* For the period from September 1, 1997 to December 31, 1997.
SEE ACCOMPANYING NOTES.
5
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
FEERATED
U.S. FEDERATED
GOVERNMENT HIGH MFS
SAFECO SAFECO SECURITIES INCOME EMERGING
GROWTH* EQUITY* FUND II* FUND II* GROWTH*
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 2,922 $ 16,403 $ - $ - $ -
Mortality and expense charges (6) (62) (6) (112) (38)
Net realized gain (loss) on investments - - - - 16
Net change in unrealized appreciation
(depreciation) of investments (2,767) (12,809) 153 5,339 327
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 149 3,532 147 5,227 305
CAPITAL TRANSACTIONS
Purchase of Variable Account units 18,078 222,103 18,160 364,370 148,667
Redemption of Variable Account units - - - - (1,182)
Mortality and expense charges redeemed 6 62 6 112 38
--------------------------------------------------------------------------------
Increase from capital transactions 18,084 222,165 18,166 364,482 147,523
Net assets at beginning of year - - - - -
--------------------------------------------------------------------------------
Net assets at end of year $18,233 $225,697 $18,313 $369,709 $147,828
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<CAPTION>
MFS MONTGOMERY
HIGH EMERGING MONTGOMERY STRONG
INCOME* MARKETS* GROWTH* DISCOVERY II *
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ - $ 8 $ 1,003 $ -
Mortality and expense charges (147) (1) (9) (2)
Net realized gain (loss) on investments - - - -
Net change in unrealized appreciation
(depreciation) of investments 6,260 59 (1,129) (548)
-----------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 6,113 66 (135) (550)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 476,216 4,502 23,257 11,871
Redemption of Variable Account units - - - -
Mortality and expense charges redeemed 147 1 9 2
-----------------------------------------------------------------
Increase from capital transactions 476,363 4,503 23,266 11,873
Net assets at beginning of year - - - -
-----------------------------------------------------------------
Net assets at end of year $482,476 $4,569 $23,131 $11,323
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
* For the period from September 1, 1997 to December 31, 1997.
SEE ACCOMPANYING NOTES.
6
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
AMERICAN NEUBERGER & INVESCO INVESCO COMBINED
STRONG CENTURY BERMAN HEALTH & INDUSTRIAL INVESCO VARIABLE
INTERNATIONAL VP BALANCED* AMT PARTNERS* SCIENCES* INCOME* TECHNOLOGY* ACCOUNT
II*
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ - $ - $ - $ - $ 994 $ - $ 436,217
Mortality and expense
charges (10) (3) (5) (1) (7) (1) (81,424)
Net realized gain (loss)
on investments - - - - - - 83,806
Net change in unrealized
appreciation
(depreciation) of
investments (579) 75 186 14 (745) 88 426,663
------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations (589) 72 181 13 242 87 865,262
CAPITAL TRANSACTIONS
Purchase of Variable
Account units 35,961 7,704 14,808 2,990 13,801 2,111 16,061,409
Redemption of Variable
Account units - - - - - - (4,652,556)
Mortality and expense
charges redeemed 10 3 5 1 7 1 81,424
------------------------------------------------------------------------------------------------------
Increase from capital
transactions 35,971 7,707 14,813 2,991 13,808 2,112 11,490,277
Net assets at beginning
of year - - - - - - 1,702,263
------------------------------------------------------------------------------------------------------
Net assets at end of year $35,382 $7,779 $14,994 $3,004 $14,050 $2,199 $14,057,802
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
</TABLE>
* For the period from September 1, 1997 to December 31, 1997.
SEE ACCOMPANYING NOTES.
7
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statement of Changes in Net Assets
Period from July 1, 1996 (commencement of operations) to December 31, 1996
<TABLE>
<CAPTION>
FORTIS
FORTIS U.S. FORTIS FORTIS FORTIS
GROWTH GOVERNMENT MONEY ASSET DIVERSIFIED
STOCK SECURITIES MARKET ALLOCATION INCOME
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 677 $ 386 $ 204 $ 7,449 $ -
Mortality and expense charges (127) (27) (378) (262) (30)
Net realized gain (loss) on investments 2,290 - 863 396 -
Net change in unrealized appreciation
(depreciation) of investments 973 (135) 370 (3,667) 1,010
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 3,813 224 1,059 3,916 980
CAPITAL TRANSACTIONS
Purchase of Variable Account units 264,460 6,560 162,462 158,453 36,245
Redemption of Variable Account units (58,304) - (118,777) (13,252) -
Mortality and expense charges redeemed 127 27 378 262 30
--------------------------------------------------------------------------------
Increase from capital transactions 206,283 6,587 44,063 145,463 36,275
Net assets at beginning of year - - - - -
--------------------------------------------------------------------------------
Net assets at end of year $210,096 $6,811 $45,122 $149,379 $37,255
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<CAPTION>
FORTIS FORTIS FORTIS
GLOBAL AGGRESSIVE GROWTH & FORTIS
GROWTH GROWTH INCOME HIGH YIELD
---------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 148 $ 318 $ 5,819 $ 6,166
Mortality and expense charges 235 (631) 290 (107)
Net realized gain (loss) on investments 225 (259) (761) 154
Net change in unrealized appreciation
(depreciation) of investments 1,534 (7,741) 6,404 (4,908)
---------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 2,142 (8,313) 11,752 1,305
CAPITAL TRANSACTIONS
Purchase of Variable Account units 151,125 220,356 298,353 147,387
Redemption of Variable Account units (25,319) (21,440) (86,870) (31,347)
Mortality and expense charges redeemed (235) 631 (290) 107
---------------------------------------------------------------
Increase from capital transactions 125,571 199,547 211,193 116,147
Net assets at beginning of year - - - -
---------------------------------------------------------------
Net assets at end of year $127,713 $191,234 $222,945 $117,452
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statement of Changes in Net Assets (continued)
Period from July 1, 1996 (commencement of operations) to December 31, 1996
<TABLE>
<CAPTION>
FORTIS
GLOBAL FORTIS FORTIS FORTIS COMBINED
ASSET GLOBAL INTERNATIONAL FORTIS FORTIS BLUE CHIP VARIABLE
ALLOCATION BOND STOCK VALUE S&P 500 STOCK ACCOUNT
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income $ 3,734 $ 643 $ 3,888 $ 942 $ 337 $ 360 $ 31,071
Mortality and expense
charges (187) (55) 57 (217) (138) 203 (1,374)
Net realized gain (loss)
on investments 4 - (343) 265 274 595 3,703
Net change in unrealized
appreciation
(depreciation) of
investments (619) (260) 2,603 7,520 1,423 2,551 7,058
------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations 2,932 328 6,205 8,510 1,896 3,709 40,458
CAPITAL TRANSACTIONS
Purchase of Variable
Account units 95,193 15,766 170,797 169,800 62,552 169,424 2,128,933
Redemption of Variable
Account units (453) - (37,325) (5,141) (6,306) (63,968) (468,502)
Mortality and expense
charges redeemed 187 55 (57) 217 138 (203) 1,374
------------------------------------------------------------------------------------------------------
Increase from capital
transactions 94,927 15,821 133,415 164,876 56,384 105,253 1,661,805
Net assets at beginning
of year - - - - - - -
------------------------------------------------------------------------------------------------------
Net assets at end of year $97,859 $16,149 $139,620 $173,386 $58,280 $108,962 $1,702,263
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements
December 31, 1997
1. GENERAL
FIRST FORTIS LIFE INSURANCE COMPANY
Variable Account A (the Account) was established as a segregated asset account
of First Fortis Life Insurance Company (First Fortis) on October 1, 1993 under
New York law and became operational July 1, 1996. The Account is registered
under the Investment Company Act of 1940 as a unit investment trust. The
variable annuity contracts are sold under the names Opportunity Variable
Annuity, Masters Variable Annuity and Value Advantage Plus Variable Annuity.
First Fortis was founded in 1971. At the end of 1997, First Fortis had
approximately $5 billion of total life insurance in force. First Fortis is a New
York corporation and is qualified to sell life insurance and annuity contracts
in New York. First Fortis is a wholly-owned subsidiary of Fortis, Inc., which is
itself indirectly owned 50% by N.V. AMEV and 50% by Compagnie Financiere et de
Reassurance du Group AG ("Group AG"). Fortis, Inc. manages the United States
operations for these two companies.
N.V. AMEV is a diversified financial services company headquartered in Utrecht,
The Netherlands, where its insurance operations began in 1847. Group AG is a
diversified financial services company headquartered in Brussels, Belgium, where
its insurance operations began in 1824. N.V. AMEV and Group AG have merged their
operating companies under the trade name of Fortis. The Fortis group of
companies is active in insurance, banking, and financial services, and real
estate development in The Netherlands, Belgium, the United States, Western
Europe, and the Pacific Rim. The Fortis group of companies had assets in excess
of $167 billion at the end of 1997.
10
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
There are thirty-three active subaccounts and nine inactive subaccounts as of
December 31, 1997 within the Account. The inactive subaccounts are available
funds in which contract holders have not yet invested. The investment objectives
and policies of each of the Account's subaccounts are as follows.
ACTIVE SUBACCOUNTS
FORTIS SERIES FUND, INC.
- - GROWTH STOCK SUBACCOUNT--seeks growth of capital through short-term and
long-term appreciation.
- - U.S. GOVERNMENT SECURITIES SUBACCOUNT--seeks to earn a high level of
current income consistent with prudent investment risk.
- - MONEY MARKET SUBACCOUNT--seeks high level of capital stability and
liquidity and, to the extent consistent with these objectives, a high level
of current income.
- - ASSET ALLOCATION SUBACCOUNT--seeks favorable overall rates of return on
capital, primarily through increased ownership of equity securities during
periods when stock market conditions appear favorable, and short-term and
long-term debt instruments during periods when stock market conditions are
less favorable.
- - DIVERSIFIED INCOME SUBACCOUNT--seeks high level of current income by
investing primarily in a diversified portfolio of government securities and
investment grade corporate bonds.
- - GLOBAL GROWTH SUBACCOUNT--seeks growth of capital through long-term capital
appreciation, through ownership of equity securities, allocated among
diverse international markets.
- - AGGRESSIVE GROWTH SUBACCOUNT--seeks long-term capital appreciation in
equity securities.
11
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
FORTIS SERIES FUND, INC. (CONTINUED)
- - GROWTH & INCOME SUBACCOUNT--seeks growth of capital and current income,
through ownership of equity securities that provide an income component and
the potential for growth.
- - HIGH YIELD SUBACCOUNT--seeks maximum total return through current income
and capital appreciation, through ownership of a diversified portfolio of
high-yielding fixed-income securities.
- - GLOBAL ASSET ALLOCATION SUBACCOUNT--seeks favorable overall rates of return
on capital, primarily through increased ownership of foreign and domestic
equity securities during periods when stock market conditions appear
favorable, and short-term and long-term foreign and domestic debt
instruments during periods when stock market conditions are less favorable.
- - GLOBAL BOND SUBACCOUNT--seeks total return from current income and capital
appreciation, by investing in a global portfolio of high quality fixed
income securities.
- - INTERNATIONAL STOCK SUBACCOUNT--seeks capital appreciation by investing
primarily in equity securities of non-United States companies.
- - VALUE SUBACCOUNT--seeks growth of capital through short and long-term
capital appreciation. Investing in equity securities based on the "Value"
philosophy.
- - S&P 500 SUBACCOUNT--seeks growth of capital by replicating the total return
of the Standard & Poor's 500 Composite Stock Price Index.
- - BLUE CHIP STOCK SUBACCOUNT--seeks capital appreciation by investing
primarily in large and medium-sized blue chip companies.
12
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
ALLIANCE VARIABLE PRODUCTS SERIES, INC.
- - MONEY MARKET SUBACCOUNT--seeks income by investing in money market
securities, with less than one year until maturity, and meets the objective
of safety of principal, excellent liquidity and maximum current income to
the extent consistent with the first two objectives.
- - INTERNATIONAL SUBACCOUNT--seeks to obtain a total return on its assets from
long-term growth of capital principally through a broad portfolio of
marketable securities of established foreign companies.
- - PREMIER GROWTH SUBACCOUNT--seeks growth of capital by pursuing aggressive
investment policies, investments will be based upon their potential for
capital appreciation.
SAFECO RESOURCE SERIES
- - GROWTH SUBACCOUNT--seeks growth of capital and the increased income that
ordinarily follows from such growth.
- - EQUITY SUBACCOUNT--seeks long-term growth of capital and reasonable income
by investing principally in common stocks.
FEDERATED INSURANCE SERIES
- - U.S. GOVERNMENT SECURITIES FUND II SUBACCOUNT--seeks to provide current
income, by investing at least 65% of the value of the assets in securities
of the U.S. Government, its agencies or instrumentalities.
- - HIGH INCOME FUND II SUBACCOUNT--seeks high current income, by investing
primarily in a professionally managed, diversified portfolio of fixed
income securities.
MFS VARIABLE INSURANCE TRUST
- - EMERGING GROWTH SUBACCOUNT--seeks long-term growth of capital through
investment in common stock of companies that are early in their life cycle,
with potential to become major enterprises.
13
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
- - HIGH INCOME SUBACCOUNT--seeks high current income through investing,
primarily in a professionally managed diversified portfolio of fixed income
securities, some of which may involve equity features.
MONTGOMERY VARIABLE FUNDS
- - EMERGING MARKETS SUBACCOUNT-- seeks long-term growth of capital primarily
through investment in equity securities and equivalents of companies
domiciled in, or doing business in, emerging countries and emerging
markets.
- - GROWTH SUBACCOUNT--seeks capital appreciation by investing at least 65% of
its assets in the equity securities of domestic companies.
STRONG VARIABLE ANNUITY FUNDS
- - DISCOVERY II SUBACCOUNT--seeks capital growth by investing in securities
that are believed to represent growth opportunities.
- - INTERNATIONAL II SUBACCOUNT --seeks capital growth by investing primarily
in equity securities of issuers located outside of the United States.
AMERICAN CENTURY INVESTMENTS
- - VP BALANCED SUBACCOUNT--seeks capital growth and current income by
investing in a combination of common stocks (and other equity equivalents)
and fixed income securities.
NEUBERGER & BERMAN, INC.
- - AMT PARTNERS SUBACCOUNT--seeks capital growth, by investing principally in
common stock of medium to large capitalization established companies.
14
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
INVESCO, INC.
- - HEALTH & SCIENCES SUBACCOUNT--seeks capital appreciation by investing in
equity securities of companies that develop, produce or distribute products
or services related to health care.
- - INDUSTRIAL INCOME SUBACCOUNT--seeks the best possible current income while
following sound investment practices. The fund normally invests 65% of its
total assets in dividend-paying common stock, and an additional 10% in
equity securities that do not pay a regular dividend, with the remainder
being invested in corporate bonds.
- - TECHNOLOGY SUBACCOUNT-- seeks capital appreciation by investing in equity
securities of companies in technology-related industries.
INACTIVE SUBACCOUNTS
FEDERATED INSURANCE SERIES
- - UTILITY FUND II SUBACCOUNT--seeks high current income and moderate capital
appreciation, by investing primarily in a professionally managed
diversified portfolio of equity and debt securities of utility companies.
- - AMERICAN LEADERS FUND II SUBACCOUNT--seeks long-term capital growth, by
investing the majority of its assets in common stock of "blue chip"
companies.
LEXINGTON FUNDS DISTRIBUTOR, INC.
- - NATURAL RESOURCES TRUST SUBACCOUNT--seeks long-term growth of capital
through investments primarily in common stocks of companies that own or
develop natural resources and other basic commodities, or supply goods and
services to such companies.
- - EMERGING MARKETS FUND SUBACCOUNT--seeks long-term growth of capital
primarily through investment in equity securities and equivalents of
companies domiciled in, or doing business in, emerging countries and
emerging markets.
15
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
1. GENERAL (CONTINUED)
MFS VARIABLE INSURANCE TRUST
- - WORLD GOVERNMENTS SUBACCOUNT--seeks growth of capital, with moderate
current income through investment in a internationally diversified
portfolio consisting primarily of debt securities and lesser extent equity
securities.
AMERICAN CENTURY INVESTMENTS
- - VP GROWTH SUBACCOUNT--seeks capital growth by investing in common stocks
that have a better than average potential for appreciation.
VAN ECK WORLDWIDE INSURANCE TRUST
- - WORLDWIDE BOND FUND SUBACCOUNT--seeks high return through a flexible policy
of investing globally, primarily in debt securities.
- - WORLDWIDE HARD ASSETS SUBACCOUNT--seeks long-term capital appreciation by
investing in equity and debt securities of companies engaged in the
exploration, development, production and distribution of gold and other
natural resources, such as strategic and other metals, minerals, forest
products, oil, natural gas and coal.
NEUBERGER & BERMAN, INC.
- - AMT LIMITED MATURITY BOND PORTFOLIO SUBACCOUNT--seeks the highest current
income consistent with low risk by primarily investing in U.S. Government
and Agency securities and investment grade debt securities issued by
financial institutions, corporations and others.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Account are segregated from First Fortis' other assets. The
operations of the Account are part of First Fortis. The following is a summary
of significant accounting policies consistently followed by the Account in the
preparation of its financial statements.
16
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT TRANSACTIONS
Capital gain distributions from subaccounts are recorded on the ex-dividend date
and reinvested upon receipt.
INVESTMENT INCOME
Dividend income from subaccounts is recorded on the ex-dividend date and
reinvested upon receipt.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of net assets at the date of the financial
statements and the reported amounts of net increase and decrease in net assets
from operations during the reporting period. Actual results could differ from
these estimates.
3. INVESTMENTS
Investment in shares of the Fortis Series Fund, Inc. Subaccounts are stated at
market value, which is based on the percentage owned by the Account of the net
asset value of the respective portfolios of these Series. The Series' net asset
value is based on market quotations of the securities held in the portfolio.
Investments in the other subaccounts are valued at the net asset (market) value
per share at the close of business on December 31, 1997, as reported by the
respective mutual fund.
The cost of investments sold and redeemed is determined on the average cost
method. Unrealized appreciation or depreciation of investments represents the
Account's share of the subaccount's undistributed net investment income,
undistributed realized gains or losses and unrealized appreciation or
depreciation.
Purchases and sales of shares of the Funds are recorded on the trade date. The
number of shares and aggregate cost of purchases, including reinvested dividends
and realized capital gains, and average cost of investments sold or redeemed
were as follows:
17
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 COST OF
SHARES COST OF
------------------------------ COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock 22,661 7,441 $ 809,361 $ 274,309
U.S. Government Securities 30,484 10,301 323,111 107,853
Money Market 233,715 214,478 2,592,007 2,385,564
Asset Allocation 96,893 8,514 1,653,169 169,600
Diversified Income 19,661 20 252,681 235
Global Growth 62,726 23,908 1,198,499 432,388
Aggressive Growth 37,352 5,782 481,073 76,978
Growth & Income 159,029 30,750 2,753,795 510,526
High Yield 51,337 6,574 536,110 68,118
Global Asset Allocation 23,716 4,141 312,137 56,351
Global Bond 9,303 4,219 101,061 45,993
International Stock 35,322 8,441 481,392 117,125
Value 51,090 9,611 670,433 127,016
S & P 500 99,878 9,123 1,387,089 121,189
Blue Chip Stock 68,209 4,934 930,203 66,571
Alliance Variable Product:
Money Market 304,530 91,557 304,531 91,558
International 2,988 - 45,113 -
Premier Growth 13,470 - 279,932 -
SAFECO Resource Series:
Growth 781 - 21,000 -
Equity 8,963 - 238,506 -
Federated Insurance Series:
U.S. Government Securities Fund II 1,738 - 18,160 -
High Income Fund II 33,763 - 364,370 -
MFS Variable Insurance Trust:
Emerging Growth 9,230 71 148,667 1,182
High Income 39,067 - 476,216 -
Montgomery Variable Funds:
Emerging Markets 432 - 4,510 -
Growth 1,533 - 24,260 -
Strong Variable Annuity Funds:
Discovery II 941 - 11,871 -
International II 3,797 - 35,961 -
American Century Investments:
VP Balanced 944 - 7,704 -
</TABLE>
18
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
SHARES COST OF
------------------------------ COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger & Berman, Inc.:
AMT Partners 728 - $14,808 $ -
INVESCO, Inc.:
Health & Sciences 272 - 2,990 -
Industrial Income 825 - 14,795 -
Technology 192 - 2,111 -
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
SHARES COST OF
------------------------------ COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock 8,226 1,780 $265,137 $ 58,304
U.S. Government Securities 644 - 6,946 -
Money Market 14,989 10,866 162,666 118,777
Asset Allocation 9,529 738 165,902 13,252
Diversified Income 3,185 - 36,245 -
Global Growth 8,083 1,360 151,273 25,319
Aggressive Growth 15,562 1,521 220,674 21,440
Growth & Income 21,183 6,480 304,172 86,870
High Yield 14,984 3,030 153,553 31,347
Global Asset Allocation 7,964 36 98,927 453
Global Bond 1,456 - 16,409 -
International Stock 14,406 3,184 174,685 37,325
Value 15,683 448 170,742 5,141
S&P 500 5,627 544 62,889 6,306
Blue Chip Stock 15,562 6,225 169,784 63,968
</TABLE>
19
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
4. ORGANIZATIONAL EXPENSES AND OTHER CHARGES
ORGANIZATION EXPENSES
First Fortis assumed all organizational expenses of the Account.
PREMIUM TAXES
Where premium taxes or similar assessments are imposed by states or other
jurisdiction upon receipt of purchase payments, First Fortis pays such taxes on
behalf of the contract owner and then will deduct a charge for these amounts
from the contract value upon surrender, death of the annuitant or contract
owner, or annuitization of the contract. In jurisdictions where premium taxes or
similar assessments are imposed at the time annuity payments begin, First Fortis
will deduct a charge on a pro rata basis from the contract value at that time.
POLICY ADMINISTRATION CHARGE
A $30 annual policy administrative charge is deducted each contract year from
value of each Opportunity Variable Annuity on the anniversary of the contract
date and upon surrender of the contract. This charge will be waived during the
accumulation period if the contract value at the end of the contract year (or
upon total surrender) is $25,000 or more.
MORTALITY AND EXPENSE RISK CHARGE
First Fortis assesses each subaccount of the Opportunity Variable Annuity and
Masters Variable Annuity a daily charge for mortality and expense risk at an
annual rate of 1.25% of the net assets. For the Value Advantage Plus Variable
Annuity the mortality and expense risk charge is assessed at an annual rate of
0.45%.
ADMINISTRATIVE CHARGE
First Fortis assesses each subaccount of the Opportunity Variable Annuity and
Masters Variable Annuity a daily charge for administrative expense at annual
rate of 0.10% of the net assets.
20
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
4. ORGANIZATIONAL EXPENSES AND OTHER CHARGES (CONTINUED)
SURRENDER CHARGE
FREE SURRENDERS
The following amounts can be withdrawn from the contract without a surrender
charge:
- - Any purchase payments received more than five years prior to the surrender
date for Opportunity Variable Annuity and seven years for Master Variable
Annuity and have not been previously surrendered.
- - In any contract year, up to 10% of the purchase payments received less than
five years prior to the surrender date for Opportunity Variable Annuity and
seven years prior to the surrender date for Masters Variable Annuity.
- - For Master Variable Annuity any earnings that have not been previously
surrendered.
- - For Value Advantage Plus Variable Annuity there is no surrender charge.
AMOUNT OF SURRENDER CHARGE
Surrender charges apply only if the amount being withdrawn exceeds the sum of
the amounts listed above under Free Surrenders. The surrender charge is based on
a percentage of the amount of purchase payments surrendered. The percentage of
payments is set at 5% during the first five years on the Opportunity Variable
Annuity contracts with a sliding scale down to zero by the end of the fifth
year, and is set at 7% during the first seven years of the Master Variable
Annuity contracts, with a sliding scale down to zero by the end of the seventh
year. Surrender charges collected by First Fortis were $1,607 and $0 in 1997 and
1996, respectively.
5. FEDERAL INCOME TAXES
The operations of the Account form part of, and are taxed with, the operations
of First Fortis, which is taxed as a life insurance company under the Internal
Revenue Code. As a result, the net asset value of the subaccounts is not
affected by income taxes on income distributions received by the subaccounts.
21
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS
Fortis Advisers, Inc. (a wholly-owned subsidiary of Fortis, Inc.) provides
investment management services to Fortis Series Fund, Inc. in exchange for
investment advisory and management fees. Investment advisory and management fees
are based on each portfolio's daily net assets and decrease in reduced
percentages as average daily net assets increase. The fees represent an
investment expense to Fortis Series Fund, Inc. which reduces the portfolios' net
assets. These fees charged by Fortis Advisers, Inc. are not available on an
individual variable account basis. Fees for all variable accounts to which
Fortis Advisers, Inc. provided investment management services amounted to
$14,415,572 and $11,076,174 in 1997 and 1996, respectively.
7. YEAR 2000 ISSUE (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Account. The Account
has no computer systems of its own but is dependent upon the systems of Fortis
Benefits Insurance Company (an affiliate), Fortis Advisers and certain other
third parties.
A comprehensive review of Fortis Benefits' and Fortis Advisers' computer systems
and business processes has been conducted to identify the major systems that
could be affected by the Year 2000 issue. Steps are being taken to resolve any
potential problems including modification to existing software and the purchase
of new software. These measures are scheduled to be completed and tested on a
timely basis. Fortis Benefits' and Fortis Advisers' goal is to complete internal
remediation and testing of each system by early 1999. The Year 2000 readiness of
the unaffiliated investment managers and other third parties whose system
failures could have an impact on the Account's operations is currently being
evaluated. The potential materiality of any such impact is not known at this
time.
22
<PAGE>
APPENDIX A
PERFORMANCE INFORMATION
In advertising and other sales material for the Certificates, yield and total
return information for the Subaccounts of the Variable Account may be included.
The information below provides investment results for the indicated Subaccounts
of the Variable Account. The results shown in this section are not an estimate
or guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
YIELD CALCULATIONS
Yield information for the Alliance Money Market Subaccount will be based on the
seven days ended on a specified date. It will be computed by determining the
net change, exclusive of capital changes, in the value of a hypothetical pre-
existing account (after the deduction of all asset based charges) having a
balance of one Accumulation Unit at the beginning of the period and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return , and multiplying the base period return by
(365/7), with the resulting yield figure carried to the nearest hundredth of one
percent. The seven day yield for the Alliance Money Market Subaccount as of
December 31, 1997 was 4.86%.
An effective yield may also be quoted for the Alliance Money Market Subaccount.
Effective yield is calculated by compounding the current yield as follows:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
The seven day effective yield for the Alliance Money Market Subaccount as of
December 31, 1997 was 4.97%.
Yield information for the other Subaccounts will be based on the thirty days
ended on a specified date and carried to the nearest hundredth of a percent,
according to the following formula:
| / \ 6 |
|| A-B | |
2|| ----- +1| -1 |
| \ CD / |
|_ _|
Where:
A = net investment income earned during the period by the Portfolio whose shares
are owned by the Subaccount,
B = expenses accrued for the period,
C = the average daily number of Accumulation Units outstanding during the
period, and
D = the offering price per Accumulation Unit at the end of the last day of the
period.
The following table sets figures for the thirty days ended December 31, 1996.
Subaccount Yield
---------- -----
Federated High Yield Bond . . . . . . . . . . 8.67%
Federated U.S. Government Securities. . . . . 2.37%
MFS High Income . . . . . . . . . . . . . . . 14.01%
MFS World Governments . . . . . . . . . . . . 2.76%
Van Eck Worldwide Bond . . . . . . . . . . . 6.49%
A-1
<PAGE>
TOTAL RETURN CALCULATIONS
Total return information will be given for the one-year and five-year periods
ended on a specified date, provided that, if the registration statement has been
effective for a Subaccount only during a shorter period, then such shorter
period will be used.
AVERAGE ANNUAL TOTAL RETURN
Total average annual compounded rates of return for each period will be computed
to the nearest one hundredth of a percent, according to the following formula:
n
P(1 + T) = CSV
WHERE: P = a hypothetical initial purchase payment of $1,000,
T = average annual total return,
n = number of years, and
CSV = end of period Cash Surrender Value of hypothetical $1,000
purchase payment made at the beginning of the period, assuming
deduction of a proportionate amount of the annual administrative
charge (based on average Contract size).
The following table show total average annual rates of return for the periods
indicated:
Subaccount One Year Period Commencement
Ended Dec. 31, 1997 to Dec. 31, 1997
- --------------------------------------- ------------------- ----------------
Alliance International Portfolio -0.14% 2.67%
Alliance Premier Growth Portfolio 30.25% 25.34%
American Century VP Balanced Fund 12.18% 11.57%
American Century VP Capital Appreciation Fund -6.73% -6.66%
Federated High Income Bond Fund II 10.33% 10.63%
Federated Utility II 23.07% 15.79%
Federated American Leaders II 28.74% 22.27%
Federated U.S. Government Securities II NA NA
INVESCO Industrial Income Portfolio NA NA
INVESCO Health Sciences Portfolio NA NA
INVESCO Technology Portfolio NA NA
Lexington Natural Resources Trust 3.66% 12.57%
Lexington Emerging Markets Fund -14.96% -10.97%
MFS Emerging Growth Series 18.36% 16.72%
MFS High Income Series 10.11% 10.16%
MFS World Government Series -4.57% -0.27
Montgomery Emerging Markets Fund -4.02% -1.18%
A-2
<PAGE>
Montgomery Growth Fund 24.93% 27.45%
Neuberger & Berman Limited Maturity Bond
Portfolio NA 17.04%
Neuberger & Berman Partners Portfolio NA NA
SAFECO Equity Portfolio 21.27% 17.04%
SAFECO Growth Portfolio 41.19% 42.80%
Strong Discovery Fund II 7.89% 4.36%
Strong International Stock Fund II -16.90% -6.72%
Van Eck Worldwide Bond Fund -1.07% 1.00%
Van Eck Worldwide hard Assets Fund -5.17% -2.77%
CUMULATIVE TOTAL RETURN
Total cumulative rates of return for each period will be computed to the nearest
one hundredth of a percent, according to the following formula:
CTR = (CSV - P) 100
-------
P
Where: P = a hypothetical initial purchase payment of $1,000,
CTR = cumulative total return, and
CSV = end of period Cash Surrender Value of hypothetical $1,000
purchase payment made at the beginning of the period, assuming
deduction of a proportional amount of the annual administrative charge
(based on average Contract size).
The following table shows cumulative total rates of return for the periods
indicated:
Subaccount One Year Period Commencement
Ended Dec. 31, 1997 to Dec. 31, 1997
- --------------------------------------- ------------------- ----------------
Alliance International Portfolio -0.14% 5.18%
Alliance Premier Growth Portfolio 30.25% 54.29%
American Century VP Balanced Fund 12.18% 23.39%
American Century VP Capital Appreciation Fund -6.73% -12.39%
Federated High Income Bond Fund II 10.33% 21.41%
Federated Utility II 23.07% 32.50%
Federated American Leaders II 28.74% 47.12%
Federated U.S. Government Securities II NA 7.05%
INVESCO Industrial Income Portfolio NA 21.37%
INVESCO Health Sciences Portfolio NA 10.07%
INVESCO Technology Portfolio NA 14.46%
Lexington Natural Resources Trust 3.66% 25.53%
Lexington Emerging Markets Fund 14.96% -20.00%
MFS Emerging Growth Series 18.36% 34.56%
A-3
<PAGE>
MFS High Income Series 10.11% 20.42%
MFS World Government Series -4.57% -0.51%
Montgomery Emerging Markets Fund -4.02% 2.27%
Montgomery Growth Fund 24.93% 59.32%
Neuberger & Berman Limited Maturity Bond
Portfolio NA 4.98%
Neuberger & Berman Partners Portfolio NA 24.78%
SAFECO Equity Portfolio 21.27% 18.52%
SAFECO Growth Portfolio 41.19% 46.93%
Strong Discovery Fund II 7.89% 8.53%
Strong International Stock Fund II -16.90% -12.51%
Van Eck Worldwide Bond Fund -1.07% 1.93%
Van Eck Worldwide hard Assets Fund -5.17% -5.25%
Yield figures do not reflect any surrender charge, and yield and total return
figures do not reflect any premium tax charge. Yield and total return figures do
reflect the reimbursement of certain Fortis Series expenses. Current Fixed
Account effective annual rates of interest may also be quoted in advertising and
other sales materials, and these rates do not reflect any deductions or charges.
First Fortis may advertise its relative performance as compiled by outside
organizations. Following is a list of ratings services which may be referred to
in advertisements, along with the category in which the applicable Subaccount is
included:
Rating Service Category
-------------- --------
Alliance Money Market Subaccount
Morningstar Publications, Inc.
Lipper Analytical Services, Inc.
Alliance International Subaccount
Morningstar Publications, Inc. International
Lipper Analytical Services, Inc. International
Alliance Premier Growth Subaccount
Morningstar Publications, Inc. Growth
Lipper Analytical Services, Inc. Growth
Federated High Yield Bond Subaccount
Morningstar Publications, Inc. High Yield Bond
Lipper Analytical Services, Inc.
Federated Utility Subaccount
Morningstar Publications, Inc. Specialty Fund
Lipper Analytical Services, Inc.
A-4
<PAGE>
Federated American Leaders Subaccount
Morningstar Publications, Inc. Growth & Income
Lipper Analytical Services, Inc.
Lexington Natural Resources Subaccount
Morningstar Publications, Inc. Specialty Fund
Lipper Analytical Services, Inc.
Lexington Emerging Markets Subaccount
Morningstar Publications, Inc. International Stock
Lipper Analytical Services, Inc.
MFS Emerging Growth Subaccount
Morningstar Publications, Inc. Aggressive Growth
Lipper Analytical Services, Inc. Mid Cap Funds
MFS High Income Subaccount
Morningstar Publications, Inc. High Yield Bonds
Lipper Analytical Services, Inc. Mid Cap Funds
MFS World Governments Subaccount
Morningstar Publications, Inc. International Bonds
Lipper Analytical Services, Inc.
Montgomery Emerging Markets Subaccount
Morningstar Publications, Inc. Diversified Emerging Markets
Lipper Analytical Services, Inc. Emerging Markets Funds
Montgomery Growth Subaccount
Morningstar Publications, Inc. Growth
Lipper Analytical Services, Inc. Growth
Strong Discovery Subaccount
Morningstar Publications, Inc. Aggressive Growth
Lipper Analytical Services, Inc. Capital Appreciation Fund
Strong Government Securities Subaccount
Morningstar Publications, Inc. Government Bond - General
Lipper Analytical Services, Inc.
Strong Advantage Subaccount
Morningstar Publications, Inc. Corporate Bond - General
Lipper Analytical Services, Inc.
A-5
<PAGE>
Strong International Stock Subaccount
Morningstar Publications, Inc. Foreign Stock
Lipper Analytical Services, Inc. International Fund
TCI Balanced Subaccount
Morningstar Publications, Inc. Balanced
Lipper Analytical Services, Inc.
TCI Growth Subaccount
Morningstar Publications, Inc. Growth
Lipper Analytical Services, Inc.
Van Eck Worldwide Bond Subaccount
Morningstar Publications, Inc. International Bond
Lipper Analytical Services, Inc.
Van Eck Gold and Natural Resources Subaccount
Morningstar Publications, Inc. Specialty Fund
Lipper Analytical Services, Inc. Gold Oriented Fund
A-6
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The estimated expenses of the issuance and distribution of the Contracts,
other than commissions on sales of the Contracts are as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Securities and Exchange Commission
registration fee $6,060.61
Printing and engraving $1,500.00
Accounting fees and expenses $1,500.00
Legal fees and expenses $3,000.00
</TABLE>
Item 14. Indemnification of Directors and Officers
First Fortis' By-Laws provide for indemnity and payment of expenses of
First Fortis' officers and directors in connection with certain legal
proceedings, judgments, and settlements arising by reason of their service as
such, all to the extent and in the manner permitted by law. Applicable New York
law generally permits payment of such indemnification and expenses if the person
seeking indemnification has acted in good faith and for a purpose that he
reasonably believed to be in, or not opposed to, the best interests of the
Company, and, in a criminal proceeding, if the person seeking indemnification
also has no reasonable cause to believe his conduct was unlawful. No
indemnification is further permitted to an individual if there has been an
adjudication, and a judgement rendered adverse to the individual seeking
indemnification, finding that the acts were committed in bad faith, as the
result of active and deliberate dishonesty, or that there was personal gain,
financial profit, or other advantage which he or she was not otherwise legally
entitled.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the indemnification provision described in response to
Item 14, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
Item 15. Recent Sales of Unregistered Securities
None.
Item 16. Exhibits and Financial Statement Schedule
a. Exhibits
1. Form of Principal Underwriter and Servicing Agreement -- filed as an
exhibit to Registration Statement No. 33-71686 on Form N-4 filed April
11, 1994 and incorporated by reference.
2. None.
3. (a) Charter of First Fortis Life Insurance Company (Incorporated by
reference from Form 10-K405, File No. 33-71690, of registrant filed
March 29, 1996).
(b) By-laws of First Fortis Life Insurance Company (Incorporated by
reference from Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed on November 15, 1993);
4. (a) Form of Combination Fixed and Variable Annuity Contract
(Incorporated by Reference from Form N-4 Registration Statement, File
No. 333-20343, of Registrant and its Separate Account A, filed May 9,
1997);
(b) Form of Application to be used in connection with Contract
(Incorporated by Reference from Form N-4 Registration Statement, File
No. 333-20343, of Registrant and its Separate Account A, filed May 9,
1997);
(c) Form of IRA Endorsement (Incorporated by reference from Form N-4
Registration Statement, File No. 33-71686, of registrant and its
Separate Account A filed April 27, 1995);
(d) Form of Section 403(b) Annuity Endorsement (Incorporated by
reference from Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed April 27, 1995);
(e) Form of Automatic Portfolio Rebalancing Endorsement (Incorporated
by reference from Form N-4 Registration Statement, File No. 33-71686,
of registrant and its Separate Account A filed April 27, 1995);
(f) Form of Systematic Withdrawal Option Endorsement (Incorporated by
reference from Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed April 27, 1995);
<PAGE>
(g) Form of Systematic Transfer Endorsement (Incorporated by reference
from Form N-4 Registration Statement, File No. 33-71686, of registrant
and its Separate Account A filed April 27, 1995);
5. Opinion and consent of David A. Peterson, Esq., Corporate Counsel of
Fortis Benefits Insurance Company, as to the legality of the
securities being registered (filed as a part of this Form S-1
registration statement filed on January 24, 1997).
10. Administrative Service Agreement (Incorporated by reference from Form
N-4 Registration Statement, File No. 33-71686, of registrant and its
Separate Account A filed on November 15, 1993).
24. Consent of Ernst & Young LLP -- filed herewith.
25. (a) Power of Attorney for Messrs. Rutherfurd, Freedman and Madame
Gharib. (Incorporated by reference from Form N-4 Registration
Statement, File No. 33-71686, of registrant and its Separate Account A
filed on November 15, 1993).
(b) Power of Attorney for Messrs. Gardner, Nelson and Galston.
(Incorporated by reference from Form N-4 Registration Statement, File
No. 33-71686, of registrant and its Separate Account A filed on April
12, 1994.)
(c) Power of Attorney for Messrs. Keller and Kopperud (Incorporated by
reference from Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed April 27, 1995.)
28. (b) Financial statement schedules.
None.
Item 17. Undertakings
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate,
<PAGE>
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement, including (but not limited to) any addition or deletion of
a managing underwriter.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant has caused this
Registration Statement to be signed on its behalf in the Town of Salina, County
of Onondaga, State of New York on this 17th day of April 1998.
FIRST FORTIS LIFE INSURANCE COMPANY
By:/s/ Zafar Rashid
-----------------------------------
Zafar Rashid
President & Chief Executive Officer
(Principal Executive Officer)
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons, in the capacities indicated, on April 17, 1998.
Signatures Title With First Fortis
- ---------- -----------------------
/s/ Zafar Rashid President and Chief Executive Officer
- -------------------------------
Zafar Rashid (Principal Executive Officer)
/s/ Terry J. Kryshak Sr. Vice President and Chief
- -------------------------------
Terry J. Kryshak Administrative Officer and
Director
/s/ Larry M. Cains Treasurer and Director
- -------------------------------
Larry M. Cains (Principal Financial Officer)
/s/ Barbara R. Hege Assistant Treasurer and Director of
- -------------------------------
Barbara R. Hege Accounting (Principal
Accounting Officer)
*------------------------------- Chairman and Director
Allen Royal Freedman
*------------------------------- Director
Susie Gharib
*------------------------------- Director
Guy Gerard Rutherfurd, Jr.
<PAGE>
*------------------------------- Director
Dale Edward Gardner
*------------------------------- Director
Kenneth Warwick Nelson
-------------------------------
Robert B. Pollock Director
/s/ Dean C. Kopperud
- --------------------------------
Dean C. Kopperud Director
*------------------------------- Director
Thomas M. Keller
*--------------------------------
Clarence Elkus Galston Director
*By/s/ Terry J. Kryshak
- ---------------------------------
Terry J. Kryshak
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
Item
Number Description
- ------ -----------
24. Consent of Accountants
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 27, 1998 on the financial statements
of First Fortis Life Insurance Company and our report dated March 27, 1998 on
the financial statements of Variable Account A in the Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-20345) and related Prospectus and
Statement of Additional Information of First Fortis Life Insurance Company
for the registration of flexible premium deferred combination variable and
fixed annuity contracts.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Minneapolis, Minnesota
April 27, 1998
