<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1999
Registration Nos. 33-71688
811-8154-01
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 8
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 19
SEPARATE ACCOUNT A
OF
FIRST FORTIS LIFE INSURANCE COMPANY
(Exact Name of Registrant)
---------------------------------
FIRST FORTIS LIFE INSURANCE COMPANY
(Name of Depositor)
220 Salina Meadows Parkway
Syracuse, New York 13212
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code:
315-451-0066
---------------------------------
DAVID A. PETERSON, ESQ.
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Name and Address of Agent for Service)
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
-----------------------------------
It is proposed that this filing will be come effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485.
---
X on May 1, 1999 pursuant to paragraph (b) of Rule 485.
---
60 days after filing pursuant to paragraph (a)(1) of Rule 485.
---
On May 1, 1998 pursuant to paragraph (a)(1) of Rule 485.
---
If appropriate, check the following box:
This post effective amendment designates a new effective date
--- for a previously filed post effective amendment.
--------------------------------------
<PAGE>
VARIABLE ACCOUNT A OF
FIRST FORTIS LIFE INSURANCE COMPANY
CROSS REFERENCE SHEET SHOWING LOCATION
OF INFORMATION IN PROSPECTUS OR
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Form N-4 Prospectus Caption
- -------- ------------------
<S> <C>
1. Cover Page Cover Page
2. Definitions Special Terms Used in This Prospectus
3. Synopsis of Highlights Summary; Information concerning
fees and charges
4. Condensed Financial Summary -- Financial information
Information
5. General Description of Registrant, Depositor Summary--Separate Account Investment Options;
and Portfolio Companies First Fortis and the Separate Account; Fixed Account
6. Deductions Summary--Charges and Deductions; Charges and
Deductions
7. General Description of Variable Accumulation Period; General Provisions
Annuity Contracts
8. Annuity Period The Annuity Period
9. Death Benefit Summary--Death Benefit; Accumulation Period
-- Benefit Payable on Death of Annuitant or Contract
Owner
10. Purchases and Contract Value Accumulation Period -- Issuance of a Contract and
Purchase Payments-- Contract Value
11. Redemptions Summary--Total and Partial Surrenders;
Accumulation Period-- Total and Partial Surrenders
12. Taxes Summary--Tax Implications; Federal Tax Matters
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROSPECTUS OR
STATEMENT OF ADDITIONAL
FORM N-4 INFORMATION CAPTION
- -------- -----------------------
(cont'd.)
<S> <C>
13. Legal Proceedings None
14. Table of Contents of the Statement of Contents of the Statement of Additional
Additional Information Information
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History
First Fortis Life Insurance Company
18. Services Services
19. Purchases of Securities Being Offered Reduction of Charges
20. Underwriters Services
21. Calculation of Performance Appendix A
Data
22. Annuity Payments Calculation of Annuity Payments
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
FIRST FORTIS
OPPORTUNITY+
VARIABLE
ANNUITY
Individual Flexible
Premium Deferred
Variable Annuity Contract
PROSPECTUS DATED
May 1, 1999
[LOGO]
<TABLE>
<S> <C> <C>
FIRST FORTIS LIFE INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE: 1-800-745-8248
P.O. BOX 3249 220 SALINA MEADOWS PARKWAY
SYRACUSE, NY 13220 SUITE 255 SYRACUSE, NY 13220
</TABLE>
This prospectus describes an individual flexible premium deferred variable
annuity contract issued by First Fortis Life Insurance Company ("First Fortis").
The contracts allow you to accumulate funds on a tax-deferred basis. You may
elect a guaranteed interest accumulation option through a fixed account or a
variable return accumulation option through a variable account, or a combination
of these two options. Under the variable return accumulation option, you can
choose among the following investment portfolios of Fortis Series Fund, Inc.:
<TABLE>
<S> <C>
Money Market Series S&P 500 Index Series
U.S. Government Securities Series Blue Chip Stock Series
Diversified Income Series Global Growth Series
Global Bond Series Growth Stock Series
High Yield Series International Stock Series
Asset Allocation Series Aggressive Growth Series
Global Asset Allocation Series Small Cap Value Series
Value Series Mid Cap Stock Series
Growth & Income Series Large Cap Growth Series
</TABLE>
The accompanying prospectus for these investment portfolios describes the
investment objectives, policies and risks of each portfolio.
This prospectus gives you information about the contract that you should know
before investing. This prospectus must be accompanied by a current prospectus
for the portfolios. All of the prospectuses should be read carefully and kept
for future reference.
A Statement of Additional Information, dated May 1, 1999, about 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 20 of this prospectus.
THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK,
CREDIT UNION, BROKER-DEALER OR OTHER FINANCIAL INSTITUTION. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. THEY INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
97103 (Ed. 5/99)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms Used in this Prospectus................................. 3
Information Concerning Fees and Charges............................... 4
Summary............................................................... 6
First Fortis and the Separate Account................................. 8
- First Fortis Life Insurance Company............................. 8
- The Separate Account............................................ 8
- The Portfolios.................................................. 8
Accumulation Period................................................... 8
- Issuance of a Contract and Purchase Payments.................... 8
- Contract Value.................................................. 9
- Allocation of Purchase Payments and Contract Value.............. 10
- Total and Partial Surrenders.................................... 10
- Telephone Transactions.......................................... 11
- Benefit Payable on Death of Contract Owner (or Annuitant)....... 11
The Annuity Period.................................................... 12
- Annuity Commencement Date....................................... 12
- Commencement of Annuity Payments................................ 12
- Relationship Between Subaccount Investment Performance and
Amount of Variable Annuity Payments............................ 12
- Annuity Options................................................. 13
- Death of Annuitant or Other Payee............................... 13
Charges and Deductions................................................ 13
- Premium Taxes................................................... 13
- Annual Administrative Charge.................................... 13
- Charges Against the Separate Account............................ 14
- Surrender Charge................................................ 14
- Miscellaneous................................................... 15
- Reduction of Charges............................................ 15
Fixed Account......................................................... 15
- General Description............................................. 15
- Fixed Account Value............................................. 15
- Fixed Account Transfers, Total and Partial Surrenders........... 15
General Provisions.................................................... 15
- The Contract.................................................... 15
- Postponement of Payments........................................ 16
- Misstatement of Age or Sex and Other Errors..................... 16
- Assignment and Ownership Rights................................. 16
- Beneficiary..................................................... 16
- Reports......................................................... 16
Rights Reserved by First Fortis....................................... 16
Distribution.......................................................... 17
Federal Tax Matters................................................... 17
Voting Privileges..................................................... 19
State Regulation...................................................... 20
Legal Matters......................................................... 20
Year 2000 Issue....................................................... 20
Contents of Statement of Additional Information....................... 20
Appendix A--Sample Death Benefit Calculations......................... A-1
Appendix B--Explanation of Expense Calculations....................... B-1
Appendix C--Pro Rata Adjustments...................................... 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 date and the Annuity Period.
Period
Accumulation A unit of measure used to calculate the interest of the contract owner in the Separate Account
Unit during the Accumulation Period.
Annuitant A person during whose life annuity payments are to be made by First Fortis under the contract.
The Annuitant is the person named in the application for the contract. If such person dies
before the annuity commencement date and there is an additional annuitant named in the
application, the additional annuitant shall become the Annuitant. If there is no named
additional annuitant, or the additional annuitant has predeceased the annuitant who is named
in the application, the contract owner, if he or she is a natural person, shall become the
Annuitant.
Annuity Period The time period following the Accumulation Period during which annuity payments are made by
First Fortis.
Annuity Unit A unit of measurement used to calculate variable annuity payments.
Fixed Annuity An annuity option under which First Fortis promises to pay the Annuitant or any other properly
Option designated payee one or more fixed payments.
Non-Qualified Contracts that do not qualify for the special federal income tax treatment applicable in
Contracts connection with certain retirement plans.
Qualified Contracts that are qualified for the special federal income tax treatment applicable in
Contracts connection with certain retirement plans.
Separate The segregated asset account referred to as Separate Account A of First Fortis Life Insurance
Account Company established to receive and invest purchase payments made under contracts.
Valuation Date Each business day of First Fortis 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 An annuity option under which First Fortis promises to pay the Annuitant or any other properly
Annuity Option designated payee one or more payments which vary in amount in accordance with the net
investment experience of the subaccounts selected by the Annuitant.
</TABLE>
3
<PAGE>
INFORMATION CONCERNING FEES AND CHARGES
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Front End Sales Charge Imposed on
Purchases................................... 0%
Maximum Surrender Charge for Sales Expenses
(as a percentage of purchase payments)...... 5%(1)
</TABLE>
<TABLE>
<CAPTION>
YEARS SINCE
DATE OF AMOUNT OF
PAYMENT CHARGE
- ------------- ---------------------------
<S> <C>
Less than 5 5%
5 or more 0%
</TABLE>
<TABLE>
<S> <C>
Other Surrender Fees....................... 0%
Exchange Fee............................... 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE............. $30(2)
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge.......... 1.25 %
Separate Account Administrative Charge..... .10 %
-----------
Total Separate Account Annual Expenses... 1.35 %
</TABLE>
- ------------------------
(1) This charge does not apply in certain cases such as partial surrenders each
year of up to 10% of new purchase payments as defined under the heading
"Surrender Charge" or, payment of a death benefit.
(2) This charge, which is otherwise applied at each contract anniversary and
total surrender of the contract, will not be charged during the
Accumulation Period if the contract value as of such anniversary or
surrender is $25,000 or more. Currently, First Fortis waives this charge
during the Annuity Period. This charge is also subject to any applicable
limitations under the law of any state.
PORTFOLIO ANNUAL EXPENSES (A)
<TABLE>
<CAPTION>
MONEY MARKET U.S. GOVERNMENT DIVERSIFIED GLOBAL
SERIES SECURITIES SERIES INCOME SERIES BOND SERIES
--------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Investment Advisory and Management Fee................ 0.30% 0.47% 0.47% 0.75%
Other Expenses........................................ 0.05% 0.04% 0.05% 0.13%
Total Fortis Series Operating Expenses................ 0.35% 0.51% 0.52% 0.88%
<CAPTION>
HIGH YIELD GLOBAL ASSET
SERIES ALLOCATION SERIES
----------- -----------------
<S> <C> <C>
Investment Advisory and Management Fee................ 0.50% 0.90%
Other Expenses........................................ 0.06% 0.11%
Total Fortis Series Operating Expenses................ 0.56% 1.01%
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION VALUE GROWTH & S&P 500 BLUE CHIP
SERIES SERIES INCOME SERIES INDEX SERIES STOCK SERIES
----------------- --------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Investment Advisory and Management Fee................ 0.47% 0.70% 0.64% 0.40% 0.89%
Other Expenses........................................ 0.04% 0.06% 0.03% 0.06% 0.05%
Total Fortis Series Operating Expenses................ 0.51% 0.76% 0.67% 0.46% 0.94%
<CAPTION>
INTERNATIONAL
STOCK SERIES
-------------
<S> <C>
Investment Advisory and Management Fee................ 0.85%
Other Expenses........................................ 0.09%
Total Fortis Series Operating Expenses................ 0.94%
</TABLE>
<TABLE>
<CAPTION>
MID CAP SMALL CAP GLOBAL GROWTH LARGE CAP
STOCK SERIES VALUE SERIES SERIES GROWTH SERIES
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Investment Advisory and Management Fee................ 0.90% 0.90% 0.70% 0.90%
Other Expenses........................................ 0.35% 0.34% 0.05% 0.35%
Total Fortis Series Operating Expenses................ 1.25% 1.24% 0.75% 1.25%
<CAPTION>
GROWTH STOCK AGGRESSIVE
SERIES GROWTH SERIES
------------- ---------------
<S> <C> <C>
Investment Advisory and Management Fee................ 0.61% 0.68%
Other Expenses........................................ 0.04% 0.04%
Total Fortis Series Operating Expenses................ 0.65% 0.72%
</TABLE>
- ------------------------
(a) As a percentage of portfolio average net assets based on 1998 historical
data.
4
<PAGE>
EXAMPLES*
If you SURRENDER your contract in full at the end of any of the time periods
shown below, you would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------ ------- ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Series......................................... 62 99 137 201
U.S. Government Securities Series........................... 64 103 146 218
Diversified Income Series................................... 64 104 146 219
Global Bond Series.......................................... 68 115 164 256
High Yield Series........................................... 64 105 148 223
Global Asset Allocation Series.............................. 69 119 171 269
Asset Allocation Series..................................... 64 103 146 218
Value Series................................................ 66 111 158 244
Growth & Income Series...................................... 66 108 154 234
S&P 500 Index Series........................................ 63 102 143 212
Blue Chip Stock Series...................................... 68 116 167 262
International Stock Series.................................. 68 116 167 262
Mid Cap Stock Series........................................ 71 126 183 293
Small Cap Value Series...................................... 71 125 182 292
Global Growth Series........................................ 66 111 158 243
Large Cap Growth Series..................................... 71 126 183 293
Growth Stock Series......................................... 65 108 153 232
Aggressive Growth Series.................................... 66 110 156 240
</TABLE>
If you COMMENCE AN ANNUITY payment option, or DO NOT surrender your contract,
you would pay the following cumulative expenses on a $1,000 investment, assuming
a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------ ------- ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Series......................................... 17 54 92 201
U.S. Government Securities Series........................... 19 58 101 218
Diversified Income Series................................... 19 59 101 219
Global Bond Series.......................................... 23 70 119 256
High Yield Series........................................... 19 60 103 223
Global Asset Allocation Series.............................. 24 74 126 269
Asset Allocation Series..................................... 19 58 101 218
Value Series................................................ 21 66 113 244
Growth & Income Series...................................... 21 63 109 234
S&P 500 Index Series........................................ 18 57 98 212
Blue Chip Stock Series...................................... 23 71 122 262
International Stock Series.................................. 23 71 122 262
Mid Cap Stock Series........................................ 26 81 138 293
Small Cap Value Series...................................... 26 80 137 292
Global Growth Series........................................ 21 66 113 243
Large Cap Growth Series..................................... 26 81 138 293
Growth Stock Series......................................... 20 63 108 232
Aggressive Growth Series.................................... 21 65 111 240
</TABLE>
- ------------------------
* For purposes of these examples, the effect of the annual contract
administration charge has been computed based on the average total contract
value of all outstanding contracts during the year ended December 31, 1998
and the total actual amount of annual contract administration charges
collected during the year. For the purposes 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, prescribed by the SEC, are included to assist
contract owners 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
The following summary should be read in conjunction with the detailed
information in this prospectus. This prospectus generally describes only the
portion of the contract involving the Separate Account. For a brief description
of First Fortis' fixed account, please refer to the heading Fixed Account in
this prospectus.
The contract is designed to provide individuals with retirement benefits through
the accumulation of purchase payments on a fixed or variable basis, and by the
application of such accumulations to provide fixed or variable annuity payments.
PURCHASE PAYMENTS
For individual contracts, each initial or subsequent purchase payment must be at
least $50. For contracts issued in connection with a benefit plan covering
employees, the initial and subsequent purchase payments under each contract must
at all times average at least $50 and in no case be less than $25. No additional
purchase payments are required, if the contract value is at least $500 by the
end of the first contract year and at least $1,000 by the end of second contract
year and at all times thereafter. See "Issuance of a Contract and Purchase
Payments."
On the contract date, the initial purchase payment is allocated, as specified by
the contract owner in the contract application, among one or more of the
available investment portfolios, or to the fixed account, or to both. Subsequent
purchase payments are allocated in the same way, or pursuant to different
allocation percentages that the contract owner may subsequently request.
SEPARATE ACCOUNT INVESTMENT OPTIONS
Each of the subaccounts of the Separate Account invests in shares of a
corresponding portfolio. The investment objective of each of the subaccounts of
the Separate Account and that of the corresponding portfolio is the same.
Contract value in each of the subaccounts of the Separate Account will vary to
reflect the investment experience of each of the corresponding portfolios, as
well as deductions for certain charges.
Each portfolio has a separate and distinct investment objective and is managed
by Fortis Advisers, Inc. or a subadviser of Fortis Advisers, Inc. For providing
investment management services to the portfolios, Fortis Advisers, Inc. receives
fees from Fortis Series based on the average daily net assets of each portfolio.
The portfolios also bear most of their other expenses. A full description of the
portfolios and their investment objectives, policies, and risks can be found in
the current prospectus for the portfolios, which accompanies this prospectus,
and the portfolios' Statement of Additional Information, which is available upon
request from First Fortis at the address and phone number on the cover of this
prospectus.
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. Additionally,
during the accumulation period we may, in our discretion, permit a continuing
request for transfers of specified amounts automatically on a periodic basis.
There is currently no charge for any of 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 Values--Transfers."
TOTAL OR PARTIAL SURRENDERS
All or part of the contract value of a contract may be surrendered by you before
the earlier of the Annuitant's death or the annuity commencement date. Amounts
surrendered may be subject to a surrender charge and total surrenders may not be
made without application of the annual administrative charge if the contract
value is less than $25,000. See "Total and Partial Surrenders," "Surrender
Charge" and "Annual Administrative Charge." 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
We deduct daily charges at a rate of 1.25% per annum of the value of the average
net assets in the Separate Account for the mortality and expense risks we assume
and .10% per annum of the value of the average net assets in the Separate
Account to cover certain administrative expenses. See "Mortality and Expense
Risk Charge" and "Administrative Expense Charge" under the heading "Charges
Against the Separate Account."
In order to permit investment of the entire purchase payment, We do not deduct
sales charges at the time of investment. However, a surrender charge is imposed
on certain total or partial surrenders of the contract to help defray expenses
relating to the sale of the contract, including commissions to registered
representatives and other promotional expenses. Certain amounts may be
surrendered without the imposition of any surrender charge. The amount of such
charge-free surrender depends on how recently the purchase payments to which the
surrender relates were made. The aggregate surrender charges will never exceed
5% of the purchase payments made to date.
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 date and upon total surrender of the contract. Currently, this charge
is not deducted during the Annuity Period. 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.
Certain states and other jurisdictions impose premium taxes or similar
assessments upon us, either at the time purchase payments are made or when
contract value is applied to an annuity option. Where such taxes or assessments
are imposed by your state or other jurisdiction upon receipt of purchase
payments, we will deduct a charge for these
6
<PAGE>
amounts from the contract value upon surrender, death of the Annuitant or
contract owner, or annuitization of the contract. In jurisdictions where such
taxes or assessments are imposed at the time of annuitization, we will deduct a
charge for such amounts at that time.
ANNUITY PAYMENTS
The contract provides several types of annuity benefits to Annuitants or their
beneficiaries, 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 Options"
and "Federal Tax Matters" in this prospectus and "Taxation Under Certain
Retirement Plans" in the Statement of Additional Information.
DEATH BENEFIT
In the event of the death of the contract owner, or the Annuitant if the
contract owner is a non-natural person, prior to the annuity commencement date,
a death benefit is payable. See "Benefit Payable on Death of Contract Owner (or
Annuitant)."
RIGHT TO EXAMINE THE CONTRACT
You have a right to examine the contract. You can cancel the contract by
delivering or mailing it, together with a written request, to First Fortis' home
office or to the sales representative through whom it was purchased, before the
close of business on the tenth day after receipt of the contract. If these items
are sent by mail, properly addressed and postage prepaid, they will be deemed to
be received by us on the date postmarked. We will return to you the then current
contract value.
LIMITATIONS IMPOSED BY RETIREMENT PLANS
Certain rights a contract owner would otherwise have under a contract may be
limited by the terms of any employee benefit plan in connection with which the
contract is issued. 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.
TAX IMPLICATIONS
The tax implications for contract owners, Annuitants and beneficiaries, 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 or the contract should be directed to your sales
representative, or First Fortis' home office: P.O. Box 3249, Syracuse, NY 13220;
1-800-745-8248. For certain current information relating to contract values such
as subaccount unit values, interest rates in the fixed account, and your
contract value, call 1-800-745-8248. 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
1-800-745-8248.
Any purchase payment or other communication, except a 10-day 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 represents the Accumulation Unit information for
subaccounts of the Separate Account through December 31, 1998. Accumulation
Units have been rounded to the nearest whole unit.
<TABLE>
<CAPTION>
U.S. GLOBAL
MONEY GOV'T DIVERSIFIED GLOBAL HIGH ASSET ASSET GROWTH & S&P
MARKET SECURITIES INCOME BOND YIELD ALLOCATION ALLOCATION VALUE INCOME 500
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998
Accumulation
Units in
Force......... 318,605 71,200 597,806 14,947 132,636 91,185 867,243 160,886 326,229 385,486
Accumulation
Unit Value.... 1.532 18.421 2.059 13.254 12.823 16.513 3.326 14.768 21.767 18.689
December 31, 1997
Accumulation
Units in
Force......... 170,961 12,970 148,631 5,883 47,286 25,317 542,582 55,753 137,613 96,726
Accumulation
Unit Value.... $1.474 $17.149 $1.963 $11.837 $12.917 $14.433 $2.809 $13.651 $19.487 $14.786
December 31, 1996
Accumulation
Units in
Force......... 31,800 427 20,649 1,347 9,846 7,591 63,004 15,690 14,412 5,144
Accumulation
Unit Value.... 1.418 15.935 1.801 11.961 11.928 12.884 2.368 11.048 15.468 11.326
May 1, 1996*
Accumulation
Unit Value.... $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
<CAPTION>
BLUE INTERNATIONAL GLOBAL GROWTH AGGRESSIVE MID CAP LARGE CAP SMALL CAP
CHIP STOCK GROWTH STOCK GROWTH STOCK GROWTH VALUE
--------- ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998
Accumulation
Units in
Force......... 270,261 125,894 75,340 475,115 105,783 13,231 90,599 23,823
Accumulation
Unit Value.... 18.238 16.113 21.433 3.870 15.829 9.625 11.755 9.367
December 31, 1997
Accumulation
Units in
Force......... 74,226 36,305 47,369 240,842 47,583 -- -- --
Accumulation
Unit Value.... $14.429 $14.021 $19.507 $3.296 $13.241 -- -- --
December 31, 1996
Accumulation
Units in
Force......... 9,457 10,999 6,899 70,686 14,449 -- -- --
Accumulation
Unit Value.... 11.520 12.690 18.510 2.971 13.232 -- -- --
May 1, 1996*
Accumulation
Unit Value.... $10,000 $10,000 $10,000 $10,000 $10,000 -- -- --
</TABLE>
- ------------------------------
* Accumulation Unit value at date of initial registration effectiveness.
Audited financial statements of the Separate Account and First Fortis are
included in the Statement of Additional Information.
7
<PAGE>
Advertising and other sales materials may include yield and total return figures
for the subaccounts of the Separate 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 period of time
specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield figures
do not reflect the surrender charge and yield and total return figures do not
reflect premium tax charges. This makes the performance shown more favorable.
FIRST FORTIS AND THE SEPARATE ACCOUNT
FIRST FORTIS LIFE INSURANCE COMPANY
First Fortis Life Insurance Company is the issuer of the contracts. At the end
of 1998, First Fortis had approximately $7 billion of total life insurance in
force. First Fortis is a New York corporation founded in 1971. It 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
Fortis (NL)N.V. and 50% by Fortis (B). Fortis, Inc. manages the United States
operations for these two companies.
First Fortis is affiliated with the Fortis Financial Group. This group is a
joint effort by Fortis Benefits Life Insurance Company, Fortis Advisers, Inc.,
Fortis Investors, Inc. and Fortis Insurance Company (formerly Time Insurance
Company) to offer financial products through the management, marketing and
servicing of mutual funds, annuities, life insurance and disability income
products.
Fortis (NL)N.V. is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
(B) is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis (NL)N.V. and
Fortis (B) have merged their operating companies under the trade name of Fortis.
The Fortis group of companies is active in insurance, banking and financial
services, and real estate development in The Netherlands, Belgium, the United
States, Western Europe, and the Pacific Rim. The Fortis group of companies had
approximately $390 billion in assets at the end of 1998.
All of the guarantees and commitments under the contracts are general
obligations of First Fortis, regardless of whether you have allocated the
contract value to the Separate 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 SEPARATE ACCOUNT
The Separate Account is a segregated investment account of First Fortis. First
Fortis established Separate Account A under New York insurance law as of October
1, 1993. The assets allocated to the Separate Account are the exclusive property
of First Fortis. The Separate Account is an integral part of First Fortis.
However, the Separate Account is registered with the Securities and Exchange
Commission as a unit investment trust under the Investment Company Act of 1940.
Registration does not involve supervision of the management, or investment
practices, or policies of the Separate Account or of First Fortis by the
Securities and Exchange Commission.
All income, gains and losses, whether or not realized, from assets allocated to
the Separate Account are credited to or charged against the Separate Account
without regard to other income, gains or losses, of First Fortis. Assets in the
Separate Account representing reserves and liabilities will not be chargeable
with liabilities arising out of any other business of First Fortis. First Fortis
may accumulate in the Separate Account proceeds from charges under variable
annuity contracts and other amounts in excess of the Separate Account assets
representing reserves and liabilities. First Fortis may from time to time
transfer to its general account any of such excess amounts.
The Separate Account has subaccounts. The assets in each subaccount are invested
exclusively in a distinct class (or series) of stock issued by the portfolios,
each of which represents a separate investment portfolio within the portfolios.
Income and both realized and unrealized gains or losses from the assets of each
subaccount of the Separate Account are credited to or charged against that
subaccount without regard to income, gains or losses, from any other subaccount
of the Separate Account or arising out of any other business we may conduct. We
may add or eliminate new subaccounts as new portfolios are added or are
eliminated
THE PORTFOLIOS
First Fortis purchases and redeems shares for the Separate Account at their net
asset value without any sales or redemption charges. These shares are interests
in the portfolios available for investment by the Separate Account. Each
portfolio corresponds to one of the subaccounts of the Separate Account. The
assets of each portfolio are separate from the assets of other portfolios. Each
Series operates as a separate investment portfolio whose investment performance
has no effect on the investment performance of any other portfolio.
We automatically reinvest dividends or capital gain distributions attributable
to contracts in shares of the portfolio from which they are received at that
portfolio's net asset value on the date paid. These dividends and distributions
will have the effect of reducing the net asset value of each share of the
corresponding portfolio and increasing, by an equivalent value, the number of
shares outstanding of that portfolio. However, the value of the interests of
contract owners, Annuitants and beneficiaries in the corresponding subaccount
will not change as a result of any of these dividends and distributions.
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
If you wish to purchase a contract, you must complete an application and make an
initial purchase payment of at least $50. The application is forwarded to us for
processing. Acceptance is subject to our underwriting and suitability rules and
procedures. We reserve the right to reject any application for any reason.
8
<PAGE>
In certain circumstances, an employer remits payments to us on behalf of
employee-Annuitants. Where purchase payments are remitted to us through an
employer for multiple employee-Annuitants, we must be given accurate information
that specifically identifies the contracts and accounts that are to be credited
with the payments.
If we accept your application in the form received, we will credit the initial
purchase payment within two Valuation Dates after the later of (1) receipt of
the application or (2) receipt of the initial purchase payment at our home
office. If we cannot apply the initial purchase payment within five Valuation
Dates after receipt because the application or other issuing requirements are
incomplete, we will return the initial purchase payment unless you consent to
our retaining the initial purchase payment and applying it at the end of the
Valuation Period in which the necessary requirements are fulfilled. However,
even where you give your consent, if we cannot apply your initial purchase
payment within thirty Valuation Dates after we receive your payment because the
application or issuing instructions remain incomplete, we will return your
initial purchase payment to you.
The date that we apply the initial purchase payment to the purchase of the
contract is the contract date. The contract date is the date used to determine
contract years, regardless of when we deliver the contract. Our crediting of
investment experience in the Separate Account, or a fixed rate of return in the
fixed account, begins as of the contract date, even if that date is delayed due
to an incomplete application.
We will accept additional purchase payments at any time after the contract date
and prior to the annuity commencement date, as long as the Annuitant is living.
You must transmit purchase payments (together with any required information
identifying the proper contracts and accounts to be credited with purchase
payments) to our home office. We apply additional purchase payments to the
contract, and add to the contract value, at the end of the Valuation Period in
which we receive the payments.
Each additional purchase payment must be at least $50. However, under contracts
issued in connection with a benefit plan covering employees, it is sufficient
that all purchase payments under each contract, at all times, average $50. We
will not accept a purchase payment if it is less than $25. Moreover, we reserve
the right to raise this minimum purchase payment to a maximum amount of $100. In
addition, the total of all purchase payments, for all contracts, having the same
owner or annuitant may not exceed $1 million (not more than $500,000 allocated
to the fixed account) without our prior approval. We reserve the right to modify
this limitation at any time.
You may make purchase payments in excess of the initial minimum by monthly draft
against a bank account if you have completed and returned to us a special
authorization form. You may obtain the form from your sales representative or
from our home office. We can also arrange for you to make purchase payments by
wire transfer, payroll deduction, military allotment, direct deposit and
billing. Purchase payments by check should be made payable to First Fortis Life
Insurance Company.
We may cancel any contract with a contract value of less than $1,000. However,
under our current administrative procedures, if a contract's value is at least
$500 by the end of the first contract year, we will not cancel the contract
during the first two contract years. We will provide the contract owner with 90
days' written notice so that additional purchase payments may be made in order
to raise the contract value above the applicable minimum. Otherwise, we may
cancel the contract as of the end of the Valuation Period which includes the
next anniversary of the contract date. If we do cancel the contract, we will pay
the contract owner the full contract value. In addition, as long as the contract
value remains above $1,000, we will not require additional purchase payments.
CONTRACT VALUE
Contract value is the total of any Separate Account value in all the subaccounts
of the Separate Account, plus any fixed account value. For a discussion of how
fixed account value is calculated, see "The Fixed Account."
The contract does not guarantee a minimum Separate Account value. The Separate
Account value will reflect the investment experience of the chosen subaccounts
of the Separate Account, all purchase payments made, any partial surrenders, and
all charges assessed in connection with the contract. Therefore, the Separate
Account value changes from Valuation Period to Valuation Period. You bear the
entire investment risk for the contract value that you allocate to the Separate
Account.
DETERMINATION OF SEPARATE ACCOUNT VALUE. A contract's Separate Account value is
based on Accumulation Unit values that we 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. Purchase payments applied to a given
subaccount will be used to purchase Accumulation Units at the unit value of that
subaccount next determined after receipt of a purchase payment. See "Allocation
of Purchase Payments and Contract Value-- Allocation of Purchase Payments."
At the end of any Valuation Period, a contract's Separate 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:
- The initial Accumulation Units purchased on the contract date; plus
- Accumulation Units purchased at the time that additional purchase payments
are allocated to the subaccount; plus
- Accumulation Units purchased through transfers from another subaccount or
from the fixed account; less
- Accumulation Units redeemed to pay for the portion of any partial
surrenders allocated to the subaccount; less
- Accumulation Units redeemed as part of a transfer to another subaccount or
to the fixed account; less
9
<PAGE>
- Accumulation Units redeemed to pay charges under the contract.
NET INVESTMENT FACTOR. The net investment factor for a subaccount is determined
by dividing (1) the net asset value per share of the portfolio shares held by
the subaccount, determined at the end of the current Valuation Period, plus the
per share amount of any dividend or capital gains distribution made with respect
to the portfolio shares held by the subaccount during the current Valuation
Period, minus a per share charge for the increase, plus a per share credit for
the decrease, in any income taxes assessed which we determine to have resulted
from the investment operations of the subaccount or any other taxes which are
attributable to the 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.
A subaccount's net investment factor for a Valuation Period is an index number
that reflects certain charges to a contract and the investment performance of
the subaccount during the Valuation Period. If the 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.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
ALLOCATION OF PURCHASE PAYMENTS. In your application for a contract, you may
allocate purchase payments, or portions of payments to the:
- available subaccounts of the Separate Account, or
- to the fixed account, or
- both
Percentages must be in whole numbers and the total allocation must equal 100%.
The percentage allocations for future purchase payments may be changed, without
charge, at any time by sending a written request to First Fortis' home office.
Changes in the allocation of future purchase payments will be effective on the
date we receive your written request.
TRANSFERS. You may transfer contract value:
- from one available subaccount to another subaccount, or
- into the fixed account.
You may request transfers by either (1) a written request sent to our home
office, or by (2) a telephone transfer as described below. Currently, we do not
charge for any transfer.
All or part of the contract value in one or more subaccounts of the Separate
Account may be transferred at one time. We may permit a continuing request for
transfers automatically and on a periodic basis. We prohibit transfers INTO the
fixed account within six months of a transfer OUT OF the fixed account. In
addition, we restrict transfers of contract value FROM the fixed account in both
amount and timing. See "Fixed Account--Fixed Account Transfers, Total and
Partial Surrenders." Where you make all your transfer requests at the same time,
as part of one request, we will count all transfers between and among the
subaccounts of the Separate Account and the fixed account as one transfer. We
will execute the transfers, and determine all values in connection with the
transfers, at the end of the Valuation Period in which we receive the transfer
request.
Certain restrictions on very substantial allocations to any one subaccount are
set forth under "Limitations on Allocations" in the Statement of Additional
Information.
TOTAL AND PARTIAL SURRENDERS
TOTAL SURRENDERS. You may surrender all of the cash surrender value at any time
during the life of the Annuitant and prior to the annuity commencement date. If
you choose to make a total surrender, you must do so by written request sent to
our home office. We reserve the right to require that the contract be returned
to us prior to making payment, although this will not affect our determination
of the amount of the cash surrender value. Cash surrender value is:
- the contract value at the end of the Valuation Period during which we
receive the written request for total surrender at our home office, less
- any applicable surrender charge, and less
- any applicable administrative charge.
For a discussion of these charges and the circumstances under which they apply,
see "Annual Administrative Charge" and "Surrender Charge."
We must receive written consent of all collateral assignees and irrevocable
beneficiaries prior to any total surrender. We will generally pay surrenders
from the Separate Account within seven days of the date of receipt by our home
office of the written request. However, we may postpone payments in certain
circumstances. See "Postponement of Payment."
Since the contract owner assumes the investment risk with respect to amounts
allocated to the Separate Account, and because certain surrenders are subject to
a surrender charge, the amount we pay upon total surrender of the cash surrender
value (taking into account any prior partial surrenders) may be more or less
than the total purchase payments you made. After a surrender of the cash
surrender value or at any time the contract value is zero, all rights of the
contract owner, Annuitant, and any beneficiary, will terminate.
PARTIAL SURRENDERS. At any time during the life of the Annuitant and prior to
the commencement date, you may surrender a portion of the fixed account and/or
the Separate Account. You must request partial surrender by written request sent
to First Fortis' home office. The minimum partial surrender amount is $500,
including any surrender charge. We will surrender the entire cash surrender
value under the contract if the total contract value in both the Separate
Account and the fixed account would be less than $1,000, after the partial
surrender. However, under our current administrative procedures, we will honor a
surrender request during the first two contract years without regard to the
remaining contract value.
10
<PAGE>
You should specify the subaccounts of the Separate Account or the fixed account
that you wish to partially surrender. If you do not specify, we take the partial
surrender from the subaccounts and the fixed account on a pro rata basis.
We will surrender Accumulation Units from the Separate Account and/ or dollar
amounts from the fixed account so that the total amount of the partial surrender
equals the dollar amount of the partial surrender request. We will reduce the
partial surrender by the amount of any applicable surrender charge. The partial
surrender will be effective at the end of the Valuation Period in which we
receive the written request for partial surrender at our home office. We will
generally make payments 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.) This restriction does not apply
to amounts transferred to another investment alternative permitted under a
Section 403(b) retirement arrangement or to amounts attributable to premium
payments received prior to January 1, 1989.
TELEPHONE TRANSACTIONS
You or your representative may make certain requests under the contract by
telephone if we have a written telephone authorization on file. These include
requests for (1) transfers, (2) withdrawals, and (3) changes in purchase payment
allocation instructions, dollar-cost averaging, portfolio rebalancing programs,
and systematic withdrawals. Our home office will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures may include, among others, (1) requiring some form of personal
identification such as your address and social security number prior to acting
upon instructions received by telephone, (2) providing written confirmation of
such transactions, and/or (3) tape recording of telephone instructions. Your
request for telephone transactions authorizes us to record telephone calls. We
may be liable for any losses due to unauthorized or fraudulent instructions if
we do not employ reasonable procedures. If we do employ reasonable procedures,
we will not be liable for any losses due to unauthorized or fraudulent
instructions. We reserve the right to place limits, including dollar limits, on
telephone transactions.
BENEFIT PAYABLE ON DEATH OF CONTRACT OWNER (OR ANNUITANT)
If the owner dies prior to the annuity commencement date, we will pay a death
benefit to the beneficiary. If the contract owner is a non-natural person, then
we will pay a death benefit upon the death of the Annuitant prior to the annuity
commencement date. In such case, if more than one Annuitant has been named, we
will pay the death benefit payable upon the death of an Annuitant only upon the
death of the last survivor of the persons so named. The term "decedent" in the
death benefit description below refers to the death of the contract owner unless
the contract owner is a non-natural person, in which case it refers to the death
of the Annuitant. Also, the death benefit description refers to the age of the
contract owner. If the contract owner is a non-natural person, the relevant age
will instead be that of the Annuitant.
Additionally, the death benefit description makes reference to "Pro Rata
Adjustments." A pro rata adjustment is calculated separately for each
withdrawal, creating a decrease in the death benefit proportional to the
decrease the withdrawal makes in the contract value. Pro rata adjustments are
made for amounts withdrawn for partial surrenders and any associated surrender
charge (which shall be deemed to be an amount withdrawn), but not for any
contract fee-related surrenders.
The death benefit will equal the greatest of (1), (2), or (3) as follows:
(1) The contract value as of the date used for valuing the death benefit.
(2) The sum or all purchase payments made, reduced by pro rata adjustments for
each withdrawal.
(3) The highest Anniversary Value of each of the contract's anniversaries prior
to the earlier of: (1) the decedent's death, or (2) the contract owner's
attainment of age 75.
An Anniversary Value is equal to:
(a) the contract value on the anniversary, plus
(b) any purchase payments made since the anniversary, reduced
by
(c) pro rata adjustments for any withdrawals made since the
anniversary.
The pro rata adjustments referred to above are more fully described in Appendix
C at the end of this prospectus.
See Appendix A for sample death benefit calculation.
The death benefit may be reduced by premium taxes where such taxes were imposed
upon receipt of purchase payments and were paid by us in behalf of the contract
owner. For further information, see "Charges and Deductions--Premium Taxes."
The value of the death benefit is determined as of the end of the Valuation
Period in which we receive, at our home office, proof of death and the written
request as to the manner of payment. Upon receipt of these items, the death
benefit generally will be paid within seven days. Under certain circumstances,
payment of the death benefit may be postponed. See "Postponement of Payment." If
we do not receive a written request for a settlement method, we will pay the
death benefit in a single sum, based on values determined at that time.
The beneficiary may (1) receive a single sum payment, which terminates the
contract, or (2) select an annuity option. If the beneficiary selects an annuity
option, he or she will have all the rights and privileges of an Annuitant under
the contract. If the beneficiary
11
<PAGE>
desires an annuity option, the election should be made within 60 days of the
date the death benefit becomes payable. Failure to make a timely election can
result in unfavorable tax consequences. For further information, see "Federal
Tax Matters."
We accept any of the following as proof of death: (1) a copy of a certified
death certificate, (2) a copy of a certified decree of a court of competent
jurisdiction as to the finding of death, (3) a written statement by a medical
doctor who attended the deceased at the time of death.
The Internal Revenue Code requires that a Non-Qualified Contract contain certain
provisions about an owner's death. We discuss these provisions below under
"Federal Tax Matters--Required Distributions for Non-Qualified Contracts." It is
imperative that written notice of the death of the contract owner be promptly
transmitted to us at our home office, so that we can make arrangements for
distribution of the entire interest in the contract to the beneficiary in a
manner that satisfies the Internal Revenue Code requirements. Failure to satisfy
these requirements may result in the contract not being treated as an annuity
contract for federal income tax purposes with possible adverse tax consequences.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
You may not specify an annuity commencement date in your application that is
later than the Annuitant's 90th birthday. The annuity commencement date marks
the beginning of the period during which an Annuitant receives annuity payments
under the contract. The annuity commencement date must be at least two years
after the contract date. However, we may allow an earlier annuity commencement
date associated with certain annuitizations where the contract is purchased in
conjunction with the purchase of a life insurance policy issued by us, if it
fulfills certain other minimum guidelines established by us, and the annuity
payments are designated to be applied to the payment of the premiums on such
life insurance policy.
The Internal Revenue Code may impose penalty taxes on amounts distributed either
too soon or too late depending on the type of retirement arrangement involved.
See "Federal Tax Matters." You should consider this carefully in selecting or
changing an annuity commencement date.
You must submit a written request to us in order to advance or defer the annuity
commencement date. We must receive the request at our home office at least 30
days before the then-scheduled annuity commencement date. The new annuity
commencement date must also be at least 30 days after we receive the written
request. You have no right to make any total or partial surrender during the
Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
We may pay the entire contract value, rather than apply the amount to an annuity
option, if the contract value at the end of the Valuation Period that contains
the annuity commencement date is less than $2,000. We would make the payment in
a single sum to the Annuitant or other properly designated payee and cancel the
contract. We would not impose any charge other than the premium tax charge.
Otherwise, we will apply (1) the fixed account value to provide a Fixed Annuity
Option and (2) the Separate Account value in any subaccount to provide a
Variable Annuity Option using the same subaccount, unless you have notified us
by written request to apply the fixed account value and Separate Account value
in different proportions. We must receive written request at our home office at
least 30 days before the annuity commencement date.
We will make annuity payments under a Fixed or Variable Annuity Option on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If you name more than one person as an
Annuitant, you may elect to name one of such persons to be the sole Annuitant as
of the annuity commencement date. We reserve the right to change the frequency
of any annuity payment so that each payment will be at least $50.
The amount of each annuity payment will depend on (1) the amount of contract
value applied to an annuity option, (2) the form of annuity selected, and (3)
the age of the Annuitant. For information concerning the relationship between
the Annuitant's sex and the amount of annuity payments, including special
requirements in connection with employee benefit plans, see "Calculation of
Annuity Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity option
selected.
The dollar amount of variable annuity payments varies during the annuity period
based on changes in Annuity Unit values for the subaccounts that you choose to
use in connection with your payments.
RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS
The amount of an annuity payment depends on the average effective net investment
return of a subaccount during the period since the preceding payment as follows:
- if the return is HIGHER than 3% annually, the Annuity Unit Value will
INCREASE, and the second payment will be HIGHER than the first; and
- if the return is LOWER than 3% annually, the Annuity Unit Value will
DECREASE, and the second payment will be LOWER than the first.
"Net investment return," for this purpose, refers to the subaccount's overall
investment performance, after deduction of the mortality and expense risk and
administrative expense charges, which are assessed at an annual rate of 1.35%.
We guarantee that the amount of each variable annuity payment after the first
payment will not be affected by variations in our mortality experience or our
expenses, except to the extent that we reserve the right to impose the $30
annual administrative expense charge during the Annuity Period just as we do
during the Accumulation Period.
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<PAGE>
TRANSFERS. A person receiving annuity payments may make up to four transfers a
year among subaccounts or from subaccounts to the fixed account. The current
procedures for these transfers are the same as we describe above under
"Allocation of Purchase Payments and Contract Value Transfers." We do not permit
transfers out of the fixed account during the Annuity Period.
ANNUITY OPTIONS
You may select an annuity option or change a previous selection by written
request. We must receive your request by at least 30 days before the annuity
commencement date. You may select one annuity form, although payments under that
form may be on a combination fixed and variable basis. If no annuity form
selection is in effect on the annuity commencement date, we usually
automatically apply OPTION B (described below), with payments guaranteed for ten
years. However, federal pension law may require that we make default payments
under certain retirement plans, pursuant to plan provisions and/or federal law.
Tax laws and regulations may impose further restrictions to assure that the
primary purpose of the plan is distribution of the accumulated funds to the
employee.
Your contract offers the following options for fixed and variable annuity
payments. Under each of the options, we make payments as of the first Valuation
Date of each monthly period, starting with the annuity commencement date.
OPTION A, LIFE ANNUITY. We make no payments after the annuitant dies. It is
possible for the annuitant to receive only one payment under this option if the
annuitant dies before the second payment is due.
OPTION B, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS TO 20 YEARS. We
continue payments as long as the annuitant lives. If the annuitant dies before
we have made all of the guaranteed payments, we continue installments of the
guaranteed payments to the beneficiary.
OPTION C, JOINT AND FULL SURVIVOR ANNUITY. We continue payments as long as
either the annuitant or the joint annuitant is alive. We stop payments when both
the annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
OPTION D, JOINT AND ONE-HALF CONTINGENT SURVIVOR ANNUITY. We continue payments
as long as either the annuitant or the joint annuitant is alive. If the
annuitant dies first, we continue payments to the joint annuitant at one-half
the original amount. If the joint annuitant dies first, we continue payments to
the annuitant at the original full amount. We stop payments when both the
annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
We also have other annuity options available. You can get information about them
from your sales representative or by calling or writing to our home office.
DEATH OF ANNUITANT OR OTHER PAYEE
Under most annuity forms offered by us, the amounts, if any, payable on the
death of the annuitant during the Annuity Period are the continuation of annuity
payments for any remaining guarantee period or for the life of any joint
annuitant. In all cases, the person entitled to receive payments also receives
any rights and privileges under the annuity form in effect.
Additional rules applicable to such distributions under Non-Qualified Contracts
are described under Federal Tax Matters--Required Distributions for
Non-Qualified Contracts. Though the rules there described do not apply to
contracts issued in connection with qualified plans, similar rules apply to the
plans themselves.
CHARGES AND DEDUCTIONS
PREMIUM TAXES
We deduct state premium taxes as follows:
- when imposed on purchase payments, we pay the amount on your behalf and
deduct the amount from your contract value upon (1) our payment of
surrender proceeds or death benefit or (2) annuitization of a contract; or
- when imposed at the time annuity payments begin, we deduct the amount from
your contract value.
Applicable premium tax rates depend upon your place of residence. Rates can
change by legislation, administrative interpretations or judicial acts.
ANNUAL ADMINISTRATIVE CHARGE
A $30 annual administrative charge is deducted from the contract value on each
anniversary of the contract date. This charge helps to cover administrative
costs:
- incurred in issuing contracts,
- establishing and maintaining records relating to contracts,
- making regulatory filings and furnishing confirmation notices,
- voting materials and other communications,
- providing computer, actuarial and accounting services, and
- processing contract transactions.
We will initially waive this charge during the Annuity Period, although we
reserve the right to reinstitute it at any time. In addition, we will waive this
charge during the Accumulation Period if the contract value is $25,000 or more
at the end of the contract year.
We will deduct the annual administrative charge by redeeming Accumulation Units
from each subaccount of the Separate Account and by redeeming Accumulation Units
from the fixed account. Contract value is the total value of the Separate
Account and the fixed account. We will redeem Accumulation Units in proportion
to the allocation of contract value among both:
- the subaccounts of the Separate Account, and
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- the fixed account.
If you totally surrender the contract and the contract value is less than
$25,000, we will deduct the full annual administration charge at the time of
surrender.
CHARGES AGAINST THE SEPARATE ACCOUNT
We will assess certain charges against the Separate Account. These charges will
be assessed as a percentage of the net assets of the Separate Account. These
charges compensate us for contract risks and for administrative expenses.
MORTALITY AND EXPENSE RISK CHARGE. We assess each subaccount of the Separate
Account with a daily charge for mortality and expense risk. This charge is a
nominal annual rate of 1.25% of the average daily net assets of the Separate
Account. It consists of approximately .8% for mortality risk and approximately
.45% for expense risk. We guarantee not to increase this charge for the duration
of the contract. We assess this charge daily when we determine the value of an
Accumulation Unit. This charge is assessed during both the Accumulation Period
and the Annuity Period.
The mortality risk we bear arises from our obligation to make annuity payments
(determined in accordance with the annuity tables and other provisions contained
in the contract) for the full life of all Annuitants regardless of how long all
Annuitants or any individual Annuitant might live. This assures that neither an
Annuitant's own longevity, nor an improvement in life expectancy generally, will
have an adverse effect on the annuity payments the Annuitant will receive under
the contract. This relieves the Annuitant from the risk that he or she will
outlive the funds accumulated for retirement.
In addition, we bear a mortality risk in that we guarantee to pay a death
benefit in a single sum (which may also be taken in the form of an annuity
option) upon the death of an Annuitant or contract owner prior to the annuity
commencement date. We do not impose a surrender charge upon payment of a death
benefit. This places a further mortality risk on us.
The expense risk we assume is that actual expenses incurred in connection with
issuing and administering the contracts will exceed the limits on administrative
charges set in the contracts.
We bear the loss if the administrative charges and the mortality and expense
risk charge are insufficient to cover the expenses and costs assumed.
Conversely, we profit if the amount deducted proves more than sufficient.
ADMINISTRATIVE EXPENSE CHARGE. We assess each subaccount of the Separate Account
with a daily charge at a nominal annual rate of .10% of the average daily net
assets of the subaccount. We assess this charge during both the Accumulation
Period and the Annuity Period. The daily administrative expense charge helps
cover administrative expenses such as those described above under "Annual
Administrative Charge." The daily administrative expense charge, like the annual
administrative charge, is designed to defray expenses incurred. There is no
necessary relationship between the amount of administrative charges assessed on
a given contract and the amount of expenses actually incurred for that contract.
TAX CHARGE. Currently, we do not impose a charge for taxes payable by us in
connection with this contract. However, we do impose a charge for applicable
premium taxes. We reserve the right to impose a charge for any other taxes that
may become payable by us in the future for the contracts or the Separate
Account.
The annual administrative charge and charges against the Separate Account
described above are for the purposes described. We may receive a profit as a
result of these charges.
SURRENDER CHARGE
We do not deduct a sales charge from purchase payments. We deduct surrender
charges on certain total or partial surrenders. We use the revenue from
surrender charges to partially pay our expenses in the sale of the contracts,
including (1) commissions (2) promotional, distribution, and marketing expenses,
and (3) costs of printing and distribution of prospectuses and sales material.
FREE SURRENDERS. You can withdraw the following amounts from the contract
without a surrender charge:
- Any purchase payments that we received more than five years before the
surrender date and that you have not previously surrendered;
- In any contract year, up to 10% of the purchase payments that we received
less than five years before the surrender date (whether or not you have
previously surrendered the purchase payments).
Surrender charges do not apply to contract earnings. Therefore, we deem purchase
payments not subject to a surrender charge as withdrawn first. If all purchase
payments have been withdrawn, the remaining earnings can be withdrawn without a
surrender charge. We assume that all purchase payments are withdrawn before
earnings are withdrawn. However, for federal income tax purposes, certain
partial surrenders will be deemed to come first from earnings. See "Federal Tax
Matters."
We do not impose a surrender charge on (1) annuitization or (2) payment of a
single sum because the contract value is less than the minimum required to
provide an annuity on the annuity commencement date or (3) payment of any death
benefit.
In addition, we have an administrative policy to waive surrender charges for
full surrenders of contracts that have been in force for at least ten years if
the amount then subject to the surrender charge is less than 25% of the contract
value. We have offered these contracts since 1994. Therefore, we have made no
waivers. We reserve the right to change or terminate this practice at any time,
both for new and for previously issued contracts.
AMOUNT OF SURRENDER CHARGE. We only apply surrender charges if the amount being
withdrawn exceeds the sum of the amounts listed above
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under Free Surrenders. The surrender charge is 5% of the purchase payments
withdrawn which we received less than five years before the surrender date.
We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent that the surrender charge is insufficient,
we will pay such costs from our general account assets. Those assets will
include any profit that we derive from the mortality and expense risk charge.
MISCELLANEOUS
The Separate Account invests in shares of the portfolios. Therefore, the net
assets of the Separate Account will reflect the investment advisory fees and
certain other expenses incurred by the portfolios and described in their
prospectuses.
REDUCTION OF CHARGES
We will not impose a surrender charge under any contract owned by First Fortis
and the following persons associated with First Fortis, if at the contract issue
date they are (1) officers and directors (2) employees (3) spouses of any such
persons or any of such persons' children.
FIXED ACCOUNT
You may allocate purchase payments and transfer contract value to the fixed
account. In this case, purchase payments and transfers of contract value are
held in our general account.
Because of exemptive and exclusionary provisions, interests in the fixed account
have not been registered under the Securities Act of 1933, and the fixed account
has not been registered as an investment company under the Investment Company
Act of 1940. Accordingly, neither the fixed account, nor any interests therein,
are subject to the provisions of these acts. As a result, the staff of the
Securities and Exchange Commission has not reviewed the disclosures in this
prospectus relating to the fixed account.
Disclosures regarding the fixed account may, however, be subject to certain
generally applicable provisions of federal securities law relating to the
accuracy and completeness of statements made in prospectuses. This prospectus is
generally intended to serve as a disclosure document only for the aspects of the
contract involving the Separate Account and contains only selected information
regarding the fixed account. More information regarding the fixed account may be
obtained from our home office or from your sales representative.
GENERAL DESCRIPTION
Our obligations with respect to the fixed account are supported by our general
account. Subject to applicable law, we have sole discretion over the investment
of assets in our general account.
First Fortis guarantees that contract value in the fixed account will accrue
interest at an effective annual rate of at least 3%, independent of the actual
investment experience of the general account. We may, at our sole discretion,
credit higher rates of interest, although we are not obligated to credit
interest in excess of the guaranteed annual rate of 3%. Any interest rate in
excess of 3% per year with respect to any amount in the fixed account pursuant
to a contract will not be modified more than once each calendar year. Any higher
rate of interest will be quoted at an effective annual rate. The rate of any
excess interest initially or subsequently credited to any amount can vary. This
will depend on when the amount was originally allocated to the fixed account.
Once credited, excess interest will be guaranteed and will be added to the
contract value in the fixed account (from which deductions for fees and charges
may be made).
Charges under the contract are the same as those applied to the Separate
Account. However, the 1.35% annual charge for mortality and expense risk and for
administrative expense is not imposed on amounts of contract value in the fixed
account.
FIXED ACCOUNT VALUE
The contract's fixed account value on any Valuation Date is the sum of:
- the purchase payments allocated to the fixed account, plus
- any transfers from the Separate Account, plus
- any interest credited to the fixed account, less
- any surrenders, surrender charges or annual administrative charges
allocated either to the fixed account, or to transfers to the Separate
Account.
FIXED ACCOUNT TRANSFERS, TOTAL AND PARTIAL SURRENDERS
With respect to total and partial transfers, amounts in the fixed account are
generally subject to the same rights and limitations as amounts allocated to the
subaccounts of the Separate Account. Therefore, with respect to total and
partial surrenders, amounts in the fixed account are also subject to the same
charges as amounts allocated to the subaccounts of the Separate Account. See
"Total and Partial Surrenders."
Transfers out of the fixed account have special limitations. Prior to the
annuity commencement date, you may transfer all or part of the contract value
from the fixed account to the Separate Account, provided that (1) no more than
one transfer is made each contract year, (2) no more than 50% of the fixed
account value is transferred at any time (unless the balance in the fixed
account after the transfer would be less than $1,000, in which case the entire
balance may be transferred), and (3) at least $500 is transferred at any one
time (or, if less, the entire amount in the fixed account). However, we may
permit a continuing request for automatic transfers, on a periodic basis, of
lesser specified amounts. We reserve the right to discontinue or modify any such
arrangements at our discretion.
No transfers from the fixed account may be made after the annuity commencement
date.
GENERAL PROVISIONS
THE CONTRACT
The entire contract includes any application, amendment, rider, or endorsement
and revised contract pages. Only an officer of First Fortis
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can agree to change or waive any provision of a contract. Any change or waiver
must be in writing and signed by one of these representatives of First Fortis.
The contracts are non-participating and do not share in dividends or earnings of
First Fortis.
POSTPONEMENT OF PAYMENTS
With respect to amounts in the subaccounts of the Separate 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 us at our home office.
However, we may defer the determination, application, or payment of any death
benefit, partial or total surrender or annuity payment, to the extent dependent
on Accumulation or Annuity Unit values as follows: (1) 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, (2) for any period during
which any emergency exists as a result of which it is not reasonably practicable
for us to determine the investment experience for the contract, or (3) for such
other periods as the Securities and Exchange Commission may by order permit for
the protection of investors.
Additionally, we may defer for up to 15 days the payment of any amount
attributable to a purchase payment made by check to allow the check reasonable
time to clear. We may also defer payment of surrender proceeds payable out of
the fixed account for a period of up to 6 months.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the Annuitant's age or sex was misstated, we pay the amount that the purchase
payments paid would have purchased at the correct age and sex. If we make any
overpayment because of incorrect information about age, or sex, or any other
miscalculation, we deduct the overpayment from the next payment due. We add
underpayments to the next payment. We will credit or charge the amount of any
adjustment with interest at the rate of 3% annually.
ASSIGNMENT AND OWNERSHIP RIGHTS
Owners and payees may assign their rights and interests under a Qualified
Contract 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 do not take responsibility for the validity of any assignment. Owners and
payees must make a change in ownership rights in writing and send it to our home
office. The change will be effective on the date made, although we are not bound
by a change until the date we record it.
The rights under a contract are subject to any assignment of record at our home
office. An assignment or pledge of a contract may have adverse tax consequences.
See below under "Federal Tax Matters."
BENEFICIARY
You may name or change a beneficiary or a contingent beneficiary before the
annuity commencement date. You must send a written request of the change to
First Fortis. Certain retirement programs may require spousal consent to name or
change a beneficiary. In addition, applicable tax laws and regulations may limit
the right to name a beneficiary other than the spouse. We are not responsible
for the validity of any change. A change will take effect as of the date it is
signed but will not affect any payment we make or action we take before
receiving the written request. We also need the consent of any irrevocably named
person before making a requested change.
Upon the death of a contract owner or the Annuitant, if the Annuitant is a
non-natural person, prior to the annuity commencement date, the beneficiary will
be deemed to be as follows:
- If there is a surviving contract owner, the surviving contract owner will
be the beneficiary (this overrides any other beneficiary designation).
- If there is no surviving contract owner, the beneficiary will be the
beneficiary designated by the contract owner.
- If there is no surviving contract owner and no surviving beneficiary who
has been designated by the contract owner, the estate of the last
surviving contract owner will be the beneficiary.
REPORTS
We will mail to the contract owner, at the last known address of record, any
report required by applicable law or regulation. You should therefore give us
prompt written notice of any address change. Each contract owner will also be
sent an annual and a semi-annual report for the portfolios and a list of the
portfolio securities held in each portfolio. All reports will be mailed to the
person receiving payments during the Annuity Period, rather than to the contract
owner.
RIGHTS RESERVED BY FIRST FORTIS
We reserve the right to make certain changes if, in our judgement, they would
best serve the interests of contract owners and Annuitants or would be
appropriate in carrying out the purposes of the contract. We will make any
change only as permitted by applicable laws. We will obtain your approval of the
changes and approval from any appropriate regulatory authority if required by
law. Examples of the changes we may make include:
- To operate the Separate 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 Separate 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.
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- 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 times of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the contract in order to
conform with any action the above provisions permit us to take, including
to change the way we assess charges, but without increasing, as to any
then outstanding contract, the aggregate amount of the types of charges
that we have guaranteed.
DISTRIBUTION
Fortis Investors, Inc. ("Fortis Investors") is the principal underwriter of the
contracts. The contracts will be sold by individuals who are licensed by state
insurance authorities to sell the contracts of First Fortis and (1) are
registered representatives of Fortis Investors or (2) registered representatives
of other broker-dealer firms or (3) representatives of other firms that are
exempt from broker-dealer regulation. Fortis Investors and any other
broker-dealer firms are (1) registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as broker-dealers and (2)
members of the National Association of Securities Dealers, Inc.
Fortis Investors will pay an allowance to its registered representatives and
selling brokers in varying amounts. Fortis Investors does not expect the
allowances under normal circumstances to exceed 6.25% of purchase payments plus
a servicing fee of .25% of contract value per year, starting in the first
contract year.
We and Fortis Investors may, under certain flexible compensation arrangements,
pay lesser or greater selling allowances and larger or smaller service fees to
our registered representatives and other broker dealer firms than as set forth
above. However, in such case, these flexible compensation arrangements will have
actuarial present values that are approximately equivalent to the amounts of the
selling allowances set forth above. Additionally, registered representatives,
broker-dealer firms, and exempt firms may qualify for additional compensation
based upon meeting certain production standards. Fortis Investors may
"chargeback" commissions paid to others if the contract upon which the
commission was paid is surrendered or canceled within certain specified time
periods.
First Fortis or Fortis Investors may also provide additional compensation to
broker-dealers in connection with sales of contracts. Compensation may include
financial assistance to broker-dealers in connection with (1) conferences, (2)
sales or training programs for their employees, (3) seminars for the public, (4)
advertising, (5) sales campaigns regarding contracts, and (6) other
broker-dealer sponsored programs or events. Compensation may also include trips
taken by invited sales representatives and their family members to locations
within or without the United States for business meetings or seminars. First
Fortis or Fortis Investors may pay travel expenses that arise from these trips.
Fortis Investors is an indirect subsidiary of Fortis (NL)N.V. and Fortis (B).
Therefore, Fortis Investors is under common control with First Fortis. Fortis
Investors' principal business address is 500 Bielenberg Drive, Woodbury,
Minnesota 55115 and its mailing address is P.O. Box 64284, St. Paul, MN 55164.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes. These rules are based on laws, regulations, and
interpretations that are subject to change at any time. This summary is not
comprehensive. We do not intend it as tax advice. Federal estate and gift tax
considerations, as well as state and local taxes, may also be material. You
should consult a qualified tax adviser as to the tax implications of taking any
action under a contract or related retirement plan.
NON-QUALIFIED CONTRACTS
Section 72 of the Internal Revenue Code (the "Code") governs the taxation of
annuities in general. Neither you nor any other person may exclude or deduct
purchase payments under Non-Qualified Contracts from gross income. However, you
are not currently taxed, until receipt, on any increase in the accumulated value
of a Non-Qualified Contract that results from (1) the investment performance of
the Separate Account or (2) interest credited to the fixed account. Contract
owners who are not natural persons ARE taxed annually for any increase in the
contract value subject to certain exceptions. You may wish to discuss this with
your tax adviser.
The following discussion applies generally to contracts owned by natural
persons.
In general, surrenders or partial withdrawals under contracts are taxed as
ordinary income to the extent of the accumulated income or gain under the
contract. If you assign or pledge any part of the contract value, you pay on the
value so pledged or assigned to the same extent as a partial withdrawal.
With respect to annuity payment options, the tax consequences may vary depending
on the option elected under the contract. Until the investment in the contract
is recovered, generally only the portion of the annuity payment that represents
the amount by which the contract value exceeds the "investment in the contract"
will be taxed. In general, "investment in the contract" is the aggregate amount
of purchase payments made. After recovery of the "investment in the contract",
the full amount of any additional annuity payments is taxable.
For variable annuity payments in general, the taxable portion of each annuity
payment (prior to recovery of the "investment in the contract") is the amount of
the payment less the nontaxable portion. The nontaxable portion of each payment
is the "investment in the contract" divided by the total number of expected
annuity payments.
For fixed annuity payments in general, prior to recovery of the "investment in
the contract," there is no tax on the amount of each payment that bears the same
ratio to such payment that the "investment in the contract" bears to the total
expected return under the contract. The
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remainder of each annuity payment is taxable. The taxable portion of a
distribution (in the form of an annuity or a single sum payment) is taxed as
ordinary income.
For purposes of determining the amount of taxable income resulting from
distributions, all contracts and other annuity contracts we or our affiliates
issue to you within the same calendar year will be treated as if they were a
single contract.
You, or any other payee, will pay a 10% penalty on the taxable portion of a
"premature distribution." Generally, an amount is a premature distribution
UNLESS the distribution is:
- made on or after you or another payee reach age 59 1/2, or is
- made to a beneficiary on or after your death, or is
- made upon your disability or that of another payee, or is
- part of a series of substantially equal annuity payments for your life or
life expectancy, or the life or life expectancy of you or your beneficiary
Premature distributions may result, for example, from:
- an early annuity commencement date
- an early surrender or partial surrender of a contract
- an assignment of a contract
- the early death of an annuitant other than you or another person receiving
annuity payments under the contract
If you transfer ownership of a contract, or designate an Annuitant or a payee
other than yourself, you may have certain income or gift tax consequences that
are beyond the scope of this discussion. If you are contemplating any transfer
or assignment of a contract, you should contact a competent tax adviser.
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
In order that a Non-Qualified Contract be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires:
- if any person receiving annuity payments dies on or after the annuity
commencement date but prior to the time the entire interest in the
contract has been distributed, the remaining portion of such interest will
be distributed at least as rapidly as under the method of distribution
being used as of the date of the person's death; and
- if you die prior to the annuity commencement date, the entire interest in
the contract will be distributed:
- within five years after your death, or
- as annuity payments that will begin within one year of your death and
will be made over your designated beneficiary's life or over a period
not extending beyond the life expectancy of that beneficiary.
However, if the contract owner's designated beneficiary is the surviving spouse,
the surviving spouse may continue the contract as the new contract owner. Where
the contract owner or other person receiving payments is not a natural person,
the required distributions under Section 72(s) apply on the death of the primary
Annuitant.
The Internal Revenue Service has not issued regulations interpreting the
requirements of Section 72(s). However, it has issued proposed regulations
interpreting similar requirements for qualified plans. We intend to review and
modify the contract if necessary to ensure that it complies with the
requirements of Section 72(s) when clarified by regulation or otherwise.
Generally, the above requirements will be satisfied with a single sum payment
where the death occurs prior to the annuity commencement date. A single sum
payment will be subject to proof of the 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, 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 contract 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 tax qualified plan on your behalf are excludible
from your gross income during the Accumulation Period. The portion, if any, of
any purchase payment that is not excluded from your gross income during the
Accumulation Period constitutes your "investment in the contract."
When annuity payments begin, you will receive back your "investment in the
contract," if any, as a tax-free return of capital. The Code provides which
portion of each payment is taxable and which portion is tax free. These rules
may vary depending on the type of tax qualified plan.
The contracts are available in connection with the following types of retirement
plans:
- Section 403(b) annuity plans for employees of certain tax-exempt
organizations and public education institutions;
- Section 401 or 403(a) qualified pension, profit-sharing, or annuity plans;
- individual retirement annuities ("IRAs") under Section 408(b);
- simplified employee pension plans ("SEPs") under Section 408(k);
- SIMPLE IRA Plans under Section 408(p); and
- Section 457 unfunded deferred compensation plans of tax-exempt
organizations and private employer unfunded deferred compensation plans.
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.
Despite the recipient's election, the Code may require withholding from certain
payments outside the United States. The Code may also require withholding from
certain distributions from certain types of qualified retirement plans unless
the proceeds are transferred directly from the qualified retirement plan to
another qualified retirement plan. Moreover, special "backup withholding" rules
may require that we disregard the recipient's election if the recipient fails to
supply us with a "TIN" or taxpayer identification number (social security number
for individuals), or if the Internal Revenue Service notifies us that the TIN
provided by the recipient is incorrect.
PORTFOLIO DIVERSIFICATION
The United States Treasury Department has adopted regulations under Section
817(h) of the Code that set forth diversification requirements for the
investments underlying the Non-Qualified Contracts. We believe that the
investments will satisfy these requirements. Failure to do so would result in
immediate taxation to you or another person of all income credited to
Non-Qualified Contracts. Also, current regulations do not provide guidance as to
any circumstances in which control over allocation of values among different
investment alternatives may cause you or another person to be treated as the
owners of Separate Account assets for tax purposes. We reserve the right to
amend the contracts in any way necessary to avoid any such result. The Treasury
Department has stated that it expects to establish standards in this regard
through regulations or rulings. Such standards may apply only prospectively,
although retroactive application is possible if the Treasury Department
considered such standards not to embody a new position.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized upon the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange pursuant to the special
annuity contract exchange form we provide for this purpose is not generally a
taxable event under the Code. Moreover, your investment in the contract will be
the same as your investment in the contract you exchanged out of. However, an
exchange from a Fortis Group Fund or other investment that is not a life
insurance or annuity contract may be a taxable event.
Various provisions of the tax laws may "grandfather" certain annuity contracts.
For example, certain annuity contracts issued before January 19, 1985 may not be
subject to the distribution rules of Code Section 72(s), and certain
distributions from contracts issued before the same date may not be subject to
the 10% penalty tax for premature distributions. In addition, if a contract
contained principal on August 13, 1982, that principal may generally be
withdrawn in a partial distribution before the withdrawal of any taxable gain in
the contract. These provisions may be lost if a grandfathered contract is
exchanged for a non-grandfathered contract.
Certain contract exchanges are subject to Code Section 1035. Where an exchange
is subject to this Code Section, certain grandfathered provisions may be
preserved. If your exchange is subject to Section 1035, we may be able to assist
you in preserving grandfathered provisions by "tracking" amounts accumulated
through past purchase payments. Payments made before or after the effective date
of the Tax Equity and Fiscal Responsibility Act of 1982 may have different tax
consequences. Therefore, you must provide us with an accurate history of your
past purchase payments.
Because of the complexity of these matters, you should consult a qualified tax
adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403(B) PLANS
Section 403(b)(11) of the Internal Revenue Code restricts the distribution under
Section 403(b) annuity contracts of:
(1) elective contributions made for years beginning after December 31, 1988;
(2) earnings on those contributions; and
(3) earnings on amounts held as of December 31, 1988.
Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, we may not distribute income attributable to elective
contributions which accrues after December 31, 1988.
VOTING PRIVILEGES
In accordance with our view of current applicable law, we will vote shares of
each of the portfolios attributable to a contract at regular and special
meetings of the shareholders of a portfolio. We will vote those shares in
proportion to instructions we receive from the persons having the voting
interest in the contract as of the record date for the corresponding portfolio
shareholders meeting. Contract owners have the voting interest during the
Accumulation Period. Persons receiving annuity payments have the voting interest
during the Annuity Period, and beneficiaries have the voting interest after the
death of the Annuitant or 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 we determine that we are
permitted to vote shares of the portfolios in our own right, we may elect to do
so.
We determine the number of shares of a portfolio attributable to a contract as
follows:
- During the Accumulation Period, we divide the amount of contract value in
a subaccount by the net asset value of one share of the portfolio
corresponding to that subaccount. We make this calculation as of the
record date for the applicable portfolio.
- During the Annuity Period, or after the death of the Annuitant or owner,
we make a similar calculation. However, for subaccount value, we use the
liability for future variable annuity payments allocable to that
subaccount as of the record date for the applicable portfolio. We
calculate the liability for future variable annuity payments on the basis
of the following on the record date:
- mortality assumptions,
- the assumed interest rate used in determining the number of Annuity
Units under the contract, and
19
<PAGE>
- the applicable Annuity Unit value
During the Annuity Period, the number of votes attributable to a contract will
generally decrease since funds set aside to make the annuity payments will
decrease.
Under certain contracts, we will vote portfolio shares according to instructions
we receive from the contract owner. However, we adjust this policy where the
Annuitant or payee is not the contract owner. Under this circumstance, the
Annuitant or payee may instruct the contract owner who, in turn, relays this
instruction to us. We will vote those portfolio shares that we can attribute to
the purchase payments of the Annuitant or payee in accordance with the
instruction relayed to us. In addition, in certain circumstances such as an
employee benefit plan, we allow the Annuitant or payee to direct how we vote
additional shares beyond those that we can attribute to the purchase payments of
the Annuitant or payee. However, we do so only to the extent authorized by the
contract. We compute the number of shares that may be attributed to the
Annuitant of payee on a basis consistent with that for attributing portfolio
shares to contract owners, as described above.
Contract owners are to instruct First Fortis to vote in accordance with such
directions from Annuitants and payees. Furthermore, contract owners are to
instruct First Fortis to vote shares of any portfolio for which directions could
have been but were not received from Annuitants and other payees in the same
proportion as other shares in that portfolio attributable to the contract owner
which are to be voted in accordance with directions received from Annuitants and
other payees. The contract owner may instruct us as to the voting of any other
shares attributable to contracts as the contract owner may determine. The
Separate Account, Fortis Series, and First Fortis do not have any obligation to
determine whether or not voting directions are requested or received by a
contract owner or whether or not a contract owner has instructed First Fortis in
accordance with directions given by Annuitants and other payees.
We will vote shares for which we have not received timely instructions, and we
will vote shares that we can attribute to excess amounts we have accumulated in
the related subaccount. We will vote these shares in proportion to the voting
instructions which we receive for all contracts and other variable annuity
contracts participating in a portfolio. To the extent that we or any affiliated
company holds any shares of a portfolio, those shares will be voted in the same
proportion as instructions for that portfolio from all our policy owners holding
voting interests in that portfolio. Shares held by separate accounts other than
the Separate 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. Under the procedures described above, these persons may
give instructions regarding:
- the election of the Board of Directors of the portfolios,
- ratification of the selection of a portfolio's independent auditors,
- the approval of the investment managers of a portfolio,
- changes in fundamental investment policies of a portfolio, and
- all other matters that are put to a vote of portfolio shareholders
STATE REGULATION
We are subject to regulation and supervision by the Insurance Department of the
State of New York, which periodically examines our affairs.
LEGAL MATTERS
David A. Peterson, Esquire, Vice President and Assistant General Counsel with
our legal department has passed on the legality of the contracts described in
this prospectus. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have
advised First Fortis on certain federal securities law matters.
YEAR 2000 ISSUES
At First Fortis, we use computer systems to process policy transactions and
valuations. We need to adjust these computer systems so that we may continue to
administer policies after the Year 2000. First Fortis is devoting all resources
necessary to make these systems modifications, and we expect that the necessary
changes will be completed on time, with no disruption to our policy servicing
operations. However, as with most system conversion projects, risks and
uncertainties exist. In part, this is due to our necessary reliance on third
party vendors. Nonperformance by any of these entities, or other unforeseen
circumstances, could have a material adverse impact on our ability to service
policies. As such, we are closely monitoring these entities to avoid any
unforeseen circumstances. See the Note entitled "Year 2000" in the Fortis
financial statements in the Statement of Additonal Information.
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
First Fortis...................................
<S> <C>
Calculation of Annuity Payments................
Services.......................................
- Safekeeping of Separate Account Assets.....
- Experts....................................
- Principal Underwriter......................
Limitation On Allocations......................
Change of Investment Adviser or Investment
Policy........................................
Taxation Under Certain Retirement Plans........
Other Information..............................
Financial Statements...........................
APPENDIX A--Performance Information............
</TABLE>
<PAGE>
APPENDIX A--SAMPLE DEATH BENEFIT CALCULATIONS
<TABLE>
<CAPTION>
DATE OF DEATH IS THE 3RD CONTRACT ANNIVERSARY: Example 1 Example 2
----------- -----------
<S> <C> <C>
a. Purchase Payments Made Prior to Date of Death $ 30,000 $ 30,000
b. Contract Value on Date of Death $ 20,000 $ 37,000
c. 1 Year Ratchet Option Value $ 35,000 $ 37,000
Death Benefit is larger of a, b, and c $ 35,000 $ 37,000
</TABLE>
<TABLE>
<CAPTION>
DATE OF DEATH IS THE 5TH CONTRACT ANNIVERSARY: Example 1 Example 2
----------- -----------
<S> <C> <C>
a. Purchase Payments Made Prior to Date of Death $ 30,000 $ 30,000
b. Contract Value on Date of Death $ 32,000 $ 35,000
c. 1 Year Ratchet Option Value $ 36,000 $ 35,000
Death Benefit is larger of a, b, and c $ 36,000 $ 35,000
</TABLE>
<TABLE>
<CAPTION>
DATE OF DEATH IS THE 10TH CONTRACT ANNIVERSARY: Example 1 Example 2
----------- -----------
<S> <C> <C>
a. Purchase Payments Made Prior to Date of Death $ 30,000 $ 30,000
b. Contract Value on Date of Death $ 20,000 $ 40,000
c. 1 Year Ratchet Option Value $ 34,000 $ 40,000
Death Benefit is larger of a, b, and c $ 34,000 $ 40,000
</TABLE>
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 Growth Stock Series is calculated as
follows:
<TABLE>
<S> <C> <C>
Total Variable Account Annual Expenses 1.35%
+ Total Series Fund Operating Expenses %.65
+ Annual Administrative Charge Rate (See Below) %.03
= Total Expense Rate 2.03%
</TABLE>
The Annual Administrative Charge Rate is calculated by dividing the total Annual
Contract charges collected in 1997 by the average policy value in force in 1997.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = $1000.00 x .0203 = $20.30
Year 2 Beginning Policy Value = $1029.67
Year 2 Expense = $1,029.70 x .0203 = $20.90
Year 3 Beginning Policy Value = $1060.29
Year 3 Expense = $1,060.29 x .0203 = $21.52
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to
$20.30 + $20.90 + $21.52 = $62.72.
If the contract is surrendered, the surrender charge is the surrender charge
percentage times the purchase payment minus the 10% free withdrawal amount:
Surrender Charge Percentage x (Initial Premium - 10% Free Withdrawal) =
Surrender Charge
0.05 x ($1000.00 - $100.00 ) = $45.00
So the total expense if surrendered is $62.72 + $45.00 = $107.72.
B-1
<PAGE>
APPENDIX C--PRO RATA ADJUSTMENTS
Pro rata adjustments are made for withdrawals in calculating the death benefit
payable under the contract. The benefit is described under the section of this
prospectus entitled Benefit Payable on Death of Owner (or Annuitant).
Under the death benefit set forth as (2) in that section, the pro rata
adjustment for a given withdrawal is equal to:
(a) the withdrawn amount, divided by
(b) the contract value immediately before the amount was withdrawn, the
result multiplied by
(c) the aggregate amount of all prior purchase payments less pro rata
adjustments for all prior withdrawals.
Under the death benefit set forth as (3) in that section, the pro rata
adjustment for a given withdrawal is equal to
(a) the withdrawn amount, divided by
(b) the contract value immediately before the amount was withdrawn, the
result multiplied by
(c) the quantitly equal to:
(i) the contract value on the anniversary, plus
(ii) purchase payments made since the anniversary and before
withdrawal, minus
(iii) pro rata adjustments for withdrawals made since the anniversary
and before the given withdrawal.
C-1
<PAGE>
<TABLE>
<S> <C>
BULK RATE
U.S. POSTAGE
</TABLE>
FORTIS-R-
<TABLE>
<S> <C>
PAID
PERMIT NO. 3794
</TABLE>
FORTIS FINANCIAL GROUP
<TABLE>
<S> <C>
MINNEAPOLIS, MN
</TABLE>
P.O. BOX 64284
ST. PAUL, MN 55164
PROSPECTUS
MAY 1, 1999
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
FIRST FORTIS
OPPORTUNITY
VARIABLE
ANNUITY
Individual Flexible
Premium Deferred
Variable Annuity Contract
PROSPECTUS DATED
May 1, 1999
FORTIS-R-
FIRST FORTIS LIFE INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE: 1-800-745-8248
P.O. BOX 3249 220 SALINA MEADOWS
SYRACUSE, NY 13220 PARKWAY
SUITE 255
SYRACUSE, NY 13212
This prospectus describes an individual flexible premium deferred variable
annuity contract issued by First Fortis Life Insurance Company ("First Fortis").
The contracts allow you to accumulate funds on a tax-deferred basis. You may
elect a guaranteed interest accumulation option through a fixed account or a
variable return accumulation option through a separate account, or a combination
of these two options. Under the variable return accumulation option, you can
choose among the following investment portfolios of Fortis Series Fund, Inc.:
<TABLE>
<S> <C>
Money Market Series S&P 500 Index Series
U.S. Government Securities Series Blue Chip Stock Series
Diversified Income Series Global Growth Series
Global Bond Series Growth Stock Series
High Yield Series International Stock Series
Asset Allocation Series Aggressive Growth Series
Global Asset Allocation Series Small Cap Value Series
Value Series Mid Cap Stock Series
Growth & Income Series Large Cap Growth Series
</TABLE>
The accompanying prospectus for these investment
portfolios describes the investment objectives, policies
and risks of each portfolio.
This prospectus gives you information about the contracts
that you should know before investing. This prospectus
must be accompanied by a current prospectus of available
investment portfolios. Both prospectuses should be read
carefully and kept for future reference.
A Statement of Additional Information, dated May 1, 1999,
about 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 XX of this
prospectus.
THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, CREDIT UNION, BROKER-DEALER OR
OTHER FINANCIAL INSTITUTION. THEY ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THEY
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY
STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
97103 (Ed. 5/99)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms Used in This Prospectus................................. 3
Information Concerning Fees and Charges............................... 4
Summary............................................................... 6
First Fortis and the Separate Account................................. 8
- First Fortis Life Insurance Company............................. 8
- The Separate Account............................................ 8
- Fortis Series Fund, Inc......................................... 8
Accumulation Period................................................... 9
- Issuance of a Contract and Purchase Payments.................... 9
- Contract Value.................................................. 9
- Allocation of Purchase Payments and Contract Value.............. 10
- Total and Partial Surrenders.................................... 10
- Telephone Transactions.......................................... 11
- Benefit Payable on Death of Annuitant or Contract Owner......... 11
The Annuity Period.................................................... 12
- Annuity Commencement Date....................................... 12
- Commencement of Annuity Payments................................ 12
- Relationship Between Subaccount Investment Performance and
Amount of Variable Annuity Payments............................ 12
- Annuity Options................................................. 13
- Death of Annuitant or Other Payee............................... 13
Charges and Deductions................................................ 13
- Premium Taxes................................................... 13
- Annual Administrative Charge.................................... 13
- Charges Against the Separate Account............................ 14
- Surrender Charge................................................ 14
- Miscellaneous................................................... 15
- Reduction of Charges............................................ 15
Fixed Account......................................................... 15
- General Description............................................. 15
- Fixed Account Value............................................. 15
- Fixed Account Transfers, Total and Partial Surrenders........... 15
General Provisions.................................................... 15
- The Contract.................................................... 15
- Postponement of Payments........................................ 16
- Misstatement of Age or Sex and Other Errors..................... 16
- Assignment and Ownership Rights................................. 16
- Beneficiary..................................................... 16
- Reports......................................................... 16
Rights Reserved by First Fortis....................................... 16
Distribution.......................................................... 17
Federal Tax Matters................................................... 17
Voting Privileges..................................................... 19
State Regulation...................................................... 20
Legal Matters......................................................... 20
Year 2000 Issue....................................................... 20
Contents of Statement of Additional Information....................... 20
Appendix A--Sample Death Benefit Calculations......................... A-1
Appendix B--Explanation of Expense Calculations....................... B-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 date and the Annuity Period.
Period
Accumulation A unit of measure used to calculate the interest of the contract owner in the Separate 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 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.
Five Year The fifth anniversary of a contract date, and each subsequent fifth anniversary of that date.
Anniversary
Fixed Annuity An annuity option under which First Fortis promises to pay the Annuitant or any other properly
Option designated payee one or more fixed payments.
Fortis Group All publicly-available mutual funds advised by Fortis Advisers, Inc. (other than Fortis Money
Funds Portfolios, Inc.). Currently, these mutual funds are: Fortis Worldwide Portfolios, Inc.,
Fortis Equity Portfolios, Inc., Fortis Growth Fund, Inc., Fortis Tax-Free Portfolios, Inc.,
Fortis Income Portfolios, Inc., and Fortis Advantage Portfolios, Inc.
Fortis Series The Fortis Series Fund, Inc., a diversified, open-end management investment company in which
the Separate Account invests.
Non-Qualified Contracts that do not qualify for the special federal income tax treatment applicable in
Contracts connection with certain retirement plans.
Qualified Contracts that are qualified for the special federal income tax treatment applicable in
Contracts connection with certain retirement plans.
Separate The segregated asset account referred to as Separate Account A of First Fortis Life Insurance
Account Company established to receive and invest purchase payments made under contracts.
Valuation Date Each business day of First Fortis 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 An annuity option under which First Fortis promises to pay the Annuitant or any other properly
Annuity Option designated payee one or more payments which vary in amount in accordance with the net
investment experience of the subaccounts selected by the Annuitant.
</TABLE>
3
<PAGE>
INFORMATION CONCERNING FEES AND CHARGES
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Front End Sales Charge
Imposed on Purchases.... 0%
Maximum Surrender
Charge for Sales
Expenses (as a
percentage of purchase
payments)............... 5%(1)
</TABLE>
<TABLE>
<CAPTION>
YEARS SINCE AMOUNT OF
DATE OF PAYMENT CHARGE
- -------------------- ---------------
<S> <C>
Less than 5 5%
5 or more 0%
</TABLE>
<TABLE>
<S> <C>
Other Surrender Fees... 0%
Exchange Fee........... 0%
ANNUAL CONTRACT ADMINISTRATION
CHARGE........................ $30(2)
SEPARATE ACCOUNT EXPENSES (AS
A PERCENTAGE OF AVERAGE
ACCOUNT VALUE)
Mortality and Expense
Risk Charge............. 1.25%
Separate Account
Administrative Charge... .10%
Total Separate Account
Annual Expenses......... 1.35%
</TABLE>
- ------------------------
(1) This charge does not apply in certain cases such as partial surrenders each
year of up to 10% of "new purchase payments" as defined under the heading
"Surrender Charge" or, payment of a death benefit.
(2) This charge, which is otherwise applied at each contract anniversary and
total surrender of the contract, will not be charged during the Accumulation
Period if the contract value as of such anniversary or surrender is $25,000
or more. Currently, First Fortis waives this charge during the Annuity
Period. This charge is also subject to any applicable limitations under the
law of any state.
PORTFOLIO ANNUAL EXPENSES (A)
<TABLE>
<CAPTION>
MONEY U.S. GLOBAL HIGH GLOBAL ASSET
MARKET GOVERNMENT DIVERSIFIED BOND YIELD ALLOCATION
SERIES SECURITIES SERIES INCOME SERIES SERIES SERIES SERIES
----------- ------------------- --------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee...................... 0.30% 0.47% 0.47% 0.75% 0.50% 0.90%
Other Expenses........................ 0.05% 0.04% 0.05% 0.13% 0.06% 0.11%
Total Fortis Series Operating
Expenses............................ 0.35% 0.51% 0.52% 0.88% 0.56% 1.01%
<CAPTION>
ASSET GROWTH &
ALLOCATION VALUE INCOME
SERIES SERIES SERIES
------------- ----------- -------------
<S> <C> <C> <C>
Investment Advisory and
Management Fee...................... 0.47% 0.70% 0.64%
Other Expenses........................ 0.04% 0.06% 0.03%
Total Fortis Series Operating
Expenses............................ 0.51% 0.76% 0.67%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 INTERNATIONAL MID CAP GLOBAL
INDEX BLUE CHIP STOCK STOCK SMALL CAP GROWTH
SERIES STOCK SERIES SERIES SERIES VALUE SERIES SERIES
----------- --------------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory and Management
Fee................................ 0.40% 0.89% 0.85% 0.90% 0.90% 0.70%
Other Expenses....................... 0.06% 0.05% 0.09% 0.35% 0.34% 0.05%
Total Fortis Series Operating
Expenses........................... 0.46% 0.94% 0.94% 1.25% 1.24% 0.75%
<CAPTION>
LARGE CAP GROWTH AGGRESSIVE
GROWTH STOCK GROWTH
SERIES SERIES SERIES
------------- ----------- -------------
<S> <C> <C> <C>
Investment Advisory and Management
Fee................................ 0.90% 0.61% 0.68%
Other Expenses....................... 0.35% 0.04% 0.04%
Total Fortis Series Operating
Expenses........................... 1.25% 0.65% 0.72%
</TABLE>
- ------------------------
(a) As a percentage of Series average net assets based on 1998 historical data.
4
<PAGE>
EXAMPLES*
If you SURRENDER your contract in full at the end of any of the time periods
shown below, you would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------ ------- ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Series......................................... 62 99 137 201
U.S. Government Securities Series........................... 64 103 146 218
Diversified Income Series................................... 64 104 146 219
Global Bond Series.......................................... 68 115 164 256
High Yield Series........................................... 64 105 148 223
Global Asset Allocation Series.............................. 69 119 171 269
Asset Allocation Series..................................... 64 103 146 218
Value Series................................................ 66 111 158 244
Growth & Income Series...................................... 66 108 154 234
S&P 500 Index Series........................................ 63 102 143 212
Blue Chip Stock Series...................................... 68 116 167 262
International Stock Series.................................. 68 116 167 262
Mid Cap Stock Series........................................ 71 126 183 293
Small Cap Value Series...................................... 71 125 182 292
Global Growth Series........................................ 66 111 158 243
Large Cap Growth Series..................................... 71 126 183 293
Growth Stock Series......................................... 65 108 153 232
Aggressive Growth Series.................................... 66 110 156 240
</TABLE>
If you COMMENCE AN ANNUITY payment option, or do NOT SURRENDER your contract,
you would pay the following cumulative expenses on a $1,000 investment, assuming
a 5% annual return on assets:
<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------ ------- ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Series......................................... 17 54 92 201
U.S. Government Securities Series........................... 19 58 101 218
Diversified Income Series................................... 19 59 101 219
Global Bond Series.......................................... 23 70 119 256
High Yield Series........................................... 19 60 103 223
Global Asset Allocation Series.............................. 24 74 126 269
Asset Allocation Series..................................... 19 58 101 218
Value Series................................................ 21 66 113 244
Growth & Income Series...................................... 21 63 109 234
S&P 500 Index Series........................................ 18 57 98 212
Blue Chip Stock Series...................................... 23 71 122 262
International Stock Series.................................. 23 71 122 262
Mid Cap Stock Series........................................ 26 81 138 293
Small Cap Value Series...................................... 26 80 137 292
Global Growth Series........................................ 21 66 113 243
Large Cap Growth Series..................................... 26 81 138 293
Growth Stock Series......................................... 20 63 108 232
Aggressive Growth Series.................................... 21 65 111 240
</TABLE>
- ------------------------
* For purposes of these examples, the effect of the annual contract
administration charge has been computed based on the average total contract
value of all outstanding contracts during the year ended December 31, 1998
and the total actual amount of annual contract administration charges
collected during the year. For the purpose of these examples, portfolio
annual expenses are assumed to continue at the rates set forth in the table
above.
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, prescribed by the SEC, are included to assist
contract owners in understanding the transaction and operating expenses imposed
directly or indirectly under the contracts and Fortis Series. 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
The following summary should be read in conjunction with the detailed
information in this prospectus. This prospectus generally describes only the
portion of the contract involving the Separate Account. For a brief description
of First Fortis' fixed account, please refer to the heading "Fixed Account" in
this Prospectus.
The contract is designed to provide individuals with retirement benefits through
the accumulation of purchase payments on a fixed or variable basis, and by the
application of such accumulations to provide fixed or variable annuity payments.
PURCHASE PAYMENTS
For individual contracts, each initial or subsequent purchase payment must be at
least $50. For contracts issued in connection with a benefit plan covering
employees, the initial and subsequent purchase payments under each contract must
at all times average at least $50 and in no case be less than $25. No additional
purchase payments are required, if the contract value is at least $500 by the
end of the first contract year and at least $1,000 by the end of second contract
year and at all times thereafter. See "Issuance of a Contract and Purchase
Payments."
On the contract date, the initial purchase payment is allocated, as specified by
the contract owner in the contract application, among one or more of the
available investment portfolios, or to the fixed account, or to both. Subsequent
purchase payments are allocated in the same way, or pursuant to different
allocation percentages that the contract owner may subsequently request.
SEPARATE ACCOUNT INVESTMENT OPTIONS
Each of the subaccounts of the Separate Account invests in shares of a
corresponding portfolio of Fortis Series. The investment objective of each of
the subaccounts of the Separate Account and that of the corresponding portfolio
of Fortis Series is the same.
Contract value in each of the subaccounts of the Separate Account will vary to
reflect the investment experience of each of the corresponding portfolio, as
well as deductions for certain charges.
Each portfolio has a separate and distinct investment objective and is managed
by Fortis Advisers, Inc. or a subadviser of Fortis Advisers, Inc. For providing
investment management services to the portfolios, Fortis Advisers, Inc. receives
fees from Fortis Series based on the average daily net assets of each portfolio.
The portfolios also bear most of their other expenses. A full description of the
portfolios and their investment objectives, policies and risks can be found in
the current prospectus for Fortis Series, which accompanies this prospectus, and
Fortis Series' Statement of Additional Information, which is available upon
request from First Fortis at the address and phone number on the cover of this
prospectus.
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. Additionally,
during the accumulation period we may, in our discretion, permit a continuing
request for transfers of specified amounts automatically on a periodic basis.
There is currently no charge for any of 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 Values-Transfers."
TOTAL OR PARTIAL SURRENDERS
All or part of the contract value of a contract may be surrendered by you before
the earlier of the Annuitant's death or the annuity commencement date. Amounts
surrendered may be subject to a surrender charge and total surrenders may not be
made without application of the annual administrative charge if the contract
value is less than $25,000. See "Total and Partial Surrenders," "Surrender
Charge" and "Annual Administrative Charge." 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
We deduct daily charges at a rate of 1.25% per annum of the value of the average
net assets in the Separate Account for the mortality and expense risks we assume
and .10% per annum of the value of the average net assets in the Separate
Account to cover certain administrative expenses. See "Mortality and Expense
Risk Charge" and "Administrative Expense Charge" under the heading "Charges
Against the Separate Account."
In order to permit investment of the entire purchase payment, we do not deduct
sales charges at the time of investment. However, a surrender charge is imposed
on certain total or partial surrenders of the contract to help defray expenses
relating to the sale of the contract, including commissions to registered
representatives and other promotional expenses. Certain amounts may be
surrendered without the imposition of any surrender charge. The amount of such
charge-free surrender depends on how recently the purchase payments to which the
surrender relates were made. The aggregate surrender charges will never exceed
5% of the purchase payments made to date.
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 date and upon total surrender of the contract. Currently, this charge
is not deducted during the Annuity Period. 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.
Certain states and other jurisdictions impose premium taxes or similar
assessments upon us, either at the time purchase payments are made or when
contract value is applied to an annuity option. Where such taxes or assessments
are imposed by your state or other jurisdiction upon receipt of purchase
payments, we will deduct a charge for these
6
<PAGE>
amounts from the contract value upon surrender, death of the Annuitant or
contract owner, or annuitization of the contract. In jurisdictions where such
taxes or assessments are imposed at the time of annuitization, we will deduct a
charge for such amounts at that time.
ANNUITY PAYMENTS
The contract provides several types of annuity benefits to Annuitants or their
beneficiaries, 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 Options"
and "Federal Tax Matters" in this prospectus and "Taxation Under Certain
Retirement Plans" in the Statement of Additional Information.
DEATH BENEFIT
In the event that the Annuitant or contract owner dies prior to the annuity
commencement date, a death benefit is payable. See "Benefit Payable on Death of
Annuitant or Contract Owner."
RIGHT TO EXAMINE THE CONTRACT
You have a right to examine the contract. You can cancel the contract by
delivering or mailing it, together with a written request, to our home office or
to the sales representative through whom it was purchased, before the close of
business on the tenth day after receipt of the contract. If these items are sent
by mail, properly addressed and postage prepaid, they will be deemed to be
received by us on the date postmarked. We will return to you the then current
contract value.
LIMITATIONS IMPOSED BY RETIREMENT PLANS
Certain rights a contract owner would otherwise have under a contract may be
limited by the terms of any employee benefit plan in connection with which the
contract is issued. 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.
TAX IMPLICATIONS
The tax implications for contract owners, Annuitants and beneficiaries, 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 or the contract should be directed to your sales
representative, or First Fortis' home office: P.O. Box 3249, Syracuse, NY 13220;
1-800-745-8248. For certain current information relating to contract values such
as subaccount unit values, interest rates in the fixed account, and your
contract value, call 1-800-745-8248. 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
1-800-745-8248.
Any purchase payment or other communication, except a 10-day 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 represents the Accumulation Unit information for
subaccounts of the Separate Account through December 31, 1998. Accumulation
Units have been rounded to the nearest whole unit.
<TABLE>
<CAPTION>
U.S. GLOBAL
MONEY GOV'T DIVERSIFIED GLOBAL HIGH ASSET ASSET GROWTH S&P
MARKET SECURITIES INCOME BOND YIELD ALLOCATION ALLOCATION VALUE & INCOME 500
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31,
1998
Accumulation
Units in
Force........
Accumulation
Unit Value...
December 31,
1997
Accumulation
Units in
Force........ 170,961 12,970 148,631 5,883 47,286 25,317 542,582 55,753 137,613 96,726
Accumulation
Unit Value... $1.474 $17.149 $1.963 $11.837 $12.917 $14.433 $2.809 $13.651 $19.487 $14.786
December 31,
1996
Accumulation
Units in
Force........ 31,800 427 20,649 1,347 9,846 7,591 63,004 15,690 14,412 5,144
Accumulation
Unit Value... 1.418 15.935 1.801 11.961 11.928 12.88 2.368 11.048 15.468 11.326
May 1, 1996*
Accumulation
Unit Value... $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
<CAPTION>
BLUE INTERNATIONAL GLOBAL GROWTH AGGRESSIVE
CHIP STOCK GROWTH STOCK GROWTH
--------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
December 31,
1998
Accumulation
Units in
Force........
Accumulation
Unit Value...
December 31,
1997
Accumulation
Units in
Force........ 74,226 36,305 47,369 240,842 47,583
Accumulation
Unit Value... $14.429 $14.021 $19.507 $3.296 $13.241
December 31,
1996
Accumulation
Units in
Force........ 9,457 10,999 6,899 70,686 14,449
Accumulation
Unit Value... 11.520 12.690 18.510 2.971 13.232
May 1, 1996*
Accumulation
Unit Value... $10,000 $10,000 $10,000 $10,000 $10,000
</TABLE>
- ------------------------------
*Accumulation Unit Value at Date of initial registration effectiveness.
7
<PAGE>
Audited financial statements of the Separate Account and First Fortis 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 Separate 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 period of time
specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield figures
do not reflect the surrender charge and yield and total return figures do not
reflect premium tax charges. This makes the performance shown more favorable.
FIRST FORTIS AND THE SEPARATE ACCOUNT
FIRST FORTIS LIFE INSURANCE COMPANY
First Fortis Life Insurance Company is the issuer of the contracts. At the end
of 1998, First Fortis had approximately $7 billion of total life insurance in
force. First Fortis is a New York corporation founded in 1971. It 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
Fortis (NL)N.V. and 50% by Fortis (B). Fortis, Inc. manages the United States
operations for these two companies.
First Fortis is affiliated with the Fortis Financial Group. This group is a
joint effort by Fortis Benefits Life Insurance Company, Fortis Advisers, Inc.,
Fortis Investors, Inc. and Fortis Insurance Company (formerly Time Insurance
Company) to offer financial products through the management, marketing and
servicing of mutual funds, annuities, life insurance and disability income
products.
Fortis (NL)N.V. is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
(B) is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis (NL)N.V. and
Fortis (B) have merged their operating companies under the trade name of Fortis.
The Fortis group of companies is active in insurance, banking and financial
services, and real estate development in The Netherlands, Belgium, the United
States, Western Europe, and the Pacific Rim. The Fortis group of companies had
approximately $390 billion in assets at the end of 1998.
All of the guarantees and commitments under the contracts are general
obligations of First Fortis, regardless of whether you have allocated the
contract value to the Separate 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 SEPARATE ACCOUNT
The Separate Account is a segregated investment account of First Fortis. First
Fortis established Separate Account A under New York insurance law as of October
1, 1993. The assets allocated to the Separate Account are the exclusive property
of First Fortis. The Separate Account is an integral part of First Fortis.
However, the Separate Account is registered with the Securities and Exchange
Commission as a unit investment trust under the Investment Company Act of 1940.
Registration does not involve supervision of the management, or investment
practices, or policies of the Separate Account or of First Fortis by the
Securities and Exchange Commission.
All income, gains and losses, whether or not realized, from assets allocated to
the Separate Account are credited to or charged against the Separate Account
without regard to other income, gains or losses of First Fortis. Assets in the
Separate Account representing reserves and liabilities will not be chargeable
with liabilities arising out of any other business of First Fortis. First Fortis
may accumulate in the Separate Account proceeds from charges under variable
annuity contracts and other amounts in excess of the Separate Account assets
representing reserves and liabilities. First Fortis may from time to time
transfer to its general account any of such excess amounts.
The Separate Account has subaccounts. The assets in each subaccount are invested
exclusively in a distinct class (or series) of stock issued by Fortis Series,
each of which represents a separate investment portfolio within Fortis Series.
Income and both realized and unrealized gains or losses from the assets of each
subaccount of the Separate Account are credited to or charged against that
subaccount without regard to income, gains or losses from any other subaccount
of the Separate Account or arising out of any other business we may conduct. We
may add or eliminate new subaccounts as new portfolios are added to, or
eliminated from, Fortis Series.
FORTIS SERIES FUND, INC.
Fortis Series is a "series" type of mutual fund. Fortis Series is registered
with the Securities and Exchange Commission as a diversified, open-end
management investment company under the Investment Company Act of 1940. Fortis
Series has served as the investment medium for the Separate Account since the
Separate Account began operations.
First Fortis purchases and redeems Fortis Series' shares for the Separate
Account at their net asset value without any sales or redemption charges. These
shares are interests in the portfolios of Fortis Series available for investment
by the Separate Account. Each portfolio corresponds to one of the subaccounts of
the Separate Account. The assets of each portfolio are separate from the assets
of other portfolios. Each Series operates as a separate investment portfolio
whose investment performance has no effect on the investment performance of any
other portfolio.
We automatically reinvest dividends or capital gain distributions attributable
to contracts in shares of the portfolio from which they are received at that
portfolio's net asset value on the date paid. These dividends and distributions
will have the effect of reducing the net asset value of each share of the
corresponding portfolio and increasing, by an equivalent value, the number of
shares outstanding of that portfolio. However, the value of the interests of
contract owners, Annuitants and beneficiaries in the corresponding subaccount
will not change as a result of any of these dividends and distributions.
8
<PAGE>
The portfolios of Fortis Series available for investment by the Separate Account
are listed on the cover page of this prospectus.
A full description of the portfolios, their investment policies and
restrictions, their charges, the risks attendant to investing in them, and other
aspects of their operations is contained in the prospectus for Fortis Series
accompanying this prospectus and in the Statement of Additional Information for
Fortis Series. Additional copies of these documents may be obtained from your
sales representative or from our home office.
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
If you wish to purchase a contract, you must complete an application and make an
initial purchase payment of at least $50. The application is forwarded to us for
processing. Acceptance is subject to our underwriting and suitability rules and
procedures. We reserve the right to reject any application for any reason.
In certain circumstances, an employer remits payments to us on behalf of
employee-Annuitants. Where purchase payments are remitted to us through an
employer for multiple employee-Annuitants, we must be given accurate information
that specifically identifies the contracts and accounts that are to be credited
with the payments.
If we accept your application in the form received, we will credit the initial
purchase payment within two Valuation Dates after the later of (1) receipt of
the application or (2) receipt of the initial purchase payment at our home
office. If we cannot apply the initial purchase payment within five Valuation
Dates after receipt because the application or other issuing requirements are
incomplete, we will return the initial purchase payment unless you consent to
our retaining the initial purchase payment and applying it at the end of the
Valuation Period in which the necessary requirements are fulfilled. However,
even where you give your consent, if we cannot apply your initial purchase
payment within thirty Valuation Dates after we receive your payment because the
application or issuing instructions remain incomplete, we will return your
initial purchase payment to you.
The date that we apply the initial purchase payment to the purchase of the
contract is the contract date. The contract date is the date used to determine
contract years, regardless of when we deliver the contract. Our crediting of
investment experience in the Separate Account, or a fixed rate of return in the
fixed account, begins as of the contract date, even if that date is delayed due
to an incomplete application.
We will accept additional purchase payments at any time after the contract date
and prior to the annuity commencement date, as long as the Annuitant is living.
You must transmit purchase payments (together with any required information
identifying the proper contracts and accounts to be credited with purchase
payments) to our home office. We apply additional purchase payments to the
contract, and add to the contract value, at the end of the Valuation Period in
which we receive the payments.
Each additional purchase payment must be at least $50. However, under contracts
issued in connection with a benefit plan covering employees, it is sufficient
that all purchase payments under each contract, at all times, average $50. We
will not accept a purchase payment if it is less than $25. Moreover, we reserve
the right to raise this minimum purchase payment to a maximum amount of $100. In
addition, the total of all purchase payments, for all contracts, having the same
owner or annuitant may not exceed $1 million (not more than $500,000 allocated
to the fixed account) without our prior approval. We reserve the right to modify
this limitation at any time.
You may make purchase payments in excess of the initial minimum by monthly draft
against a bank account if you have completed and returned to us a special
authorization form. You may obtain the form from your sales representative or
from our home office. We can also arrange for you to make purchase payments by
wire transfer, payroll deduction, military allotment, direct deposit and
billing. Purchase payments by check should be made payable to First Fortis Life
Insurance Company.
We may cancel any contract with a contract value of less than $1,000. However,
under our current administrative procedures, if a contract's value is at least
$500 by the end of the first contract year, we will not cancel the contract
during the first two contract years. We will provide the contract owner with 90
days' written notice so that additional purchase payments may be made in order
to raise the contract value above the applicable minimum. Otherwise, we may
cancel the contract as of the end of the Valuation Period which includes the
next anniversary of the contract date. If we do cancel the contract, we will pay
the contract owner the full contract value. In addition, as long as the contract
value remains above $1,000, we will not require additional purchase payments.
CONTRACT VALUE
Contract value is the total of any Separate Account value in all the subaccounts
of the Separate Account, plus any fixed account value. For a discussion of how
fixed account value is calculated, see "The Fixed Account."
The contract does not guarantee a minimum Separate Account value. The Separate
Account value will reflect the investment experience of the chosen subaccounts
of the Separate Account, all purchase payments made, any partial surrenders, and
all charges assessed in connection with the contract. Therefore, the Separate
Account value changes from Valuation Period to Valuation Period. You bear the
entire investment risk for the contract value that you allocate to the Separate
Account.
DETERMINATION OF SEPARATE ACCOUNT VALUE. A contract's Separate Account value is
based on Accumulation Unit values that we 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. Purchase payments applied to a given
subaccount will be used to purchase Accumulation Units at the unit value of that
subaccount next determined after receipt of a purchase payment. See "Allocation
of Purchase Payments and Contract Value-Allocation of Purchase Payments."
9
<PAGE>
At the end of any Valuation Period, a contract's Separate 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:
- The initial Accumulation Units purchased on the contract date; plus
- Accumulation Units purchased at the time that additional purchase payments
are allocated to the subaccount; plus
- Accumulation Units purchased through transfers from another subaccount or
from the fixed account; less
- Accumulation Units redeemed to pay for the portion of any partial
surrenders allocated to the subaccount; less
- Accumulation Units redeemed as part of a transfer to another subaccount or
to the fixed account; less
- Accumulation Units redeemed to pay charges under the contract.
NET INVESTMENT FACTOR. The net investment factor for a subaccount is determined
by dividing (1) the net asset value per share of the portfolio shares held by
the subaccount, determined at the end of the current Valuation Period, plus the
per share amount of any dividend or capital gains distribution made with respect
to the portfolio shares held by the subaccount during the current Valuation
Period, minus a per share charge for the increase, plus a per share credit for
the decrease, in any income taxes assessed which we determine to have resulted
from the investment operations of the subaccount or any other taxes which are
attributable to the 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.
A subaccount's net investment factor for a Valuation Period is an index number
that reflects certain charges to a contract and the investment performance of
the subaccount during the Valuation Period. If the 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.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
ALLOCATION OF PURCHASE PAYMENTS. In your application for a contract, you may
allocate purchase payments, or portions of payments to the:
- available subaccounts of the Separate Account, or
- to the fixed account, or
- both
Percentages must be in whole numbers and the total allocation must equal 100%.
The percentage allocations for future purchase payments may be changed, without
charge, at any time by sending a written request to First Fortis' home office.
Changes in the allocation of future purchase payments will be effective on the
date we receive your written request.
TRANSFERS. You may transfer contract value:
- from one available subaccount to another subaccount, or
- into the fixed account.
You may request transfers by either (1) a written request sent to our home
office, or by (2) a telephone transfer as described below. Currently, we do not
charge for any transfer.
All or part of the contract value in one or more subaccounts of the Separate
Account may be transferred at one time. We may permit a continuing request for
transfers automatically and on a periodic basis. We prohibit transfers INTO the
fixed account within six months of a transfer OUT OF the fixed account. In
addition, we restrict transfers of contract value FROM the fixed account in both
amount and timing. See "Fixed Account--Fixed Account Transfers, Total and
Partial Surrenders." Where you make all your transfer requests at the same time,
as part of one request, we will count all transfers between and among the
subaccounts of the Separate Account and the fixed account as one transfer. We
will execute the transfers, and determine all values in connection with the
transfers, at the end of the Valuation Period in which we receive the transfer
request.
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. You may surrender all of the cash surrender value at any time
during the life of the Annuitant and prior to the annuity commencement date. If
you choose to make a total surrender, you must do so by written request sent to
our home office. We reserve the right to require that the contract be returned
to us prior to making payment, although this will not affect our determination
of the amount of the cash surrender value. Cash surrender value is:
- the contract value at the end of the Valuation Period during which we
receive the written request for total surrender at our home office, less
- any applicable surrender charge, and less
- any applicable administrative charge.
For a discussion of these charges and the circumstances under which they apply,
see "Annual Administrative Charge" and "Surrender Charge."
We must receive written consent of all collateral assignees and irrevocable
beneficiaries prior to any total surrender. We will generally pay surrenders
from the Separate Account within seven days of the date of receipt by our home
office of the written request. However, we may postpone payments in certain
circumstances. See "Postponement of Payment."
10
<PAGE>
Since the contract owner assumes the investment risk with respect to amounts
allocated to the Separate Account, and because certain surrenders are subject to
a surrender charge, the amount we pay upon total surrender of the cash surrender
value (taking into account any prior partial surrenders) may be more or less
than the total purchase payments you made. After a surrender of the cash
surrender value or at any time the contract value is zero, all rights of the
contract owner, Annuitant, and any beneficiary, will terminate.
PARTIAL SURRENDERS. At any time during the life of the Annuitant and prior to
the commencement date, you may surrender a portion of the fixed account and/or
the Separate Account. You must request partial surrender by written request sent
to First Fortis' home office. The minimum partial surrender amount is $500,
including any surrender charge. We will surrender the entire cash surrender
value under the contract if the total contract value in both the Separate
Account and fixed account would be less than $1,000 after the partial surrender.
However, under our current administrative procedures, we will honor a surrender
request during the first two contract years without regard to the remaining
contract value.
You should specify the subaccounts of the Separate Account or the fixed account
that you wish to partially surrender. If you do not specify, we take the partial
surrender from the subaccounts and the fixed account on a pro rata basis.
We will surrender Accumulation Units from the Separate Account and/ or dollar
amounts from the fixed account so that the total amount of the partial surrender
equals the dollar amount of the partial surrender request. We will reduce the
partial surrender by the amount of any applicable surrender charge. The partial
surrender will be effective at the end of the Valuation Period in which we
receive the written request for partial surrender at our home office. We will
generally make payments 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.) This restriction does not apply
to amounts transferred to another investment alternative permitted under a
Section 403(b) retirement arrangement or to amounts attributable to premium
payments received prior to January 1, 1989.
TELEPHONE TRANSACTIONS
You or your representative may make certain requests under the contract by
telephone if we have a written telephone authorization on file. These include
requests for (1) transfers, (2) withdrawals, and (3) changes in purchase payment
allocation instructions, dollar-cost averaging, portfolio rebalancing programs
and systematic withdrawals. Our home office will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures may include, among others, (1) requiring some form of personal
identification such as your address and social security number prior to acting
upon instructions received by telephone, (2) providing written confirmation of
such transactions, and/or (3) tape recording of telephone instructions. Your
request for telephone transactions authorizes us to record telephone calls. We
may be liable for any losses due to unauthorized or fraudulent instructions if
we do not employ reasonable procedures. If we do employ reasonable procedures,
we will not be liable for any losses due to unauthorized or fraudulent
instructions. We reserve the right to place limits, including dollar limits, on
telephone transactions.
BENEFIT PAYABLE ON DEATH OF ANNUITANT OR CONTRACT OWNER
If the owner or Annuitant dies prior to the annuity commencement date, we will
pay a death benefit to the beneficiary. If more than one Annuitant has been
named, we will pay the death benefit payable upon the death of an Annuitant only
upon the death of the last survivor of the persons so named. The death benefit
will equal the greatest of (1), (2), or (3) as follows:
(1) the sum of all purchase payments made, less all prior
surrenders (other than any automatic surrenders made to pay the annual
administrative charge) and previously-imposed surrender charges,
(2) the contract value as of the date used for valuing the death
benefit, or
(3) the contract value (less the amount of any subsequent
surrenders and surrender charges) as of the contract's Five Year Anniversary
immediately preceding the earlier of (a) the date of death of either the
contract owner or the Annuitant, or (b) the date either first reaches his
or her 75th birthday.
See Appendix A for sample death benefit calculations.
The death benefit may be reduced by premium taxes where such taxes were imposed
upon receipt of purchase payments and were paid by us in behalf of the contract
owner. For further information, see "Charges and Deductions--Premium Taxes."
The value of the death benefit is determined as of the end of the Valuation
Period in which we receive, at our home office, proof of death and the written
request as to the manner of payment. Upon receipt of these items, the death
benefit generally will be paid within seven days. Under certain circumstances,
payment of the death benefit may be postponed. See "Postponement of Payment." If
we do not receive a written request for a settlement method, we will pay the
death benefit in a single sum, based on values determined at that time.
The beneficiary may (1) receive a single sum payment, which terminates the
contract, or (2) select an annuity option. If the beneficiary selects an annuity
option, he or she will have all the rights and privileges of an Annuitant 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."
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We accept any of the following as proof of death: (1) a copy of a certified
death certificate, (2) a copy of a certified decree of a court of competent
jurisdiction as to the finding of death, (3) a written statement by a medical
doctor who attended the deceased at the time of death.
The Internal Revenue Code requires that a Non-Qualified Contract contain certain
provisions about an owner's death. We discuss these provisions below under
"Federal Tax Matters--Required Distributions for Non-Qualified Contracts." It is
imperative that written notice of the death of the contract owner be promptly
transmitted to us at our home office, so that we can make arrangements for
distribution of the entire interest in the contract to the beneficiary in a
manner that satisfies the Internal Revenue Code requirements. Failure to satisfy
these requirements may result in the contract not being treated as an annuity
contract for federal income tax purposes with possible adverse tax consequences.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
You may not specify an annuity commencement date in your application that is
later than the Annuitant's 90th birthday. The annuity commencement date marks
the beginning of the period during which an Annuitant receives annuity payments
under the contract. The annuity commencement date must be at least two years
after the contract date. However, we may allow an earlier annuity commencement
date associated with certain annuitizations where the contract is purchased in
conjunction with the purchase of a life insurance policy issued by us, if it
fulfills certain other minimum guidelines established by us, and the annuity
payments are designated to be applied to the payment of the premiums on such
life insurance policy.
The Internal Revenue Code may impose penalty taxes on amounts distributed either
too soon or too late depending on the type of retirement arrangement involved.
See "Federal Tax Matters." You should consider this carefully in selecting or
changing an annuity commencement date.
You must submit a written request to us in order to advance or defer the annuity
commencement date. In addition, you must submit a written request during the
Annuitant's lifetime. We must receive the request at our home office at least 30
days before the then-scheduled annuity commencement date. The new annuity
commencement date must also be at least 30 days after we receive the written
request. You have no right to make any total or partial surrender during the
Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
We may pay the entire contract value, rather than apply the amount to an annuity
option, if the contract value at the end of the Valuation Period that contains
the annuity commencement date is less than $2,000. We would make the payment in
a single sum to the Annuitant or other properly designated payee and cancel the
contract. We would not impose any charge other than the premium tax charge.
Otherwise, we will apply (1) the fixed account value to provide a Fixed Annuity
Option and (2) the Separate Account value in any subaccount to provide a
Variable Annuity Option using the same subaccount, unless you have notified us
by written request to apply the fixed account value and Separate Account value
in different proportions. We must receive written request at our home office at
least 30 days before the annuity commencement date.
We will make annuity payments under a Fixed or Variable Annuity Option on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If you name more than one person as an
Annuitant, you may elect to name one of such persons to be the sole Annuitant as
of the annuity commencement date. We reserve the right to change the frequency
of any annuity payment so that each payment will be at least $50.
The amount of each annuity payment will depend on (1) the amount of contract
value applied to an annuity option, (2) the form of annuity selected, and (3)
the age of the Annuitant. For information concerning the relationship between
the Annuitant's sex and the amount of annuity payments, including special
requirements in connection with employee benefit plans, see "Calculation of
Annuity Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity option
selected.
The dollar amount of variable annuity payments varies during the annuity period
based on changes in Annuity Unit values for the subaccounts that you choose to
use in connection with your payments.
RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS
The amount of an annuity payment depends on the average effective net investment
return of a subaccount during the period since the preceding payment as follows:
- if the return is HIGHER than 4% annually, the Annuity Unit value will
INCREASE, and the second payment will be HIGHER than the first; and
- if the return is LOWER than 4% annually, the Annuity Unit value will
DECREASE,and the second payment will be LOWER than the first.
"Net investment return," for this purpose, refers to the subaccount's overall
investment performance, after deduction of the mortality and expense risk and
administrative expense charges, which are assessed at an annual rate of 1.35%.
We guarantee that the amount of each variable annuity payment after the first
payment will not be affected by variations in our mortality experience or our
expenses, except to the extent that we reserve the right to impose the $30
annual administrative expense charge during the Annuity Period just as we do
during the Accumulation Period.
TRANSFERS. A person receiving annuity payments may make up to four transfers a
year among subaccounts or from subaccounts to the fixed
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account. The current procedures for these transfers are the same as we describe
above under "Allocation of Purchase Payments and Contract Value Transfers." We
do not permit transfers out of the fixed account during the Annuity Period.
ANNUITY OPTIONS
You may select an annuity option or change a previous selection by written
request. We must receive your request by at least 30 days before the annuity
commencement date. You may select one annuity form, although payments under that
form may be on a combination fixed and variable basis. If no annuity form
selection is in effect on the annuity commencement date, we usually
automatically apply OPTION B (described below), with payments guaranteed for ten
years. However, federal pension law may require that we make default payments
under certain retirement plans, pursuant to plan provisions and/or federal law.
Tax laws and regulations may impose further restrictions to assure that the
primary purpose of the plan is distribution of the accumulated funds to the
employee.
Your contract offers the following options for fixed and variable annuity
payments. Under each of the options, we make payments as of the first Valuation
Date of each monthly period, starting with the Annuity Commencement Date.
OPTION A, LIFE ANNUITY. We make no payments after the annuitant dies. It is
possible for the annuitant to receive only one payment under this option if the
annuitant dies before the second payment is due.
OPTION B, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS OR 20 YEARS. We
continue payments as long as the annuitant lives. If the annuitant dies before
we have made all of the guaranteed payments, we continue installments of the
guaranteed payments to the beneficiary.
OPTION C, JOINT AND FULL SURVIVOR ANNUITY. We continue payments as long as
either the annuitant or the joint annuitant is alive. We stop payments when both
the annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
OPTION D, JOINT AND ONE-HALF CONTINGENT SURVIVOR ANNUITY. We continue payments
as long as either the annuitant or the joint annuitant is alive. If the
annuitant dies first, we continue payments to the joint annuitant at one-half
the original amount. If the joint annuitant dies first, we continue payments to
the annuitant at the original full amount. We stop payments when both the
annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
We also have other annuity options available. You can get information about them
from your sales representative or by calling or writing to our home office.
DEATH OF ANNUITANT OR OTHER PAYEE
Under most annuity forms offered by us, the amounts, if any, payable on the
death of the annuitant during the Annuity Period are the continuation of annuity
payments for any remaining guarantee period or for the life of any joint
annuitant. In all cases, the person entitled to receive payments also receives
any rights and privileges under the annuity form in effect.
Additional rules applicable to such distributions under Non-Qualified Contracts
are described under "Federal Tax Matters--Required Distributions for
Non-Qualified Contracts". Though the rules there described do not apply to
contracts issued in connection with qualified plans, similar rules apply to the
plans themselves.
CHARGES AND DEDUCTIONS
PREMIUM TAXES
We deduct state premium taxes as follows:
- when imposed on purchase payments, we pay the amount on your behalf and
deduct the amount from your contract value upon (1) our payment of
surrender proceeds or death benefit or (2) annuitization of a contract; or
- when imposed at the time annuity payments begin, we deduct the amount from
your contract value at that time
Applicable premium tax rates depend upon your place of residence. Rates can
change by legislation, administrative interpretations or judicial acts.
ANNUAL ADMINISTRATIVE CHARGE
A $30 annual administrative charge is deducted from the contract value on each
anniversary of the contract date. This charge helps to cover administrative
costs:
- incurred in issuing contracts,
- establishing and maintaining records relating to contracts,
- making regulatory filings and furnishing confirmation notices,
- voting materials and other communications,
- providing computer, actuarial and accounting services, and
- processing contract transactions.
We will initially waive this charge during the Annuity Period, although we
reserve the right to reinstitute it at any time. In addition, we will waive this
charge during the Accumulation Period if the contract value is $25,000 or more
at the end of the contract year.
We will deduct the annual administrative charge by redeeming Accumulation Units
from each subaccount of the Separate Account and by redeeming Accumulation Units
from the fixed account. Contract value is the total value of the Separate
Account and the fixed account. We will redeem Accumulation Units in proportion
to the allocation of contract value among both:
- the subaccounts of the Separate Account, and
- the fixed account
If you totally surrender the contract and the contract value is less than
$25,000, we will deduct the full annual administration charge at the time of
surrender.
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CHARGES AGAINST THE SEPARATE ACCOUNT
We will assess certain charges against the Separate Account. These charges will
be assessed as a percentage of the net assets of the Separate Account. These
charges compensate us for contract risks and for administrative expenses.
MORTALITY AND EXPENSE RISK CHARGE. We assess each subaccount of the Separate
Account with a daily charge for mortality and expense risk. This charge is a
nominal annual rate of 1.25% of the average daily net assets of the Separate
Account. It consists of approximately .8% for mortality risk and approximately
.45% for expense risk. We guarantee not to increase this charge for the duration
of the contract. We assess this charge daily when we determine the value of an
Accumulation Unit. This charge is assessed during both the Accumulation Period
and the Annuity Period.
The mortality risk we bear arises from our obligation to make annuity payments
(determined in accordance with the annuity tables and other provisions contained
in the contract) for the full life of all Annuitants regardless of how long all
Annuitants or any individual Annuitant might live. This assures that neither an
Annuitant's own longevity, nor an improvement in life expectancy generally, will
have an adverse effect on the annuity payments the Annuitant will receive under
the contract. This relieves the Annuitant from the risk that he or she will
outlive the funds accumulated for retirement.
In addition, we bear a mortality risk in that we guarantee to pay a death
benefit in a single sum (which may also be taken in the form of an annuity
option) upon the death of an Annuitant or contract owner prior to the annuity
commencement date. We do not impose a surrender charge upon payment of a death
benefit. This places a further mortality risk on us.
The expense risk we assume is that actual expenses incurred in connection with
issuing and administering the contracts will exceed the limits on administrative
charges set in the contracts.
We bear the loss if the administrative charges and the mortality and expense
risk charge are insufficient to cover the expenses and costs assumed.
Conversely, we profit if the amount deducted proves more than sufficient.
ADMINISTRATIVE EXPENSE CHARGE. We assess each subaccount of the Separate Account
with a daily charge at a nominal annual rate of .10% of the average daily net
assets of the subaccount. We assess this charge during both the Accumulation
Period and the Annuity Period. The daily administrative expense charge helps
cover administrative expenses such as those described above under "Annual
Administrative Charge." The daily administrative expense charge, like the annual
administrative charge, is designed to defray expenses incurred. There is no
necessary relationship between the amount of administrative charges assessed on
a given contract and the amount of expenses actually incurred for that contract.
TAX CHARGE. Currently, we do not impose a charge for taxes payable by us in
connection with this contract. However, we do impose a charge for applicable
premium taxes. We reserve the right to impose a charge for any other taxes that
may become payable by us in the future for the contracts or the Separate
Account.
The annual administrative charge and charges against the Separate Account
described above are for the purposes described. We may receive a profit as a
result of these charges.
SURRENDER CHARGE
We do not deduct a sales charge from purchase payments. We deduct surrender
charges on certain total or partial surrenders. We use the revenue from
surrender charges to partially pay our expenses in the sale of the contracts,
including (1) commissions (2) promotional, distribution, and marketing expenses,
and (3) costs of printing and distribution of prospectuses and sales material.
FREE SURRENDERS. You can withdraw the following amounts from the contract
without a surrender charge:
- Any purchase payments that we received more than five years before the
surrender date and that you have not previously surrendered;
- In any contract year, up to 10% of the purchase payments that we received
less than five years before the surrender date (whether or not you have
previously surrendered the purchase payments).
Surrender charges do not apply to contract earnings. Therefore, we deem purchase
payments not subject to a surrender charge as withdrawn first. If all purchase
payments have been withdrawn, the remaining earnings can be withdrawn without a
surrender charge. We assume that all purchase payments are withdrawn before
earnings are withdrawn. However, for federal income tax purposes, certain
partial surrenders will be deemed to come first from earnings. See "Federal Tax
Matters."
We do not impose a surrender charge on (1) annuitization or (2) payment of a
single sum because the contract value is less than the minimum required to
provide an annuity on the annuity commencement date or (3) payment of any death
benefit.
In addition, we have an administrative policy to waive surrender charges for
full surrenders of contracts that have been in force for at least ten years if
the amount then subject to the surrender charge is less than 25% of the contract
value. We have offered these contracts since 1994. Therefore, we have made no
waivers. We reserve the right to change or terminate this practice at any time,
both for new and for previously issued contracts.
AMOUNT OF SURRENDER CHARGE. We only apply surrender charges if the amount being
withdrawn exceeds the sum of the amounts listed above under Free Surrenders. The
surrender charge is 5% of the purchase payments withdrawn which we received less
than five years before the surrender date.
We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent that the surrender charge is
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insufficient, we will pay such costs from our general account assets. Those
assets will include any profit that we derive from the mortality and expense
risk charge.
MISCELLANEOUS
The Separate Account invests in shares of the portfolios. Therefore, the net
assets of the Separate Account will reflect the investment advisory fees and
certain other expenses incurred by the portfolios and described in their
prospectuses.
REDUCTION OF CHARGES
We will not impose a surrender charge under any contract owned by First Fortis
and the following persons associated with First Fortis, if at the contract issue
date they are (1) officers and directors, (2) employees, (3) spouses of any such
persons or any of such persons' children.
FIXED ACCOUNT
You may allocate purchase payments and transfer contract value to the fixed
account. In this case, purchase payments and transfers of contract value are
held in our general account.
Because of exemptive and exclusionary provisions, interests in the fixed account
have not been registered under the Securities Act of 1933, and the fixed account
has not been registered as an investment company under the Investment Company
Act of 1940. Accordingly, neither the fixed account, nor any interests therein,
are subject to the provisions of these acts. As a result, the staff of the
Securities and Exchange Commission has not reviewed the disclosures in this
prospectus relating to the fixed account.
Disclosures regarding the fixed account may, however, be subject to certain
generally applicable provisions of federal securities law relating to the
accuracy and completeness of statements made in prospectuses. This prospectus is
generally intended to serve as a disclosure document only for the aspects of the
contract involving the Separate Account and contains only selected information
regarding the fixed account. More information regarding the fixed account may be
obtained from our home office or from your sales representative.
GENERAL DESCRIPTION
Our obligations with respect to the fixed account are supported by our general
account. Subject to applicable law, we have sole discretion over the investment
of assets in our general account.
First Fortis guarantees that contract value in the fixed account will accrue
interest at an effective annual rate of at least 4%, independent of the actual
investment experience of the general account. We may, at our sole discretion,
credit higher rates of interest, although we are not obligated to credit
interest in excess of the guaranteed annual rate of 4%. Any interest rate in
excess of 4% per year with respect to any amount in the fixed account pursuant
to a contract will not be modified more than once each calendar year. Any higher
rate of interest will be quoted at an effective annual rate. The rate of any
excess interest initially or subsequently credited to any amount can vary. This
will depend on when the amount was originally allocated to the fixed account.
Once credited, excess interest will be guaranteed and will be added to the
contract value in the fixed account (from which deductions for fees and charges
may be made).
Charges under the contract are the same as those applied to the Separate
Account. However, the 1.35% annual charge for mortality and expense risk and for
administrative expense is not imposed on amounts of contract value in the fixed
account.
FIXED ACCOUNT VALUE
The contract's fixed account value on any Valuation Date is the sum of:
- the purchase payments allocated to the fixed account, plus
- any transfers from the Separate Account, plus
- any interest credited to the fixed account, less
- any surrenders, surrender charges or annual administrative charges
allocated either to the fixed account, or to transfers to the Separate
Account.
FIXED ACCOUNT TRANSFERS, TOTAL AND PARTIAL SURRENDERS
With respect to total and partial transfers, amounts in the fixed account are
generally subject to the same rights and limitations as amounts allocated to the
subaccounts of the Separate Account. Therefore, with respect to total and
partial surrenders, amounts in the fixed account are also subject to the same
charges as amounts allocated to the subaccounts of the Separate Account. See
"Total and Partial Surrenders."
Transfers out of the fixed account have special limitations. Prior to the
annuity commencement date, you may transfer all or part of the contract value
from the fixed account to the Separate Account, provided that (1) no more than
one transfer is made each contract year, (2) no more than 50% of the fixed
account value is transferred at any time (unless the balance in the fixed
account after the transfer would be less than $1,000, in which case the entire
balance may be transferred), and (3) at least $500 is transferred at any one
time (or, if less, the entire amount in the fixed account). However, we may
permit a continuing request for automatic transfers, on a periodic basis, of
lesser specified amounts. We reserve the right to discontinue or modify any such
arrangements at our discretion.
No transfers from the fixed account may be made after the annuity commencement
date.
GENERAL PROVISIONS
THE CONTRACT
The entire contract includes any application, amendment, rider, or endorsement
and revised contract pages. Only an officer of First Fortis can agree to change
or waive any provision of a contract. Any change or waiver must be in writing
and signed by one of these representatives of First Fortis.
The contracts are non-participating and do not share in dividends or earnings of
First Fortis.
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POSTPONEMENT OF PAYMENTS
With respect to amounts in the subaccounts of the Separate 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 us at our home office.
However, we may defer the determination, application, or payment of any death
benefit, partial or total surrender or annuity payment, to the extent dependent
on Accumulation or Annuity Unit values as follows: (1) 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, (2) for any period during
which any emergency exists as a result of which it is not reasonably practicable
for us to determine the investment experience for the contract, or (3) for such
other periods as the Securities and Exchange Commission may by order permit for
the protection of investors.
Additionally, we may defer for up to 15 days the payment of any amount
attributable to a purchase payment made by check to allow the check reasonable
time to clear. We may also defer payment of surrender proceeds payable out of
the fixed account for a period of up to 6 months.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the Annuitant's age or sex was misstated, we pay the amount that the purchase
payments paid would have purchased at the correct age and sex. If we make any
overpayment because of incorrect information about age, or sex, or any other
miscalculation, we deduct the overpayment from the next payment due. We add
underpayments to the next payment. We will credit or charge the amount of any
adjustment with interest at the rate of 4% annually.
ASSIGNMENT AND OWNERSHIP RIGHTS
Owners and payees may assign their rights and interests under a Qualified
Contract 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 do not take responsibility for the validity of any assignment. Owners and
payees must make a change in ownership rights in writing and send it to our home
office. The change will be effective on the date made, although we are not bound
by a change until the date we record it.
The rights under a contract are subject to any assignment of record at our home
office. An assignment or pledge of a contract may have adverse tax consequences.
See below under "Federal Tax Matters."
BENEFICIARY
You may name or change a beneficiary or a contingent beneficiary before the
annuity commencement date. You must send a written request of the change to
First Fortis. Certain retirement programs may require spousal consent to name or
change a beneficiary. In addition, applicable tax laws and regulations may limit
the right to name a beneficiary other than the spouse. We are not responsible
for the validity of any change. A change will take effect as of the date it is
signed but will not affect any payment we make or action we take before
receiving the written request. We also need the consent of any irrevocably named
person before making a requested change.
Upon the death of a contract owner or Annuitant prior to the annuity
commencement date, the beneficiary will be deemed to be as follows:
- If there is a surviving contract owner, the surviving contract owner will
be the beneficiary (this overrides any other beneficiary designation).
- If there is no surviving contract owner, the beneficiary will be the
beneficiary designated by the contract owner.
- If there is no surviving contract owner and no surviving beneficiary who
has been designated by the contract owner, the estate of the last
surviving contract owner will be the beneficiary.
REPORTS
We will mail to the contract owner, at the last known address of record, any
report required by applicable law or regulation. You should therefore give us
prompt written notice of any address change. Each contract owner will also be
sent an annual and a semi-annual report for Fortis Series and a list of the
portfolio securities held in each portfolio of Fortis Series. All reports will
be mailed to the person receiving payments during the Annuity Period, rather
than to the contract owner.
RIGHTS RESERVED BY FIRST FORTIS
We reserve the right to make certain changes if, in our judgement, they would
best serve the interests of contract owners and Annuitants or would be
appropriate in carrying out the purposes of the contract. We will make any
change only as permitted by applicable laws. We will obtain your approval of the
changes and approval from any appropriate regulatory authority if required by
law. Examples of the changes we may make include:
- To operate the Separate 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 Separate Account.
- To substitute, for the portfolio shares held in any subaccount, the shares
of another portfolio of Fortis Series 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 times of day at which a Valuation Date is deemed to
have ended.
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- To make any other necessary technical changes in the contract in order to
conform with any action the above provisions permit us to take, including
to change the way we assess charges, but without increasing, as to any
then outstanding contract, the aggregate amount of the types of charges
that we have guaranteed.
DISTRIBUTION
Fortis Investors, Inc. ("Fortis Investors") is the principal underwriter of the
contracts. The contracts will be sold by individuals who are licensed by state
insurance authorities to sell the contracts of First Fortis and (1) are
registered representatives of Fortis Investors or (2) registered representatives
of other broker-dealer firms or (3) representatives of other firms that are
exempt from broker-dealer regulation. Fortis Investors and any other
broker-dealer firms are (1) registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as broker-dealers and (2)
members of the National Association of Securities Dealers, Inc.
Fortis Investors will pay an allowance to its registered representatives and
selling brokers in varying amounts. Fortis Investors does not expect the
allowances under normal circumstances to exceed 6.25% of purchase payments plus
a servicing fee of .25% of contract value per year, starting in the first
contract year.
We and Fortis Investors may, under certain flexible compensation arrangements,
pay lesser or greater selling allowances and larger or smaller service fees to
its registered representatives and other broker dealer firms than as set forth
above. However, in such case, such flexible compensation arrangements will have
actuarial present values that are approximately equivalent to the amounts of the
selling allowances set forth above. Additionally, registered representatives,
broker-dealer firms and exempt firms may qualify for additional compensation
based upon meeting certain production standards. Fortis Investors may
"chargeback" commissions paid to others if the contract upon which the
commission was paid is surrendered or canceled within certain specified time
periods.
First Fortis or Fortis Investors may also provide additional compensation to
broker-dealers in connection with sales of contracts. Compensation may include
financial assistance to broker-dealers in connection with (1) conferences, (2)
sales or training programs for their employees, (3) seminars for the public, (4)
advertising, (5) sales campaigns regarding contracts, and (6) other
broker-dealer sponsored programs or events. Compensation may also include trips
taken by invited sales representatives and their family members to locations
within or without the United States for business meetings or seminars. First
Fortis or Fortis Investors may pay travel expenses that arise from these trips.
Fortis Investors is an indirect subsidiary of Fortis (NL)N.V. and Fortis (B).
Therefore, Fortis Investors is under common control with First Fortis. Fortis
Investors' principal business address is 500 Bielenberg Drive, Woodbury,
Minnesota 55115 and its mailing address is P.O. Box 64284, St. Paul, MN 55164.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes. These rules are based on laws, regulations, and
interpretations that are subject to change at any time. This summary is not
comprehensive. We do not intend it as tax advice. Federal estate and gift tax
considerations, as well as state and local taxes, may also be material. You
should consult a qualified tax adviser as to the tax implications of taking any
action under a contract or related retirement plan.
NON-QUALIFIED CONTRACTS
Section 72 of the Internal Revenue Code (the "Code") governs the taxation of
annuities in general. Neither you nor any other person may exclude or deduct
purchase payments under Non-Qualified Contracts from gross income. However, you
are not currently taxed, until receipt, on any increase in the accumulated value
of a Non-Qualified Contract that results from (1) the investment performance of
the Separate Account or (2) interest credited to the fixed account. Contract
owners who are not natural persons ARE taxed annually for any increase in the
contract value subject to certain exceptions. You may wish to discuss this with
your tax adviser.
The following discussion applies generally to contracts owned by natural
persons.
In general, surrenders or partial withdrawals under contracts are taxed as
ordinary income to the extent of the accumulated income or gain under the
contract. If you assign or pledge any part of the contract value, you pay on the
value so pledged or assigned to the same extent as a partial withdrawal.
With respect to annuity payment options, the tax consequences may vary depending
on the option elected under the contract. Until the "investment in the contract"
is recovered, generally only the portion of the annuity payment that represents
the amount by which the contract value exceeds the "investment in the contract"
will be taxed. In general, "investment in the contract" is the aggregate amount
of purchase payments made. After recovery of the "investment in the contract",
the full amount of any additional annuity payments is taxable.
For variable annuity payments in general, the taxable portion of each annuity
payment (prior to recovery of the "investment in the contract") is the amount of
the payment less the nontaxable portion. The nontaxable portion of each payment
is the "investment in the contract" divided by the total number of expected
annuity payments.
For fixed annuity payments in general, prior to recovery of the "investment in
the contract," there is no tax on the amount of each payment that bears the same
ratio to such payment that the "investment in the contract" bears to the total
expected return under the contract. 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.
17
<PAGE>
For purposes of determining the amount of taxable income resulting from
distributions, all contracts and other annuity contracts we or our affiliates
issue to you within the same calendar year will be treated as if they were a
single contract.
You, or any other payee, will pay a 10% penalty on the taxable portion of a
"premature distribution". Generally, an amount is a "premature distribution"
UNLESS the distribution is:
- made on or after you or another payee reach age 59 1/2, or is
- made to a beneficiary on or after your death, or is
- made upon your disability or that of another payee, or is
- part of a series of substantially equal annuity payments for your life or
life expectancy, or the life or life expectancy of you or your beneficiary
Premature distributions may result, for example, from:
- an early annuity commencement date
- an early surrender or partial surrender of a contract
- an assignment of a contract
- the early death of an annuitant other than you or another person receiving
annuity payments under the contract
If you transfer ownership of a contract, or designate an Annuitant or a payee
other than yourself, you may have certain income or gift tax consequences that
are beyond the scope of this discussion. If you are contemplating any transfer
or assignment of a contract, you should contact a competent tax adviser.
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
In order that a Non-Qualified Contract be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires:
- if any person receiving annuity payments dies on or after the annuity
commencement date but prior to the time the entire interest in the
contract has been distributed, the remaining portion of such interest will
be distributed at least as rapidly as under the method of distribution
being used as of the date of the person's death; and
- if you die prior to the annuity commencement date, the entire interest in
the contract will be distributed:
- within five years after your death, or
- as annuity payments that will begin within one year of your death and
will be made over your designated beneficiary's life or over a period
not extending beyond the life expectancy of that beneficiary.
However, if the contract owner's designated beneficiary is the surviving spouse,
the surviving spouse may continue the contract as the new contract owner. Where
the contract owner or other person receiving payments is not a natural person,
the required distributions under Section 72(s) apply on the death of the primary
Annuitant.
The Internal Revenue Service has not issued regulations interpreting the
requirements of Section 72(s). However, it has issued proposed regulations
interpreting similar requirements for qualified plans. We intend to review and
modify the contract if necessary to ensure that it complies with the
requirements of Section 72(s) when clarified by regulation or otherwise.
Generally, the above requirements will be satisfied with a single sum payment
where the death occurs prior to the annuity commencement date. A single sum
payment will be subject to proof of the 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, 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 contract 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 tax qualified plan on your behalf are excludible
from your gross income during the Accumulation Period. The portion, if any, of
any purchase payment that is not excluded from your gross income during the
Accumulation Period constitutes your "investment in the contract".
When annuity payments begin, you will receive back your "investment in the
contract," if any, as a tax-free return of capital. The Code provides which
portion of each payment is taxable and which portion is tax free. These rules
may vary depending on the type of tax qualified plan.
The contracts are available in connection with the following types of retirement
plans:
- Section 403(b) annuity plans for employees of certain tax-exempt
organizations and public education institutions;
- Section 401 or 403(a) qualified pension, profit-sharing or annuity plans;
- individual retirement annuities ("IRAs") under Section 408(b);
- simplified employee pension plans ("SEPs") under Section 408(k);
- SIMPLE IRA Plans under Section 408(p); and
- Section 457 unfunded deferred compensation plans of tax-exempt
organizations and private employer unfunded deferred compensation plans.
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.
18
<PAGE>
Despite the recipient's election, the Code may require withholding from certain
payments outside the United States. The Code may also require withholding from
certain distributions from certain types of qualified retirement plans unless
the proceeds are transferred directly from the qualified retirement plan to
another qualified retirement plan. Moreover, special "backup withholding" rules
may require that we disregard the recipient's election if the recipient fails to
supply us with a "TIN" or taxpayer identification number (social security number
for individuals), or if the Internal Revenue Service notifies us that the TIN
provided by the recipient is incorrect.
PORTFOLIO DIVERSIFICATION
The United States Treasury Department has adopted regulations under Section
817(h) of the Code that set forth diversification requirements for the
investments underlying the Non-Qualified Contracts. We believe that the
investments will satisfy these requirements. Failure to do so would result in
immediate taxation to you or another person of all income credited to
Non-Qualified Contracts. Also, current regulations do not provide guidance as to
any circumstances in which control over allocation of values among different
investment alternatives may cause you or another person to be treated as the
owners of Separate Account assets for tax purposes. We reserve the right to
amend the contracts in any way necessary to avoid any such result. The Treasury
Department has stated that it expects to establish standards in this regard
through regulations or rulings. Such standards may apply only prospectively,
although retroactive application is possible if the Treasury Department
considered such standards not to embody a new position.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized upon the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange pursuant to the special
annuity contract exchange form we provide for this purpose is not generally a
taxable event under the Code. Moreover, your investment in the contract will be
the same as your investment in the contract you exchanged out of. However, an
exchange from a Fortis Group Fund or other investment that is not a life
insurance or annuity contract may be a taxable event.
Various provisions of the tax laws may "grandfather" certain annuity contracts.
For example, certain annuity contracts issued before January 19, 1985 may not be
subject to the distribution rules of Code Section 72(s), and certain
distributions from contracts issued before the same date may not be subject to
the 10% penalty tax for premature distributions. In addition, if a contract
contained principal on August 13, 1982, that principal may generally be
withdrawn in a partial distribution before the withdrawal of any taxable gain in
the contract. These provisions may be lost if a grandfathered contract is
exchanged for a non-grandfathered contract.
Certain contract exchanges are subject to Code Section 1035. Where an exchange
is subject to this Code Section, certain grandfathered provisions may be
preserved. If your exchange is subject to Section 1035, we may be able to assist
you in preserving grandfathered provisions by "tracking" amounts accumulated
through past purchase payments. Payments made before or after the effective date
of the Tax Equity and Fiscal Responsibility Act of 1982 may have different tax
consequences. Therefore, you must provide us with an accurate history of your
past purchase payments.
Because of the complexity of these matters, you should consult a qualified tax
adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403(B) PLANS
Section 403(b)(11) of the Internal Revenue Code restricts the distribution under
Section 403(b) annuity contracts of:
(1) elective contributions made for years beginning after December 31, 1988;
(2) earnings on those contributions; and
(3) earnings on amounts held as of December 31, 1988.
Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, we may not distribute income attributable to elective
contributions which accrues after December 31, 1988.
VOTING PRIVILEGES
In accordance with our view of current applicable law, we will vote shares of
each of the portfolios attributable to a contract at regular and special
meetings of the shareholders of Fortis Series. We will vote those shares in
proportion to instructions we receive from the persons having the voting
interest in the contract as of the record date for the corresponding Fortis
Series shareholders meeting. Contract owners have the voting interest during the
Accumulation Period. Persons receiving annuity payments have the voting interest
during the Annuity Period, and beneficiaries have the voting interest after the
death of the Annuitant or 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 we determine that we are
permitted to vote shares of the portfolios in our own right, we may elect to do
so.
We determine the number of shares of a portfolio attributable to a contract as
follows:
- During the Accumulation Period, we divide the amount of contract value in
a subaccount by the net asset value of one share of the portfolio
corresponding to that subaccount. We make this calculation as of the
record date for the applicable portfolio.
- During the Annuity Period, or after the death of the Annuitant or owner,
we make a similar calculation. However, for subaccount value we use the
liability for future variable annuity payments allocable to that
subaccount as of the record date for the applicable portfolio. We
calculate the liability for future variable annuity payments on the basis
of the following on the record date:
- mortality assumptions,
- the assumed interest rate used in determining the number of Annuity
Units under the contract, and
- the applicable Annuity Unit value
19
<PAGE>
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.
Under certain contracts, we will vote portfolio shares according to instructions
we receive from the contract owner. However, we adjust this policy where the
Annuitant or payee is not the contract owner. Under this circumstance, the
Annuitant or payee may instruct the contract owner who, in turn, relays this
instruction to us. We will vote those portfolio shares that we can attribute to
the purchase payments of the Annuitant or payee in accordance with the
instruction relayed to us. In addition, in certain circumstances such as an
employee benefit plan, we allow the Annuitant or payee to direct how we vote
additional shares beyond those that we can attribute to the purchase payments of
the Annuitant or payee. However, we do so only to the extent authorized by the
contract. We compute the number of shares that may be attributed to the
Annuitant of payee on a basis consistent with that for attributing portfolio
shares to contract owners, as described above.
Contract owners are to instruct First Fortis to vote in accordance with such
directions from Annuitants and payees. Furthermore, contract owners are to
instruct First Fortis to vote shares of any portfolio for which directions could
have been but were not received from Annuitants and other payees in the same
proportion as other shares in that portfolio attributable to the contract owner
which are to be voted in accordance with directions received from Annuitants and
other payees. The contract owner may instruct us as to the voting of any other
shares attributable to contracts as the contract owner may determine. The
Separate Account, Fortis Series, and First Fortis do not have any obligation to
determine whether or not voting directions are requested or received by a
contract owner or whether or not a contract owner has instructed First Fortis in
accordance with directions given by Annuitants and other payees.
We will vote shares for which we have not received timely instructions, and we
will vote shares that we can attribute to excess amounts we have accumulated in
the related subaccount. We will vote these shares in proportion to the voting
instructions which we receive for all contracts and other variable annuity
contracts participating in a portfolio. To the extent that we or any affiliated
company holds any shares of a portfolio, those shares will be voted in the same
proportion as instructions for that portfolio from all our policy owners holding
voting interests in that portfolio. Shares held by separate accounts other than
the Separate 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. Under the procedures described above, these persons may
give instructions regarding:
- the election of the Board of Directors of the portfolios,
- ratification of the selection of a portfolio's independent auditors,
- the approval of the investment managers of a portfolio,
- changes in fundamental investment policies of a portfolio, and
- all other matters that are put to a vote of portfolio shareholders
STATE REGULATION
We are subject to regulation and supervision by the Insurance Department of the
State of New York, which periodically examines our affairs.
LEGAL MATTERS
David A. Peterson, Esquire, Vice President and Assistant General Counsel with
our legal department has passed on the legality of the contracts described in
this prospectus. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have
advised First Fortis on certain federal securities law matters.
YEAR 2000 ISSUES
At First Fortis, we use computer systems to process policy transactions and
valuations. We need to adjust these computer systems so that we may continue to
administer policies after the Year 2000. First Fortis is devoting all resources
necessary to make these systems modifications, and we expect that the necessary
changes will be completed on time, with no disruption to our policy servicing
operations. However, as with most system conversion projects, risks and
uncertainties exist. In part, this is due to our necessary reliance on third
party vendors. Nonperformance by any of these entities, or other unforeseen
circumstances, could have a material adverse impact on our ability to service
policies. As such, we are closely monitoring these entities to avoid any
unforeseen circumstances. See the Note entitled "Year 2000" in the Fortis
financial statements in the Statement of Additional Information.
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
First Fortis...................................
Calculation of Annuity Payments................
Services.......................................
Safekeeping of Separate Account Assets.........
Experts........................................
Principal Underwriter..........................
Limitation On Allocations......................
Change of Investment Adviser or Investment
Policy........................................
Taxation Under Certain Retirement Plans........
Other Information..............................
Financial Statements...........................
APPENDIX A--Performance Information............
</TABLE>
20
<PAGE>
APPENDIX A--SAMPLE DEATH BENEFIT CALCULATIONS
(FOR CONTRACTS ISSUED ON AND AFTER MAY 1, 1997 WITH ENHANCED DEATH BENEFIT
RIDER)
<TABLE>
<CAPTION>
DATE OF DEATH IS THE 3RD CONTRACT ANNIVERSARY: Example 1 Example 2
----------- -----------
<S> <C> <C>
a. Purchase Payments Made Prior to Date of Death $ 20,000 $ 20,000
b. Contract Value on Date of Death $ 17,000 $ 25,000
Death Benefit is larger of a, and b $ 20,000 $ 25,000
</TABLE>
<TABLE>
<CAPTION>
DATE OF DEATH IS THE 8TH CONTRACT ANNIVERSARY: Example 3 Example 4 Example 5
----------- ----------- -----------
<S> <C> <C> <C>
a. Purchase Payments Made Prior to Date of Death $ 20,000 $ 20,000 $ 20,000
b. Contract Value on 5th contract Anniversary $ 15,000 $ 30,000 $ 30,000
c. Contract Value on Date of Death $ 17,000 $ 25,000 $ 35,000
Death Benefit is larger of a, b, and c $ 20,000 $ 30,000 $ 35,000
</TABLE>
<TABLE>
<CAPTION>
DATE OF DEATH IS THE 13TH CONTRACT ANNIVERSARY: Example 6 Example 7 Example 8
----------- ----------- -----------
<S> <C> <C> <C>
a. Purchase Payments Made Prior to Date of Death $ 20,000 $ 20,000 $ 20,000
b. Contract Value on 10th contract Anniversary $ 15,000 $ 40,000 $ 40,000
c. Contract Value on Date of Death $ 17,000 $ 30,000 $ 50,000
Death Benefit is larger of a, b, and c $ 20,000 $ 40,000 $ 50,000
</TABLE>
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 Series Fund
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Growth Stock Series is calculated as
follows:
<TABLE>
<S> <C> <C>
Total Variable Account Annual Expenses 1.35%
+ Total Series Fund Operating Expenses %.65
+ Annual Administrative Charge Rate (See Below) %.03
= Total Expense Rate 2.03%
</TABLE>
The Annual Administrative Charge Rate is calculated by dividing the total Annual
contract charges collected in 1998 by the average policy value in force in 1998.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = $1000.00 X .0203 = $20.30
Year 2 Beginning Policy Value = $
Year 2 Expense = $1,029.70 X .0203 = $20.90
Year 3 Beginning Policy Value = $
Year 3 Expense = $1,060.29 X .0203 = $21.52
So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to
$20.30 + $20.90 + $21.52 = $62.72.
If the contract is surrendered, the surrender charge is the surrender charge
percentage times the purchase payment minus the 10% free withdrawal amount:
Surrender Charge Percentage X (Initial Premium - 10% Free Withdrawal) =
Surrender Charge
0.05 X ($1000.00 - $100.00) = $45.00
So the total expense if surrendered is $62.72 + $45.00 = $ .
B-1
<PAGE>
<TABLE>
<S> <C>
BULK RATE
U.S. POSTAGE
</TABLE>
FORTIS-R-
<TABLE>
<S> <C>
PAID
PERMIT NO. 3794
</TABLE>
FORTIS FINANCIAL GROUP
<TABLE>
<S> <C>
MINNEAPOLIS, MN
</TABLE>
P.O. BOX 64284
ST. PAUL, MN 55164
PROSPECTUS
MAY 1, 1999
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
Individual Flexible Premium Deferred Variable Annuity Contracts
(Opportunity and Opportunity +)
Issued by
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
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 a flexible premium deferred variable annuity contract
("Contract"), dated May 1, 1998. A copy of the Prospectus may be obtained
without charge from Fortis Investors, Inc. 1-800-800-2000, ext. 3057; mailing
address: P.O. Box 64272, St. Paul, MN 55164 or First Fortis Life Insurance
Company ("First Fortis") 1-800-745-8248, mailing address: P.O.Box 3249,
Syracuse, NY 13220. The Contracts are issued by First Fortis through its
Variable Account A (the "Separate Account").
TABLE OF CONTENTS
<TABLE>
<S> <C>
First Fortis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Calculation of Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . 2
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- Safekeeping of Separate Account Assets. . . . . . . . . . . . . . . . . . 3
- Principal Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Limitation on Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Change of Investment Adviser or Investment Policy. . . . . . . . . . . . . . 3
Taxation Under Certain Retirement Plans. . . . . . . . . . . . . . . . . . . 4
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Appendix A - Performance Information . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
In order to supplement the description in the Prospectus, the following provides
additional information about the Contract and other matters which may be of
interest to Contract Owners, Annuitants and Beneficiaries. 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."
<PAGE>
FIRST FORTIS
First Fortis Life Insurance Company, the issuer of the Contracts, is a New York
corporation qualified to sell life insurance and annuity contracts in 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 (NL) N.V. and Fortis (B). Fortis, Inc. is wholly-owned by Fortis
International, Inc., which is in turn wholly-owned by Sycamore Insurance Holding
N.V. The latter is 50% owned by Fortis (NL) N.V. and 50% owned, through certain
subsidiaries, by Fortis (B).
Fortis (NL) N.V. is a publicly-traded, multi-national insurance and financial
services group headquartered in The Netherlands. Fortis (NL) N.V. is an
international financial services firm that has been in business since 1847. It
is one of the largest holding companies in Europe with subsidiary companies in
twelve countries on four continents. Fortis (NL) N.V. is the third largest
insurance company in The Netherlands. Fortis (B) is a multi-national insurance,
real estate and financial services firm that has been in business since 1824. It
has subsidiary companies in eight countries. Fortis (B) is one of the largest
life insurance companies in Belgium. Fortis (NL) N.V. and Fortis (B) have
combined assets of approximately $390 billion.
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
"very strong 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 of the Contract 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 Separate 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 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 that Subaccount as well as charges deducted from the Subaccount.
The value of each Subaccount's Annuity Units is equal to the prior value of the
Subaccount's Annuity Units multiplied by the net investment factor for that
Subaccount (discussed in the Prospectus under "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
2
<PAGE>
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 that 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 Annuity
than for a female Annuitant of the same age with an otherwise identical
Contract. This is because, statistically, females tend to have longer life
expectancies than males. We will 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.
SERVICES
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
Title to the assets of the Separate Account is held by First Fortis. The assets
of the Separate 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 Fortis
Series Fund, Inc. held by each of the Subaccounts of the Separate Account.
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 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. First Fortis paid a total of
$1,108,526 and $1,355,423 to Fortis Investors for annuity distribution services
during 1997 and 1998, respectively. Of this total the sum of $149,399 and
$101,176 for the year 1997 and 1998, respectively, was not reallowed to other
broker dealers. Contracts will be issued for Annuitants from ages zero to
ninety.
LIMITATION ON ALLOCATIONS
Under the Contract, First Fortis reserves the right to control the amount of any
assets in any investment alternative. Pursuant to this authority, First Fortis
has established the following administrative procedures for the protection of
the interests of ail investors participating in Fortis Series' Portfolios: a
Contract Owner may not invest, allocate, transfer or exchange Contract Value
into any Subaccount if the value allocated to that Subaccount under the Contract
(and under any other insurance or annuity contracts directly or indirectly
controlled by the same person, jointly or individually) would immediately
thereafter equal 25% or more of the related Fortis Series Portfolio's net
assets. First Fortis reserves the right to modify these procedures at any time.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise required by law or regulation, and subject to Fortis Advisers,
Inc.'s right to terminate its investment advisory
3
<PAGE>
arrangements with Fortis Series, neither the investment adviser nor any
investment policy may be changed without the consent of First Fortis. No
investment policy will be changed unless a statement of change is filed with
and approved by the Insurance Commissioner of the State of New York. The
Contract Owner (or, after annuity payments start, the Annuitant) will be
notified of any material investment policy change which has been approved.
Notification of an investment policy change will be provided to Contract
Owners prior to its implementation by the Separate Account if Contract Owner
comment or vote is required for such change.
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 contract 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 592 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 made for years after December 31, 1988 (plus earnings
thereon and earnings on Contract values as of December 31, 1988) will be
permitted prior to one of the following events: attainment of age 592 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 702, 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 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.
TAX-FREE EXCHANGES AND ROLLOVERS. The Code provides for the tax-free exchange
of one Section 403(b) annuity contract for another Section 403(b) annuity
contract, 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
4
<PAGE>
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) annuity contracts.
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuity contracts.
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 required to be withheld from the distribution unless the
distribution is transferred directly from the qualified plan to an individual
retirement account or annuity.
INDIVIDUAL RETIREMENT ANNUITIES
PURCHASE PAYMENTS. Individuals may make contributions for individual retirement
annuity ("IRA") Contracts. Deductible contributions for any year may be made up
to the lesser of $2,000 or 100% of compensation for individuals who (1) are not
(and whose spouses are not) active participants in another retirement plan, (2)
are unmarried and have adjusted gross income of $25,000 or less, or (3) are
married and have adjusted gross income of $40,000 or less. An individual may
also establish an IRA for his or her spouse if they file a joint return for the
taxable year and his or her spouse earns less than the individual does for that
year. The annual purchase payments for both spouses' Contracts cannot exceed
the lesser of $4,000 or 100% of the couple's combined earned income, and no more
than $2,000 may be contributed to either spouse's IRA for any year. Individuals
who are active participants in other retirement plans and whose adjusted gross
income (with certain special adjustment) exceed the cut-off point ($25,000 for
unmarried, $40,000 for married persons filing jointly, and $0 for married
persons filing a separate return) by less than $10,000 are entitled to make
deductible IRA contributions in proportionately reduced amounts. For example, a
married individual who is an active participant in another retirement plan and
files a separate tax return is entitled to a partial IRA deduction if the
individual's adjusted gross income is less than $10,000 and no IRA deduction if
his or her adjusted gross income is equal to or greater than $10,000.
An individual may make non-deductible IRA contributions to the extent of (1) the
lesser of $2,000 ($4,000 in the case of a spousal IRA) or 100% of compensation
over (2) the IRA deductible contribution made with respect to the individual.
An individual may not make any contributions to his/her own IRA for the year
in which he/she reaches age 70 1/2 or for any year thereafter. Contributions
to a spouse's IRA may not be made for any year in which that spouse reaches
age 70 1/2 or for any year thereafter.
TAXATION OF DISTRIBUTIONS. Distributions from IRA Contracts are taxed as
ordinary income to the recipient, although special rules exist for the
tax-free return of non-deductible contributions. In addition, taxable
distributions received under an IRA Contract prior to age 59 1/2 are subject
to a 10% penalty tax in addition to regular income tax. Certain distributions
are exempted from this penalty tax including distributions following the
owner's death or disability or distribution in the form of an annuity for the
life (or life expectancy) of the owner (or the owner and beneficiary), or
distributions not in excess of deductible medical expenses or certain
distributions to pay health insurance premiums after an extended period of
unemployment.
5
<PAGE>
REQUIRED DISTRIBUTIONS. The minimum distribution requirements for IRAs are
generally the same as described above with respect to Section 403(b) annuity
contracts. Certain of these and other provisions are incorporated in a special
endorsement attached to IRA Contracts, and reference should be made to that
endorsement for its complete terms.
TAX-FREE ROLLOVERS. The Code permits funds to be transferred in a tax-free
rollover from a qualified employer pension, profit-sharing, annuity, bond
purchase or tax-deferred annuity plan to an IRA Contract if certain conditions
are met, and if the rollover of assets is completed within 60 days after the
distribution from the qualified plan is received. In addition, not more
frequently than once every twelve months, amounts may be rolled over tax-free
from one IRA to another, subject to the 60-day limitation and other
requirements. The once-per-year limitation on rollovers does not apply to
direct transfers of funds between IRA custodians or trustees.
SIMPLIFIED EMPLOYEE PENSION PLANS
PURCHASE PAYMENTS. Under Section 408(k) of the Code, employers may establish a
type of IRA plan referred to as a simplified employee pension plan (SEP).
Employer contributions to a SEP cannot exceed the lesser of $24,000 or 15% of
the employee's earned income. Employees of certain small employers may have
contributions made to a special kind of SEP (SARSEP) on their behalf on a salary
reduction basis if the SARSEP plan was in effect on December 31, 1996. These
salary reduction contributions may not exceed $9,500 in 1997, which is indexed
for inflation. Employees of tax-exempt organizations and state or local
government agencies have never been eligible for the salary reduction type of
SEP.
TAXATION OF DISTRIBUTIONS. Generally, distribution payments from SEPs are
subject to the same distribution rules described above for IRAs.
REQUIRED DISTRIBUTIONS. SEP distributions are subject to the same minimum
required distribution rules described above for IRAs.
TAX-FREE ROLLOVERS. Generally, rollovers and direct transfers may be made to
and from SEPs in the same manner as described above for IRAs, subject to the
same conditions and limitations. Rollovers to other IRAs, excluding SIMPLE IRAs
are also possible. Special rules apply if the rollover is from a SARSEP IRA.
SECTION 408(p) SIMPLE IRA PLANS
PURCHASE PAYMENTS: Under Section 408(p) of the Code, small employers may
establish a type of IRA plan referred to as a Savings Incentive Match Plan for
Employees (SIMPLE Plan). An employee may contribute annually through his or her
employer a pre-tax salary reduction contribution not to exceed the lesser of
$6,000 or 100% of compensation. The employer must annually either (1) match the
employee contribution dollar for dollar up to 3% of pay, or (2) make a 2% of pay
contribution for each eligible employee regardless of whether the employee makes
any salary reduction contribution. In two out of every five years, the employer
has the option to reduce the matching contribution as low as 1% of pay but
advance notice must be provided to employees.
TAXATION OF DISTRIBUTIONS: Generally, distributions from SIMPLE IRA Plans are
subject to the same distribution rules described above for IRAs. However, if an
individual withdraws any amount from his SIMPLE IRA Plan within the first two
years of his or her commencement of participation in the employer's SIMPLE IRA
Plan, the 10% penalty tax for premature distribution, if such tax applies, will
be increased to 25%.
REQUIRED DISTRIBUTIONS: SIMPLE distributions are subject to the same minimum
distribution rules described above for IRAs.
TAX-FREE ROLLOVERS: Generally, rollovers and direct transfers may be made to
and from SIMPLE IRAs in the same manner as described above for IRAs, subject to
the same conditions and limitations. Rollovers or transfers to other IRAs, other
than SIMPLE IRAs, are also possible but only after the second anniversary of
commencement of participation in the employer's SIMPLE IRA Plan.
SECTION 457 UNFUNDED DEFERRED COMPENSATION PLANS OF PUBLIC EMPLOYERS AND
TAX-EXEMPT ORGANIZATIONS
6
<PAGE>
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) annuity
contracts. 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.
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 to 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.
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.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as
7
<PAGE>
amended, with respect to the Contracts discussed in this Statement of Additional
Information. Not all of the information set forth in the Registration
Statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information 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.
First Fortis relies upon a SEC no-action letter dated December 22, 1988
providing relief from certain restrictions provided in the Investment Company
Act of 1940 relative to restrictions on redemptions and it complies with its
conditions.
The computer systems First Fortis uses to process policy transactions and
valuations need to be adjusted to be able to continue to administer its policies
after Year 2000. First Fortis 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 circumstancses,
could have a material adverse impact on First Fortis' ability to perform its
policy servicing operations. First Fortis is closely monitoring these entities
to avoid any unforeseen circumstances.
FINANCIAL STATEMENTS
The financial statements of First Fortis that are included in this Statement of
Additional Information should be considered only as bearing on the ability of
First Fortis to meet its obligations under the Contracts.
8
<PAGE>
FINANCIAL STATEMENTS
FIRST FORTIS LIFE INSURANCE COMPANY
VARIABLE ACCOUNT A
YEAR ENDED DECEMBER 31, 1998
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Financial Statements
Year ended December 31, 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors................................................1
Financial Statements
Statements of Net Assets......................................................3
Statements of Changes in Net Assets...........................................5
Notes to Financial Statements................................................14
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors
First Fortis Life Insurance Company
We have audited the accompanying individual and combined statements of net
assets of the segregated asset subaccounts of First Fortis Life Insurance
Company Variable Account A (comprised of the Fortis Series Fund, Inc.'s Growth
Stock, U.S. Government Securities, Money Market, Asset Allocation, Diversified
Income, Global Growth, Aggressive Growth, Growth & Income, High Yield, Global
Asset Allocation, Global Bond, International Stock, Value, S & P 500, Blue Chip
Stock, Mid Cap Stock, Large Cap Growth, and Small Cap Value Subaccounts; the
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, High Income Fund
II, Utility Series, and American Leaders Series Subaccounts; the Lexington Funds
Inc.'s Emerging Market Subaccount; 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
and VP Capital Appreciation Subaccounts; the Van Eck Worldwide Insurance Trust's
Worldwide Bond Fund Subaccount; the Neuberger & Berman, Inc.'s AMT Limited
Maturity Bond and AMT Partners Subaccounts; and INVESCO, Inc.'s Health &
Sciences, Industrial Income and Technology Subaccounts) as of December 31, 1998,
and the related statements of changes in net assets for each of the two years in
the periods then ended, 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 Fund 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 and the Fortis Mid Cap Stock, Large Cap Growth and Small Cap
Value Subaccounts which are for the period May 1, 1998 (commencement of
operations) to December 31, 1998. 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.
1
<PAGE>
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 December 31, 1998 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 individual and combined financial position of the
segregated asset subaccounts of First Fortis Life Insurance Company Variable
Account A at December 31, 1998, and the individual and combined changes in its
net assets for the periods described above, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 19, 1999
2
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Net Assets
December 31, 1998
<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 44,751 $1,650,355 $1,838,724 44,751 $41.09
U.S. Government Securities 120,019 1,299,443 1,311,582 120,019 10.93
Money Market 44,130 487,192 488,232 44,130 11.06
Asset Allocation 136,741 2,602,095 2,884,296 136,741 21.09
Diversified Income 103,326 1,245,049 1,231,033 103,326 11.91
Global Growth 71,546 1,458,645 1,614,639 71,546 22.57
Aggressive Growth 100,260 1,368,017 1,674,406 100,260 16.70
Growth & Income 334,522 6,322,840 7,100,933 334,522 21.23
High Yield 171,697 1,802,235 1,700,801 171,697 9.91
Global Asset Allocation 105,139 1,471,235 1,505,721 105,139 14.32
Global Bond 17,136 194,334 198,104 17,136 11.56
International Stock 140,061 2,033,364 2,028,486 140,062 14.48
Value 165,278 2,240,047 2,375,906 165,278 14.38
S & P 500 382,247 6,216,885 7,199,393 380,368 18.93
Blue Chip Stock 265,335 4,156,445 4,928,671 265,319 18.58
Mid Cap Stock 13,216 112,950 127,357 13,216 9.64
Large Cap Growth 88,288 902,119 1,063,375 88,288 12.04
Small Cap Value 24,048 212,238 223,154 24,048 9.28
Investments in Alliance Variable Product:
Money Market 656,744 656,744 656,744 57,856 11.35
International 4,880 76,226 78,916 6,481 12.18
Premier Growth 24,441 622,086 758,418 32,730 23.17
Investments in SAFECO Resource Series:
Growth 10,215 257,990 216,975 14,286 15.19
Equity 12,379 336,143 370,994 24,561 15.11
Investments in Federated Insurance Series:
U.S. Government Securities Fund II 4,159 45,009 46,370 4,038 11.48
High Income Fund II 42,220 435,780 461,040 36,236 12.72
Utility Series 2,638 37,847 40,285 2,610 15.43
American Leaders Series 2,955 57,368 64,059 3,644 17.58
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Net Assets (continued)
December 31, 1998
<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 Lexington Funds, Inc.:
Emerging Markets 1,037 $ 5,328 $ 5,862 986 $ 5.95
Investments in MFS Variable Insurance Trust:
Emerging Growth 5,960 99,265 127,960 6,958 18.39
High Income 46,219 514,532 532,907 43,436 12.27
Investments in Montgomery Variable Funds:
Emerging Markets 2,422 19,282 15,961 2,438 6.55
Growth 6,657 104,989 102,446 6,157 16.64
Investments in Strong Variable Annuity Funds:
Discovery II 1,707 19,954 21,711 1,822 11.92
International II 7,348 63,130 64,517 7,516 8.58
Investments in American Century Investments:
VP Balanced 3,009 24,133 25,092 1,722 14.57
VP Capital Appreciation 728 5,328 6,565 743 8.84
Investments in Van Eck Worldwide Ins. Trust:
Worldwide Bond Fund 20 250 250 21 11.90
Investments in Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 4,157 57,274 57,461 5,263 10.92
AMT Partners 2,738 50,906 51,830 4,003 12.95
Investments in INVESCO, Inc.:
Health & Sciences 8,181 106,494 125,083 7,986 15.66
Industrial Income 1,260 22,720 23,452 1,683 13.93
Technology 2,184 27,664 31,324 2,187 14.32
-------------------------------------------
Total Net Assets $39,421,930 $43,381,035 2,601,209
-------------------------------------------
-------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
FORTIS FORTIS
GROWTH U.S. GOVERNMENT MONEY FORTIS
STOCK SECURITIES MARKET ASSET ALLOCATION
-------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C>
Dividend income $ 74,961 $ 25,927 $ 14,196 $ 4,471
Mortality and expense and administrative charges
(16,709) (6,277) (4,306) (28,363)
Net realized gain (loss) on investments 13,232 (456) (26,025) 2,361
Net change in unrealized appreciation
(depreciation) of investments 161,133 9,921 3,329 403,071
-------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 232,617 29,115 (12,806) 381,540
CAPITAL TRANSACTIONS
Purchase of Variable Account units 938,415 1,083,157 677,788 1,322,894
Redemption of Variable Account units (142,834) (29,413) (433,177) (372,855)
Mortality and expense and administrative charges redeemed
16,709 6,277 4,306 28,363
-------------------------------------------------------------
Net increase from capital transactions 812,290 1,060,021 248,917 978,402
Net assets at beginning of year 793,817 222,446 252,121 1,524,354
-------------------------------------------------------------
Net assets at end of year $ 1,838,724 $ 1,311,582 $ 488,232 $ 2,884,296
-------------------------------------------------------------
-------------------------------------------------------------
<CAPTION>
FORTIS FORTIS FORTIS
FORTIS GLOBAL FORTIS GROWTH & HIGH
DIVERSIFIED INC GROWTH AGGRESSIVE GROWTH INCOME YIELD
-----------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C>
Dividend income $ 56,023 $ 1,604 $ 2,104 $ 1,657 $ 119,774
Mortality and expense and administrative charges
(8,973) (17,478) (13,391) (64,764) (16,220)
Net realized gain (loss) on investments (396) 11,413 9,641 20,441 (2,079)
Net change in unrealized appreciation
(depreciation) of investments (17,143) 111,270 280,168 579,716 (120,724)
-----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 29,511 106,809 278,522 537,050 (19,249)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 920,521 745,727 865,048 4,039,563 1,190,129
Redemption of Variable Account units (19,789) (179,438) (112,602) (222,124) (97,106)
Mortality and expense and administrative charges redeemed
8,973 17,478 13,391 64,764 16,220
-----------------------------------------------------------------------
Net increase from capital transactions 909,705 583,767 765,837 3,882,203 1,109,243
Net assets at beginning of year 291,817 924,063 630,047 2,681,680 610,807
-----------------------------------------------------------------------
Net assets at end of year $ 1,231,033 $ 1,614,639 $ 1,674,406 $ 7,100,933 $ 1,700,801
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
FORTIS FORTIS FORTIS
GLOBAL GLOBAL INTERNATIONAL FORTIS
ASSET ALLOCATION BOND STOCK VALUE
---------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C>
Dividend income $ 99,868 $ 7,959 $ 135,567 $ 52,409
Mortality and expense and administrative charges
(11,070) (1,325) (15,623) (19,724)
Net realized gain (loss) on investments 815 577 6,618 2,650
Net change in unrealized appreciation
(depreciation) of investments 26,698 5,497 (2,847) 96,647
---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 116,311 12,708 123,715 131,982
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,034,925 125,991 1,457,342 1,508,103
Redemption of Variable Account units (22,016) (11,560) (77,257) (45,032)
Mortality and expense and administrative charges redeemed
11,070 1,325 15,623 19,724
---------------------------------------------------------
Net increase from capital transactions 1,023,979 115,756 1,395,708 1,482,795
Net assets at beginning of year 365,431 69,640 509,063 761,129
---------------------------------------------------------
Net assets at end of year $ 1,505,721 $ 198,104 $ 2,028,486 $ 2,375,906
---------------------------------------------------------
---------------------------------------------------------
<CAPTION>
FORTIS FORTIS FORTIS FORTIS
FORTIS BLUE CHIP ORTIS LARGE CAP SMALL CAP
S&P 500 STOCK MID CAP STOCK* GROWTH* VALUE*
-----------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C>
Dividend income $ 106,189 $ 82,088 $ 216 $ 272 $ 2,947
Mortality and expense and administrative charges
(50,027) (36,122) (345) (3,525) (549)
Net realized gain (loss) on investments 6,880 7,951 4 3,875 (133)
Net change in unrealized appreciation
(depreciation) of investments 882,217 676,563 14,407 161,256 10,916
-----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 945,259 730,480 14,282 161,878 13,181
CAPITAL TRANSACTIONS
Purchase of Variable Account units 5,180,564 3,150,945 112,935 959,801 210,341
Redemption of Variable Account units (407,707) (59,745) (205) (61,829) (917)
Mortality and expense and administrative charges redeemed
50,027 36,122 345 3,525 549
-----------------------------------------------------------------------
Net increase from capital transactions 4,822,884 3,127,322 113,075 901,497 209,973
Net assets at beginning of year 1,431,250 1,070,869 -- -- --
-----------------------------------------------------------------------
Net assets at end of year $ 7,199,393 $ 4,928,671 $ 127,357 $ 1,063,375 $ 223,154
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
* For the period from May 1, 1998 to December 31, 1998.
SEE ACCOMPANYING NOTES.
6
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
ALLIANCE ALLIANCE
MONEY ALLIANCE PREMIER SAFECO
MARKET INTERNATIONAL GROWTH GROWTH
---------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C>
Dividend income $ 7,585 $ -- $ -- $ 22,511
Mortality and expense and administrative charges
(2,057) (257) (1,861) (725)
Net realized gain (loss) on investments -- 1,883 2,704 (24,450)
Net change in unrealized appreciation
(depreciation) of investments -- 2,924 133,535 (38,248)
---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 5,528 4,550 134,378 (40,912)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 3,684,672 760,164 672,665 513,929
Redemption of Variable Account units (3,248,486) (730,934) (333,215) (275,000)
Mortality and expense and administrative charges redeemed
2,057 257 1,861 725
---------------------------------------------------------
Net increase from capital transactions 438,243 29,487 341,311 239,654
Net assets at beginning of year 212,973 44,879 282,729 18,233
---------------------------------------------------------
Net assets at end of year $ 656,744 $ 78,916 $ 758,418 $ 216,975
---------------------------------------------------------
---------------------------------------------------------
<CAPTION>
FEDERATED U.S.
GOVERNMENT FEDERATED HIGH FEDERATED
SAFECO SECURITIES INCOME FEDERATED AMERICAN
EQUITY FUND II FUND II UTILITY II LEADERS II
-----------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C>
Dividend income $ 17,476 $ 324 $ 11,392 $ 2,328 $ 66
Mortality and expense and administrative charges
(1,281) (100) (1,028) (132) (304)
Net realized gain (loss) on investments 781 2 4,085 -- 7,830
Net change in unrealized appreciation
(depreciation) of investments 47,661 1,208 19,920 2,438 6,691
-----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 64,637 1,434 34,369 4,634 14,283
CAPITAL TRANSACTIONS
Purchase of Variable Account units 124,579 26,626 557,093 35,519 992,788
Redemption of Variable Account units (45,200) (103) (501,159) -- (943,316)
Mortality and expense and administrative charges redeemed
1,281 100 1,028 132 304
-----------------------------------------------------------------------
Net increase from capital transactions 80,660 26,623 56,962 35,651 49,776
Net assets at beginning of year 225,697 18,313 369,709 -- --
-----------------------------------------------------------------------
Net assets at end of year $ 370,994 $ 46,370 $ 461,040 $ 40,285 $ 64,059
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
* For the period from May 1, 1998 to December 31, 1998.
SEE ACCOMPANYING NOTES.
7
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
LEXINGTON MFS MONTGOMERY
EMERGING EMERGING MFS HIGH EMERGING
MARKETS GROWTH INCOME MARKETS
-------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C>
Dividend income $ -- $ 1,453 $ 32,386 $ 31
Mortality and expense and administrative charges
(5) (625) (1,681) (41)
Net realized gain (loss) on investments -- (795) (4,057) (11)
Net change in unrealized appreciation
(depreciation) of investments 534 28,368 12,115 (3,380)
-------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 529 28,401 38,763 (3,401)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 5,328 38,432 389,855 14,796
Redemption of Variable Account units -- (87,326) (379,868) (44)
Mortality and expense and administrative charges redeemed 5 625 1,681 41
-------------------------------------------------
Net increase from capital transactions 5,333 (48,269) 11,668 14,793
Net assets at beginning of year -- 147,828 482,476 4,569
-------------------------------------------------
Net assets at end of year $ 5,862 $ 127,960 $ 532,907 $ 15,961
-------------------------------------------------
-------------------------------------------------
<CAPTION>
AMERICAN
STRONG STRONG AMERICAN CENTURY
MONTGOMERY DISCOVERY INTERNATIONAL CENTURY VP CAPITAL
GROWTH II II VP BALANCED APPRECIATION
-----------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C>
Dividend income $ 459 $ 178 $ 418 $ 1,039 $ --
Mortality and expense and administrative charges
(312) (54) (169) (67) (15)
Net realized gain (loss) on investments (26) (3) 305 1,499 343
Net change in unrealized appreciation
(depreciation) of investments (1,414) 2,305 1,966 884 1,237
-----------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,293) 2,426 2,520 3,355 1,565
CAPITAL TRANSACTIONS
Purchase of Variable Account units 80,457 7,984 40,679 50,995 156,020
Redemption of Variable Account units (161) (76) (14,233) (37,104) (151,035)
Mortality and expense and administrative charges redeemed 312 54 169 67 15
-----------------------------------------------------------------
Net increase from capital transactions 80,608 7,962 26,615 13,958 5,000
Net assets at beginning of year 23,131 11,323 35,382 7,779 --
-----------------------------------------------------------------
Net assets at end of year $ 102,446 $ 21,711 $ 64,517 $ 25,092 $ 6,565
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
NEUBERGER &
VAN ECK BERMAN AMT NEUBERGER &
WORLDWIDE LIMITED BERMAN
BOND FUND MATURITY BOND AMT PARTNERS
---------------------------------------------
OPERATIONS
<S> <C> <C> <C>
Dividend income $ -- $ -- $ 2,082
Mortality and expense and administrative charges
(1) (51) (115)
Net realized gain (loss) on investments -- -- (18)
Net change in unrealized appreciation
(depreciation) of investments -- 187 738
---------------------------------------------
Net (decrease) increase in net assets
resulting from operations (1) 136 2,687
CAPITAL TRANSACTIONS
Purchase of Variable Account units 250 57,274 34,219
Redemption of Variable Account units -- -- (185)
Mortality and expense and administrative charges redeemed 1 51 115
---------------------------------------------
Net increase from capital transactions 251 57,325 34,149
Net assets at beginning of year -- -- 14,994
---------------------------------------------
Net assets at end of year $ 250 $ 57,461 $ 51,830
---------------------------------------------
---------------------------------------------
<CAPTION>
INVESCO INVESCO COMBINED
HEALTH & INDUSTRIAL INVESCO VARIABLE
SCIENCES INCOME TECHNOLOGY ACCOUNT
-------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C>
Dividend income $ 3,233 $ 1,192 $ 158 $ 892,543
Mortality and expense and administrative charges
(293) (54) (73) (326,091)
Net realized gain (loss) on investments 1,291 331 (1,897) 47,166
Net change in unrealized appreciation
(depreciation) of investments 18,576 1,477 3,572 3,525,389
-------------------------------------------------------------
Net (decrease) increase in net assets
resulting from operations 22,807 2,946 1,760 4,139,007
CAPITAL TRANSACTIONS
Purchase of Variable Account units 129,353 14,731 78,657 33,991,254
Redemption of Variable Account units (30,374) (8,329) (51,365) (9,133,119)
Mortality and expense and administrative charges redeemed 293 54 73 326,091
-------------------------------------------------------------
Net increase from capital transactions 99,272 6,456 27,365 25,184,226
Net assets at beginning of year 3,004 14,050 2,199 14,057,802
-------------------------------------------------------------
Net assets at end of year $ 125,083 $ 23,452 $ 31,324 $ 43,381,035
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Changes in Net Assets
Year ended December 31, 1997
<TABLE>
<CAPTION>
FORTIS
FORTIS U.S. FORTIS FORTIS
GROWTH GOVERNMENT MONEY ASSET
STOCK SECURITIES MARKET ALLOCATION
---------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C>
Dividend income $ 57 $ 8,101 $ 11,383 $ 192,549
Mortality and expense and administrative charges (6,272) (1,066) (3,107) (7,853)
Net realized gain (loss) on investments 22,406 (1,976) 3,214 8,609
Net change in unrealized appreciation
(depreciation) of investments 26,263 2,353 (2,658) (117,203)
---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 42,454 7,412 8,832 76,102
CAPITAL TRANSACTIONS
Purchase of Variable Account units 809,304 315,010 2,580,624 1,460,620
Redemption of Variable Account units (274,309) (107,853) (2,385,564) (169,600)
Mortality and expense and administrative charges
redeemed 6,272 1,066 3,107 7,853
---------------------------------------------------------
Net increase from capital transactions 541,267 208,223 198,167 1,298,873
Net assets at beginning of year 210,096 6,811 45,122 149,379
---------------------------------------------------------
Net assets at end of year $ 793,817 $ 222,446 $ 252,121 $ 1,524,354
---------------------------------------------------------
---------------------------------------------------------
<CAPTION>
FORTIS FORTIS FORTIS FORTIS
DIVERSIFIED GLOBAL AGGRESSIVE GROWTH & FORTIS
INCOME GROWTH GROWTH INCOME HIGH YIELD
-----------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C>
Dividend income $ 16,326 $ -- $ 7 $ 76,880 $ 646
Mortality and expense and administrative charges (1,961) (7,355) (5,186) (16,770) (4,468)
Net realized gain (loss) on investments (2) (12,952) 755 23,492 1,165
Net change in unrealized appreciation
(depreciation) of investments 2,118 43,191 33,963 191,974 24,198
-----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 16,481 22,884 29,539 275,576 21,541
CAPITAL TRANSACTIONS
Purchase of Variable Account units 236,355 1,198,499 481,066 2,676,915 535,464
Redemption of Variable Account units (235) (432,388) (76,978) (510,526) (68,118)
Mortality and expense and administrative charges
redeemed 1,961 7,355 5,186 16,770 4,468
-----------------------------------------------------------------------
Net increase from capital transactions 238,081 773,466 409,274 2,183,159 471,814
Net assets at beginning of year 37,255 127,713 191,234 222,945 117,452
-----------------------------------------------------------------------
Net assets at end of year $ 291,817 $ 924,063 $ 630,047 $ 2,681,680 $ 610,807
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
FORTIS
GLOBAL FORTIS FORTIS
ASSET GLOBAL INTERNATIONAL FORTIS
ALLOCATION BOND STOCK VALUE
---------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C>
Dividend income $ 17,421 $ 2,110 $ 19,136 $ 43,484
Mortality and expense and administrative charges (2,913) (518) (3,619) (5,646)
Net realized gain (loss) on investments 3,379 (110) 9,811 12,634
Net change in unrealized appreciation
(depreciation) of investments 8,407 (1,467) (4,635) 31,692
---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 26,294 15 20,693 82,164
CAPITAL TRANSACTIONS
Purchase of Variable Account units 294,716 98,951 462,256 626,949
Redemption of Variable Account units (56,351) (45,993) (117,125) (127,016)
Mortality and expense and administrative charges
redeemed 2,913 518 3,619 5,646
---------------------------------------------------------
Net increase from capital transactions 241,278 53,476 348,750 505,579
Net assets at beginning of year 97,859 16,149 139,620 173,386
---------------------------------------------------------
Net assets at end of year $ 365,431 $ 69,640 $ 509,063 $ 761,129
---------------------------------------------------------
---------------------------------------------------------
<CAPTION>
FORTIS ALLIANCE ALLIANCE
FORTIS BLUE CHIP MONEY ALLIANCE PREMIER
S&P 500 STOCK MARKET* INTERNATIONAL* GROWTH*
-----------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C>
Dividend income $ 21,704 $ 4,348 $ 735 $ -- $ --
Mortality and expense and administrative charges (7,708) (6,433) (46) (13) (80)
Net realized gain (loss) on investments 8,202 5,163 -- -- --
Net change in unrealized appreciation
(depreciation) of investments 98,868 93,112 -- (234) 2,797
-----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 121,066 96,190 689 (247) 2,717
CAPITAL TRANSACTIONS
Purchase of Variable Account units 1,365,385 925,855 303,796 45,113 279,932
Redemption of Variable Account units (121,189) (66,571) (91,558) -- --
Mortality and expense and administrative charges
redeemed 7,708 6,433 46 13 80
-----------------------------------------------------------------------
Net increase from capital transactions 1,251,904 865,717 212,284 45,126 280,012
Net assets at beginning of year 58,280 108,962 -- -- --
-----------------------------------------------------------------------
Net assets at end of year $ 1,431,250 $ 1,070,869 $ 212,973 $ 44,879 $ 282,729
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
* For the period from September 1, 1997 to December 31, 1997.
SEE ACCOMPANYING NOTES.
11
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
FEDERATED
U.S. FEDERATED
GOVERNMENT HIGH
SAFECO SAFECO SECURITIES INCOME
GROWTH* EQUITY* FUND II* FUND II*
-----------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C>
Dividend income $ 2,922 $ 16,403 $ -- $ --
Mortality and expense and administrative charges (6) (62) (6) (112)
Net realized gain (loss) on investments -- -- -- --
Net change in unrealized appreciation
(depreciation) of investments (2,767) (12,809) 153 5,339
-----------------------------------------------
Net increase (decrease) in net assets
resulting from operations 149 3,532 147 5,227
CAPITAL TRANSACTIONS
Purchase of Variable Account units 18,078 222,103 18,160 364,370
Redemption of Variable Account units -- -- -- --
Mortality and expense and administrative charges
redeemed 6 62 6 112
-----------------------------------------------
Net increase from capital transactions 18,084 222,165 18,166 364,482
Net assets at beginning of year -- -- -- --
-----------------------------------------------
Net assets at end of year $ 18,233 $ 225,697 $ 18,313 $ 369,709
-----------------------------------------------
-----------------------------------------------
<CAPTION>
MFS MFS MONTGOMERY
EMERGING HIGH EMERGING MONTGOMERY STRONG
GROWTH* INCOME* MARKETS* GROWTH* DISCOVERY II*
--------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C>
Dividend income $ -- $ -- $ 8 $ 1,003 $ --
Mortality and expense and administrative charges (38) (147) (1) (9) (2)
Net realized gain (loss) on investments 16 -- -- -- --
Net change in unrealized appreciation
(depreciation) of investments 327 6,260 59 (1,129) (548)
--------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 305 6,113 66 (135) (550)
CAPITAL TRANSACTIONS
Purchase of Variable Account units 148,667 476,216 4,502 23,257 11,871
Redemption of Variable Account units (1,182) -- -- -- --
Mortality and expense and administrative charges
redeemed 38 147 1 9 2
--------------------------------------------------------------
Net increase from capital transactions 147,523 476,363 4,503 23,266 11,873
Net assets at beginning of year -- -- -- -- --
--------------------------------------------------------------
Net assets at end of year $ 147,828 $ 482,476 $ 4,569 $ 23,131 $ 11,323
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
* For the period from September 1, 1997 to December 31, 1997.
SEE ACCOMPANYING NOTES.
12
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Statements of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
AMERICAN NEUBERGER &
STRONG CENTURY BERMAN
INTERNATIONAL VP BALANCED* AMT PARTNERS*
II*
---------------------------------------------
OPERATIONS
<S> <C> <C> <C>
Dividend income $ -- $ -- $ --
Mortality and expense charges (10) (3) (5)
Net realized gain (loss) on investments -- -- --
Net change in unrealized appreciation
(depreciation) of investments (579) 75 186
---------------------------------------------
Net increase (decrease) in net assets
resulting from operations (589) 72 181
CAPITAL TRANSACTIONS
Purchase of Variable Account units 35,961 7,704 14,808
Redemption of Variable Account units -- -- --
Mortality and expense charges redeemed 10 3 5
---------------------------------------------
Increase from capital transactions 35,971 7,707 14,813
Net assets at beginning of year -- -- --
---------------------------------------------
Net assets at end of year $ 35,382 $ 7,779 $ 14,994
---------------------------------------------
---------------------------------------------
<CAPTION>
INVESCO INVESCO COMBINED
HEALTH & INDUSTRIAL INVESCO VARIABLE
SCIENCES* INCOME* TECHNOLOGY* ACCOUNT
--------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C>
Dividend income $ -- $ 994 $ -- $ 436,217
Mortality and expense charges (1) (7) (1) (81,424)
Net realized gain (loss) on investments -- -- -- 83,806
Net change in unrealized appreciation
(depreciation) of investments 14 (745) 88 426,663
--------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 13 242 87 865,262
CAPITAL TRANSACTIONS
Purchase of Variable Account units 2,990 13,801 2,111 16,061,409
Redemption of Variable Account units -- -- -- (4,652,556)
Mortality and expense charges redeemed 1 7 1 81,424
--------------------------------------------------------------
Increase from capital transactions 2,991 13,808 2,112 11,490,277
Net assets at beginning of year -- -- -- 1,702,263
--------------------------------------------------------------
Net assets at end of year $ 3,004 $ 14,050 $ 2,199 $ 14,057,802
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
* For the period from September 1, 1997 to December 31, 1997.
SEE ACCOMPANYING NOTES.
13
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements
December 31, 1998
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.
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.
INVESTMENT TRANSACTIONS
Capital gain distributions from subaccounts are recorded on the ex-dividend date
and reinvested upon receipt.
INVESTMENT INCOME
Dividend income distributions from subaccounts are 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.
14
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
3. INVESTMENTS
There are forty-two active subaccounts and three inactive subaccounts as of
December 31, 1998 within the Account. The inactive subaccounts are available
funds in which contract holders have not yet invested. 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, 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 aggregate cost of investments sold or redeemed
for active subaccounts were as follows:
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES COST OF
------------------------- COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock 26,601 3,515 $1,013,376 $129,602
U.S. Government Securities 101,885 2,693 1,109,084 29,869
Money Market 60,418 39,145 691,984 459,202
Asset Allocation 69,787 19,556 1,327,365 370,494
Diversified Income 80,644 1,668 976,544 20,185
Global Growth 34,446 8,441 747,331 168,025
Aggressive Growth 62,177 7,552 867,152 102,961
Growth & Income 202,417 10,874 4,041,220 201,683
High Yield 124,255 9,263 1,309,903 99,185
Global Asset Allocation 79,205 1,568 1,134,793 21,201
Global Bond 11,597 1,002 133,950 10,983
International Stock 106,998 5,039 1,592,909 70,639
Value 111,781 3,219 1,560,512 42,382
S & P 500 310,604 24,185 5,286,753 400,827
Blue Chip Stock 196,205 3,472 3,233,033 51,794
Mid Cap Stock 13,242 24 113,151 201
Large Cap Growth 94,015 5,727 960,073 57,954
Small Cap Value 24,166 117 213,288 1,050
</TABLE>
15
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998 (CONTINUED)
<TABLE>
<CAPTION>
SHARES COST OF
------------------------- COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance Variable Product:
Money Market 3,659,902 3,248,486 $3,692,257 $3,248,486
International 45,456 43,390 760,164 729,051
Premier Growth 25,024 12,452 672,665 330,511
SAFECO Resource Series:
Growth 19,458 11,106 536,440 299,450
Equity 4,486 1,650 142,055 44,419
Federated Insurance Series:
U.S. Government Securities Fund II 2,400 9 26,950 101
High Income Fund II 53,223 45,804 568,485 497,074
Utility II 2,474 -- 37,847 --
American Leaders II 50,401 47,449 992,854 935,486
Lexington Funds, Inc.:
Emerging Markets 1,037 -- 5,328 --
MFS Variable Insurance Trust:
Emerging Growth 2,051 5,328 39,885 88,121
High Income 36,002 31,526 422,241 383,925
Montgomery Variable Funds:
Emerging Markets 1,991 6 14,827 55
Growth 5,103 12 80,916 187
Strong Variable Annuity Funds:
Discovery II 759 39 8,162 79
International II 4,968 1,458 41,097 13,928
American Century Investments:
VP Balanced 6,306 4,378 52,034 35,605
VP Capital Appreciation 16,768 16,040 156,020 150,692
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 20 -- 250 --
Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 4,157 -- 57,274 --
AMT Partners 1,913 11 36,301 203
INVESCO, Inc.:
Health & Sciences 9,985 2,322 132,586 29,083
Industrial Income 811 448 15,923 7,998
Technology 5,982 4,003 78,815 53,262
</TABLE>
16
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
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 -- 4,510 --
Growth 432 -- 24,260 --
Strong Variable Annuity Funds: 1,533
Discovery II -- 11,871 --
International II 941 -- 35,961 --
American Century Investments: 3,797
VP Balanced -- 7,704 --
</TABLE>
17
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
<TABLE>
<CAPTION>
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 --
</TABLE>
4. ORGANIZATIONAL EXPENSES AND OTHER CHARGES
ORGANIZATION EXPENSES
First Fortis assumes all organizational expenses of the Account.
ADMINISTRATION CHARGE
A $30 annual contract administrative charge is deducted each contract year from
the 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.
In addition, 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.
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%.
18
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
5. SURRENDER AND PREMIUM TAX CHARGES
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 Master
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.
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.
19
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
5. SURRENDER AND PREMIUM TAX CHARGES (CONTINUED)
Surrender and premium tax charges are included in redemptions and are paid
directly to First Fortis. Surrender and premium tax charges collected by First
Fortis were $40,683 and $1,607 in 1998 and 1997, respectively.
6. 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 are not
affected by income taxes on income distributions received by the subaccounts.
7. RELATED PARTY TRANSACTIONS
Fortis Advisers, Inc. (Fortis Advisers), an affiliate of First Fortis, 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 are not available on an individual
variable account basis. Fees for all variable accounts to which Fortis Advisers
provided investment management services amounted to $17,790,513 and $14,415,172
in 1998 and 1997, respectively.
8. 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, Fortis Advisers and certain other third parties.
20
<PAGE>
First Fortis Life Insurance Company
Variable Account A
Notes to Financial Statements (continued)
8. YEAR 2000 ISSUE (UNAUDITED) (CONTINUED)
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 mid 1999.
The costs related to the Year 2000 issue are not expected to have a material
impact on Fortis Benefits' and Fortis Advisers' 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 Fortis Benefits and Fortis Advisers in connection
with the Year 2000 issue include the ability of Fortis Benefits and Fortis
Advisers 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 Fortis Benefits and Fortis Advisers to
successfully address their Year 2000 issues.
Fortis Benefits and Fortis Advisers are evaluating the Year 2000 readiness of
advisors and other third parties whose system failures could have an impact on
Fortis Benefits' and Fortis Advisers' operations. The potential materiality of
any such impact is not entirely known at this time. Fortis Benefits and Fortis
Advisers are closely monitoring these entities to avoid any unforeseen
circumstances.
Fortis Benefits' and Fortis Advisers' Year 2000 project includes establishing
Year 2000 contingency plans for all key business units. These plans are being
developed and are expected to be substantially complete by the end of the first
quarter of 1999. These plans will continue to be refined throughout 1999 as
additional information related to potential Year 2000 exposure is gathered.
21
<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 (B) and Fortis (NL)
N.V., as of December 31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of its operations and its
cash flows for each of three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
February 19, 1999
Minneapolis, MN
F-1
<PAGE>
BALANCE SHEETS
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
1998--$125,787; 1997--$102,284).......................... $ 130,038 $ 105,776
Short-term investments.................................... 830 11,697
----------- -----------
130,868 117,473
Cash and cash equivalents................................... 1,160 7,453
Receivables:
Uncollected premiums, less allowance (1998 and
1997--$100).............................................. 3,538 2,358
Reinsurance recoverable on unpaid and paid losses......... 28,458 19,764
Other..................................................... 417 1,402
----------- -----------
32,413 23,524
Accrued investment income................................... 1,895 1,700
Deferred policy acquisition costs........................... 3,148 1,413
Property and equipment at cost, less accumulated
depreciation (1998--$2,086; 1997--$1,853).................. 324 676
Deferred federal income taxes............................... 1,150 2,079
Goodwill, less accumulated amortization (1998--$368;
1997--$322)................................................ 462 508
Assets held in separate accounts............................ 46,082 16,072
----------- -----------
TOTAL ASSETS................................................ $ 217,502 $ 170,898
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-2
<PAGE>
BALANCE SHEETS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
POLICY RESERVES AND LIABILITIES:
Future policy benefit reserves:
Life insurance.......................................... $ 30,388 $ 27,671
Interest sensitive and investment products.............. 6,267 6,878
Accident and health..................................... 68,206 61,175
----------- -----------
104,861 95,724
Unearned revenues......................................... 8,535 5,223
Other policy claims and benefits payable.................. 11,084 10,304
Income taxes payable...................................... 2,017 911
Other liabilities......................................... 4,897 5,583
Liabilities related to separate accounts.................. 46,082 16,072
----------- -----------
TOTAL POLICY RESERVES AND LIABILITIES....................... 177,476 133,817
COMMITMENTS AND CONTINGENCIES
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.......................................... (2,190) (4,642)
Accumulated other comprehensive income.................... 2,776 2,283
----------- -----------
TOTAL SHAREHOLDER'S EQUITY.................................. 40,026 37,081
----------- -----------
TOTAL POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S
EQUITY..................................................... $ 217,502 $ 170,898
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Insurance operations:
Life insurance premiums........................................................... $ 23,057 $ 19,158 $ 22,791
Interest sensitive and investment product policy charges.......................... 71 4 59
Accident and health insurance premiums............................................ 31,323 32,684 44,666
Net investment income............................................................... 8,187 7,907 7,891
Net realized gains on investments................................................... 1,436 361 (3)
Other income........................................................................ 1,202 682 336
--------- --------- ---------
TOTAL REVENUES.................................................................... 65,276 60,796 75,740
BENEFITS AND EXPENSES
Benefits to policyholders:
Life insurance.................................................................... 16,167 14,597 19,720
Interest sensitive and investment products........................................ 815 196 72
Accident and health............................................................... 26,616 29,090 37,988
--------- --------- ---------
43,598 43,883 57,780
Amortization of deferred policy acquisition costs..................................... (106) (56) (92)
Insurance commissions................................................................. 5,056 4,457 5,214
General and administrative expenses................................................... 12,929 12,699 12,694
--------- --------- ---------
TOTAL BENEFITS AND EXPENSES....................................................... 61,477 60,983 75,596
--------- --------- ---------
Income (loss) before federal income taxes............................................. 3,799 (187) 144
Federal income taxes.................................................................. 1,347 (63) (39)
--------- --------- ---------
NET INCOME (LOSS)..................................................................... $ 2,452 $ (124) $ 183
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-4
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
TOTAL STOCK CAPITAL DEFICIT (LOSS) INCOME
------------ ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996........................ $ 38,390 $ 2,000 $ 37,440 $ (4,701) $ 3,651
Comprehensive loss:
Net income.................................. 183 -- -- 183 --
Change in unrealized losses on investments,
net........................................ (2,882) -- -- -- (2,882)
------------
Comprehensive loss............................ (2,699)
------------ ------ ------------ ------ ------
Balance, December 31, 1996...................... 35,691 2,000 37,440 (4,518) 769
Comprehensive income:
Net loss.................................... (124) -- -- (124) --
Change in unrealized gains on investments,
net........................................ 1,514 -- -- -- 1,514
------------
Comprehensive income.......................... 1,390
------------ ------ ------------ ------ ------
Balance, December 31, 1997...................... 37,081 2,000 37,440 (4,642) 2,283
Comprehensive income:
Net income.................................. 2,452 -- -- 2,452 --
Change in unrealized gains on investments,
net........................................ 493 -- -- -- 493
------------
Comprehensive income.......................... 2,945
------------ ------ ------------ ------ ------
Balance, December 31, 1998...................... $ 40,026 $ 2,000 $ 37,440 $ (2,190) $ 2,776
------------ ------ ------------ ------ ------
------------ ------ ------------ ------ ------
</TABLE>
See accompanying notes.
F-5
<PAGE>
STATEMENTS OF CASH FLOWS
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............................................................. $ 2,452 $ (124) $ 183
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Change in deferred tax....................................................... 665 (1,338) --
Depreciation, amortization and accretion..................................... 299 707 804
Loss on disposal of property and equipment................................... 12 -- --
Net realized (gains) losses on investments................................... (1,436) (361) 4
(Increase) decrease in uncollected premiums, accrued investment income and
other....................................................................... (390) 2,309 (1,076)
Increase in reinsurance recoverable.......................................... (8,694) (5,033) (5,395)
Increase in income taxes payable............................................. 1,106 883 1,772
Amortization of policy acquisition costs..................................... (106) (56) (92)
Policy acquisition costs deferred............................................ (1,629) (1,110) (155)
Increase in future policy benefit reserves, unearned revenues and other
policy claims and benefits.................................................. 13,922 1,769 5,265
(Decrease) increase in other liabilities..................................... (686) 1,533 (1,939)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES...................... 5,515 (821) (629)
INVESTING ACTIVITIES
Purchases of fixed maturity investments........................................ (187,953) (127,426) (140,954)
Sales and repayments of fixed maturity investments............................. 165,971 137,273 135,352
Decrease (increase) in short-term investments.................................. 10,867 (11,697) 6,942
Purchases of property and equipment............................................ -- (107) (310)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES...................... (11,115) (1,957) 1,030
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received...................................................... 13,661 10,679 --
Surrenders and death benefits................................................ (15,075) (2,152) --
Interest credited to policyholders........................................... 721 159 --
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES...................... (693) 8,686 --
--------- --------- ---------
(Decrease) increase in cash and cash equivalents................................. (6,293) 5,908 401
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................... 7,453 1,545 1,144
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................................. $ 1,160 $ 7,453 $ 1,545
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying note
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FIRST FORTIS LIFE INSURANCE COMPANY
DECEMBER 31, 1998
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 (B) and Fortis (NL) N.V.
Prior to April 30, 1997, First Fortis was wholly-owned by Fortis (B), while the
other U.S. subsidiaries of Fortis (B) and Fortis (NL) N.V. 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 1998, the Company had no direct premium written by
third party administrators ("TPAs"). 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 $4,648,000,
$7,297,000 and $17,871,000 of 1998, 1997 and 1996 accident and health premiums,
respectively.
BASIS OF STATEMENT PRESENTATION
During 1998, the Company adopted Statement of Financial Accounting Standards
Board (SFAS) 130, REPORTING COMPREHENSIVE INCOME. SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this SFAS had no impact on the Company's net income or
shareholder's equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were reported
separately in shareholder's equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
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 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
10.25% in 1998 and 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.
Premiums for credit insurance included in life insurance premiums and accident
and health insurance premiums are recognized as revenues when due over the
estimated coverage period.
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.
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 the premium paying period. For interest
sensitive and investment products, such costs are amortized in relation to
expected future gross profits. Estimation of future gross profits requires
significant management judgment and are reviewed periodically. As excess amounts
of deferred costs over future premiums or gross profits are identified, such
excess amounts are expensed.
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.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 as accumulated other
comprehensive income 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.
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. Deferred tax assets
and liabilities are determined based on the temporary differences between the
financial reporting and the tax bases and are measured using the enacted tax
rates.
SEPARATE ACCOUNTS
Revenues and expenses related to the separate account assets and liabilities are
excluded from the amounts reported in the accompanying statements of operations.
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
and represent funds held for the exclusive benefit of the variable annuity
contract owners. The Company receives mortality and expense risk fees from the
separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectance experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
GUARANTY FUND ASSESSMENTS
There are a number of insurance companies that are currently under regulatory
supervision. This may result in future assessments by state guaranty fund
associations to cover losses to policyholders of insolvent or rehabilitated
companies. These assessments can be partially recovered through a reduction in
future premium taxes in some states. The Company believes it has adequately
provided for the impact of future assessments relating to current insolvencies.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost which approximates fair value
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 financial statements have been reclassified
to conform to the 1998 presentation.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
2. 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 FAIR
COST GAIN LOSS VALUE
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
December 31, 1998
Governments.................................... $ 18,770 $ 437 $ 14 $ 19,193
Public utilities............................... 14,446 768 119 15,095
Industrial and miscellaneous................... 92,571 3,471 292 95,750
----------- --------- --- -----------
Total........................................ $ 125,787 $ 4,676 $ 425 $ 130,038
----------- --------- --- -----------
----------- --------- --- -----------
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>
The amortized cost and fair value of fixed maturity securities at December 31,
1998, by contractual maturity, are shown below (in thousands):
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less................................................ $ 1,226 $ 1,228
Due after one year through five years.................................. 41,505 42,350
Due after five years through ten years................................. 42,709 44,286
Due after ten years.................................................... 40,347 42,174
----------- -----------
Total.................................................................. $ 125,787 $ 130,038
----------- -----------
----------- -----------
</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.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $525,000, at December 31, 1998 and
1997, on deposit with various governmental authorities as required by law.
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Major categories of net investment income for each year were as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities...................................................... $ 8,108 $ 7,744 $ 7,941
Short-term investments................................................ 222 302 231
--------- --------- ---------
8,330 8,046 8,172
Expenses.............................................................. (143) (139) (281)
--------- --------- ---------
Net investment income................................................. $ 8,187 $ 7,907 $ 7,891
--------- --------- ---------
--------- --------- ---------
</TABLE>
All net realized gains (losses) on investments resulted from sales of fixed
maturities.
Proceeds from sales of investments were $165,471,000, $134,234,000, and
$135,352,000 in 1998, 1997, and 1996, respectively. Gross gains of $1,757,000,
$1,136,000, and $1,551,000 and gross losses of $321,000, $775,000, and
$1,554,000 were realized on the sales in 1998, 1997, and 1996, respectively.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
2. INVESTMENTS (CONTINUED)
NET UNREALIZED GAINS (LOSSES)
The adjusted net unrealized gains (losses) on investments recorded in
accumulated other comprehensive income for the year ended December 31, were as
follows (in thousands):
<TABLE>
<CAPTION>
TAX
BEFORE-TAX (BENEFIT) NET-OF-TAX
AMOUNT EXPENSE AMOUNT
----------- ----------- -----------
<S> <C> <C> <C>
December 31, 1998
Unrealized gains (losses) on investments:
Unrealized gains(losses) on available-for-sale
investments............................................. $ 2,194 $ (768) $ 1,426
Reclassification adjustment for gains realized in net
income.................................................. (1,436) 503 (933)
----------- ----------- -----------
Other comprehensive income................................. $ 758 $ (265) $ 493
----------- ----------- -----------
----------- ----------- -----------
December 31, 1997
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments............................................. $ 2,766 $ (1,017) $ 1,748
Reclassification adjustment for gains (losses) realized
in net income........................................... (361) 126 (234)
----------- ----------- -----------
Other comprehensive income................................. $ 2,405 $ (891) $ 1,514
----------- ----------- -----------
----------- ----------- -----------
December 31, 1996
Unrealized (losses) gains on investments:
Unrealized gains (losses) on available-for-sale
investments............................................. $ (4,370) $ 1,486 $ (2,884)
Reclassification adjustment for losses realized in net
income.................................................. 3 (1) 2
----------- ----------- -----------
Other comprehensive (loss)................................. $ (4,367) $ 1,485 $ (2,882)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
3. 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 $789,000, $661,000, and $692,000
in 1998, 1997, and 1996, respectively. Future minimum payments required under
operating lease arrangements that have initial or noncancelable terms in excess
of one year or more are: 1999-- $602,000, 2000--$51,000, 2001--$43,000 and
2002--$28,000.
4. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables........... $ 60,498 $ 61,482 $ 65,764
Add: Incurred losses related to:
Current year..................................................... 16,816 25,424 38,798
Prior years...................................................... 9,800 3,666 (810)
--------- --------- ---------
Total incurred losses.......................................... 26,616 29,090 37,988
Deduct: Paid losses related to:
Current year..................................................... 11,639 15,393 23,727
Prior year....................................................... 12,935 14,681 18,543
--------- --------- ---------
Total paid losses.............................................. 24,574 30,074 42,270
--------- --------- ---------
Balance as of December 31, net of reinsurance recoverables......... $ 62,540 $ 60,498 $ 61,482
--------- --------- ---------
--------- --------- ---------
</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; and (2) the table above includes accident and health benefits
payable which are included with other policy claims and benefits payable
reported on the balance sheet.
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 years ended December 31, 1998, 1997 and
1996.
The liability for unpaid accident and health claims includes $59,339,000,
$55,956,000 and $55,152,000 of total disability income reserves as of December
31, 1998, 1997 and 1996, respectively, which were discounted for anticipated
interest earnings assuming a 6.0% interest rate.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
4. ACCIDENT AND HEALTH RESERVES (CONTINUED)
The 1998 and 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, 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.
5. 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. (Fortis). Income tax expense or credits are allocated among the affiliated
subsidiaries by applying corporate income tax rates to taxable income or loss
determined on a separate return basis according to a Tax Allocation Agreement.
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial statement purposes and
for income tax purposes.
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserves................................................................... $ 473 $ 2,437
Separate account assets/liabilities........................................ 1,545 229
Deferred policy acquisition costs.......................................... -- 228
Alternative minimum tax credit carryforward................................ 308 392
Net operating loss carryforward............................................ 557 598
Other...................................................................... 19 493
--------- ---------
Total deferred tax assets................................................ 2,902 4,377
Deferred tax liabilities:
Deferred policy acquisition costs.......................................... 213 --
Unrealized gains........................................................... 1,487 1,287
Other...................................................................... 52 1,011
--------- ---------
Total gross deferred tax liabilities..................................... 1,752 2,298
--------- ---------
Net deferred tax asset................................................... $ 1,150 $ 2,079
--------- ---------
--------- ---------
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets, and therefore, no such valuation
allowance has been established.
The Company's tax benefit for the year ended December 31 is shown as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current................................................................ $ 889 $ (35) $ (131)
Deferred............................................................... 458 (28) 92
--------- --------- ---------
$ 1,347 $ (63) $ (39)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Federal income tax payments and refunds resulted in net payments of $382,000 and
$32,000 in 1997 and 1996 respectively, and net refunds of $424,000 in 1998.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--- --- ---
<S> <C> <C> <C>
Statutory income tax rate................................................ 35.0% 35.0% 34.0%
Other, including provision for prior year adjustments.................... .4 (1.3) (61.3)
--- --- ---
35.4% 33.7% (27.3)%
--- --- ---
--- --- ---
</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, 1998, the Company has net operating loss and capital loss
carryforwards relating to periods ending before May 1, 1997, for federal income
tax purposes of $1,591,000 which are available to offset future federal taxable
income of the Company, if any, through 2009. The Company also has alternative
minimum tax credit carryforwards of $308,000 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.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
6. 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 100% 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 the 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 after January 1, 1996. The Company has ceded
$5,601,000, $5,742,000 and $6,144,000 of premium to Fortis Benefits in 1998,
1997 and 1996, respectively. Fortis Benefits has assumed $9,315,000, $5,452,000
and $3,599,000 of reserves in 1998, 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 $28,458,000 and $19,764,000 in 1998 and
1997, respectively.
Ceded reinsurance premiums for the year ended December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Life insurance...................................................... $ 5,343 $ 3,249 $ 1,366
Accident and health insurance....................................... 11,343 8,768 7,085
--------- --------- ---------
$ 16,686 $ 12,017 $ 8,451
--------- --------- ---------
--------- --------- ---------
</TABLE>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Life insurance...................................................... $ 1,740 $ 1,628 $ 1,021
Accident and health insurance....................................... 3,504 2,310 348
--------- --------- ---------
$ 5,244 $ 3,938 $ 1,369
--------- --------- ---------
--------- --------- ---------
</TABLE>
Reinsurance ceded would become a liability of the Company in the event the
reinsurers are unable to meet the obligations assumed under the reinsurance
agreement. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities or economic characteristics of the reinsurers.
7. 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.
8. 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. While the NAIC has recently completed a
project to codify statutory accounting practices, which may result in changes to
the accounting practices that insurance enterprises use to prepare their
statutory-basis financial statements, adoption by Minnesota is not anticipated
before 2001.
Insurance enterprises are required by state insurance departments to adhere to
minimum risk-based capital ("RBC") requirements developed by the NAIC. The
Company exceeds the minimum RBC requirements.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
8. 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)
------------------------------- --------------------
1998 1997 1996 1998 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices............. $ 1,177 $ (296) $ (428) $ 28,782 $ 27,358
Deferred policy acquisition costs................... 1,764 1,180 247 3,148 1,413
Deferred and uncollected premiums................... (14,055) 246 76 97 425
Policy reserves..................................... 13,463 (660) 476 (361) (92)
Investment valuation difference..................... -- (47) -- 4,250 3,492
Realized gains (losses) on investments.............. 896 235 (3) -- --
Amortization of goodwill............................ (46) (46) (46) 462 508
Income taxes........................................ (458) 28 115 55 778
Pension............................................. (19) (275) -- (321) (301)
Amortization of IMR................................. (347) (348) (426) -- --
Interest Maintenance Reserve........................ -- -- -- 2,438 1,888
Asset Valuation Reserve............................. -- -- -- 814 717
Property and equipment.............................. -- -- -- 164 318
Agents balances..................................... -- -- -- 300 456
Other............................................... 77 (141) 172 198 121
--------- --------- --------- --------- ---------
As reported herein.................................. $ 2,452 $ (124) $ 183 $ 40,026 $ 37,081
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
9. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company received various services from Fortis and its affiliates. These
services include assistance in benefit plan administration, corporate insurance,
accounting, tax, auditing, investment information systems, actuarial and other
administrative functions. The fees paid for these services for years ended
December 31, 1998, 1997 and 1996, were $1,712,000, $2,568,000 and $1,648,000,
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.
10. 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.
Separate account assets and liabilities are reported at their estimated fair
value in the Balance Sheet.
The fair values under all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk, such that the Company's
exposure to changing interest rates is minimized through the matching of
investment maturities with amounts due under insurance contracts.
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31
-----------------------------------------------------
1998 1997
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities........................................... $ 130,038 $ 130,038 $ 105,776 $ 105,776
Short-term investments......................................... 830 830 11,697 11,697
Cash........................................................... 1,160 1,160 7,453 7,453
Assets held in separate accounts............................... 46,082 46,082 16,072 16,072
Liabilities:
Individual and group annuities (subject to discretionary
withdrawal)................................................... $ 8,435 $ 8,097 $ 6,877 $ 6,554
Liabilities related to Separate Accounts....................... 46,082 46,082 16,072 16,072
</TABLE>
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
11. RETIREMENT AND OTHER EMPLOYEE BENEFITS
Fortis (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' 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 $52,000,
$61,000 and $72,000 for 1998, 1997 and 1996, respectively.
The Company has a contributory profit sharing plan, sponsored by Fortis,
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 was approximately $124,000, $122,000 and $182,000 for 1998, 1997 and
1996, respectively.
In addition to retirement benefits, the Company participates in other health
care and life insurance benefit plans ("postretirement benefits") for retired
employees, sponsored by Fortis. Health care benefits, either through a
Fortis-sponsored retiree plan for retirees under age 65 or through a cost offset
for individually purchased Medigap policies for retirees over age 65, are
available to employees who retire on or after January 1, 1993, at age 55 or
older, with 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.
12. 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.
13. YEAR 2000 (UNAUDITED)
INTRODUCTION. The Company relies heavily on information technology ("IT")
systems to conduct its business. These IT systems include both internally
developed and vendor-supplied systems. The Company also has business
relationships with numerous entities including but not limited to financial
institutions, financial intermediaries, third party administrators and other
critical vendors as well as regulators and customers. These entities are
themselves reliant on their IT systems to conduct their businesses. Therefore,
there is a supply chain of dependency among and between all involved entities.
STATE OF READINESS. In 1997, the Fortis parent company organized a
multi-disciplinary Year 2000 Project Team ("Team"). The Company is a part of the
Team. The Team consists of employees at each subsidiary, audit, legal and
outside consultants. The Team has developed and is currently executing a
comprehensive plan designed to make the Company's IT systems Year 2000 ready.
The plan covers four stages including (i) inventory, (ii) assessment, (iii)
programming, and (iv) testing and certification. At December 31, 1998, the
Company has completed the inventory stage for its internal hardware, software
and telecommunications systems (mainframe and client/server applications). The
assessment process is also complete and the Company is utilizing both internal
and external resources to reprogram or replace the systems where necessary, and
testing the applications for Year 2000 readiness. Programming, testing and
certification of these systems and applications are targeted for completion by
the end of 1999.
COSTS. The Company is not incurring any cost for the Year 2000 project since it
is being paid for by affiliates of the Company. Costs to upgrade and replace
systems in the normal course of business are not included in this estimate. The
Company believes that its Year 2000 project generally is on schedule.
RISKS. The Company is attempting to limit the potential impact of the Year 2000
by monitoring the progress of its own Year 2000 project and those of its
critical external relationships and by developing contingency/recovery plans.
The Company cannot guarantee that it will be able to identify and/or resolve all
of its Year 2000 issues. Any critical unresolved Year 2000 issues at the Company
or its external relationships, however, could have a material adverse effect on
the Company's results of operations, liquidity or financial condition. If the
Company's Year 2000 issues were unresolved, potential consequence would include,
among other possibilities, the inability to accurately and timely process
benefit claims, update customer's accounts, process financial transactions, bill
customers, assess exposure to risks, determine liquidity requirements or report
accurate data to management, shareholders, customers, regulators and others as
well as business interruptions or shutdowns, financial losses, harm to its
reputation, increased scrutiny by regulators and litigation related to Year 2000
issues.
CONTINGENCY PLANS. Consistent with prudent due diligence efforts, the Company
has defined contingency plans aimed at ensuring the continuity of critical
business functions before and after December 31, 1999, should there be an
unexpected system failure. The Company has developed plans that are designed to
reduce the negative impact on Fortis, and provide methods of returning to normal
operations, if failure occurs.
F-14
<PAGE>
APPENDIX A
PERFORMANCE INFORMATION
In advertising and other sales material for the Contracts, yield and total
return information for the Subaccounts of the Separate Account may be included.
The information below provides investment results for the indicated Subaccounts
of the Separate Account. The results shown in this section are not an estimate
or guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
YIELD CALCULATIONS
Yield information for the Money Market Subaccount will be based on the seven
days ended on a specified date. It will be computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account (after the deduction of all asset based charges) having a
balance of one Accumulation Unit at the beginning of the period, subtracting a
proportionate amount of the annual administrative charge (based on average
Contract size), and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by (365/7), with the resulting yield figure carried to
the nearest hundredth of one percent. The seven day yield for the Money Market
Subaccount as of December 31, 1998 was 3.86%.
An effective yield may also be quoted for the Money Market Subaccount. Effective
yield is calculated by compounding the current yield as follows:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
The seven day effective yield for the Money Market Subaccount as of December 31,
1998 was 3.96%.
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
YIELD=2[( a-b +1) -1]
-----
cd
Where: a = net investment income earned during the period by the
Portfolio whose shares are owned by the Subaccount.
b = expenses accrued for the period, including a proportionate
amount of the annual administrative charge (based on average
Contract size),
c = the average daily number of Accumulation Units outstanding during
the period, and
d = the offering price per Accumulation Unit at the end of the last day
of the period.
The following table sets forth yield figures for the thirty days ended
December 31, 1998:
<TABLE>
<CAPTION>
SUBACCOUNT YIELD
---------- -----
<S> <C>
U.S. Government Securities......................................5.89%
Diversified Income..............................................6.43%
High Yield......................................................8.21%
Global Bond.....................................................5.87%
</TABLE>
A-1
<PAGE>
TOTAL RETURN CALCULATIONS
Total return information will be given for the one year and five year periods
ended on a specific date, provided that, if the registration statement has been
effective for a Subaccount only during a shorter period, then such shorter
period will be used.
AVERAGE ANNUAL TOTAL RETURN
Total average annual compounded rates of return for each period will be computed
to the nearest one hundredth of a percent, according to the following formula:
n
P(1 + T) = CSV
Where: P = a hypothetical initial purchase payment of $1000,
T = average annual total return,
n = number of years, and
CSV = end of period Cash Surrender Value of hypothetical $1,000
purchase payment made at the beginning of the period.
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR COMMENCEMENT
PERIOD ENDED PERIOD ENDED SUBACCOUNT (1) TO
SUBACCOUNT DEC. 31, 1998 DEC. 31, 1998 TO DEC. 31, 1998
---------- ------------- ------------- -----------------
<S> <C> <C> <C>
GROWTH STOCK 13.92% 8.10% 12.52%
U.S. GOVERNMENT SECURITIES 4.13% 1.66% 3.82%
DIVERSIFIED INCOME 1.39% 1.84% 5.15%
ASSET ALLOCATION 14.86% 10.88% 10.76%
GLOBAL GROWTH 6.37% 8.47% 10.39%
HIGH YIELD -4.23% N/A 2.89%
GROWTH & INCOME 8.19% N/A 16.46%
AGGRESSIVE GROWTH 16.05% N/A 8.17%
GLOBAL ASSET ALLOCATION 10.90% N/A 10.88%
GLOBAL BOND 8.47% N/A 4.34%
INTERNATIONAL STOCK 11.41% N/A 10.13%
VALUE 4.67% N/A 13.65%
S & P 500 22.89% N/A 24.63%
BLUE CHIP 22.90% N/A 23.45%
SMALL CAP VALUE N/A N/A N/A
MID CAP STOCK N/A N/A N/A
LARGE CAP STOCK N/A N/A N/A
</TABLE>
- --------------------------
(1) Commencing with effective date of initial registration statement
for Global Growth Subaccount on May 1, 1992, U.S. Government
Securities Subaccount on May 1, 1989, High Yield Subaccount,
Growth & Income Subaccount and Aggressive Growth Subaccount on
May 1, 1994, Global Bond Subaccount, Global Asset Allocation
Subaccount, International Stock Subaccount on January 2, 1995,
Value Subaccount, Blue Chip Stock Subaccount, and S & P 500
Index Subaccount on January 1, 1996, Small Cap Value
Subaccount, Mid Cap Value Subaccount and Large Cap Growth
Subaccount on May 1, 1998 and for all other Subaccounts on
May 2, 1988.
A-2
<PAGE>
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.
<TABLE>
<CAPTION>
ONE-YEAR FIVE-YEAR
PERIOD ENDED PERIOD ENDED COMMENCEMENT
SUBACCOUNT DEC. 31, 1998 DEC. 31, 1998 TO DEC. 31, 1998
- ---------- ------------- ------------- ----------------
<S> <C> <C> <C>
GROWTH STOCK 13.92% 63.09% 252.00%
U.S. GOVERNMENT SECURITIES 3.91% 8.59% 49.21%
DIVERSIFIED INCOME 1.39% 9.52% 70.90%
ASSET ALLOCATION 14.86% 67.59% 197.60%
GLOBAL GROWTH 6.38% 50.16% 93.33%
HIGH YIELD -4.23% N/A 14.23%
GROWTH & INCOME 8.19% N/A 103.67%
AGGRESSIVE GROWTH 16.05% N/A 44.29%
GLOBAL ASSET ALLOCATION 10.90% N/A 51.13%
GLOBAL BOND 8.47% N/A 18.54%
INTERNATIONAL STOCK 11.41% N/A 47.13%
VALUE 4.67% N/A 40.68%
S&P 500 22.89% N/A 79.89%
BLUE CHIP 22.90% N/A 75.38%
SMALL CAP VALUE N/A N/A N/A
MID CAP STOCK N/A N/A N/A
LARGE CAP STOCK N/A N/A N/A
</TABLE>
--------------------------
(1) Commencing with effective date of initial registration statement
for Global Growth Subaccount on May 1, 1992, U.S. Government
Securities Subaccount on May 1, 1989, High Yield Subaccount,
Growth & Income Subaccount and Aggressive Growth Subaccount on
May 1, 1994, Global Bond Subaccount, Global Asset Allocation
Subaccount, International Stock Subaccount on January 2, 1995,
Value Subaccount, Blue Chip Stock Subaccount, and S & P 500
Index Subaccount on January 1, 1996, Small Cap Value
Subaccount, Mid Cap Value Subaccount and Large Cap Growth
Subaccount on May 1, 1998 and for all other Subaccounts on
May 2, 1988.
A-3
<PAGE>
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:
<TABLE>
<CAPTION>
PORTFOLIO NAME RATING SERVICE CATEGORY
<S> <C> <C>
International Stock Morningstar Publications, Inc. Foreign Stock
Subaccount Lipper Analytical Services, Inc. International Fund
Variable Annuity Research & Data Service International Stock
Global Growth Morningstar Publications, Inc. World Stock
Subaccount Lipper Analytical Services, Inc. Global Fund
Variable Annuity Research & Data Service International Stock
Global Asset Morningstar Publications, Inc. International Hybrid
Allocation Subaccount Lipper Analytical Services, Inc. Global Flexible Portfolio
Variable Annuity Research & Data Service Balanced/International
Aggressive Growth Morningstar Publications, Inc Small Growth
Subaccount Lipper Analytical Services, Inc. Small Cap Fund
Variable Annuity Research & Data Service Aggressive Growth
Small Cap Value Morningstar Publications, Inc. Small Value
Subaccount Lipper Analytical Services, Inc. Small Cap Fund
Variable Annuity Research & Data Service Small Company Funds
Growth Stock Morningstar Publications, Inc. Mid Cap Growth
Subaccount Lipper Analytical Services, Inc. Mid Cap Fund
Variable Annuity Research & Data ServiceGrowth
Mid Cap Stock Morningstar Publications, Inc. Mid Cap Blend
Subaccount Lipper Analytical Services, Inc. Mid Cap Fund
Variable Annuity Research & Data Service All Equity Funds
Large Cap Growth Morningstar Publications, Inc. Large Blend
Subaccount Lipper Analytical Services, Inc. Growth Fund
Variable Annuity Research & Data Service Growth
Blue Chip Stock Morningstar Publications, Inc. Large Blend
Subaccount Lipper Analytical Services, Inc. Growth Fund
Variable Annuity Research & Data Service Growth
S&P 500 Index Morningstar Publications, Inc. Large Blend
Subaccount Lipper Analytical Services, Inc. S&P 500 Index Fund
Variable Annuity Research & Data Service Growth and Income Funds
Growth & Income Morningstar Publications, Inc. Mid Cap Blend
Subaccount Lipper Analytical Services, Inc. Growth & Income
Variable Annuity Research & Data Service Growth and Income
Value Subaccount Morningstar Publications, Inc. Large Blend
Lipper Analytical Services, Inc. Growth & Income
Variable Annuity Research & Data Service Equity-Income
Asset Allocation Morningstar Publications, Inc. Domestic Hybrid
Subaccount Lipper Analytical Services, Inc. Flexible Portfolio
Variable Annuity Research & Data Service Balanced
A-4
<PAGE>
Global Bond Morningstar Publications, Inc. International Bond
Subaccount Lipper Analytical Services, Inc. Global Income
Variable Annuity Research & Data Service International Bonds
High Yield Morningstar Publications, Inc. High Yield Bond
Subaccount Lipper Analytical Services, Inc. High Current Yield
Variable Annuity Research & Data Service Corporate Bond High Yield
Diversified Income Morningstar Publications, Inc. Intermediate-Term Bond
Subaccount Lipper Analytical Services, Inc. Corp Debt BBB Rated
Variable Annuity Research & Data Service Corporate Bond General Funds
U.S. Government Morningstar Publications, Inc. Intermediate Government
Subaccount Lipper Analytical Services, Inc. Intermediate U.S. Govt.
Variable Annuity Research & Data Service Government Bond General Funds
Money Market Morningstar Publications, Inc. Money Market
Subaccount Lipper Analytical Services, Inc. Money Market
Variable Annuity Research & Data Service Money Market
</TABLE>
ADDITIONAL PERFORMANCE INFORMATION
Additionally, from time to time, First Fortis may include in advertising the net
effective annual yield of an investment in a Contract as compared with the
current before-tax and after-tax yield of CD's (insured fixed rate certificates
of deposit issued by financial institutions). While the yield may be compared to
that of CD's, the yield of a variable Subaccount is not fixed and an investment
in a Contract is not FDIC insured.
A-5
<PAGE>
A-6
<PAGE>
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
Included in Part A:
None
Included in Part B:
With Respect to First Fortis Life Insurance Company:
Report of Independent Auditors
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations for the years ended
December 31, 1998, 1997 and 1996
Statements of Changes in Shareholder's Equity for the years
ended December 31, 1998, 1997, and 1996
Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996
Notes to Financial Statements
With Respect to Separate Account A of First Fortis Life Insurance
Company:
Report of Independent Auditors
Statement of Net Assets for the year ended 1998
Statement of Changes in Net Assets for the years ended December 31,
1997 and December 31, 1998
Notes to Financial Statements
b. Exhibits:
1. Resolution of the Board of Directors of First Fortis Life
Insurance Company effecting the establishment of Variable Account
A. (Incorporated by reference from registrant's Form N-4
registration statement, File No. 33-71686, filed April 11, 1994.
2. Not applicable.
3. (a) Form of Principal Underwriter and Servicing Agreement --
included as part of Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement of the registrant filed
April 11, 1994, File No. 33-71686, and incorporated herein
by reference.
<PAGE>
(b) Form of Dealer Sales Agreement -- included as part of
Pre-Effective Amendment No. 1 to the Form N-4 Registration
Statement of the registrant filed April 11, 1994, File No.
33-71686, and incorporated herein by reference.
(c) Form of Supplement to Dealer Sales Agreement -- included as
part of Pre-Effective Amendment No. 1 to the Form N-4
Registration Statement of the registration filed April 11,
1994, File No. 33-71686, and incorporated herein by
reference.
4. (a) Form of Combination Fixed and Variable Annuity Contract --
filed as a part of this Form N-4, Registration Statement No.
33-71688 on April 27, 1995, and incorporated by reference.
(b) Form of IRA Endorsement -- filed as a part of this Form N-4,
Registration Statement No. 33-71688 on April 27, 1995, and
incorporated by reference.
(c) Form of Section 403(b) Annuity Endorsement -- filed as a
part of this Form N-4, Registration Statement No. 33-71688
on April 27, 1995, and incorporated by reference.
(d) Form of Automatic Portfolio Rebalancing Endorsement -- filed
as a part of this Form N-4, Registration Statement No.
33-71688 on April 27, 1995, and incorporated by reference.
(e) Form of Systematic Withdrawal Option Endorsement -- filed as
a part of this Form N-4, Registration Statement No. 33-71688
on April 27, 1995, and incorporated by reference.
(f) Form of Systematic Transfer Endorsement -- filed as a part
of this Form N-4, Registration Statement No. 33-71688 on
April 27, 1995, and incorporated by reference.
5. Form of Application to be used in connection with Contract filed
as Exhibit 4 (a) -- filed as a part of this Form N-4,
Registration Statement No. 33-71688 on April 27, 1995, and
incorporated by reference.
6. (a) Charter First Fortis Life Insurance Company -- filed as a
part of Form 10-K, File No. 33-71690 on March 29, 1996, and
incorporated by reference.
(b) By-laws of First Fortis Life Insurance Company.
(Incorporated by reference from Form N-4 Registration
Statement No. 33-71686, filed on November 15, 1993.)
7. None.
<PAGE>
8. Administrative Service Agreement -- filed as a part of Form 10-K,
File No. 33-71690 on March 29, 1996, and incorporated by
reference.
9. 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 N-4,
Registration Statement No. 33-71688, on November 15, 1993.
10. (a) Consent of Ernst & Young LLP--filed herewith..
(b) Power of Attorney for Messrs. Rutherfurd, Freedman and
Madame Gharib. (Incorporated by reference from Form N-4
registration statement No. 33-71686 filed on November 15,
1993.)
(c) Power of Attorney for Messrs. Gardner, Nelson and Galston.
(Incorporated by reference from Form N-4 registration
statement No. 33-71686 filed April 11, 1994).
(d) Power of Attorney for Messrs. Keller and Kopperud.
(Incorporated by reference from Form N-4, Registration
Statement No. 33-71686, filed simultaneously herewith.)
11. Not applicable.
12. Not applicable.
13. Schedules of computation of each performance quotation provided
in the registration statement pursuant to Item 21 -- filed
herewith.
Item 25. DIRECTORS AND OFFICERS OF FIRST FORTIS
The directors, executive officers, and other officers of First Fortis are
listed below.
Name and Principal
Business Address
- ------------------
Officer-Director Office With Depositor
- ---------------- ---------------------
Zafar Rashid (3) President, Chief Executive Officer
Allen R. Freedman (3) and Director
Chairman of Board
Terry J. Kryshak (2) Sr. Vice President and Chief
Administrative Officer
Larry M. Cains (3) Treasurer
<PAGE>
Other Directors Office with Depositor
- --------------- ---------------------
Susie Gharib
CNBC
424 W. 33rd Street
New York, NY 1001
Dale Edward Gardner
Gardner & Buhl
Bridge Street
Roxbury, NY 12474
Kenneth W. Nelson
Tech Products, Inc.
15 Beach Street
Staten Island, NY 10304
Robert B. Pollock
2323 Grand Boulevard
Kansas City, MO 44108
Clarence Elkus Galston
10 Longwood Drive, Apt. 330
Westwood, MA 02090
Dean C. Kopperud (1)
Other Officers
- --------------
Jerome A. Atkinson (3) Secretary
Barbara R. Hege (3) Chief Financial Officer
Melissa J. Hall (3) Assistant Treasurer
Paula M. SeGuin (2) Assistant Secretary
Assistant Secretary
Katherine L. Katsidhe (3)
- -------------------------
(1) Address: Fortis Benefits Insurance Company, 500 Bielenberg Drive,
Woodbury, MN 55125.
(2) Address: 220 Salina Meadows Parkway, Suite 255, Syracuse, NY 13220.
(3) Address: Fortis, Inc., One Chase Manhattan Plaza, New York, NY 10005.
- -------------------------
<PAGE>
Item 26. PERSONS CONTROLLED BY OR UNDER CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Separate Account A of First Fortis Life Insurance Company is a separate account
of First Fortis. This separate account, and Fortis Series Fund, Inc. may be
deemed to be controlled by First Fortis, although First Fortis follows voting
instructions of variable insurance contract owners with respect to voting on
certain important matters in connection with these entities. This separate
account is created under New York law and is the funding media for variable
annuity contracts issued by First Fortis.
The chart indicating the persons controlled by or under common control with
First Fortis included as part of Pre-Effective Amendment No. 1 to the Form N-4
Registration Statement of the registrant filed April 11, 1994, File 33-71686 and
is incorporated herein by reference. First Fortis has no subsidiaries.
Items 27. NUMBER OF CONTRACT OWNERS
As of January 31, 1999 there were 849 Contract Owners.
Item 28. INDEMNIFICATION
Pursuant to the Principal Underwriter and Administrative Servicing Agreement
filed as Exhibit 3(a) and (b) to this Registration Statement and incorporated
by this reference, First Fortis has agreed to indemnify Fortis Investors (and
its agents, employees, and controlling persons) for damages and expenses
arising out of certain material misstatements and omissions in connection
with the offer and sale of the Contracts, unless the misstatement or omission
was based on information supplied by Fortis Investors; provided, however,
that no such indemnity will be made to Fortis Investors or its controlling
persons for liabilities to which they would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of reckless disregard of their obligations under
such agreement. This indemnity could apply to certain directors, officers or
controlling persons of the Separate Account by virtue of the fact that they
are also agents, employees or controlling persons of Fortis Investors.
Pursuant to the Principal Underwriter and Servicing Agreement, Fortis
Investors has agreed to indemnify Separate Account A, First Fortis, and each
of its officers, directors and controlling persons for damages and expenses
(1) arising out of certain material misstatements and omissions in connection
with the offer and sale of the Contracts, if the misstatement or omission was
based on information furnished by Fortis Investors or (2) otherwise arising
out of Fortis Investors' negligence, bad faith, willful misfeasance or
reckless disregard of its responsibilities. Pursuant to its Dealer Sales
Agreements, a form of which is filed as Exhibit 3 (c) and (d) to this
registration statement and is incorporated herein by this reference, firms
that sell the Contracts agree to indemnify First Fortis, Fortis Investors,
the Separate Account, and their officers, directors, employees, agents, and
controlling persons from liabilities and expenses arising out of the wrongful
conduct or omissions of said selling firm or its officers, directors,
employees, controlling persons or agents.
Also, First Fortis' By-Laws (see Article VII, which is incorporated herein by
reference from Exhibit 6(b) to this Registration Statement) 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 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.
<PAGE>
Insofar as indemnification for any liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of First
Fortis or the Separate Account pursuant to the foregoing provisions, or
otherwise, First Fortis and the Separate Account have 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 First Fortis of expenses incurred or paid by a director,
officer or controlling person of First Fortis or the Separate Account in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the 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.
Item 29. PRINCIPAL UNDERWRITERS
(a) Fortis Investors, Inc. is the principal underwriter for Variable
Account A. Fortis Investors, Inc. also acts as the principal
underwriter for the following registered investment companies (in
addition to Separate Account A and Fortis Series Fund, Inc.):
Variable Account C and D of Fortis Benefits Insurance Company, Fortis
Advantage Portfolios, Inc., Fortis Equity Portfolios, Inc., Fortis
Fiduciary Fund, Inc., Fortis Growth Fund, Inc., Fortis Money
Portfolios, Inc., Fortis Tax-Free Portfolios, Inc., and Fortis Income
Portfolios, Inc.
(b) The following table sets forth certain information regarding the
officers and directors of the principal underwriter, Fortis Investors,
Inc.:
Name and Principal Positions and Offices
Business Address with Underwriter
- ------------------ ---------------------
Roger W. Arnold * Sr. Vice President
Robert W. Beltz, Jr.* Vice President and Director
Jeffrey R. Black * Business Development and Sales Desk
Officer
Mark C. Cadalbert* Compliance Officer
Peter M. Delahanty * Vice President
Tamara L. Fagely* Vice President
Dawn Gores* Marketing Officer
Joanne M. Herron* Assistant Treasurer
John E. Hite* Vice President & Secretary
Carol M. Houghtby* Vice President, Treasurer and
Director
Dean C. Kopperud* President and Director
<PAGE>
Christine D. Pawlenty* Custom Solutions Group Officer
Mary B. Petersen * 2nd Vice President
Jennifer R. Relien* Assistant Secretary
- -------------------------
* Address: 500 Bielenberg Drive, Woodbury, MN 55125.
(c) None.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 and 31a-3 thereunder are maintained by First Fortis,
Fortis Investors, Inc. and Fortis Advisers, Inc., at 500 Bielenberg Drive,
Woodbury, Minnesota 55125 and 220 Salina Meadows Parkway, Suite 255, Syracuse,
New York 13220.
Item 31. MANAGEMENT SERVICES
First Fortis entered into an Administrative Services Agreement with Fortis
Benefits Insurance Company which is dated March 1, 1994 and which has been
subsequently amended. Pursuant to that agreement, Fortis Benefits provides
certain management and management support services, as generally described
below, to First Fortis and Fortis Benefits is reimbursed by First Fortis for
these services on the basis of Fortis Benefits' costs, apportioned on an
equitable basis, for providing those services. Those services which Fortis
Benefits provides pursuant to that agreement relating to First Fortis' group
life, health, and disability insurance business and its individual annuity
business are generally as follows: (1) in-house legal services, (2) computer
hardware and systems services for maintenance of corporate accounting and
policyholder records, and (3) training services for new products. Fortis
Benefits additionally provides actuarial services, including product
development, pricing, valuation and compliance services, relating to First
Fortis' individual annuity business. Prior to 1994, Fortis Benefits provided
more extensive services to First Fortis relating to its group life, health, and
disability insurance business.
Additionally, pursuant to an agreement with Fortis, Inc. and Fortis Advisers,
Inc., Fortis, Inc. and Fortis Advisers, Inc. provides First Fortis with
investment and general management services.
First Fortis paid the above described affiliates the following sums for those
described services for its fiscal years ended December 31, 1996, December 31,
1997, and December 31, 1998, respectively: $1,648,000, $2,568,000 and
$1,712,000.
Item 32. UNDERTAKINGS
The Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may
be accepted;
(b) to include either (1) as part of any application to purchase a
Contract offered by the
<PAGE>
Prospectus, a space that an applicant can check to request a Statement
of Additional Information, or (2) a toll-free phone number, postcard,
or similar written communication affixed to or included in the
Prospectus that the applicant can call or remove to send for a
Statement of Additional Information;
(c) to deliver a Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
First Fortis Life Insurance Company represents:
(a) that the fees and charges imposed under the provisions of the Contract
covered by this registration statement, in the aggregate, are
reasonable in relation to the services to be rendered by the
Registrant associated with the Contracts, the expenses to be incurred
by the Registrant associated with the Contracts, and the risks assumed
by the Registrant associated with the Contracts.
The Registrant intends to rely on the no-action response dated November 28, 1988
from Ms. Angela C. Goelzer of the Commission staff to the American Council of
Life Insurance concerning the redeemability of Section 403(b) annuity contracts
and the Registrant has complied with the provisions of paragraphs (1) - (4)
thereof.
<PAGE>
EXHIBIT INDEX
10(a) Consent of Accountants
13 Schedules of Computation
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, 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 19th
day of April, 1999.
SEPARATE ACCOUNT A OF
FIRST FORTIS LIFE INSURANCE COMPANY
(Registrant)
By: FIRST FORTIS LIFE INSURANCE COMPANY
By: /s/ Zafar Rashid
---------------------------------------------
Zafar Rashid
President and Chief Executive Officer
(Principal Executive Officer)
FIRST FORTIS LIFE INSURANCE COMPANY
(Depositor)
By: /s/ Zafar Rashid
---------------------------------------------
President and Chief Executive Officer
(Principal Executive Officer)
As required by the Securities Act of 1933 and the Investment Company Act of
1940, this amended Registration Statement has been signed by the following
persons, in the capacities indicated, on April 19, 1999.
Signature Title With First Fortis
- --------- -----------------------
/s/ President, Chief Executive Officer and
- ----------------------------------- Director (Principal Executive Officer)
Zafar Rashid
/s/ Sr. Vice President and Chief
- ----------------------------------- Administrative Officer and Director
Terry J. Kryshak
/s/ Treasurer and Director
- ----------------------------------- (Principal Financial Officer)
Larry M. Cains
/s/ Chief Financial Officer
- ----------------------------------- (Principal Accounting Officer)
Barbara R. Hege
*
- -----------------------------------
Allen Royal Freedman Chairman of Board and Director
<PAGE>
*
- -----------------------------------
Susie Gharib Director
*
- -----------------------------------
Dale Edward Gardner Director
*
- -----------------------------------
Kenneth Warwick Nelson Director
- -----------------------------------
Robert B. Pollock Director
/s/
- -----------------------------------
Dean C. Kopperud Director
*
- -----------------------------------
Clarence Elkus Galston Director
*By /s/
------------------------------
Terry J. Kryshak
Attorney-in-fact
<PAGE>
Consent of Independent Auditors
We consent to the use of our report dated February 19, 1999 on the financial
statements of First Fortis Life Insurance Company and our report dated March 19,
1999 on the financial statements of First Fortis Life Insurance Company
Variable Account A in Post-Effective Amendment No. 8 to the Registration
Statement (Form N-4 No. 33-71688) 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
Minneapolis, Minnesota
April 26, 1999
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
U.S. GOVERNMENT SECURITIES SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended
December 31, 1998 was computed by dividing the net investment income per
accumulation unit earned during the period by the maximum offering price per
unit on the last day of the period in accordance with the formula prescribed by
the Securities and Exchange Commission:
[(($677,318)) 6
2 * { ---------------------------- + 1] - 1} = 5.89%
[((7,577,700 * 17.421))
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1998 and the total return for the
one year period are as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,039.11 $1,039.11 - $1,000
------------------ = 3.91%
$1,000
</TABLE>
Cumlative total return for five years ended December 31, 1998, is as
follows:
$1,085.94 - $1,000
----------------------- = 8.59%
$1,000
Cumulative total return since inception through December 31, 1998, is as
follows:
$1,492.0-$1,000
----------------------- = 49.21%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1998:
$1,041.25/$1,000 - 1 = 4.13%
Five years ended December 31, 1998:
1/5
($1,085.94/$1,000) - 1 = 1.66%
Since inception through December 31, 1998:
1/10.67
($1,492.10/$1,000) - 1 = 3.82%
Unit Value Information
----------------------------
<TABLE>
<CAPTION>
Unit
Date Value
---------- ----------
<S> <C>
05/01/89 $10.000
12/31/89 10.756
12/31/90 11.454
12/31/91 12.922
12/31/92 13.529
12/31/93 14.609
12/31/94 13.484
12/31/95 15.805
12/31/96 15.935
12/31/97 17.150
12/31/98 18.421
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
DIVERSIFIED INCOME SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended
December 31, 1998 was computed by dividing the net investment income per
accumulation unit earned during the period by the maximum offering price per
unit on the last day of the period in accordance with the formula prescribed by
the Securities and Exchange Commission:
[(($559,220)) 6
2 * { ---------------------------- + 1] - 1} = 6.43%
[((51,323,231 * 2.059))
Total return is the percentage change between the public offering price of one
subaccount unit at the beginning of the period to the public offering price of
one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1998 and the total return for the
one year period are as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,013.91 $1,013.91 - $1,000
------------------ = 1.39%
$1,000
</TABLE>
Cumlative total return for five years ended December 31, 1998, is as
follows:
$1,095.20 - $1,000
----------------------- = 9.52%
$1,000
Cumlative total return for five years ended December 31, 1998, is as
follows:
$1,658.78 - $1,000
----------------------- = 65.88%
$1,000
Cumulative total return since inception through December 31, 1998, is as
follows:
<PAGE>
$1,709.00 - $1,000
----------------------- = 70.90%
$1,000
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1998:
$1,013.91/$1,000 - 1 = 1.39%
Five years ended December 31, 1998:
1/5
($1,095.20/$1,000) - 1 = 1.84%
Ten years ended December 31, 1998:
1/10
($1,658.78/$1,000) - 1 = 5.19%
Since inception through December 31, 1998:
1/10.67
($1,709.00/$1,000) - 1 = 5.15%
Unit Value Information
<TABLE>
<CAPTION>
Unit
Date Value
---- -----
<S> <C>
05/01/88 $1.000
12/31/88 1.025
12/31/89 1.135
12/31/90 1.219
12/31/91 1.379
12/31/92 1.457
12/31/93 1.621
12/31/94 1.516
12/31/95 1.754
12/31/96 1.802
12/31/97 1.963
12/31/98 2.059
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GROWTH STOCK SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1998 and the total return for the
one year period are as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,139.15 $1,139.15 - $1,000
------------------ = 13.92%
$1,000
</TABLE>
Cumlative total return for five years ended December 31, 1998, is as
follows:
$1,630.88 - $1,000
----------------------- = 63.09%
$1,000
Cumlative total return for ten years ended December 31, 1998, is as
follows:
$3,523.87 - $1,000
----------------------- = 252.39%
$1,000
Cumulative total return since inception through December 31, 1998, is as
follows:
$3,520.00 - $1,000
----------------------- = 252.00%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1998:
$1,139.15/$1,000 - 1 = 13.92%
Five years ended December 31, 1998:
1/5
($1,630.88/$1,000) - 1 = 8.10%
Ten years ended December 31, 1998:
1/10
($3,523.87/$1,000) - 1 = 13.42%
Since inception through December 31, 1998:
1/10.67
($3,520.00/$1,000) - 1 = 12.52%
Unit Value Information
----------------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- --------
<S> <C>
05/01/88 $1.000
12/31/88 0.999
12/31/89 1.358
12/31/90 1.298
12/31/91 1.966
12/31/92 1.996
12/31/93 2.143
12/31/94 2.054
12/31/95 2.587
12/31/96 2.972
12/31/97 3.296
12/31/98 3.870
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
ASSET ALLOCATION SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1998 and the total return for the
one year period are as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,148.63 $1,148.63 - $1,000
------------------ = 14.86%
$1,000
</TABLE>
Cumlative total return for five years ended December 31, 1998, is as
follows:
$1,675.86 - $1,000
----------------------- = 67.59%
$1,000
Cumlative total return for five years ended December 31, 1998, is as
follows:
$2,910.78 - $1,000
----------------------- = 191.08%
$1,000
Cumulative total return since inception through December 31, 1998, is as
follows:
$2,976.00 - $1,000
----------------------- = 197.60%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1998:
$1,148.63/$1,000 - 1 = 14.86%
Five years ended December 31, 1998:
1/5
($1,675.86/$1,000) - 1 = 10.88%
Ten years ended December 31, 1998:
1/10
($2,910.78/$1,000) - 1 = 11.28%
Since inception through December 31, 1998:
1/10.67
($2,976.00/$1,000) - 1 = 10.76%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ----------
<S> <C>
05/01/88 $1.000
12/31/88 1.020
12/31/89 1.245
12/31/90 1.253
12/31/91 1.578
12/31/92 1.665
12/31/93 1.797
12/31/94 1.773
12/31/95 2.134
12/31/96 2.369
12/31/97 2.810
12/31/98 3.326
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GLOBAL GROWTH SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown on the attached page, and adjusting for the annual administration charge,
the value of such investment at December 31, 1998 and the total return for the
one year period are as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,063.68 $1,063.68 - $1,000
----------------------- = 6.38%
$1,000
</TABLE>
Cumlative total return for five years ended December 31, 1998, is as
follows:
$1,501.55 - $1,000
----------------------- = 50.16%
$1,000
Cumulative total return since inception through December 31, 1998, is as
follows:
$1,933.30 - $1,000
----------------------- = 93.33%
$1,000
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
<PAGE>
Average annual total return for the current one year period, five year
period and since commencement of the subaccount are as follows:
One year ended December 31, 1998:
$1,063.66/$1,000 - 1 = 6.37%
Five years ended December 31, 1998:
1/5
($1,501.55/$1,000) - 1 = 8.47%
Since inception through December 31, 1998:
1/6.67
($1,933.30/$1,000) - 1 = 10.39%
Unit Value Information
----------------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ----------
<S> <C>
05/01/92 $10.000
12/31/92 10.989
12/31/93 12.784
12/31/94 12.237
12/31/95 15.754
12/31/96 18.511
12/31/97 19.508
12/31/98 21.433
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
MONEY MARKET SUBACCOUNT
The subaccount's standardized yield for the seven day period ended
December 31, 1998 was computed by dividing 1 by the unit price for
December 24, 1997, then multiplying this by the unit price on December 31, 1998
to get a base period return. The base period return is then multiplied by 365
days and then divided by 7. This calculation for the seven day period ended
December 31, 1998 was as follows:
((1 / 1.531045) x 1.532186) -1 = .000745 - Base Period Return
.000812 x (365/7) = .0388 or 3.88%
The compound or effective yield for this same period is calculated by taking the
base period return and adding 1, raising the sum to a power equal to 365 divided
by 7 and subtracting 1 from the result. This calculation for the seven day
period ended December 31, 1998 was as follows:
365/7
(.000745 + 1) -1 = .0396 or 3.96%
<TABLE>
<CAPTION>
Date Unit Price
------ ------------
<S> <C>
12/24/98 1.531045
12/31/98 1.532186
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
AGGRESSIVE GROWTH SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1998 and the cumulative total return since
inception is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,160.45 $1.160.55 - $1,000
----------------------- = 16.05%
$1,000
</TABLE>
Cumulative total return since inception through December 31, 1998, is as
follows:
$1,442.90 - $1,000
----------------------- = 44.29%
$1,000
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1998:
$1.160.45/$1,000 - 1 = 16.05%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1998 is as follows:
1/4.67
($1,442.90/$1,000) - 1 = 8.17%
Unit Value Information
----------------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ----------
<S> <C>
05/01/94 $10.000
12/31/94 9.796
12/31/95 12.461
12/31/96 13.233
12/31/97 13.241
12/31/98 15.829
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GROWTH & INCOME SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1998 and the cumulative total return since
inception is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,081.89 $1,081.89 - $1,000
----------------------- = 8.19%
$1,000
</TABLE>
Cumulative total return since inception through December 31, 1998, is as
follows:
$2.036.70 - $1,000
----------------------- = 103.67%
$1,000
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1998:
$1,081.89/$1,000 - 1 = 8.19%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1998 is as follows:
1/4.67
($2,036.70/$1,000) - 1 = 16.46%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ----------
<S> <C>
05/01/94 $10.000
12/31/94 10.069
12/31/95 12.904
12/31/96 15.468
12/31/97 19.489
12/31/98 21.767
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
HIGH YIELD SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended
December 31, 1998 was computed by dividing the net investment income per
accumulation unit earned during the period by the maximum offering price per
unit on the last day of the period in accordance with the formula prescribed by
the Securities and Exchange Commission:
[ $430,132 6
2 * { ---------------------------- + 1] - 1} = 8.21%
[((4,984,906 * 12.823))
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1998 and the cumulative total return since
inception is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$957.72 $957,72 - $1,000
----------------------- = -4.23%
$1,000
</TABLE>
Cumulative total return since inception through December 31, 1998, is as
follows:
$1,142.30 - $1,000
----------------------- = 14.23%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1998:
$957.72/$1,000 - 1 = -4.23%
Average annual total return since inception of the subaccount through
December 31, 1998 is as follows:
1/4.67
($1,142.30/$1,000) - 1 = 2.89%
Unit Value Information
----------------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/94 $10.000
12/31/94 9.452
12/31/95 10.941
12/31/96 11.929
12/31/97 12.917
12/31/98 12.823
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GLOBAL ASSET ALLOCATION SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1998 and the cumulative total return since
inception is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,109.04 $1,109.04 - $1,000
----------------------- = 10.90%
$1,000
</TABLE>
Cumulative total return since inception through December 31, 1998, is as
follows:
$1,511.30 - $1,000
----------------------- = 51.13%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1998:
$1,109.04/$1,000 - 1 = 10.90%
Average annual total return since inception of the subaccount through
December 31, 1998 is as follows:
1/4
($1,511.30/$1,000) - 1 = 10.88%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
01/01/95 $10.000
12/31/95 11.590
12/31/96 12.888
12/31/97 14.434
12/31/98 16.513
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
INTERNATIONAL STOCK SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1998 and the cumulative total return since
inception is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,114.12 $1,114.12 - $1,000
----------------------- = 11.41%
$1,000
</TABLE>
Cumulative total return since inception through December 31, 1998, is as
follows:
$1,471.30 - $1,000
----------------------- = 47.13%
$1,000
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1998:
$1,114.12/$1,000 - 1 = 11.41%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1998 is as follows:
1/4
($1,471.30/$1,000) - 1 = 10.13%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ----------
<S> <C>
01/01/95 $10.000
12/31/95 11.272
12/31/96 12.691
12/31/97 14.022
12/31/98 16.113
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
GLOBAL BOND SUBACCOUNT
The subaccount's standardized yield for the 30 day period ended
December 31, 1998 was computed by dividing the net investment income per
accumulation unit earned during the period by the maximum offering price per
unit on the last day of the period in accordance with the formula prescribed by
the Securities and Exchange Commission:
[ $79,189 6
2 * { ---------------------------- + 1] - 1} = 5.87%
[ ((1,236,210 * 13.254))
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1998 and the cumulative total return since
inception is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,084.71 $1,084.71 - $1,000
----------------------- = 8.47%
$1,000
</TABLE>
Cumulative total return since inception through December 31, 1998, is as
follows:
$1,185.40 - $1,000
----------------------- = 18.54%
$1,000
<PAGE>
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1998:
$1,084.71/$1,000 - 1 = 8.47%
Average annual total return since inception of the subaccount through
December 31, 1998 is as follows:
1/4
($1,185.40/$1,000) - 1 = 4.34%
Unit Value Information
----------------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ----------
<S> <C>
01/01/95 $10.000
12/31/95 11.743
12/31/96 11.962
12/31/97 11.837
12/31/98 13.254
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
VALUE SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1998 and the cumulative total return since
inception is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,046.75 $1,046.75 - $1,000
----------------------- = 4.67%
$1,000
</TABLE>
Cumulative total return since inception through December 31, 1998, is as
follows:
$1,406.80 - $1,000
----------------------- = 40.68%
$1,000
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1998:
$1,046.75/$1,000 - 1 = 4.67%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1998 is as follows:
1/2.67
($1,406.80/$1,000) - 1 = 13.65%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/96 $10.000
12/31/96 11.049
12/31/97 13.652
12/31/98 14.768
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
S & P 500 SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1998 and the cumulative total return since
inception is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,228.88 $1,228.88 - $1,000
----------------------- = 22.89%
$1,000
</TABLE>
Cumulative total return since inception through December 31, 1998, is as
follows:
$1,798.90 - $1,000
----------------------- = 79.89%
$1,000
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1998:
$1,228.88/$1,000 - 1 = 22.89%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1998 is as follows:
1/2.67
($1,798.90/$1,000) - 1 = 24.63%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ----------
<S> <C>
05/01/96 $10.000
12/31/96 11.327
12/31/97 14.787
12/31/98 18.689
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
BLUE CHIP SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made January 1, 1998 and unit information
shown below, and adjusting for the annual administration charge, the value of
such investment at December 31, 1998 and the cumulative total return since
inception is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,228.98 $1,228.98 - $1,000
----------------------- = 22.90%
$1,000
</TABLE>
Cumulative total return since inception through December 31, 1998, is as
follows:
$1,753.80 - $1,000
----------------------- = 75.38%
$1,000
Average annual total return (T) equates the initial amount invested (P) to
the ending redeemable value (ERV) over the period (n) in accordance with the
formula prescribed by the Securities and Exchange Commission:
n
P(1 + T) = ERV
One year ended December 31, 1998:
$1,228.98/$1,000 - 1 = 22.90%
<PAGE>
Average annual total return since inception of the subaccount through
December 31, 1998 is as follows:
1/2.67
($1,753.80/$1,000) - 1 = 23.45%
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/96 $10.000
12/31/96 11.520
12/31/97 14.429
12/31/98 18.238
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
MID CAP STOCK SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made May 1, 1998 and unit information shown
below, and adjusting for the annual administration charge, the value of such
investment at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$927.50 $927.50 - $1,000
----------------------- = -7.25%
$1,000
</TABLE>
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/98 $10.000
12/31/98 9.625
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
LARGE CAP GROWTH SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made May 1, 1998 and unit information shown
below, and adjusting for the annual administration charge, the value of such
investment at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$1,140.50 $1,140.50 - $1,000
----------------------- = 14.05%
$1,000
</TABLE>
Unit Value Information
----------------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/98 $10.000
12/31/98 11.755
</TABLE>
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
SEPARATE ACCOUNT PERFORMANCE CALCULATION
SMALL CAP VALUE SUBACCOUNT
Total return is the percentage change between the public offering price of
one subaccount unit at the beginning of the period to the public offering price
of one subaccount unit at the end of the period. Ending total values are
calculated for any specific period and cumulative total returns are calculated
according to the following formula:
Cash Surrender Value - Initial Amount Invested
Total Return = ----------------------------------------------
Initial Amount Invested
Based on an initial investment made May 1, 1998 and unit information shown
below, and adjusting for the annual administration charge, the value of such
investment at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Ending Value Total Return
------------ ------------
<S> <C>
$901.70 $901.70 - $1,000
----------------------- = -9.83%
$1,000
</TABLE>
Unit Value Information
----------------------
<TABLE>
<CAPTION>
Unit
Date Value
-------- ---------
<S> <C>
05/01/98 $10.000
12/31/98 9.367
</TABLE>
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this amended Registration Statement to be signed
on its behalf in the City of St. Paul, State of Minnesota on this 19th day of
April, 1999.
VARIABLE ACCOUNT D OF
FORTIS BENEFITS INSURANCE COMPANY
(Registrant)
By: FORTIS BENEFITS INSURANCE COMPANY
By: /s/ Robert Brian Pollock
--------------------------------------
Robert Brian Pollock, President
FORTIS BENEFITS INSURANCE COMPANY
By: /d/ Robert Brian Pollock
--------------------------------------
Robert Brian Pollock, President
As required by the Securities Act of 1933 and the Investment Company Act of
1940, this Registration Statement has been signed by the following persons, in
the capacities indicated, on April 19, 1999.
Signature Title With Fortis Benefits
- --------- --------------------------
* Chairman of the Board
-----------------------------
Allen R. Freedman
* Director
-----------------------------
J. Kerry Clayton
Director
-----------------------------
Arie Aristide Fakkert
Director
-----------------------------
Alan W. Feagin
/s/ Dean C. Kopperud Director
-----------------------------
Dean C. Kopperud
/s/ Robert Brian Pollock President and Director
----------------------------- (Chief Executive Officer)
Robert Brian Pollock
/s/ Michael John Peninger Senior Vice President, Controller,
----------------------------- Treasurer and Director (Principal
Michael John Peninger Accounting Officer and Principal
Financial Officer)
*By: /s/ Robert Brian Pollock
--------------------------
Robert Brian Pollock
Attorney-in-Fact
