1
As filed with the Securities and Exchange Commission on April 17, 2001
Registration No. 333-20345
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 5
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST FORTIS LIFE INSURANCE COMPANY
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(Exact name of registrant as specified in its charter)
New York
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(State or other jurisdiction of incorporation or organization)
63
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(Primary Standard Industrial Classification Code Number)
13-2699219
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(I.R.S. Employer Identification No.)
308 Maltbie Street, Suite 200
Syracuse, New York 13204
315-451-0066
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(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
David A. Peterson, Esquire
P. O. Box 64284
Saint Paul, Minnesota 55164
651-738-5080
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(Name, address including zip code, and telephone number, including
area code, of agent for service)
Approximate Date of Commencement of Proposed Sale to Public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box:
/X/
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CALCULATION OF REGISTRATION FEE
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Title of each Proposed Proposed maximum
class of securities Amount to be maximum offering aggregate Amount of
to be registered registered price per unit offering price registration fee
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Interests under * * None registered herewith.
flexible premium
deferred fixed
annuity contracts
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* The maximum aggregate offering price is estimated solely for the purpose of
determining the registration fee. The amount being registered and the proposed
maximum offering price per unit are not applicable in that these securities are
not issued in predetermined amounts or units.
2
FIRST FORTIS LIFE INSURANCE COMPANY
Cross-Reference Sheet
Pursuant to Regulation S-K
Item 501(b)
Form S-1 Item Number Prospectus Caption
- -------------------- --------------------
1. Forepart of the Cover Page; Table of Contents;
Registration Statement Distribution and Servicing
and Outside Front
Cover Page of Prospectus
2. Inside Front and Back Other Information; Reports
Cover Pages of Prospectus
3. Summary Information, Risk Summary of Contract Features
Factors and Ratio of or, as to ratio of earnings to
Earnings to Fixed Charges fixed charges, Not Applicable
4. Use of Proceeds The Variable Account; The
Portfolios; The Fixed Account
5. Determination of Offering Not Applicable
Price
6. Dilution Not Applicable
7. Selling Security Holders None
8. Plan of Distribution Distribution and Servicing
9. Description of Securities Cover Page; The Variable
to be Registered Account; The Portfolios; The
Fixed Account; Accumulation
Period; Charges and
Deductions; General Provisions
10. Interests of Named Legal Matters
Experts and Counsel
11. Information with Respect First Fortis Life Insurance
to the Registrant Company; Further Information
About First Fortis; Financial
Statements; Distribution and
Servicing
12. Disclosure of Commission Not Applicable
Position on
Indemnification
for Securities Act
Liabilities
3
PROSPECTUS DATED
May 1, 2001
[FORTIS SOLID PARTNERS, FLEXIBLE SOLUTIONS(SM) LOGO]
FIRST FORTIS LIFE INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE: 1-800-591-7333
P.O. BOX 3249 308 MALTBIE STREET
SYRACUSE, NEW YORK 13220 SYRACUSE, NY 13204
This prospectus describes interests under flexible premium deferred combination
variable and fixed annuity contracts issued by Fortis Life Insurance Company
("First Fortis").
These contracts allow you to accumulate funds on a tax-deferred basis. You may
elect a guaranteed interest accumulation option through a fixed account or a
variable return accumulation option through a variable account or a combination
of these two options. Under the guaranteed interest accumulation option, you can
choose among ten different guarantee periods, each of which has its own interest
rate which is guaranteed for the entire guarantee period.
Under the variable return accumulation option, you can choose among the
following investment portfolios:
Alliance Money Market MFS Emerging Growth Series
Portfolio MFS High Income Series
Alliance International MFS Global Governments Series
Portfolio Montgomery Emerging Markets Fund
Alliance Premier Growth Montgomery Growth Fund
Portfolio Neuberger & Berman Limited Maturity Bond Portfolio
American Century VP Balanced Neuberger & Berman Partners Portfolio
Fund Pilgrim Natural Resources Trust
American Century VP Capital SAFECO Equity Portfolio
Appreciation Fund SAFECO Opportunities Portfolio
Federated High Income Bond Strong Discovery Fund II
Fund II Strong International Stock Fund II
Federated Utility Fund II Van Eck Worldwide Bond Fund
Federated American Leaders Van Eck Worldwide Hard Assets Fund
Fund II
Federated Fund for U.S.
Government
Securities II
Fortis S&P 500 Index Series
INVESCO Equity Income Fund
INVESCO Health Sciences Fund
INVESCO Technology Fund
In addition to the portfolios described above, contract holders who purchased
their contract prior to January 1, 1999 who as of that date had contract value
allocated to the Pilgrim Emerging Markets Fund (formerly known as Lexington
Emerging Markets fund) may make additional purchase payment allocations to that
portfolio as well as reallocating contract value to that portfolio.
The accompanying prospectuses for these investment portfolios describe the
investment objectives, policies and risks of each of the portfolios.
This prospectus gives you information about the contracts that you should know
before investing. This prospectus must be accompanied by a current prospectus of
the available investment portfolios. These prospectuses should be read carefully
and kept for future reference.
A Statement of Additional Information, dated May 1, 2001, about certain aspects
of the contracts has been filed with the Securities and Exchange Commission and
is available without charge from First Fortis at the address and phone number
printed above. The Table of Contents for the Statement of Additional Information
appears on page 22 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.
[FORTIS LOGO] and Fortis(SM) are registered servicemarks of Fortis (NL) N.V. and
Fortis (B).
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TABLE OF CONTENTS
PAGE
Special Terms Used in this Prospectus....................... 3
Information Concerning Fees and Charges..................... 4
Summary of Contract Features................................ 6
First Fortis Life Insurance Company......................... 8
The Variable Account........................................ 9
The Portfolios.............................................. 9
The Fixed Account........................................... 9
- Guaranteed Interest Rates/Guarantee Periods.......... 9
- Market Value Adjustment.............................. 10
- Investments by First Fortis.......................... 10
Accumulation Period......................................... 11
- Issuance of a Contract and Purchase Payments......... 11
- Contract Value....................................... 11
- Allocation of Purchase Payments and Contract Value... 12
- Total and Partial Surrenders......................... 13
- Telephone Transactions............................... 13
- Benefit Payable on Death of Contract Owner or
Annuitant............................................. 13
The Annuity Period.......................................... 14
- Annuity Commencement Date............................ 14
- Commencement of Annuity Payments..................... 14
- Relationship Between Subaccount Investment
Performance and Amount of Variable Annuity Payments... 14
- Annuity Options...................................... 14
- Death of Annuitant or Other Payee.................... 15
Charges and Deductions...................................... 15
- Premium Taxes........................................ 15
- Charges Against the Variable Account................. 15
- Annual Administrative Charge......................... 15
- Tax Charge........................................... 16
- Miscellaneous........................................ 16
General Provisions.......................................... 16
- The Contracts........................................ 16
- Postponement of Payments............................. 16
- Misstatement of Age or Sex and Other Errors.......... 16
- Assignment........................................... 16
- Beneficiary.......................................... 16
- Reports.............................................. 17
Rights Reserved by First Fortis............................. 17
Distribution................................................ 17
Federal Tax Matters......................................... 17
Further Information About First Fortis...................... 19
- General.............................................. 19
- Ownership of Securities.............................. 19
- Selected Financial Data.............................. 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Voting Privileges........................................... 22
- Other Information.................................... 22
Contents of Statement of Additional Information............. 22
First Fortis Financial Statements........................... 22
Appendix A--Sample Market Value Adjustment Calculations..... A-1
Appendix B--Explanation Of Expense Calculations............. B-1
Appendix C--Participating Funds............................. C-1
THE CONTRACTS ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. 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.
5
SPECIAL TERMS USED IN THIS PROSPECTUS
Accumulation PeriodThe time period under a contract between the contract issue
date and the annuity commencement date.
Accumulation Unit A unit of measure used to calculate the contract owners'
interest in the Variable Account 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.
Fixed Annuity Option
An annuity option under which First Fortis promises to pay
the Annuitant or any other payee that you designate one or
more fixed payments.
Market Value Adjustment
Positive or negative adjustment in fixed account value that
we make if such value is paid out more than fifteen days
before or after the end of a guarantee period in which it was
being held.
Non-Qualified Contracts
Contracts that do not qualify for the special federal income
tax treatment applicable in connection with certain
retirement plans.
Qualified ContractsContracts that are qualified for the special federal income
tax treatment applicable in connection with certain
retirement plans.
Valuation Date All business days except, with respect to any subaccount,
days on which the related portfolio does not value its
shares. Generally, the portfolios value their shares on each
day the New York Stock Exchange is open.
Valuation Period The period that starts at the close of regular trading on the
New York Stock Exchange on a Valuation Date and ends at the
close of regular trading on the exchange on the next
succeeding Valuation Date.
Variable Account The segregated asset account referred to as Variable Account
A of First Fortis Life Insurance Company established to
receive and invest purchase payments under contracts.
Variable Annuity Option
An annuity option under which First Fortis promises to pay
the Annuitant or any other payee chosen by you one or more
payments which vary in amount in accordance with the net
investment experience of the subaccounts selected by the
Annuitant.
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6
INFORMATION CONCERNING FEES AND CHARGES
CONTRACT OWNER TRANSACTION CHARGES
Front-End Sales Charge Imposed on Purchases................. 0%
Maximum Surrender Charge for Sales Expenses................. 0%
Other Surrender Fees........................................ 0%
Exchange Fee................................................ 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE............................. $30(1)
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge........................... .45%
Variable Account Administrative Charge...................... 0%
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Total Variable Account Annual Expenses...................... .45%
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(1)This charge, which is otherwise applied at each contract anniversary and
total surrender of the contract, will not be charged during the Accumulation
Period if the contract value as of such anniversary or surrender is $50,000
or more. Currently, Fortis Benefits waives this charge during the Annuity
Period.
MARKET VALUE ADJUSTMENT WITH RESPECT TO FIXED ACCOUNT
Surrenders and other withdrawals from the fixed account more than fifteen days
from the end of a guarantee period are subject to a Market Value Adjustment. The
Market Value Adjustment may increase or reduce the fixed account value. We
compute this adjustment according to a formula that we describe in more detail
under "Market Value Adjustment."
PORTFOLIO ANNUAL EXPENSES(a)(b)
TOTAL PORTFOLIO
INVESTMENT OPERATING EXPENSES
ADVISORY AND OTHER (*AFTER EXPENSE
MANAGEMENT FEE EXPENSES REIMBURSEMENT)(A)
-------------- -------- ------------------
Alliance Money Market Portfolio............................. 0.50% 0.17% 0.67%
Alliance International Portfolio............................ 0.69% 0.26% 0.95%
Alliance Premier Growth Portfolio........................... 1.00% 0.04% 1.04%
American Century VP Balanced Fund........................... 0.90% 0.00% 0.90%
American Century VP Capital Appreciation Fund............... 0.98% 0.00% 0.98%
Federated High Income Bond Fund II.......................... 0.60% 0.16% 0.76%
Federated Utility Fund II................................... 0.75% 0.16% 0.91%
Federated American Leaders Fund II.......................... 0.75% 0.12% 0.87%
Federated Fund for U.S. Government Securities II............ 0.60% 0.24% 0.84%
Fortis S&P 500 Index Series................................. 0.40% 0.05% 0.45%
INVESCO Equity Income Fund.................................. 0.75% 0.33% 1.08%
INVESCO Health Sciences Fund................................ 0.75% 0.32% 1.07%
INVESCO Technology Fund..................................... 0.72% 0.30% 1.02%
MFS Emerging Growth Series.................................. 0.75% 0.10% 0.85%
MFS High Income Series...................................... 0.75% 0.16% 0.91%
MFS Global Governments Series............................... 0.75% 0.16% 0.91%
Montgomery Emerging Markets Fund............................ 1.25% 0.56% 1.81%
Montgomery Growth Fund...................................... 0.82% 0.44% 1.26%
Neuberger & Berman Limited Maturity Bond Portfolio.......... 0.76% 0.11% 0.87%
Neuberger & Berman Partners Portfolio....................... 0.82% 0.10% 0.92%
Pilgrim Natural Resources Trust............................. 1.00% 0.66% 1.66%
SAFECO Equity Portfolio..................................... 0.74% 0.04% 0.78%
SAFECO Growth Opportunities................................. 0.74% 0.03% 0.77%
Strong Discovery Fund....................................... 1.00% 0.22% 1.22%
Strong International Stock Fund............................. 1.00% 0.16% 1.16%
Van Eck Worldwide Bond Fund................................. 1.00% 0.15% 1.15%
Van Eck Worldwide Hard Assets Fund.......................... 1.00% 0.14% 1.14%
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(a)As a percentage of Portfolio average net assets based on historical data for
the fiscal year ended December 31, 2000. In the absence of expense and fee
waivers or expense reimbursements by the Portfolio investment advisor, the
total expenses of the following Portfolios would have been as hereafter
indicated rather than as listed above: Alliance International
Portfolio -- 1.34%; Federated American Leaders Fund II -- 1.12%; Federated
Utility Fund II -- 1.16%; Federated High Income Fund II -- 1.01%; Federated
Fund for U.S. Government Securities II -- 1.09%; MFS High Income
Series -- 0.99%; MFS Global Governments Series -- 1.07%; Montgomery Growth
Fund -- 2.41%; Strong Discovery Fund -- 1.25%; Strong International Stock
Fund -- 1.58%; Van Eck Worldwide Bond Fund -- 1.21%; Van Eck Worldwide Hard
Assets Fund -- 1.16%.
(b) Certain of the unaffiliated investment advisers of the portfolios reimburse
First Fortis for costs incurred in connection with administering the
portfolios as variable funding options by payment of an amount based on
assets in the portfolios attributable to the contracts. These amounts are
not charged to the portfolios or the holders of the contracts.
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7
EXAMPLES*
If you commence an annuity payment option, or whether you do or do not surrender
your contract or commence an annuity payment option, you would pay the following
cumulative expenses on a $1,000 investment, assuming a 5% annual return on
assets:
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------- ------ ------- ------- --------
Alliance Money Market....................................... $11 $36 $ 62 $136
Alliance International...................................... 14 44 76 167
Alliance Premier Growth..................................... 15 47 81 177
American Century Balanced................................... 14 43 74 162
American Century Cap Appreciation........................... 15 46 79 173
Federated High Income Bond.................................. 12 38 66 146
Federated Utility........................................... 14 43 74 163
Federated American Leaders.................................. 13 42 72 158
Federated Fund for US Gov't Securities I.................... 13 41 71 155
Fortis S&P 500 Index........................................ 9 29 50 111
INVESCO Health Services Fund................................ 16 48 83 181
INVESCO Equity Income Fund.................................. 15 48 83 180
INVESCO Technology Fund..................................... 15 46 80 175
MFS Emerging Growth......................................... 13 41 71 156
MFS High Income............................................. 14 43 74 163
MFS Global Governments Series............................... 14 43 74 163
Montgomery Emerging Markets................................. 23 70 120 258
Montgomery Growth........................................... 17 54 92 201
Neuberger & Berman Partners Fund............................ 13 42 72 158
Neuberger & Berman Maturity Bond Fund....................... 14 43 75 164
Pilgrim Natural Resources Trust............................. 21 66 113 243
SAFECO Growth Opportunities................................. 13 39 67 148
SAFECO Equity............................................... 12 39 67 147
Strong Discovery............................................ 17 52 90 197
Strong International........................................ 16 51 87 190
Van Eck Worldwide Bond...................................... 16 50 87 189
Van Eck Worldwide Hard Assets Fund.......................... 16 50 86 188
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* For purposes of these examples, the effect of the annual contract
administration charge has been computed based on the average total contract
value during the year ended December 31, 2000 of similar contracts issued by
an affiliated company and the total actual amount of annual contract
administration charges collected during the year on those contracts. For the
purpose of these examples, portfolio annual expenses are assumed to continue
at the rates set forth in the table above.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
------------------------------
We have included the foregoing tables and examples to help you understand the
transaction and operating expenses we directly or indirectly impose under the
contracts and under the portfolios. We will also deduct amounts for state
premium taxes or similar assessments where these deductions are applicable.
See Appendix B for an explanation of the calculation of the amounts set forth
above.
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8
SUMMARY OF CONTRACT FEATURES
The following summary should be read in conjunction with the detailed
information in this prospectus.
The contracts are designed to provide individuals with retirement benefits
through the accumulation of purchase payments on a fixed or variable basis, and
by the application of such accumulations to provide fixed or variable annuity
payments.
"We," "our," and "us" mean First Fortis Life Insurance Company. "You" and "your"
mean a reader of this prospectus who is contemplating making purchase payments
or taking any other action in connection with a contract.
Depending on the state that you live in, the contract that is issued to you may
be as a part of a group contract or as an individual contract. Participation in
a group contract will be evidenced by the issuance of a certificate showing your
interest under the group contract. In other states, an individual contract will
be issued to you. Both the certificate and the contract are referred to as a
"contract" in this prospectus.
FREE LOOK
You have the right to examine a contract during a "free look" period after you
receive the contract and return it for a refund of the amount of the then
current contract value. However, in certain states where required by state law
the refund will be in the amount of all purchase payments that have been made,
without interest or appreciation or depreciation. The "free look" period is
generally 10 days unless a longer time is specified on the face page of your
contract.
PURCHASE PAYMENTS
The initial purchase payment under a contract must be at least $5,000 ($2,000
for a contract which is part of a qualified plan). Additional purchase payments
under a contract must be at least $50. See "Issuance of a Contract and Purchase
Payments."
ALLOCATION OF PURCHASE PAYMENTS
On the date that the contract is issued, except as hereafter explained, the
initial purchase payment is allocated, as specified by you in the contract
application, among one or more of the portfolios, or to one or more of the
guarantee periods in the fixed account, or to a combination thereof. Subsequent
purchase payments are allocated in the same way, or pursuant to different
allocation percentages that the you may request in writing.
VARIABLE ACCOUNT INVESTMENT OPTIONS
Each of the subaccounts of the Variable Account invests in shares of a
portfolio. Contract value in each of the subaccounts of the Variable Account
will vary to reflect the investment experience of each of the corresponding
portfolios, as well as deductions for certain charges.
Each portfolio has a separate and distinct investment objective. A full
description of the portfolios and their investment objectives, policies, risks
and expenses can be found in the current prospectus for the portfolios, which
accompanies this prospectus, and the Statement of Additional Information for the
portfolio which is available upon request.
FIXED ACCOUNT INVESTMENT OPTIONS
Any amount allocated by the owner to the fixed account earns a guaranteed
interest rate. The level of the guaranteed interest rate depends on the length
of the guarantee period selected by the owner. We currently make available ten
different guarantee periods, ranging from one to ten years.
If amounts are transferred, surrendered or otherwise paid out more than fifteen
days before or after the end of the applicable guarantee period, a Market Value
Adjustment will be applied to increase or decrease the amount that is paid out.
Accordingly, the Market Value Adjustment can result in gains or losses to you.
For a more complete discussion of the fixed account investment options and the
Market Value Adjustment, see "The Fixed Account."
TRANSFERS
During the Accumulation Period, you can transfer all or part of your contract
value from one subaccount to another or into the fixed account and, subject to
any Market Value Adjustment, from one guarantee period of the fixed account to
another or into a subaccount. There is currently no charge for these transfers.
We reserve the right to restrict the frequency of or otherwise condition,
terminate, or impose charges upon, transfers from a subaccount during the
Accumulation Period. During the Annuity Period the person receiving annuity
payments may make up to four transfers (but not from a Fixed Annuity Option)
during each year of the Annuity Period. For a description of certain limitations
on transfer rights, see "Allocations of Purchase Payments and Contract
Value--Transfers."
TOTAL OR PARTIAL SURRENDERS
Subject to certain conditions, all or part of the contract value may be
surrendered by you before the earlier of (1) the Annuitant's death or (2) the
annuity commencement date. Amounts surrendered from the fixed account may be
subject to a Market Value Adjustment. See "Total and Partial Surrenders" and
"Market Value Adjustment." Particular attention should be paid to the tax
implications of any surrender, including possible penalties for premature
distributions. See "Federal Tax Matters."
CHARGES AND DEDUCTIONS
We deduct daily charges at a rate of .45 % per annum of the value of the average
net assets in the Variable Account for the mortality and expense risks we
assume. There is also an annual administrative charge each year for contract
administration and maintenance. This charge is $30 per year (subject to any
applicable state law limitations) and is deducted on each anniversary of the
contract issue date and upon total surrender of the contract. Also, there may be
state premium tax charges deducted from your contract value. See "Charges and
Deductions."
ANNUITY PAYMENTS
The contract provides several types of annuity benefits to you or other persons
you properly designate to receive such payments, including Fixed and Variable
Annuity Options. The owner has considerable flexibility in choosing the annuity
commencement date. However, the tax implications of an annuity commencement date
must be carefully considered, including the possibility of penalties for
commencing benefits either too soon or too late.
6
9
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 contract owner or the Annuitant dies prior to the annuity
commencement date, a death benefit is payable to the beneficiary. See "Benefit
Payable on Death of Contract Owner (or Annuitant)."
LIMITATIONS IMPOSED BY RETIREMENT PLANS AND EMPLOYERS
Certain rights you would otherwise have under a contract may be limited by the
terms of any applicable employee benefit plan. These limitations may restrict
such things as total and partial surrenders, the amount or timing of purchase
payments that may be made, when annuity payments must start and the type of
annuity options that may be selected. Accordingly, you should familiarize
yourself with these and all other aspects of any retirement plan in connection
with which a contract is issued.
The record owner of the group variable annuity contract pursuant to which
contracts may be issued will be a bank trustee whose sole function is to hold
record ownership of the contract or an employer (or the employer's designee) in
connection with an employee benefit plan. In the latter cases, certain rights
that an owner otherwise would have under a contract may be reserved instead by
the employer.
TAX IMPLICATIONS
The tax implications for you or any other persons who may receive payments under
a contract, and those of any related employee benefit plan can be quite
important. A brief discussion of some of these is set out under "Federal Tax
Matters" in this prospectus and "Taxation Under Certain Retirement Plans" in the
Statement of Additional Information, but such discussion is not comprehensive.
Therefore, you should consider these matters carefully and consult a qualified
tax adviser before making purchase payments or taking any other action in
connection with a contract or any related employee benefit plan. Failure to do
so could result in serious adverse tax consequences which might otherwise have
been avoided.
QUESTIONS AND OTHER COMMUNICATIONS
Any question about procedures of the contract should be directed to your sales
representative, or First Fortis' home office: P.O. Box 3249, Syracuse, NY 13220;
1-800-591-7333. Purchase payments and written requests should be mailed or
delivered to the same home office address. All communications should include the
contract number, the owner's name and, if different, the Annuitant's name. The
number for telephone transfers is 1-800-591-7333.
Any purchase payment or other communication, except a free-look cancellation
notice, is deemed received at First Fortis' home office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.
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10
FINANCIAL AND PERFORMANCE INFORMATION
The information presented below reflects the Accumulation Unit information for
the available subaccounts of the Variable Account through December 31, 2000.
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- --------------------------- ---------------------------
ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION ACCUMULATION
UNITS UNIT VALUE UNITS UNIT VALUE UNITS UNIT VALUE
------------ ------------ ------------ ------------ ------------ ------------
Alliance Money Market
Portfolio................. 225,661 $12.481 132,121 $11.837 57,856 $11.351
Alliance International
Portfolio................. 20,728 $13.544 5,496 $16.990 6,481 $12.177
Alliance Premier Growth
Portfolio................. 39,079 $25.357 33,428 $30.515 32,730 $23.172
American Century VP Balanced
Fund...................... 7,524 $15.456 5,462 $15.952 1,722 $14.571
American Century VP Capital
Appreciation Fund......... 10,405 $15.691 2,673 $14.453 749 $ 8.836
Federated Fund for U.S.
Government Securities
II........................ 20,858 $12.543 8,352 $11.352 4,038 $11.483
Federated High Income Bond
Fund II................... 11,457 $11.733 8,824 $12.956 32,236 $12.723
Federated Utility Fund II... 7,406 $14.115 3,717 $15.561 2,610 $15.435
Federated American Leaders
Fund II................... 7,759 $19.046 293 $18.671 3,644 $17.579
Fortis S & P 500 Index
Series.................... 27,807 $17.747 42,831 $19.703 2,151 $16.447
INVESCO Health Sciences
Fund...................... 22,700 $21.236 5,857 $16.342 7,986 $15.663
INVESCO Equity Income
Fund...................... 5,446 $16.592 891 $15.922 1,683 $13.935
INVESCO Technology Fund..... 45,305 $28.144 31,469 $36.917 2,187 $14.323
MFS Emerging Growth
Series.................... 13,887 $25.912 13,085 $32.324 6,958 $18.390
MFS High Income Series...... 14,806 $12.077 14,395 $12.998 43,436 $12.269
MFS Global Governments
Series.................... 6,046 $11.154 2,283 $10.685 0 $11.009
Montgomery Emerging Markets
Fund...................... 9,596 $18.136 5,326 $10.741 2,438 $ 6.547
Montgomery Growth Fund...... 12,089 $12.954 7,858 $20.001 6,157 $16.639
Neuberger & Berman Limited
Maturity Bond Portfolio... 3,749 $11.718 3,395 $11.023 5,269 $10.918
Neuberger & Berman Partners
Portfolio................. 8,056 $13.880 3,250 $13.835 4,003 $12.948
Pilgrim Natural Resources
Trust..................... 1,387 $13.768 701 $11.684 0 $10.284
Pilgrim Emerging Markets.... 2,191 $ 7.993 957 $13,480 -- $ --
SAFECO Equity Portfolio..... 33,487 $14.596 25,264 $16.436 24,561 $15.105
SAFECO Growth
Opportunities............. 12,936 $14.973 8,206 $16.023 14,286 $15.188
Strong Discovery Fund....... 5,966 $12.954 897 $12,465 1,822 $11.916
Strong International Stock
Fund...................... 10,027 $ 9.624 10,345 $15.986 7,516 $ 8.584
Van Eck Worldwide Bond
Fund...................... 2,203 $10.954 2,419 $10.807 21 $11.905
Van Eck Worldwide Hard
Assets Fund............... 2,900 $ 8.992 85 $ 8.108 0 $ 6.731
DECEMBER 31, 1997
---------------------------
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE
------------ ------------
Alliance Money Market
Portfolio................. 19,606 $10.861561
Alliance International
Portfolio................. 4,147 $10.818424
Alliance Premier Growth
Portfolio................. 17,972 $15.729195
American Century VP Balanced
Fund...................... 615 $12.639353
American Century VP Capital
Appreciation Fund......... 0 $ 9.061024
Federated Fund for U.S.
Government Securities
II........................ 1,710 $10.704721
Federated High Income Bond
Fund II................... 29,708 $12.441253
Federated Utility Fund II... 0 $13.550370
Federated American Leaders
Fund II................... 0 $15.012052
Fortis S & P 500 Index
Series.................... 47 $12.896250
INVESCO Health Sciences
Fund...................... 273 $11.006864
INVESCO Equity Income
Fund...................... 1,157 $12.136873
INVESCO Technology Fund..... 192 $11.445543
MFS Emerging Growth
Series.................... 10,745 $13.756132
MFS High Income Series...... 39,079 $12.342449
MFS Global Governments
Series.................... 0 $10.248705
Montgomery Emerging Markets
Fund...................... 434 $10.526513
Montgomery Growth Fund...... 1,398 $16.232262
Neuberger & Berman Limited
Maturity Bond Portfolio... 0 $10.497834
Neuberger & Berman Partners
Portfolio................. 1,201 $12.477670
Pilgrim Natural Resources
Trust..................... 0 $12.853076
Pilgrim Emerging Markets.... -- $ --
SAFECO Equity Portfolio..... 18,571 $12.151817
SAFECO Growth
Opportunities............. 1,217 $14.992831
Strong Discovery Fund....... 1,015 $11.153400
Strong International Stock
Fund...................... 3,909 $ 9.049000
Van Eck Worldwide Bond
Fund...................... 0 $10.492666
Van Eck Worldwide Hard
Assets Fund............... 0 $ 9.774884
Audited financial statements of the available subaccounts of the Variable
Account are included in the Statement of Additional Information.
Advertising and other sales materials may include yield and total return figures
for the subaccounts of the Variable Account. These figures are based on
historical results and are not intended to indicate future performance. "Yield"
is the income generated by an investment in the subaccount over a period of time
specified in the advertisement. This rate of return is assumed to be earned over
a full year and is shown as a percentage of the investment. "Total Return" is
the total change in value of an investment in the subaccount over a period of
time specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield and
total return figures do not reflect premium tax charges. This makes the
performance shown more favorable.
Financial information concerning First Fortis is included in this prospectus
under "Additional Information About First Fortis" and "First Fortis Financial
Statements."
FIRST FORTIS LIFE INSURANCE COMPANY
First Fortis Life Insurance Company is the issuer of the contracts. First Fortis
is a New York corporation founded in 1971. It is qualified to sell life
insurance, accident and health, and annuity contracts in New York. First Fortis
is a wholly-owned subsidiary of Fortis, Inc., which is itself indirectly owned
50% by Fortis (NL)N.V. and 50% by Fortis (B). Fortis, Inc. manages the United
States operations for these two companies.
Fortis (NL)N.V. is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
(B) is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis (NL)N.V. and
Fortis (B) have merged their operating companies under the trade name of Fortis.
The Fortis group of companies is active in insurance, banking and financial
services, and real estate development in The Netherlands, Belgium, the United
States, Western Europe, and the Pacific Rim.
All of the guarantees and commitments under the contracts are general
obligations of First Fortis, regardless of whether you have allocated the
contract value to the Variable Account or to the fixed account. None of First
Fortis' affiliated companies has any legal obligation to back First Fortis'
obligations under the contracts.
Effective April 1, 2001, First Fortis contracted the administrative servicing
obligations for the contracts to Hartford Life Insurance Company ("Hartford
Life"), a subsidiary of The Hartford Financial Services Group. Although First
Fortis remains responsible for all
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contract terms and conditions, Hartford Life is responsible for servicing the
contracts, including the payment of benefits, oversight of investment management
of the assets supporting the fixed account portion of the contract and overall
contract administration. This was part of a larger transaction whereby Hartford
Life reinsured all of the individual life insurance and annuity business of
First Fortis.
THE VARIABLE ACCOUNT
The Variable Account is a segregated investment account of First Fortis. First
Fortis established Variable Account A under New York insurance law as of October
1, 1993. The Variable Account is an integral part of First Fortis. However, the
Variable Account is registered with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940. Assets in the
Variable Account representing reserves and liabilities under these contracts and
other variable annuity contracts issued by First Fortis will not be chargeable
with liabilities arising out of any other business of First Fortis.
The Variable Account has subaccounts. The assets in each subaccount are invested
exclusively in one of the portfolios listed on page one of this prospectus.
Income and both realized and unrealized gains or losses from the assets of each
subaccount of the Variable Account are credited to or charged against that
subaccount without regard to income, gains or losses, from any other subaccount
of the Variable Account or arising out of any other business we may conduct. We
may add or eliminate new subaccounts as new portfolios are added or eliminated.
THE PORTFOLIOS
You may choose from among a number of different portfolios. Each portfolio is a
mutual fund available for purchase only as a funding vehicle for benefits under
variable life insurance and variable annuity products. These variable life
insurance and variable annuity products are issued by First Fortis and by other
life insurance companies. Each portfolio corresponds to one of the subaccounts
of the Variable Account. The assets of each portfolio are separate from the
assets of other portfolios. In addition, each portfolio operates as a separate
investment portfolio whose investment performance has no effect on the
investment performance of any other portfolio. We offer more detailed
information for each investment portfolio. This information includes the
investment policies, investment restrictions, charges, and risks attendant to
investing in each portfolio. This information also includes other aspects of
each portfolio's operations. You may find this information in the current
prospectus for each portfolio. These portfolio prospectuses must accompany this
prospectus, and you should read them in conjunction with it. You may obtain a
copy of each prospectus from us, free of charge, by calling 1-800-523-4374, or
by writing P.O. Box 3249, Syracuse, NY 13220.
As noted, the investment portfolios may be available to registered separate
accounts of other participating insurance companies. These portfolios may also
be available to the Variable Account and other separate accounts of First
Fortis. Although First Fortis does not anticipate any disadvantages to this,
there is a possibility that a material conflict may arise between the interest
of the Variable Account and one or more of the other separate accounts
participating in the portfolios. For example, a conflict may occur due to (1) a
change in law affecting the operations of variable life and variable annuity
separate accounts, (2) differences in the voting instructions of the contract
owners and those of other companies, or (3) some other reason. In the event of
conflict, First Fortis will take any steps necessary to protect the contract
owners and variable annuity payees.
First Fortis purchases and redeems portfolios' shares for the Variable Account
at their net asset value without any sales or redemption charges. We
automatically reinvest dividends or capital gain distributions attributable to
contracts in shares of the portfolio from which they are received at the
portfolio's net asset value on the date paid. These dividends and distributions
will have the effect of reducing the new asset value of each share of the
corresponding portfolio and increasing, by an equivalent value, the number of
shares outstanding of the portfolio. However, the value of your interest in the
corresponding subaccount will not change as a result of any such dividends and
distributions.
The portfolios available for investment by the Variable Account are listed on
the cover page of this prospectus.
THE FIXED ACCOUNT
GUARANTEED INTEREST RATES/GUARANTEE PERIODS
Any amount you allocate to the fixed account earns a guaranteed interest rate
beginning on the date you make the allocation. The guaranteed interest rate
continues for the number of years you select, up to a maximum of ten years. At
the end of your guarantee period, your contract value, including accrued
interest, will be allocated to a new guarantee period of equal length. However,
you may reallocate your contract value to a different guarantee period (or
periods) or to one (or more) of the subaccounts of the Variable Account. If you
decide to reallocate your contract value, you must do so by sending us a written
request. We must receive your written request at least three business days
before the end of your guarantee period. The first day of your new guarantee
period (or other reallocation) will be the day after the end of your previous
guarantee period. We will notify you at least 45 days and not more than 60 days
before the end of your guarantee period.
We currently offer ten different guarantee periods. These guarantee periods
range in length from one to ten years. Each guarantee period has its own
guaranteed interest rate, which may differ from those for other guarantee
periods. From time to time we will, at our discretion, change the guaranteed
interest rate for future guarantee periods. These changes will not affect the
guaranteed interest rates we are paying on current guarantee periods. Please
note, when you allocate or transfer an amount to a guarantee period, a new
guarantee period begins running with respect to that amount. Therefore, the
amount you allocate will earn a guaranteed interest rate that will not change
until the end of that period. In addition, the guaranteed interest rate will
never be less than an effective annual rate of 3%.
We declare the guaranteed interest rates from time to time as market conditions
dictate. We advise you of the guaranteed interest rate for a chosen guarantee
period at the time we receive a purchase payment from you, or at the time we
execute a transfer you have requested, or at the time a guarantee period is
renewed.
We do not have a specific formula for establishing the guaranteed interest rates
for the guarantee periods. Guaranteed interest rates may be influenced by the
available interest rates on the investments we acquire with the amounts you
allocate for a
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particular guarantee period. Guaranteed interest rates do not necessarily
correspond to the available interest rates on the investments we acquire with
the amounts you allocate for a particular guarantee period. See "Investments by
First Fortis". In addition, when we determine guaranteed interest rates, we may
consider: (1) the duration of a guarantee period, (2) regulatory and tax
requirements, (3) sales and administrative expenses we bear, (4) risks we
assume, (5) our profitability objectives, and (6) general economic trends.
FIRST FORTIS' MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED
INTEREST RATES TO BE DECLARED. WE CANNOT PREDICT OR ASSURE THE LEVEL OF ANY
FUTURE GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL RATE OF 3%.
You may obtain information concerning the guaranteed interest rates that apply
to the various guarantee periods. You may obtain this information from our home
office or from your sales representative at any time.
MARKET VALUE ADJUSTMENT
Except as described below, we will apply a Market Value Adjustment to any fixed
account value that is:
- surrendered,
- transferred, or
- otherwise paid out
before the end of the guarantee period in which it is being held.
For example, we will apply a Market Value Adjustment to fixed account value that
we pay:
- as an amount applied to an annuity option, and
- as an amount paid as a single sum in lieu of an annuity.
The Market Value Adjustment we apply may increase or decrease the fixed account
value that is withdrawn or transferred. We determine whether the fixed account
value is increased or decreased by performing a comparison of two guaranteed
interest rates.
The first rate we compare is the guaranteed interest rate for the fixed account
value that is withdrawn or transferred from the existing guarantee period. The
second rate we compare is the guaranteed interest rate we are then offering for
new guarantee periods with durations equal to the number of years remaining in
the existing guarantee period. After comparing these two rates, we determine
whether the fixed account value is increased or decreased as follows:
- If the first rate exceeds the second rate by more than 1/2%, the Market
Value Adjustment produces an increase in the fixed account value
withdrawn or transferred.
- If the first rate does not exceed the second rate by at least 1/2%, the
Market Value Adjustment produces a decrease in the fixed account value
withdrawn or transferred.
We will determine the Market Value Adjustment by multiplying the fixed account
value that is withdrawn or transferred from the existing guarantee period
(before deduction of any applicable surrender charge) by the following factor:
1 + I n/12
------------- - 1
( 1 + J + .0025 )
where,
- I is the guaranteed interest rate we credit to the fixed account value
that is withdrawn or transferred from the existing guarantee period.
- J is the guaranteed interest rate we are then offering for new guarantee
periods with durations equal to the number of years remaining in the
existing guarantee period (rounded up to the next higher number of
years).
- N is the number of months remaining in the existing guarantee period
(rounded up to the next higher number of months).
You will find sample Market Value Adjustment calculations in Appendix A.
We do not apply a Market Value Adjustment to withdrawals and transfers of fixed
account value under two exceptions. We describe these exceptions below.
We will not apply a Market Value Adjustment to fixed account value that we pay
out during a 30 day period that:
- begins 15 days before the end date of the guarantee period in which the
fixed account value was being held, and that:
- ends 15 days after the end date of the guarantee period in which the
fixed account value was being held.
In addition, we will not apply a Market Value Adjustment to fixed account value
that is withdrawn or transferred from a guarantee period on a periodic,
automatic basis. This exception only applies to such withdrawals or transfers
under a formal First Fortis program for the withdrawal or transfer of fixed
account value.
We may impose conditions and limitations on any formal First Fortis program for
the withdrawal or transfer of fixed account value. Ask your First Fortis
representative about the availability of such a program in your state. In
addition, if such a program is available in your state, your First Fortis
representative can inform you about the conditions and limitations that may
apply to that program.
INVESTMENTS BY FIRST FORTIS
First Fortis' legal obligations with respect to the fixed account are supported
by our general account assets. These general account assets also support our
obligations under other insurance and annuity contracts. Investments purchased
with amounts allocated to both fixed accounts are the property of First Fortis,
and you have no legal rights in such investments. Subject to applicable law, we
have sole discretion over the investment of assets in our general account and in
the fixed account.
We will invest amounts in our general account, and amounts in the fixed account,
in compliance with applicable state insurance laws and regulations concerning
the nature and quality of investments for the general account. Within specified
limits and sub-
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ject to certain standards and limitations, these laws generally permit
investment in:
- federal, state and municipal obligations,
- preferred and common stocks,
- corporate bonds,
- real estate mortgages and mortgage backed securities,
- real estate, and
- certain other investments, including various derivative investments.
See "First Fortis' Financial Statements" for information on our investments.
When we establish guaranteed interest rates, we will consider the available
return on the instruments in which we invest amounts allocated to the fixed
account. However, this return is only one of many factors we consider when we
establish the guaranteed interest rates. See "Guaranteed Interest
Rates/Guarantee Periods".
Generally, we expect to invest amounts allocated to the fixed account in debt
instruments. We expect that these debt instruments will approximately match our
liabilities with regard to the guarantee periods. We also expect that these debt
instruments will primarily include:
(1) securities issued by the United States Government or its agencies or
instrumentalities. These securities may or may not be guaranteed by the
United States Government;
(2) debt securities that, at the time of purchase, have an investment grade
within the four highest grades assigned by Moody's Investors Services, Inc.
("Moody's"), Standard & Poor's Corporation ("Standard & Poor's"), or any
other nationally recognized rating service. Moody's four highest grades are:
Aaa, Aa, A, and Baa. Standard & Poor's four highest grades are: AAA, AA, A,
and BBB;
(3) other debt instruments including, but not limited to, issues of, or
guaranteed by, banks or bank holding companies and corporations. Although
not rated by Moody's or Standard & Poor's, we deem these obligations to have
an investment quality comparable to securities that may be purchased as
stated above;
(4) other evidences of indebtedness secured by mortgages or deeds of trust
representing liens upon real estate.
Except as required by applicable state insurance laws and regulations, we are
not obligated to invest amounts allocated to the fixed account according to any
particular strategy, See "Regulation and Reserves".
As stated above under the "First Fortis Life Insurance Company" section of this
prospectus, the contracts are reinsured by Hartford Life Insurance Company. As
part of this reinsurance arrangement, the assets supporting the reserve
liabilities of First Fortis associated with the fixed accounts under the
contracts are held by First Fortis; however, these assets are managed by
Hartford Investment Management Company, an affiliate of Hartford Life Insurance
Company. Hartford Investment Management Company generally invests those assets
as described above for the contract fixed account related investments of First
Fortis.
ACCUMULATION PERIOD
ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS
We reserve the right to reject any application for a contract or any purchase
payment for any reason. If we accept your issuing instructions in the form
received, we will credit the initial purchase payment within two Valuation Dates
after the later of (1) receipt of the issuing instructions or (2) receipt of the
initial purchase payment at our home office. If we cannot apply the initial
purchase payment within five Valuation Dates after receipt because the issuing
instructions are incomplete, we will return the initial purchase payment unless
you consent to our retaining the initial purchase payment and applying it as of
the end of the Valuation Period in which the necessary requirements are
fulfilled. The initial purchase payment must be at least $5,000 ($2,000 for a
contract issued pursuant to a qualified plan).
The date that we apply the initial purchase payment to the purchase of the
contract is also the contract issue date. The contract issue date is the date
used to determine contract years, regardless of when we deliver the contract.
Our crediting of investment experience in the Variable Account, or a fixed rate
of return in the fixed account, generally begins as of the contract issue date.
We will accept additional purchase payments at any time after the contract issue
date and prior to the annuity commencement date, as long as the Annuitant is
living. You must transmit purchase payments (together with any required
information identifying the proper contracts and accounts to be credited with
purchase payments) to our home office. We apply additional purchase payments to
the contract, and add to the contract value as of the end of the Valuation
Period in which we receive the payments.
Each additional purchase payment under a contract must be at least $50. The
total of all purchase payments for all First Fortis annuities having the same
owner or Annuitant, may not exceed $1 million (not more than $500,000 allocated
to the fixed account) without our prior approval. We reserve the right to modify
this limitation at any time.
You may make purchase payments in excess of the initial minimum by monthly draft
against a bank account if you have completed and returned to us a special
authorization form. You may get the form from your sales representative or from
our home office. We can also arrange for you to make purchase payments by wire
transfer, payroll deduction, military allotment, direct deposit and billing.
Purchase payments by check should be made payable to First Fortis Life Insurance
Company.
If the contract value is less than $1,000, we may cancel the contract on any
Valuation Date. We will notify you of our intention to cancel the contract at
least 90 days in advance of the cancellation date. If we do cancel your
contract, we consider such cancellation a full surrender of the contract.
CONTRACT VALUE
Contract value is the total of any Variable Account value in all the subaccounts
of the Variable Account, plus any fixed account value.
The contract does not guarantee a minimum Variable Account value. You bear the
entire investment risk for the contract value that you allocate to the Variable
Account.
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Determination of Variable Account Value. A contract's Variable Account value is
based on the number of Accumulation Units and Accumulation Unit values, which
are determined on each Valuation Date. The value of an Accumulation Unit for a
subaccount on any Valuation Date is equal to the previous value of that
subaccount's Accumulation Unit multiplied by that subaccount's net investment
factor (discussed below) for the Valuation Period ending on that Valuation Date.
At the end of any Valuation Period, a contract's Variable Account value in a
subaccount is equal to the number of Accumulation Units in the subaccount times
the value of one Accumulation Unit for that subaccount.
The number of Accumulation Units in each subaccount is equal to
- Accumulation Units purchased at the time that any purchase payments or
transferred amounts are allocated to the subaccount; less
- Accumulation Units redeemed to pay for the portion of any transfers from
or partial surrenders allocated to the subaccount; less
- Accumulation Units redeemed to pay charges under the contract.
Net Investment Factor. The net investment factor for a subaccount is determined
by dividing (1) the net asset value per share of the portfolio shares held by
the subaccount, determined at the end of the current Valuation Period, plus the
per share amount of any dividend or capital gains distribution made with respect
to the portfolio shares held by the subaccount during the current Valuation
Period, minus a per share charge for the increase, plus a per share credit for
the decrease, in any income taxes assessed which we determine to have resulted
from the investment operation of the subaccount or any other taxes which are
attributable to this contract, by (2) the net asset value per share of the
portfolio shares held in the subaccount as determined at the end of the previous
Valuation Period, and subtracting from that result a factor representing the
mortality risk, expense risk and administrative expense charge.
If a subaccount's net investment factor is greater than one, the subaccount's
Accumulation Unit value has increased. If a subaccount's net investment factor
is less than one, the subaccount's Accumulation Unit value has decreased.
Determination of Fixed Account Value. A contract's fixed account value is
guaranteed by First Fortis. Therefore, we bear the investment risk with respect
to amounts allocated to the fixed account, except to the extent that (1) we may
vary the guaranteed interest rate for future guarantee periods (subject to the
3% effective annual minimum) and (2) the Market Value Adjustment for fixed
accounts imposes investment risks on you.
The contract's fixed account value on any Valuation Date is equal to the
following amounts, in each case increased by accrued interest:
- The amount of purchase payments or transferred amounts allocated to the
fixed account; less
- The amount of any transfers or surrenders out of the fixed account.
ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE
Allocation of Purchase Payments. In your application for a contract, you may
allocate purchase payments, or portions of payments, to the:
- available subaccounts of the Variable Account, or
- to the fixed account (and to guarantee periods within the fixed account),
or
- to a combination of the two previous options.
Percentages must be in whole numbers and the total allocation must equal 100%.
The percentage allocations for future purchase payments may be changed, without
charge, at any time by sending a written request to 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 available subaccount, or
- from one available subaccount to the fixed account, or
- from the fixed account to an available subaccount, or
- from one guarantee period to another guarantee period.
You must request transfers by (1) a written request to First Fortis' home
office, or by (2) a telephone transfer as described below. Currently, we do not
charge for any transfer. However, transfers from a guarantee period of a fixed
account that are (1) more than 15 days before or 15 days after the expiration of
the existing guarantee period, or are (2) not a part of a formal First Fortis
program for the transfer of fixed account value are subject to a Market Value
Adjustment. See "Market Value Adjustment".
Please note, we reserve the right to impose charges (not to exceed $25 per
transfer) upon transfers. However, we will not impose a transfer charge on the
first six transfers between guarantee periods of the fixed account and the
subaccounts, between the fixed account and the subaccounts, or between the
subaccounts in any calendar year.
The minimum transfer from a subaccount or guarantee period is the lesser of:
- $1,000, or
- all of the contract value in the subaccount or fixed account.
However, we may permit a continuing request for transfers of lesser specified
amounts automatically on a periodic basis. Where you make all your transfer
requests at the same time, as part of one request, we will count all transfers
between and among the subaccounts of the Variable Account and the fixed account
as one transfer. We will execute the transfers, and determine all values in
connection with the transfers, at of the end of the Valuation Period in which we
receive the transfer request. The amount of any positive or negative Market
Value Adjustment associated with a transfer from a guarantee period will be
added to or deducted from the transferred amount.
Certain restrictions on very substantial allocations to any one subaccount are
set forth under "Limitations on Allocations" in the Statement of Additional
Information.
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TOTAL AND PARTIAL SURRENDERS
Total Surrenders. You may surrender all of the cash surrender value at any time
during the life of the Annuitant and prior to the annuity commencement date. If
you choose to make a total surrender, you must do so by written request sent to
our home office. We reserve the right to require that the contract be returned
to us prior to making payment, although this will not affect our determination
of the amount of the cash surrender value. Cash surrender value is:
- the contract value at the end of the Valuation Period during which we
receive the written request for the total surrender at our home office,
plus or minus
- any applicable Market Value Adjustment.
See "Market Value Adjustment".
We must receive written consent of all collateral assignees and irrevocable
beneficiaries prior to any total surrender. We will generally pay surrenders
from the Variable Account within seven days of the date of receipt by our home
office of the written request. However, we may postpone payments in certain
circumstances. See "Postponement of Payment".
The amount we pay upon total surrender of the cash surrender value (taking into
account any prior partial surrenders) may be more or less than the total
purchase payments you made. After a surrender of the cash surrender value or at
any time the contract value is zero, all rights of the owner, Annuitant, or any
other person will terminate.
Partial Surrenders. At any time during the life of the Annuitant and prior to
the annuity commencement date, you may surrender a portion of the fixed account
and/or the Variable Account. You must request partial surrender by a written
request sent to First Fortis' home office. We will not accept a partial
surrender request from you unless the net proceeds payable to you, as a result
of the request, are at least $1,000. We will surrender the entire cash surrender
value under the contract if the total contract value in both the Variable
Account and fixed account would be less than $1,000 after the partial surrender.
You should specify the subaccounts of the Variable Account or guarantee periods
of the fixed account that you wish to partially surrender. If you do not
specify, we take the partial surrender from the subaccounts and from the
guarantee periods of the fixed account on a pro rata basis.
We will surrender Accumulation Units from the Variable Account and/ or dollar
amounts from the fixed account so that the total amount of the partial surrender
equals the dollar amount of the partial surrender request. If the surrender is
from a guarantee period, we will reduce the partial surrender by the amount of
any applicable negative Market Value Adjustment, or we will increase the amount
payable to you by any positive Market Value Adjustment unless the surrender is
(1) within 15 days before or 15 days after the expiration of a guarantee period,
or (2) is a part of a formal First Fortis program for the transfer of fixed
account value. The partial surrender will be effective at the end of the
Valuation Period in which we receive the written request for partial surrender
at our home office. Payments will generally be made within seven days of the
effective date of such request, although certain delays are permitted. See
"Postponement of Payment".
The Internal Revenue Code provides that a penalty tax will be imposed on certain
premature surrenders. For a discussion of this and other tax implications of
total and partial surrenders, including withholding requirements, see "Federal
Tax Matters". Also, under tax deferred annuity contracts pursuant to Section
403(b) of the Internal Revenue Code, no distributions of voluntary salary
reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.)
TELEPHONE TRANSACTIONS
You or your representative may make certain requests under the contract by
telephone if we have a written telephone authorization on file. These include
requests for (1) transfers, (2) withdrawals, and (3) changes in purchase payment
allocation instructions, dollar-cost averaging, portfolio rebalancing programs
and systematic withdrawals. Our home office will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures may include, among others, (1) requiring some form of personal
identification such as your address and social security number prior to acting
upon instructions received by telephone, (2) providing written confirmation of
such transactions, and/or (3) tape recording of telephone instructions. Your
request for telephone transactions authorizes us to record telephone calls. We
may be liable for any losses due to unauthorized or fraudulent instructions if
we do not employ reasonable procedures. If we do employ reasonable procedures,
we will not be liable for any losses due to unauthorized or fraudulent
instructions. We reserve the right to place limits, including dollar limits, on
telephone transactions.
BENEFIT PAYABLE ON DEATH OF CONTRACT OWNER OR ANNUITANT
If the contract 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 greater of:
(1) the sum of all purchase payments made less all prior surrenders and any
applicable prior negative Market Value Adjustments, or
(2) the contract value as of the date used for valuing the death benefit.
The value of the death benefit is determined as of the end of the Valuation
Period in which we receive, at our home office, proof of death and the written
request as to the manner of payment. Upon receipt of these items, the death
benefit generally will be paid within seven days. Under certain circumstances,
payment of the death benefit may be postponed. See "Postponement of Payment." If
we do not receive a written request for a settlement method, we will pay the
death benefit in a single sum, based on values determined at that time.
The beneficiary may (1) receive a single sum payment, which terminates the
contract, or (2) select an annuity option. If the beneficiary selects an annuity
option, he or she will have all the rights and privileges of a payee under the
contract. If the benefi
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ciary desires an annuity option, the election should be made within 60 days of
the date the death benefit becomes payable. Failure to make a timely election
can result in unfavorable tax consequences. For further information, see
"Federal Tax Matters."
We accept any of the following as proof of death: (1) a copy of a certified
death certificate; (2) a copy of a certified decree of a court of competent
jurisdiction as to the finding of death; or (3) a written statement by a medical
doctor who attended the deceased at the time of death.
The Internal Revenue Code requires that a Non-Qualified Contract contain certain
provisions about an owner's death. We discuss these provisions below under
"Federal Tax Matters--Required Distributions for Non-Qualified Contracts." It is
imperative that written notice of the death of the owner be promptly transmitted
to us at our home office, so that we can make arrangements for distribution of
the entire interest in the contract to the beneficiary in a manner that
satisfies the Internal Revenue Code requirements. Failure to satisfy these
requirements may result in the contract not being treated as an annuity contract
for federal income tax purposes with possible adverse tax consequences.
THE ANNUITY PERIOD
ANNUITY COMMENCEMENT DATE
You may specify an annuity commencement date, not later than age 90, in your
application. The annuity commencement date marks the beginning of the period
during which an Annuitant or other payee designated by the owner receives
annuity payments under the contract.
The 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 during the Annuitant's lifetime in order to
advance or defer the annuity commencement date. We must receive the request at
our home office at least 30 days before the then-scheduled annuity commencement
date. The new annuity commencement date must also be at least 30 days after we
receive the written request. You have no right to make any total or partial
surrender during the Annuity Period.
COMMENCEMENT OF ANNUITY PAYMENTS
We may pay the entire contract value, rather than apply the amount to an annuity
option if the contract value at the end of the Valuation Period which contains
the annuity commencement date is less than $1,000. We would make the payment in
a single sum to the Annuitant or other payee chosen by the owner and cancel the
contract. We would not impose any charge other than the premium tax charge.
Otherwise, we will apply (1) the fixed account value to provide a Fixed Annuity
Option and (2) the Variable Account value in any subaccount to provide a
Variable Annuity Option using the same subaccount, unless you have notified us
by written request to apply the fixed account value and Variable Account value
in different proportions. We must receive written request at our home office at
least 30 days before the annuity commencement date.
We will make annuity payments under a Fixed or Variable Annuity Option on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If you name more than one person as an
Annuitant, you may elect to name one of such persons to be the sole Annuitant as
of the annuity commencement date. We reserve the right to change the frequency
of any annuity payment so that each payment will be at least $50.
The amount of each annuity payment will depend on (1) the amount of contract
value applied to an annuity option, (2) the form of annuity selected, and (3)
the age of the Annuitant. For information concerning the relationship between
the Annuitant's sex and the amount of annuity payments, including special
requirements in connection with employee benefits plans, see "Calculations of
Annuity Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.
The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity option
selected. The dollar amount of variable annuity payments varies during the
Annuity Period based on changes in Annuity Unit values for the subaccounts that
you choose to use in connection with your payments.
RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS
The amount of an annuity payment depends on the average effective net investment
return of a subaccount during the period since the preceding payment as follows:
- if the return is higher than 3% annually, the Annuity Unit value will
increase, and the second payment will be higher than the first; and
- if the return is lower than 3% annually, the Annuity Unit value will
decrease, and the second payment will be lower than the first.
"Net investment return," for this purpose, refers to the subaccount's overall
investment performance after deduction of the mortality and expense risk and
administrative expense charges, which are assessed at an annual rate of .45%.
We guarantee that the amount of each variable annuity payment after the first
payment will not be affected by variations in our mortality experience or our
expenses.
Transfers. A person receiving annuity payments may make up to four transfers a
year among subaccounts. The current procedures for and conditions on these
transfers are the same as we describe above under "Allocation of Purchase
Payments and Contract Value--Transfers". We do not permit transfers from a Fixed
Annuity Option during the Annuity Period.
ANNUITY OPTIONS
You may select an annuity option or change a previous selection by written
request. We must receive your request at least 30 days before the annuity
commencement date. You may select one annuity form, although payments under that
form may be on a combi-
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nation 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 payments under certain retirement plans
pursuant to Option D (described below) unless another election is made. Tax laws
and regulations may impose further restrictions to assure that the primary
purpose of the plan is distribution of the accumulated funds to the employee.
Your contract offers the following options for fixed and variable annuity
payments. Under each of the options, we make payments as of the first Valuation
Date of each monthly period, starting with the annuity commencement date.
Option A, Life Annuity. We do not make payments after the annuitant dies. It is
possible for the annuitant to receive only one payment under this option, if the
annuitant dies before the second payment is due.
Option B, Life Annuity with Payments Guaranteed for 10 Years to 20 Years. We
continue payments as long as the annuitant lives. If the annuitant dies before
we have made all of the guaranteed payments, we continue installments of the
guaranteed payments to the beneficiary.
Option C, Joint and Full Survivor Annuity. We continue payments as long as
either the annuitant or the joint annuitant is alive. We stop payments when both
the annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
Option D, Joint and One-Half Contingent Survivor Annuity. We continue payments
as long as either the annuitant or the joint annuitant is alive. If the
annuitant dies first, we continue payments to the joint annuitant at one-half
the original amount. If the joint annuitant dies first, we continue payments to
the annuitant at the original full amount. We stop payments when both the
annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.
We also have other annuity options available. You can get information about them
from your sales representative or by calling or writing to our home office.
DEATH OF ANNUITANT OR OTHER PAYEE
Under most annuity options offered by us, the amounts, if any, payable on the
death of the Annuitant during the Annuity Period are the continuation of annuity
payments for any remaining guarantee period or for the life of any joint
Annuitant. In all such cases, the person entitled to receive payments also
receives any rights and privileges under the annuity form in effect.
Additional rules applicable to such distributions under Non-Qualified Contracts
are described under "Federal Tax Matters--Required Distributions for
Non-Qualified Contracts". Though the rules there described do not apply to
contracts issued in connection with qualified plans, similar rules apply to the
plans themselves.
CHARGES AND DEDUCTIONS
PREMIUM TAXES
We deduct state premium taxes as follows:
- when imposed on purchase payments, we pay the amount on your behalf and
deduct the amount from your contract value upon (1) our payment of
surrender proceeds or death benefit or (2) annuitization of a contract,
or
- when imposed at the time annuity payments begin, we deduct the amount
from your contract value.
We may deduct premium taxes from contract value when no deduction was made from
purchase payments, but is subsequently determined to be due. Conversely, we will
credit to the contract value the amount of any deductions for premium taxes or
similar assessments that are subsequently determined not to be owed.
Applicable premium tax rates depend upon your place of residence. Rates can
change by legislation, administrative interpretations, or judicial acts.
CHARGES AGAINST THE VARIABLE ACCOUNT
Mortality and Expense Risk Charge. We assess each subaccount of the Variable
Account with a daily charge for mortality and expense risk. This charge is a
nominal annual rate of .45% of the average daily net assets of the Variable
Account. It consists of approximately .30% for mortality risk and approximately
.15% for expense risk. We guarantee not to increase this charge for the duration
of the contract. This charge is assessed during both the Accumulation Period and
the Annuity Period.
The mortality risk borne by us arises from our obligation to make annuity
payments (determined in accordance with the annuity tables and other provisions
contained in the contract) for the full life of all Annuitants regardless of how
long all Annuitants or any individual Annuitant might live. In addition, we bear
a mortality risk in that we guarantee to pay a death benefit upon the death of
an Annuitant or owner prior to the annuity commencement date.
The expense risk we assume is that actual expenses incurred in connection with
issuing and administering the contract will exceed the limits on administrative
charges set in the contract.
We 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.
ANNUAL ADMINISTRATIVE CHARGE
A $30 annual administrative charge is deducted from the contract value on each
anniversary of the contract issue date. Some states require a lower
administration charge. Therefore, your annual administration charge may be
lower. This charge helps to cover administrative costs incurred in:
- issuing contracts,
- establishing and maintaining records relating to contracts,
- making regulatory filings and furnishing confirmation notices, voting
materials and other communications,
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- 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.
We will deduct the annual administrative charge by redeeming Accumulation Units
from each subaccount of the Variable Account and by redeeming Accumulation Units
from the fixed account. Contract value is the total value of the Variable
Account and the fixed account. We will redeem Accumulation Units in proportion
to the allocation of contract value among both:
- the subaccounts of the Variable Account, and
- the fixed account
If you totally surrender the contract, we will deduct the full annual
administration charge at the time of surrender.
The annual administrative charge and charges against the Variable Account
described above are for the purposes described, and First Fortis may receive a
profit as a result of these charges.
We will waive this charge during the Accumulation Period if your contract value
is $50,000 or more at the end of the contract year. Additionally, we will waive
this charge if you totally surrender your contract and your contract value is
$50,000 or more at that time.
TAX CHARGE
We currently impose no charge for taxes payable by us in connection with the
contract, other than for applicable premium taxes. We reserve the right to
impose a charge for any other taxes that may become payable by us in the future
for the contracts or the Variable Account.
MISCELLANEOUS
The Variable Account invests in shares of the portfolios. Therefore, the net
assets of the Variable Account will reflect the investment advisory fees and
certain other expenses incurred by the portfolios and described in their
prospectuses.
GENERAL PROVISIONS
THE CONTRACTS
The entire contract includes any application, amendment, rider, 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 an officer of First Fortis.
The contracts are non-participating and do not share in dividends or earnings of
First Fortis.
POSTPONEMENT OF PAYMENT
We may defer for up to 15 days the payment of any amount attributable to a
purchase payment made by check to allow the check reasonable time to clear. For
a description of other circumstances in which amounts payable out of Variable
Account assets could be deferred, see "Postponement of Payments" in the
Statement of Additional Information. We may also defer payment of surrender
proceeds payable out of the fixed account for a period of up to 6 months.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the Annuitant's age or sex was misstated, we pay the amount that the purchase
payments paid would have purchased at the correct age and sex. If we make any
overpayment because of incorrect information about age or sex, or any other
miscalculation, we deduct the overpayment from the next payment due. We add
underpayments to the next payment. We credit or charge the amount of any
adjustment with interest at the rate of 3% annually.
ASSIGNMENT
Owners and payees may assign their rights and interests under a Qualified
Contract only in certain narrow circumstances referred to in the contract.
Owners and other payees may assign their rights and interests under
Non-Qualified Contracts, including their ownership rights.
We take no responsibility for the validity of any assignment. Owners and payees
must make a change in ownership rights in writing and send it to our home
office. The change will be effective on the date made, although we are not bound
by a change until the date we record it.
The rights under a contract are subject to any assignment of record at our home
office. An assignment or pledge of a contract may have adverse tax consequences.
See below under "Federal Tax Matters".
BENEFICIARY
You may name or change a beneficiary or a contingent beneficiary before the
annuity commencement date and while the Annuitant is living. 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.
In the event of the death of a contract owner or Annuitant, prior to the annuity
commencement date, the beneficiary will be determined as follows:
- If upon the death of a contract owner there is one or more surviving
contract owners, the surviving contract owner(s) will be the beneficiary
(these override any other beneficiary designations).
- If upon the death of a contract owner there are no surviving contract
owners, and upon the death of the Annuitant, the beneficiary will be the
beneficiary designated by the contract owner.
- If there is no surviving beneficiary who has been designated by the
contract owner, then the contract owner, or the contract owner's estate,
will be the beneficiary.
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REPORTS
We will mail to the contract owner (or to the person receiving payments during
the annuity period), at the last known address of record, any report and
communication required by applicable law or regulation. You should therefore
give us prompt written notice of any address change. This will include annual
audited financial statements of the portfolios, but not necessarily of the
Variable Account or First Fortis.
RIGHTS RESERVED BY FIRST FORTIS
We reserve the right to make certain changes if, in our judgment, they would
best serve the interests of owners and Annuitants or would be appropriate in
carrying out the purposes of the contracts. We will make any change only as
permitted by applicable laws. We will obtain your approval of the changes and
approval from any appropriate regulatory authority if required by law. Examples
of the changes we may make include:
- To operate the Variable Account in any form permitted under the
Investment Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any subaccount to another subaccount, or to one
or more separate accounts, or to the fixed account; or to add, combine,
or remove subaccounts in the Variable Account.
- To substitute, for the portfolio shares held in any subaccount, the
shares of another portfolio or the shares of another investment company
or any other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the contract as an
annuity.
- To change the time or time of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the contract in order to
conform with any action the above provisions permit us to take, including
to change the way we assess charges, but without increasing as to any
then outstanding contract the aggregate amount of the types of charges
that we have guaranteed.
DISTRIBUTION
The contracts are sold by individuals who are (1) licensed by state insurance
authorities to sell the contracts of First Fortis, and (2) representatives of TD
Waterhouse National Bank. The representatives of TD Waterhouse National Bank are
authorized to sell the contracts by means of a dealer agreement with Woodbury
Financial Services, Inc. ("Woodbury Financial"), the principal underwriter of
the contracts. Woodbury Financial is registered as a broker-dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
Woodbury Financial is also a member of the National Association of Securities
Dealers, Inc.
We compensate Woodbury Financial who, in turn, compensate Waterhouse National
Bank for distributing the contracts by paying Waterhouse National Bank a fee. We
do not expect this fee to exceed .40% per annum of the average daily contract
value of the contracts sold by representatives of Waterhouse National Bank.
We did not pay any amount associated with distribution of the contracts to
Woodbury Financial in the last 3 years. In our distribution agreement with
Woodbury Financial, we have agreed to indemnify Woodbury Financial (and its
agents, employees, and controlling persons) for certain damages and expenses,
including those arising under federal securities laws.
See the Notes to First Fortis' Financial Statements as to amounts we have paid
to Fortis, Inc., Fortis Advisors, Inc. and Fortis Benefits Insurance Company,
affiliates of First Fortis, for various services.
Woodbury Financial is an indirect subsidiary of The Hartford Financial Services
Group, Inc. Woodbury Financial principal business address is 500 Bielenberg
Drive, Woodbury Minnesota 55125 and its mailing address is P.O. Box 64284, St.
Paul MN 55164. Fortis Investors is not obligated to sell any specific amount of
interests under the contracts. $20,000,000 of interests in the fixed account and
an indefinite amount of interests in the Variable Account have been registered
with the Securities and Exchange Commission.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes. These rules are based on laws, regulations and
interpretations that are subject to change at any time. This summary is not
comprehensive. We do not intend it as tax advice. Federal estate and gift tax
considerations, as well as state and local taxes, may also be material. You
should consult a qualified tax adviser as to the tax implications of taking any
action under a contract or related retirement plan.
NON-QUALIFIED CONTRACTS
Section 72 of the Internal Revenue Code ("Code") governs the taxation of
annuities in general. Neither you nor any other person may exclude or deduct
purchase payments under Non-Qualified Contracts from gross income. However, you
are not currently taxed, until receipt, on any increase in the accumulated value
of a Non-Qualified Contract that results from (1) the investment performance of
the Variable Account, or (2) interest credited to the fixed account. Owners who
are not natural persons ARE taxed annually on any increase in the contract value
subject to exceptions. You may wish to discuss this with your tax adviser.
The following discussion applies generally to contracts owned by natural
persons.
In general, surrenders or partial withdrawals under contracts are taxed as
ordinary income to the extent of the accumulated income or gain under the
contract. If you assign or pledge any part of the value of a contract, you pay
on the value so pledged or assigned to the same extent as a partial withdrawal.
With respect to annuity payment options, the tax consequences may vary depending
on the option elected under the contract. Until the "investment in the contract"
is recovered, generally only the portion of the annuity payment that represents
the amount by which the contract value exceeds the "investment in the contract"
will be taxed. In general, "investment in the contract" is the aggregate amount
of purchase payments made. After recovery of an Annuitant's or other payee's
"investment in the contract," the full amount of any additional annuity payments
is taxable.
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For variable annuity payments, in general, the taxable portion of each annuity
payment (prior to recovery of the "investment in the contract") is the amount of
the payment less the nontaxable portion. The nontaxable portion of each payment
is the "investment in the contract" divided by the total number of expected
annuity payments.
For fixed annuity payments, in general, prior to recovery of the "investment in
the contract," there is no tax on the amount of each payment that bears the same
ratio to that payment as the "investment in the contract" bears to the total
expected value of the annuity payments for the term of the payments. However,
the remainder of each annuity payment is taxable. The taxable portion of a
distribution (in the form of an annuity or a single sum payment) is taxed as
ordinary income.
For purposes of determining the amount of taxable income resulting from
distributions, all contracts and other annuity contracts we or our affiliates
issue to you within the same calendar year will be treated as if they were a
single contract.
You, or any other payee, will pay a 10% penalty on the taxable portion of a
"premature distribution." Generally, an amount is a "premature distribution"
unless the distribution is:
- made on or after you or another payee reach age 59 1/2, or is
- made to a beneficiary on or after your death, or is
- made upon your disability or that of another payee, or is
- part of a series of substantially equal annuity payments for your life or
life expectancy, or is
- part of a series of substantially equal annuity payments for the life or
life expectancy of you and your beneficiary.
Premature distributions may result, for example, from:
- an early annuity commencement date
- an early surrender or partial surrender of a contract
- an assignment of a contract
- the early death of an Annuitant other than you or another person
receiving annuity payments under the contract
If you transfer ownership of a contract, or designate an Annuitant or payee
other than yourself, you may have certain income or gift tax consequences that
are beyond the scope of this discussion. If you are contemplating any transfer
or assignment of a contract, you should contact a competent tax adviser.
REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS
In order that a Non-Qualified Contract be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires:
- if any person receiving annuity payments dies on or after the annuity
commencement date but prior to the time the entire interest in the
contract has been distributed, the remaining portion of such interest
will be distributed at least as rapidly as under the method of
distribution being used as of the date of the person's death; and
- if you die prior to the annuity commencement date, the entire interest in
the contract will be distributed:
- within five years after your death, or
- as annuity payments that will begin within one year of your death and
will be made over your designated beneficiary's life or over a period
not extending beyond the life expectancy of that beneficiary.
However, if the owner's designated beneficiary is the surviving spouse, the
surviving spouse may continue the contract as the new contract owner. Where the
owner or other person receiving payments is not a natural person, the required
distributions under Section 72(A) apply on the death of the primary Annuitant.
The Internal Revenue Service has not issued regulations interpreting the
requirements of Section 72(s) (although it has issued proposed regulations
interpreting similar requirements for qualified plans). We intend to review and
modify the contract if necessary to ensure that it complies with the
requirements of Section 72(s) when clarified by regulation or otherwise.
Generally, the above requirements will be satisfied with a single sum payment
where the death occurs prior to the annuity commencement date. A single sum
payment will be subject to proof of the owner's death. The beneficiary, however,
may elect by written request to receive an annuity option instead of a lump sum
payment. However, if the election is not made within 60 days of the date the
single sum death benefit otherwise becomes payable, the IRS may disregard the
election for tax purposes and tax the beneficiary as if a single sum payment had
been made.
QUALIFIED CONTRACTS
The contracts may be used with several types of tax-qualified plans. The tax
rules applicable to owners, Annuitants, and other payees vary according to the
type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a tax qualified plan on your behalf are excludable
from your gross income during the Accumulation Period. The portion, if any, of
any purchase payment that is not excluded from your gross income during the
Accumulation Period constitutes your "investment in the contract".
When annuity payments begin, you will receive back your "investment in the
contract" if any, as a tax-free return of capital. The Code provides which
portion of each payment is taxable and which portion is tax free. These rules
may vary depending on the type of tax qualified plan.
The contracts are available in connection with the following types of retirement
plans:
- Section 403(b) annuity plans for employees of certain tax-exempt
organizations and public education institutions;
- Section 401 or 403(a) qualified pension, profit-sharing, or annuity
plans;
- Individual retirement annuities ("IRAs") under Section 408(b);
- Simplified employee pension plans ("SEPs") under Section 408(k);
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- Section 457 unfunded deferred compensation plans of tax-exempt
organizations and private employer unfunded deferred compensation plans.
The tax implications of these plans are further discussed in the Statement of
Additional Information under the heading "Taxation Under Certain Retirement
Plans".
WITHHOLDING
Annuity payments and other amounts received under contracts are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Despite the recipient's election, the Code may require withholding from certain
payments outside the United States. The Code may also require withholding from
certain distributions from certain types of qualified retirement plans, unless
the proceeds are transferred directly from the qualified plan to another
qualified retirement plan. Moreover, special "backup withholding" rules may
require us to disregard the recipient's election if the recipient fails to
supply us with a "TIN" or taxpayer identification number (social security number
for individuals), or if the Internal Revenue Service notifies us that the TIN
provided by the recipient is incorrect.
PORTFOLIO DIVERSIFICATION
The United States Treasury Department has adopted regulations under Section
817(h) of the Code that set forth diversification requirements for investments
underlying Non-Qualified Contracts. We believe that the investments will satisfy
these requirements. Failure to do so would result in immediate taxation to you
or another person of all income credited to Non-Qualified Contracts. Also,
current regulations do not provide guidance as to any circumstances in which
control over allocation of values among different investment alternatives may
cause you or another person receiving annuity payments to be treated as the
owners of Variable Account assets for tax purposes. We reserve the right to
amend the contracts in any way necessary to avoid any such result. The Treasury
Department may establish standards in this regard through regulations or
rulings. Such standards may apply only prospectively, although retroactive
application is possible if the Treasury Department considered such standards not
to embody a new position.
CERTAIN EXCHANGES
Section 1035 of the Code provides generally that no gain or loss will be
recognized under the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange pursuant to the special
annuity contract exchange form we provide for this purpose is not generally a
taxable event under the Code. Moreover, your investment in the contract will be
the same as your investment in the product you exchanged out of.
Because of the complexity of these and other tax aspects in connection with an
exchange, you should consult a tax adviser before making any exchange.
TAX LAW RESTRICTIONS AFFECTING SECTION 403(B) PLANS
Section 403(b)(11) of the Internal Revenue Code restricts the distribution under
Section 403(b) annuity contracts of:
(1) elective contributions made for years beginning after December 31, 1988;
(2) earnings on those contributions; and
(3) earnings on amounts held as of December 31, 1988.
Distribution of these amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, we may not distribute income attributable to elective
contributions made after December 31, 1988.
FURTHER INFORMATION ABOUT FIRST FORTIS
GENERAL
We offer and sell insurance products, including fixed life insurance policies,
fixed and variable annuity contracts, and group life, accident and health
insurance policies. We market our products to small business and individuals
through a national network of independent agents, brokers, and financial
institutions.
OWNERSHIP OF SECURITIES
All of First Fortis' outstanding shares are owned by Fortis, Inc., One Chase
Manhattan Plaza, New York, N.Y. 10005. Fortis, Inc., in turn is wholly owned by
Fortis International, Inc., which is wholly owned by AMEV/VSB 1990 N.V., both of
which share the same address with N.V. AMEV., Archimedeslaan 10, 3584 BA,
Utrecht, The Netherlands. AMEV/VSB 1990 N.V. is 50% owned by Fortis (NL)N.V. and
50% owned, through certain subsidiaries, by Fortis (B), Boulevard Emile Jacqmain
53, 1000 Brussels, Belgium.
19
22
SELECTED FINANCIAL DATA
The following is a summary of certain financial data of First Fortis. This
summary has been derived in part from the financial statements of First Fortis
included elsewhere in this prospectus. You should read the following along with
these financial statements.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
(IN THOUSANDS) 2000 1999 1998 1997 1996
-------------- ---- ---- ---- ---- ----
INCOME STATEMENT DATA
Premiums and policy charges............................... $ 64,753 $ 60,213 $ 54,764 $ 51,846 $ 67,516
Net investment income..................................... 9,330 638 8,187 7,907 7,891
Realized investment gains (losses)........................ (1,883) (123) 1,436 361 (3)
Other income.............................................. 1,032 1,374 889 682 336
-------- -------- -------- -------- --------
TOTAL REVENUES.............................................. $ 73,232 $ 69,292 $ 65,276 $ 60,796 $ 75,740
======== ======== ======== ======== ========
Benefits and expenses..................................... $ 66,469 $ 66,194 $ 61,477 $ 60,983 $ 75,596
Income tax expense (benefit).............................. 2,416 1,032 1,347 (63) (39)
Net income (loss)......................................... 4,347 2,066 2,452 (124) 183
BALANCE SHEET DATA
Total assets.............................................. $265,997 $248,252 $217,502 $170,898 $142,742
Total liabilities......................................... 222,619 212,316 177,476 133,817 107,050
Total shareholder's equity................................ 43,378 35,936 40,026 37,081 35,692
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
2000 COMPARED TO 1999
REVENUES
First Fortis (the Company) life insurance is principally group life business and
the premium remained consistent from 1999 to 2000. Accident and health premiums
increased during 2000 as compared to 1999 due to strong group disability and
dental sales. Accident and health premiums are principally composed of group
accident and health coverages. Dental, disability income, and medical premium
represented 52%, 47%, and 1%, respectively, of total group accident and health
premium in 2000 compared to 48%, 46%, and 6%, respectively, in 1999. The
decrease in the group medical premium as a percent of the total group accident
and health premium is due to the run-out of a block of business that
discontinued sales in 1996.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 2000 and 1999
resulted in recognition of realized gains and losses upon sales of securities.
BENEFITS
The ratio of life benefits to premium decreased in 2000 to 74% from 77% in 1999
due to more favorable mortality experience during 2000 in the group life line.
The decrease in accident and health benefits as a percent of premium to 73% in
2000 from 80% in 1999 is primarily due to both the dental and disability income
lines. The decrease in the dental benefit to premium ratio is due to higher
premium volume in 2000 along with favorable dental experience. The decrease in
the disability income benefit to premium ratio is due to a slightly higher
premium volume in 2000 as well as improved experience during the year.
EXPENSES
The Company continues to monitor its commission rate structures, and, as
indicated by market conditions, periodically adjusts rates paid. Rates paid vary
by product type, group size and duration.
The Company's general and administrative expense decreased $0.6 million from
1999 to 2000. Decreases in salary related expenses, banking fees and
depreciation costs account for this decrease. The Company continues to strive
for improvements in the expense to gross revenue ratio while maintaining quality
and timely services to the policyholders.
EVENTS SUBSEQUENT
On January 25, 2001, Fortis, Inc. agreed to sell (the "Sale") its Fortis
Financial Group division (the "Division") to The Hartford Financial Services
Group ("The Hartford"). The Division includes, among other blocks of business,
certain individual life insurance policies and annuity contracts (collectively,
the "Insurance Contracts") written by Fortis Benefits Insurance Company, First
Fortis Life Insurance Company, Fortis Insurance Company, John Alden Life
Insurance Company and Houston National Life Insurance Company (the "Companies").
Certain of the Insurance Contracts permit investment in, among other investment
options, various series of the Fortis Series Fund (the "Fund").
To effect the Sale as it relates to the Companies, Hartford Life and Annuity
Insurance Company and Hartford Life Insurance Company, indirect wholly owned
subsidiaries of The Hartford, will reinsure the Insurance Contracts on a 100%
coinsurance basis (or a 100% modified coinsurance basis for some of the block)
and perform administration of such Insurance Contracts. In addition, Hartford
Life and Accident Insurance Company, another indirect wholly owned subsidiary of
The Hartford, will purchase all of the outstanding stock of Fortis Advisers,
Inc., which is the investment adviser for the Fund. Thus, upon completion of the
Sale, Hartford Life and Accident Insurance Company will own and control Fortis
Advisers, Inc. and its subsidiaries, including Fortis Investors, Inc., which is
the principal distributor of the Fund.
20
23
The Sale was completed on April 1, 2001. Following the Sale, the Fund entered
into new investment advisory, subadvisory and distribution agreements with
affiliates of the Hartford. These new agreements will require approval of the
Fund's shareholders and by Insurance Contract holders to the extent required by
law.
1999 COMPARED TO 1998
REVENUES
First Fortis (the Company) life insurance premiums increased during 1999 as
compared to 1998 due to strong group life sales. Group disability and dental
sales account for the increase in accident and health premiums. Offsetting this
is a decrease in the group medical premiums. This group medical premium decrease
was substantially attributable to the Company's decision, effective January 1,
1996, to cease new sales of group medical policies. The Company continues to
service the existing group medical business. The decision to effectively exit
the group medical business has reduced annualized premiums associated with this
line from $11.4 million inforce at January 1, 1997 to a $724,000 in premium
inforce at December 31, 1999. Accident and health premiums are principally
composed of group accident and health coverages. The discontinuance of group
medical sales and strong dental and disability sales have caused the group
accident and health premium mix to shift. Dental, disability income, and medical
premium represented 48%, 46%, and 6%, respectively, of total group accident and
health premium in 1999 compared to 44%, 41%, and 15%, respectively, in 1998.
The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1999 and 1998
resulted in recognition of realized gains and losses upon sales of securities.
BENEFITS
The ratio of 1999 life benefits to premium increased to 77% from 70% in 1998 due
to more favorable 1998 mortality experience and higher life premium volumes. The
decrease in accident and health benefits as a percent of premium to 80% in 1999
from 85% in 1998 is primarily due to improved experience in the group long-term
disability claims.
EXPENSES
The Company continues to monitor its commission rate structures, and, as
indicated by market conditions, periodically adjusts rates paid. Rates paid vary
by product type, group size and duration.
The Company's general and administrative expenses as a percent of premium
remained relatively flat decreasing to 23.3% in 1999 from 23.7% in 1998. The
Company continues to strive for improvements in the expense to gross revenue
ratio while maintaining quality and timely services to the policyholders.
MARKET RISK AND RISK MANAGEMENT
Interest rate risk is the Company's primary market risk exposure. Substantial
and sustained increases and decreases in market interest rates can affect the
profitability of insurance products and market value of investments. The yield
realized on new investments generally increases or decreases in direct
relationship with interest rate changes. The market value of the Company's fixed
maturity and mortgage loan portfolios generally increases when interest rates
decrease, and decreases when interest rates increase.
Interest rate risk is monitored and controlled through asset/liability
management. As part of the risk management process, different economic scenarios
are modeled, including cash flow testing required for insurance regulatory
purposes, to determine that existing assets are adequate to meet projected
liability cash flows. A major component of the Company's asset/liability
management program is structuring the investment portfolio with cash flow
characteristics consistent with the cash flow characteristics of the Company's
insurance liabilities.
The Company uses computer models to perform simulations of the cash flow
generated from existing insurance policies under various interest rate
scenarios. Information from these models is used in the determination of
interest crediting strategies and investment strategies. The asset/liability
management discipline includes strategies to minimize exposure to loss as market
interest rates change. On the basis of these analyses, management believes there
is no material solvency risk to the Company with respect to interest rate
movements up or down of 100 basis points from year end levels.
Equity market risk exposure is not significant. Equity investments in the
general account are not material enough to threaten solvency and contract owners
bear the investment risk related to the variable products. Therefore, the risks
associated with the investments supporting the variable separate accounts are
assumed by contract owners, not by the Company. The Company provides certain
minimum death benefits that depend on the performance of the variable separate
accounts. Currently the majority of these death benefit risks are reinsured
which then protects the Company from adverse mortality experience and prolonged
capital market decline.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company have been met by funds provided from
operations, including investment income. Funds are principally used to provide
for policy benefits, operating expenses, commissions and investment purchases.
The impact of the declining inforce medical business has been considered in
evaluating the Company's future liquidity needs. The Company expect its
operating activities to continue to generate sufficient funds.
The National Association of Insurance Commissioners has implemented risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. Based upon current calculation using
these risk-based capital standards, the Company's percentage of total adjusted
capital is in excess of ratios which would require regulatory attention.
The Company has no long or short term debt. As of December 31, 2000, xx% of the
Company's fixed maturity investments consisted of investment grade bonds. The
Company does not expect this percentage to change significantly in the future.
REGULATION
The Company is subject to the laws and regulations established by the New York
State Insurance Department governing insur-
21
24
ance business conducted in New York State. Periodic audits are conducted by the
New York Insurance Department related to the Company's compliance with these
laws and regulations. To date, there have been no adverse findings regarding the
Company's operations.
VOTING PRIVILEGES
In accordance with our view of current applicable law, we will vote shares of
each of the portfolios attributable to a contract at regular and special
meetings of the shareholders of the portfolios. We will vote those shares in
proportion to instructions we receive from the persons having the voting
interest in the contract as of the record date for the corresponding portfolio
shareholders meeting. Owners have the voting interest during the Accumulation
Period, persons receiving annuity payments have the voting interest during the
Annuity Period, and beneficiaries have the voting interest after the death of
the Annuitant or owner. However, if the Investment Company Act of 1940 or any
rules thereunder should be amended or if the present interpretation thereof
should change, and as a result we determine that we are permitted to vote shares
of the portfolios in our own right, we may elect to do so.
We determine the number of shares of a portfolio attributable to a contract as
follows:
- During the Accumulation Period, we divide the amount of contract value in
a subaccount by the net asset value of one share of the portfolio
corresponding to that subaccount. We make this calculation as of the
record date for the applicable portfolio.
- During the Annuity Period, or after the death of the Annuitant or owner,
we make a similar calculation. However, for subaccount value we use the
liability for future variable annuity payments allocable to that
subaccount as of the record date for the applicable portfolio. We
calculate the liability for future variable annuity payments on the basis
of the following on the record date:
- mortality assumptions,
- the assumed interest rate used in determining the number of Annuity Units
under the contract, and
- the applicable Annuity Unit value
During the Annuity Period, the number of votes attributable to a contract will
generally decrease since funds set aside to make the annuity payments will
decrease.
We will vote shares for which we have not received timely instructions, and any
shares attributable to excess amounts we have accumulated in the related
subaccount, in proportion to the voting instructions which we receive for all
contracts and other variable annuity contracts participating in a portfolio. To
the extent that we or any affiliated company holds any shares of a portfolio,
those shares will be voted in the same proportion as instructions for that
portfolio from all our policy holders holding voting interests in that
portfolio. Shares held by separate accounts other than the Variable Account will
in general be voted in accordance with instructions of owners in such other
separate accounts. This diminishes the relative voting influence of the
contracts.
Each person having a voting interest in a subaccount of the Variable Account
will receive proxy material, reports and other materials relating to the
appropriate portfolio. Under the procedures described above, these persons may
give instructions regarding:
- the election of the Board of Directors of the portfolios,
- ratification of the selection of a portfolio's independent auditors,
- the approval of the investment managers of a portfolio,
- changes in fundamental investment policies of a portfolio, and
- all other matters that are put to a vote by portfolio shareholders
OTHER INFORMATION
We have filed Registration Statements with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
contracts discussed in this prospectus. We have not included in the prospectus
all of the information set forth in the Registration Statement, amendments, and
exhibits thereto. We intend statements contained in this prospectus about the
content of the contracts and other legal instruments to be summaries. For a
complete statement of the terms of these documents, you should refer to the
instruments filed with the Securities and Exchange Commission.
A Statement of Additional Information is available upon request. Its contents
are as follows:
CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION
First Fortis and the Variable Account..........
Calculation of Annuity Payments................
Postponement of Payments.......................
Services.......................................
- Safekeeping of Variable Account Assets.....
- Experts....................................
- Principal Underwriter......................
Taxation Under Certain Retirement Plans........
Withholding....................................
Other Information..............................
Miscellaneous..................................
Variable Account Financial Statements..........
APPENDIX A--Performance Information............
FIRST FORTIS FINANCIAL STATEMENTS
The financial statements of First Fortis that are included in this prospectus
should be considered primarily as bearing on the ability of First Fortis to meet
its obligations under the contracts. The contracts are not entitled to
participate in earnings, dividends or surplus of First Fortis.
22
25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First Fortis Life Insurance Company
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in shareholder's equity and of cash flows present fairly, in
all material respects, the financial position of First Fortis Life Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL) N.V.
(the Company) at December 31, 2000, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion. The
financial statements of the Company as of December 31, 1999 and for the two
years in the period then ended were audited by other independent accountants
whose report dated February 17, 2000 expressed an unqualified opinion on those
statements.
[/s/ PRICEWATERHOUSECOOPERS LLP]
February 15, 2001
F-1
26
REPORT OF INDEPENDENT AUDITORS
Board of Directors
First Fortis Life Insurance Company
We have audited the accompanying balance sheet of First Fortis Life Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL)
N.V., as of December 31, 1999, and the related statements of operations, changes
in shareholder's equity and cash flows for each of the two years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with accounting standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Fortis Life Insurance
Company at December 31, 1999, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
[/s/ Ernst & Young LLP]
Minneapolis, Minnesota
February 17, 2000
F-2
27
BALANCE SHEETS
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
--------------------
2000 1999
-------- --------
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
2000--$130,242; 1999--$126,432)........................ $129,784 $121,212
Policy loans.............................................. 4 1
Short-term investments.................................... 9,450 5,800
-------- --------
139,238 127,013
Cash and cash equivalents................................... 1,659 4,562
Receivables:
Uncollected premiums, less allowance (2000 and
1999--$100)............................................ 3,417 3,097
Reinsurance recoverable on unpaid and paid losses......... 36,761 31,634
Other..................................................... 1,267 1,495
-------- --------
41,445 36,226
Accrued investment income................................... 2,215 2,095
Deferred policy acquisition costs........................... 4,127 4,353
Property and equipment at cost, less accumulated
depreciation (2000--$1,732; 1999--$2,287)................. 78 124
Deferred federal income taxes............................... 3,283 3,535
Goodwill, less accumulated amortization (2000--$460;
1999--$414)............................................... 370 416
Assets held in separate accounts............................ 73,582 69,928
-------- --------
Total assets................................................ $265,997 $248,252
======== ========
The accompanying notes are an integral part of the financial statements
F-3
28
BALANCE SHEETS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
--------------------
2000 1999
-------- --------
POLICY RESERVES AND LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Life insurance......................................... $ 32,443 $ 34,165
Interest sensitive and investment products............. 4,916 3,487
Accident and health.................................... 76,830 70,852
-------- --------
114,189 108,504
Unearned revenues......................................... 10,058 9,834
Other policy claims and benefits payable.................. 14,205 12,247
Income taxes payable...................................... 1,035 1,213
Other liabilities......................................... 9,550 10,590
Liabilities related to separate accounts.................. 73,582 69,928
-------- --------
Total policy reserves and liabilities....................... 222,619 212,316
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 earnings (accumulated deficit)................... 4,223 (124)
Accumulated other comprehensive loss...................... (285) (3,380)
-------- --------
Total shareholder's equity.................................. 43,378 35,936
-------- --------
Total policy reserves, liabilities and shareholder's
equity.................................................... $265,997 $248,252
======== ========
The accompanying notes are an integral part of the financial statements
F-4
29
STATEMENTS OF OPERATIONS
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
-----------------------------
2000 1999 1998
------- ------- -------
REVENUES:
Insurance operations:
Life insurance premiums................................... $24,399 $24,765 $23,057
Interest sensitive and investment product policy
charges................................................ 1,197 950 384
Accident and health insurance premiums.................... 39,157 34,498 31,323
------- ------- -------
64,753 60,213 54,764
Net investment income....................................... 9,330 8,564 8,187
Net realized (losses) gains on investments.................. (1,883) (123) 1,436
Other income................................................ 1,032 638 889
------- ------- -------
Total revenues.............................................. 73,232 69,292 65,276
BENEFITS AND EXPENSES:
Benefits to policyholders:
Life insurance............................................ 18,031 19,100 16,167
Interest sensitive investment products.................... 440 315 815
Accident and health claims................................ 28,657 27,585 26,616
------- ------- -------
47,128 47,000 43,598
Amortization of deferred policy acquisition costs........... 360 240 (106)
Insurance commissions....................................... 5,773 5,114 5,056
General and administrative expenses......................... 13,208 13,840 12,929
------- ------- -------
Total benefits and expenses................................. 66,469 66,194 61,477
Income before federal income taxes.......................... 6,763 3,098 3,799
Federal income taxes........................................ 2,416 1,032 1,347
------- ------- -------
Net income.................................................. $ 4,347 $ 2,066 $ 2,452
======= ======= =======
The accompanying notes are an integral part of the financial statements
F-5
30
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
RETAINED ACCUMULATED
ADDITIONAL EARNINGS OTHER
COMMON PAID-IN (ACCUMULATED COMPREHENSIVE
TOTAL STOCK CAPITAL DEFICIT) (LOSS) INCOME
------- ------- ---------- ------------ -------------
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
(losses) on investments,
net........................ 493 -- -- -- 493
-------
Comprehensive income............ 2,945
------- ------ ------- ------- ------
Balance, December 31, 1998........ 40,026 2,000 37,440 (2,190) 2,776
Comprehensive loss:
Net income................... 2,066 -- -- 2,066 --
Change in unrealized gains
(losses) on investments,
net........................ (6,156) -- -- -- (6,156)
-------
Comprehensive loss.............. (4,090)
------- ------ ------- ------- ------
Balance, December 31, 1999........ 35,936 2,000 37,440 (124) (3,380)
Comprehensive income:
Net income................... 4,347 -- -- 4,347 --
Change in unrealized gains
(losses) on investments,
net........................ 3,095 -- -- -- 3,095
-------
Comprehensive income............ 7,442
------- ------ ------- ------- ------
Balance, December 31, 2000........ $43,378 $2,000 $37,440 $ 4,223 $ (285)
======= ====== ======= ======= ======
The accompanying notes are an integral part of the financial statements.
F-6
31
STATEMENTS OF CASH FLOWS
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
---------------------------------
2000 1999 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 4,347 $ 2,066 $ 2,452
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion.................. 156 330 299
Net realized losses (gains) on investments................ 1,535 123 (1,436)
Write-off on investment................................... 348 -- --
Amortization of gain on reinsured business................ (406) -- --
Policy acquisition costs deferred......................... (950) (1,445) (1,629)
Amortization of policy acquisition costs.................. 360 240 (106)
Increase in uncollected premiums, accrued investment
income and other....................................... (212) (837) (390)
Increase in reinsurance recoverable....................... (5,127) (3,176) (8,694)
Loss on disposal of property and equipment................ -- -- 12
Provision for deferred taxes.............................. (1,415) 930 665
Increase in future policy benefit reserves, unearned
revenues and other policy claims and benefits.......... 7,679 8,894 13,922
(Decrease) increase in other liabilities.................. (3,128) 5,693 (686)
(Decrease) increase in income taxes payable............... (178) (804) 1,106
--------- --------- ---------
Net cash provided by operating activities................... 3,009 12,014 5,515
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed maturity investments..................... (172,388) (159,025) (187,953)
Sales and repayments of fixed maturity investments.......... 166,630 158,172 165,971
(Increase) decrease in short-term investments............... (3,650) (4,970) 10,867
Cash pursuant to reinsurance agreement...................... 2,397 -- --
--------- --------- ---------
Net cash used in investing activities....................... (7,011) (5,823) (11,115)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Activities related to investment products:
Considerations received................................... 5,640 2,875 13,661
Surrenders and death benefits............................. (4,855) (5,941) (15,075)
Interest credited to policyholders........................ 314 277 721
--------- --------- ---------
Net cash provided by (used in) financing activities......... 1,099 (2,789) (693)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents............ (2,903) 3,402 (6,293)
Cash and cash equivalents at beginning of year.............. 4,562 1,160 7,453
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 1,659 $ 4,562 $ 1,160
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Assets and liabilities transferred in reinsurance
transactions (Note 7):
Non-cash assets (ceded) received:
Other assets........................................... $ (7) $ -- $ --
Deferred acquisition costs............................. (816) -- --
========= ========= =========
Total value of assets (ceded) received.................... $ (823) $ -- $ --
========= ========= =========
Non-cash liabilities ceded (assumed):
Future policy benefit reserves......................... $ 404 $ -- $ --
Unearned premium reserves.............................. 505 -- --
Other liabilities...................................... 9 -- --
--------- --------- ---------
Total liabilities ceded (assumed)......................... $ 918 $ -- $ --
========= ========= =========
The accompanying notes are an integral part of the financial statements
F-7
32
NOTES TO FINANCIAL STATEMENTS
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
1. NATURE OF OPERATIONS
NATURE OF OPERATIONS
First Fortis Life Insurance Company (the Company) is a wholly-owned subsidiary
of Fortis, Inc. (Fortis), which itself is a wholly-owned subsidiary of Fortis
(B) and Fortis (NL) N.V. The Company was organized to enable the Fortis group of
companies to distribute their products to the New York State marketplace. The
Company's revenues are derived primarily from group employee benefits products.
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 $421, $1,859 and $4,648 of 2000, 1999 and
1998 of the accident and health premiums, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS 133," which deferred to January 1, 2001 the effective
date of the accounting and reporting requirements of SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The adoption
of SFAS 133 is not expected to have a material effect on the Company's results
of operations or financial position.
Effective January 1, 2000, the Company adopted Statement of Position ("SOP")
98-7, Deposit Accounting: Accounting for Insurance and Reinsurance Contracts
that do not Transfer Insurance Risk. SOP 98-7 provides guidance on how to
account for insurance and reinsurance contracts that do not transfer insurance
risk. The adoption of SOP 98-7 did not have a material effect on the Company's
results of operations or financial position.
INVESTMENTS
The Company's investment strategy is developed based on many factors including
insurance liability matching, rate of return, maturity, credit risk, tax
considerations and regulatory requirements.
All fixed maturity investments are classified as available-for-sale and carried
at fair value. Changes in fair values of available-for-sale securities, after
related deferred income taxes and after adjustment for the changes in pattern of
amortization of deferred policy acquisition costs are reported directly in
shareholder's equity as accumulated other comprehensive income and, accordingly,
have no effect on net income. The unrealized appreciation or depreciation is net
of deferred policy acquisition cost amortization and taxes that would have been
required as a charge or credit to income had such unrealized amounts been
realized.
Policy loans are reported at the aggregate of the unpaid loan balances which do
not exceed the cash surrender values of the related policies. Short-term
investments are carried 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.
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 is reviewed periodically. As excess amounts
of deferred costs over future premiums or gross profits are identified, such
excess amounts are expensed.
F-8
33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. The
Company provides for depreciation principally on the straight-line method over
the estimated useful lives of the related property. Depreciation expense was
$46, $202 and $341 at December 31, 2000, 1999 and 1998, respectively.
GOODWILL
Goodwill represents the excess of the purchase price paid over net assets
acquired in connection with the purchase of the New York shell of Metropolitan
Life. The block of business purchased included ordinary life, other accident and
health, and annuities. Goodwill is amortized on a straight line basis over 18
years.
GUARANTY FUND ASSESSMENTS
There are a number of insurance companies that are currently under regulatory
supervision. This may result in future assessments by state guaranty fund
associations to cover losses to policyholders of insolvent or rehabilitated
companies. These assessments can be partially recovered through a reduction in
future premium taxes in some states. The Company believes it has adequately
provided for the impact of future assessments relating to current insolvencies.
SEPARATE ACCOUNTS
Revenues and expenses related to the separate account assets and liabilities are
excluded from the amounts reported in the accompanying statements of operations.
Assets and liabilities associated with separate accounts relate to deposit and
annuity considerations for which the contract owner, rather than the Company,
bears the investment risk. Separate account assets are reported at fair value
and represent funds held for the exclusive benefit of the variable annuity
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 expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
REVENUE RECOGNITION AND FUTURE POLICY BENEFIT RESERVES
Premiums for traditional life insurance 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 4% to 12% in
2000, 4.0% to 6.75% in 1999 and 3.5% to 10.25% in 1998.
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.
F-9
34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reserves for future disability benefits are based on the 1987 Commissioners
Group Disability Table. The valuation interest rate is the Single Premium
Immediate Annuity Valuation rate less 100 basis points. Claims in the first five
years are modified based on the Company's actual experience.
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.
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.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive income
which includes unrealized gains and losses adjusted for the impact of gains and
losses realized during the current year on securities classified as available
for sale, net of the effect on deferred policy acquisition costs, and taxes.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost which approximates fair value
RECLASSIFICATIONS
Certain amounts in the 1999 and 1998 financial statements have been reclassified
to conform to the 2000 presentation.
F-10
35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
3. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSSES VALUE
--------- ---------- ---------- --------
AT DECEMBER 31, 2000:
Governments....................................... $ 19,185 $ 805 $ 46 $ 19,944
Public utilities.................................. 15,505 215 387 15,333
Industrial and miscellaneous...................... 95,552 1,775 2,820 94,507
-------- ------ ------ --------
Total............................................. $130,242 $2,795 $3,253 $129,784
======== ====== ====== ========
AT DECEMBER 31, 1999:
Governments....................................... $ 11,494 $ -- $ 360 $ 11,134
Public utilities.................................. 16,507 15 903 15,619
Industrial and miscellaneous...................... 98,431 212 4,184 94,459
-------- ------ ------ --------
Total............................................. $126,432 $ 227 $5,447 $121,212
======== ====== ====== ========
The amortized cost and fair value of fixed maturity securities at December 31,
2000, by contractual maturity, are shown below:
AMORTIZED FAIR
COST VALUE
--------- --------
Due in one year or less..................................... $ 8,310 $ 8,273
Due after one year through five years....................... 29,155 29,095
Due after five years through ten years...................... 41,906 41,302
Due after ten years......................................... 50,871 51,114
-------- --------
Total....................................................... $130,242 $129,784
======== ========
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 $505 and $502 at December'31, 2000
and 1999, respectively, on deposit with various governmental authorities as
required by law.
F-11
36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Major categories of net investment income for each year were as follows:
2000 1999 1998
------ ------ ------
NET INVESTMENT INCOME:
Fixed maturities............................................ $8,956 $8,375 $8,108
Short-term investments...................................... 494 326 222
------ ------ ------
9,450 8,701 8,330
Expenses.................................................... (120) (137) (143)
------ ------ ------
Net investment income....................................... $9,330 $8,564 $8,187
====== ====== ======
All net realized gains (losses) on investments resulted from sales of fixed
maturities.
Proceeds from sales of investments were $165,630, $157,672 and $165,471 in 2000,
1999 and 1998, respectively. Gross gains of $448, $738 and $1,757 and gross
losses of $2,331, $861 and $321 were realized on the sales in 2000, 1999 and
1998, respectively.
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:
TAX
BEFORE-TAX BENEFIT NET-OF-TAX
AMOUNT (EXPENSE) AMOUNT
---------- --------- ----------
DECEMBER 31, 2000:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 6,644 $(2,325) $ 4,319
Reclassification adjustment for gains (losses) realized
in net income......................................... (1,883) 659 (1,224)
------- ------- -------
Other comprehensive income................................. $ 4,761 $(1,666) $ 3,095
======= ======= =======
DECEMBER 31, 1999:
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $(9,348) $ 3,272 $(6,076)
Reclassification adjustment for gains (losses) realized
in net income......................................... (123) 43 (80)
------- ------- -------
Other comprehensive loss................................... $(9,471) $ 3,315 $(6,156)
======= ======= =======
DECEMBER 31, 1998:
Unrealized gains (losses) on investments:
Unrealized gains(losses) on available-for-sale
investments........................................... $ (678) $ 238 $ (440)
Reclassification adjustment for gains (losses) realized
in net income......................................... 1,436 (503) 933
------- ------- -------
Other comprehensive income................................. $ 758 $ (265) $ 493
======= ======= =======
4. LEASES
The Company leases office space under operating lease arrangements that have
various renewal options and are subject to escalation clauses for real estate
taxes and operating expenses. Rent expense was $791, $915 and $789 in 2000, 1999
and 1998, respectively. Future minimum payments required under operating lease
arrangements that have
F-12
37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
4. LEASES (CONTINUED)
initial or noncancelable terms in excess of one year or more are: 2001--$661,
2002--$669, 2003--$662, 2004--$686, 2005--$710, and thereafter $275.
5. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims is summarized
as follows:
YEARS ENDED DECEMBER 31
-----------------------------
2000 1999 1998
------- ------- -------
Balance as of January 1, net of reinsurance recoverables:... $63,788 $62,540 $60,498
Add: Incurred losses related to:
Current year........................................... 14,828 18,907 16,816
Prior years............................................ 12,920 8,678 9,800
------- ------- -------
Total incurred losses....................................... 27,748 27,585 26,616
Deduct: Paid losses related to:
Current year........................................... 16,321 14,717 11,639
Prior year............................................. 9,600 11,620 12,935
------- ------- -------
Total paid losses........................................... 25,921 26,337 24,574
------- ------- -------
Balance as of December 31, net of reinsurance
recoverables.............................................. $65,615 $63,788 $62,540
======= ======= =======
The table above differs from the amounts reported on the balance sheet in the
following respects: (1) the table above is presented net of ceded reinsurance
and the accident and health reserves reported on the balance sheet are gross of
ceded reinsurance; and (2) the table above includes accident and health benefits
payable which are included with other policy claims and benefits payable
reported on the balance sheet.
Excluded from incurred losses presented above related to current year is $909 of
reserves ceded resulting from the long-term care reinsurance agreement with John
Hancock Life Insurance Company, which became effective March 1, 2000. See Note 7
"Reinsurance" for more information on this reinsurance transaction.
The 2000, 1999 and 1998 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.
The liability for unpaid accident and health claims includes $57,704, and
$59,535 of total disability income reserves as of December 31, 2000, and 1999,
respectively, which were discounted for anticipated interest earnings assuming a
6.0% interest rate.
6. FEDERAL INCOME TAXES
As of May 1, 1997, the Company reports its taxable income in a consolidated
federal income tax return along with other affiliated subsidiaries of Fortis.
Income tax expense or credits are allocated among the affiliated subsidiaries by
applying corporate income tax rates to taxable income or loss determined on a
separate return basis according to a Tax Allocation Agreement.
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial statement purposes and
for income tax purposes.
F-13
38
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
6. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 2000 and 1999 are as follows:
DECEMBER 31
----------------
2000 1999
------ ------
Deferred tax assets:
Reserves.................................................. $ 809 $1,315
Separate account assets/liabilities....................... 645 727
Unrealized losses......................................... 1,772 1,827
Other..................................................... 442 207
------ ------
Total deferred tax assets................................... 3,668 4,076
Deferred tax liabilities:
Deferred policy acquisition costs......................... 238 494
Other..................................................... 147 47
------ ------
Total gross deferred tax liabilities........................ 385 541
------ ------
Net deferred tax asset...................................... $3,283 $3,535
====== ======
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets, and therefore, no such valuation
allowance has been established.
The Company's tax expense (benefit) for the year ended December 31 is shown as
follows:
2000 1999 1998
------- ------ ------
Current..................................................... $ 3,831 $ 102 $ 889
Deferred.................................................... (1,415) 930 458
------- ------ ------
$ 2,416 $1,032 $1,347
======= ====== ======
Federal income tax payments and refunds resulted in net payments of $4,011 and
$906 in 2000 and 1999, respectively, and net refunds of $424 in 1998.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
2000 1999 1998
----- ---- ----
Statutory income tax rate................................... 35.0% 35.0% 35.0%
Other, including provision for prior year adjustments....... 0.7 (1.7) 0.4
----- ---- ----
35.7% 33.3% 35.4%
===== ==== ====
At December 31, 2000, the Company has fully utilized all net operating loss,
capital loss, and alternative minimum tax credit carryforwards.
7. REINSURANCE
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 net monthly benefit to a $2 net monthly benefit
for claims incurred on and after January 1, 1996. The Company has ceded $6,884,
$6,580 and $5,601 of premium and $14,366, $11,047 and $9,315 of reserves in
2000, 1999
F-14
39
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
7. REINSURANCE (CONTINUED)
and 1998, respectively, to Fortis Benefits. 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 $36,373 and $31,634 in 2000 and 1999,
respectively.
The maximum amounts that the Company retains on any one life are $500 for group
life; $250 for group accidental death; $2 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.
Ceded reinsurance premiums for the year ended December 31 were as follows:
2000 1999 1998
------- ------- -------
Life insurance.............................................. $ 5,399 $ 5,001 $ 5,343
Accident and health insurance............................... 15,713 11,186 11,343
------- ------- -------
$21,112 $16,187 $16,686
======= ======= =======
Recoveries under reinsurance contracts for the year ended December 31 were as
follows:
2000 1999 1998
------- ------- -------
Life insurance.............................................. $ 1,791 $ 2,571 $ 1,740
Accident and health insurance............................... 5,280 5,522 3,504
------- ------- -------
$ 7,071 $ 8,093 $ 5,244
======= ======= =======
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.
In the first quarter of 2000, the Company entered into a reinsurance agreement
with John Hancock Life Insurance Company (John Hancock) for the sale of the
Long-Term Care (LTC) line of business. The sale of the LTC line of business was
effective March 1, 2000. The Company recorded a gain on this transaction of
$2,492. The gain has been deferred and is being amortized as the level of direct
inforce LTC policies decreases over future years, not to exceed 30 years. The
amount of gain amortized in 2000 was $406. The Company ceded $3,330 of premiums
and $1,577 of reserves to John Hancock in 2000.
8. DIVIDEND RESTRICTIONS
The Company is subject to insurance regulatory restrictions that limit cash
dividends which can be paid from the Company to its Parent. All dividends
require prior approval by the New York State Insurance Department.
9. REGULATORY ACCOUNTING REQUIREMENTS
The Company prepares its statutory-basis financial statements in accordance with
accounting practices prescribed or permitted by the Department of Insurance of
the State of New York. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
(NAIC), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices that
are not prescribed; such practices may differ from company to company within a
state, and may change in the future. The Company does not employ any significant
permitted practices.
F-15
40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
9. REGULATORY ACCOUNTING REQUIREMENTS (CONTINUED)
In 1998, the NAIC adopted codified statutory accounting practices (Codification)
effective January 1, 2001. Codification will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification requires adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states.
The New York Insurance Department recently adopted the Codification guidance
(Regulation 172), effective January 1, 2001, but did not adopt several key
provisions of the guidance, including deferred income taxes and the
establishment of goodwill as an asset.
The cumulative effect of all changes resulting from the Codification guidance
will be recorded as a direct adjustment to statutory surplus on January 1, 2001.
The effect of the adoption is expected to increase statutory surplus by a
material amount.
Insurance enterprises are required by state insurance departments to adhere to
minimum risk-based capital (RBC) requirements developed by the NAIC. The Company
exceeds the minimum RBC requirements.
Reconciliations of net income and shareholder's equity on the basis of statutory
accounting to the related amounts presented in the accompanying statements were
as follows:
SHAREHOLDER'S
NET INCOME EQUITY
--------------------------- ------------------
2000 1999 1998 2000 1999
------- ------ ------ ------- -------
Based on statutory accounting practices............ $ 5,686 $1,793 $1,177 $37,356 $30,419
Deferred policy acquisition costs.................. 598 1,356 1,764 4,127 4,353
Deferred and uncollected premiums.................. 691 59 (323) 203 156
Policy reserves.................................... (478) 555 (269) 561 204
Investment valuation difference.................... -- -- -- (437) (5,220)
Commissions on LTC sale............................ (2,048) -- -- (2,086) --
Realized (losses) gains on investments............. (1,376) (80) 896 -- --
Amortization of goodwill........................... (46) (46) (46) 370 416
Income taxes....................................... 1,415 (930) (458) 2,189 2,440
Pension............................................ (82) (84) (19) (487) (405)
Amortization of IMR................................ (310) (383) (347) -- --
Reinsurance in unauthorized companies.............. -- -- -- 37 --
Interest maintenance reserve....................... -- -- -- 636 1,975
Asset valuation reserve............................ -- -- -- 805 928
Property and equipment............................. -- -- -- 26 61
Agents balances.................................... -- -- -- -- 486
Other.............................................. 297 (174) 77 78 123
------- ------ ------ ------- -------
Based on generally accepted accounting
principles....................................... $ 4,347 $2,066 $2,452 $43,378 $35,936
======= ====== ====== ======= =======
10. 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, 2000, 1999 and 1998 were $2,736, $1,541 and $1,712, 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.
F-16
41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
11. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS
The fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or, in the
case of private placements, are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality, and
maturity of the investments.
For short-term investments, the carrying amount is a reasonable estimate of fair
value. The carrying amount of policy loans reported in the balance sheet
approximates 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.
DECEMBER 31, DECEMBER 31,
2000 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
Assets:
Investments:
Securities available-for-sale:
Fixed maturities......................................... $129,784 $129,784 $121,212 $121,212
Short-term investments................................... 9,450 9,450 5,800 5,800
Cash..................................................... 1,659 1,659 4,562 4,562
Policy loans............................................. 4 4 1 1
Assets held in separate accounts......................... 73,582 73,582 69,928 69,928
Liabilities:
Individual and group annuities (subject to discretionary
withdrawal)........................................... 6,593 6,418 5,516 5,231
Liabilities related to separate accounts................. 73,582 73,582 69,928 69,928
12. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company is an indirect wholly-owned subsidiary of Fortis, which sponsors a
defined benefit pension plan covering employees and certain agents who meet
eligibility requirements as to age and length of service. The benefits are based
on years of service and career compensation. 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 $82, $20 and $52 for 2000, 1999 and 1998, 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 $168, $133 and $124 for 2000, 1999 and 1998,
respectively.
In addition to retirement benefits, the Company participates in other health
care and life insurance benefit plans (postretirement benefits) for retired
employees, sponsored by Fortis. Health care benefits, either through a Fortis-
sponsored retiree plan for retirees under age 65 or through a cost offset for
individually purchased Medigap policies for retirees over age 65, are available
to employees who retire on or after January 1, 1993, at age 55 or older, with
F-17
42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FIRST FORTIS LIFE INSURANCE COMPANY
(IN THOUSANDS)
12. RETIREMENT AND OTHER EMPLOYEE BENEFITS (CONTINUED)
15 years or more service. Life insurance, on a retiree pay all basis, is
available to those who retire on or after January 1, 1993.
13. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.
14. EVENTS SUBSEQUENT
On January, 25, 2001, Fortis, agreed to sell (the "Sale") its Fortis Financial
Group division (the "Division") to the Hartford Financial Services Group ("The
Hartford"). The Division includes, among other blocks of business, certain
individual life insurance policies and annuity contracts (collectively, the
"Insurance Contracts") written by Fortis Benefits Insurance Company, First
Fortis Life Insurance Company, Fortis Insurance Company, John Alden Life
Insurance Company and Houston National Life Insurance Company (the "Companies").
Certain of the Insurance Contracts permit investment in, among other investment
options, various series of the Fortis Series Fund (the "Fund").
To effect the Sale as it relates to the Companies, Hartford Life and Annuity
Insurance Company and Hartford Life Insurance Company, indirect wholly owned
subsidiaries of The Hartford, will reinsure the Insurance Contracts on a 100%
coinsurance basis (or a 100% modified coinsurance basis for some of the block)
and perform administration of such Insurance Contracts. In addition, Hartford
Life and Accident Insurance Company, another wholly owned subsidiary of The
Hartford, will purchase all of the outstanding stock of Fortis Advisers, Inc.,
which is the investment adviser for the Fund. Thus, upon completion of the Sale,
Hartford Life and Accident Insurance Company will own and control Fortis
Advisers, Inc., and the subsidiaries, including Fortis Investors, Inc., which is
the principal distributor of the Fund.
Closing of the Sale is subject to various regulatory and other approvals.
Following the Sale, the Fund expects to enter into new investment advisory,
subadvisory and distribution agreements with affiliates of The Hartford. Such
new agreements will require approvals subsequent to the closing of the Sale by
the Fund's board of directors and shareholders and by Insurance Contract holders
to the extent required by law.
F-18
43
APPENDIX A--SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS
The formula which will be used to determine the Market Value Adjustment is:
1 + I n/12
------------- - 1
( 1 + J + .0025 )
Sample Calculation 1: Positive Adjustment
Amount withdrawn or transferred $10,000
Existing guarantee period 7 years
Time of withdrawal or transfer beginning of 3rd year of existing guarantee period
Guaranteed interest rate (I) 8%*
Guaranteed interest rate for new 5-year guarantee (J) 7%*
Remaining guarantee period (N) 60 months
Market Value Adjustment
1 + .08 60/12
$10,000 X --------------- - 1 = $354.57
[( 1 + .07 + .0025 ) ]
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$10,354.57
Sample Calculation 2: Negative Adjustment
Amount withdrawn or transferred $10,000
Existing guarantee period 7 years
Time of withdrawal or transfer beginning of 3rd year of existing guarantee period
Guaranteed interest rate (I) 8%*
Guaranteed interest rate for new 5-year guarantee (J) 9%*
Remaining guarantee period (N) 60 months
Market Value Adjustment:
1 + .08 60/12
$10,000 X --------------- - 1 = -$559.14
[( 1 + .09 + .0025 ) ]
Amount transferred or withdrawn (adjusted for Market Value Adjustment):
$9,440.86
Sample Calculation 3: Negative Adjustment
Amount withdrawn or transferred $10,000
Guarantee period 7 years
Time of withdrawal or transfer beginning of 3rd year of existing guarantee period
Guaranteed interest rate (I) 8%*
Guaranteed interest rate for new 5-year guarantee (J) 7.75%*
Remaining guarantee period (N) 60 months
Market Value Adjustment:
1 + .08 60/12
$10,000 X ----------------- - 1 = $0
[( 1 + .0775 + .0025 ) ]
Amount transferred or withdrawn (adjusted for Market Value Adjustment): $10,000
- ------------------------------
* Assumed for illustrative purposes only.
A-1
44
APPENDIX B--EXPLANATION OF EXPENSE CALCULATIONS
The expense for a given year is calculated by multiplying the projected
beginning of the year policy value by the total expense rate. The total expense
rate is the sum of the variable account expense rate plus the total portfolio
expense rate plus the annual administrative charge rate.
The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.
For example, the 3 year expense for the Alliance Money Market Portfolio is
calculated as follows:
- --------------------------------------------------------------------------------
Total Variable Account Annual Expenses 0.45%
- --------------------------------------------------------------------------------
+ Total Portfolio Operating Expenses 0.67%
- --------------------------------------------------------------------------------
+ Total Administrative Charges (see below) 0.02%
- --------------------------------------------------------------------------------
= Total Expense Rate 1.14%
- --------------------------------------------------------------------------------
The Annual Administrative Charge rate is calculated by dividing the total Annual
Contract Charges collected in 2000 on similar contracts by an affiliated company
by the average policy value in force in 2000 on such contracts.
Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = $1000.00 X 0.0114 = $11.40
Year 2 Beginning Policy Value = $1038.60
Year 2 Expense = $1038.60 X 0.0114 = $11.84
Year 3 Beginning Policy Value = $1078.69
Year 3 Expense = $1079.69 X 0.0114 = $12.30
So the cumulative expenses for years 1-3 for the Alliance Money Market Portfolio
are equal to:
$11.40 + $11.84 + $12.30 = $34.54
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APPENDIX C--PARTICIPATING FUNDS
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
The Alliance Variable Products Series Fund, Inc. is an open-ended series
investment company. It was incorporated under Maryland law on November 17, 1987.
Alliance Capital Management L.P. serves as the Fund's manager.
ALLIANCE MONEY MARKET PORTFOLIO
Investment Objective: Seeks safety of principal, maintenance of liquidity and
maximum current income by investing in a broadly diversified portfolio of money
market securities.
ALLIANCE INTERNATIONAL PORTFOLIO
Investment Objective: Seeks to obtain a total return on its assets from
long-term growth of capital and from income principally through a broad
portfolio of marketable securities of established non-United States companies
(or United States companies having their principal activities and interests
outside the United States), companies participating in foreign economies with
prospects for growth, and foreign government securities.
ALLIANCE PREMIER GROWTH PORTFOLIO
Investment Objective: Seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based upon their
potential for capital appreciation, current income will be incidental to the
objective of capital growth.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century Variable Portfolios, Inc. is a open-end management investment
company. It was organized as a Maryland corporation on June 4, 1987. American
Century Investment Management, Inc., serves as the investment manager of
American Century Portfolios.
AMERICAN CENTURY VP BALANCED FUND
Investment Objective: Capital growth and current income. Seeks to achieve its
investment objective by maintaining approximately 60% of the assets in common
stocks that are considered to have better-then-average prospects for
appreciation and the remaining assets in bonds and other fixed income
securities.
FEDERATED INSURANCE SERIES
Federated Insurance Series is an open-end management investment company. It was
established as a Massachusetts business trust under a Declaration of Trust dated
September 15, 1993. Federated Advisers is the investment adviser.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Investment Objective: Seeks to provide current income. Under normal
circumstances, the portfolio pursues its investment objective by investing at
least 65% of the value of its total assets in securities issued or guaranteed as
to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities.
FEDERATED AMERICAN LEADERS FUND II
Investment Objective: To achieve long-term growth of capital and to provide
income.
FEDERATED UTILITY FUND II
Investment Objective: To achieve high current income and moderate capital
appreciation.
FEDERATED HIGH INCOME BOND FUND II
Investment Objective: To seek high current income.
FORTIS SERIES FUND, INC.
The Fortis Series Fund, Inc. is an open-end series investment fund. It was
incorporated under Minnesota law in 1986. Fortis Advisers, Inc. serves as the
fund's manager.
FORTIS S & P 500 INDEX SERIES
Investment Objective: Seeks to replicate the total return of the Standard &
Poor's 500 Composite Stock Price Index primarily through investment in equity
securities.
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INVESCO VARIABLE INVESTMENT FUNDS, INC.
The INVESCO Variable Investment Funds, Inc. is an open-end series management
investment company. It was incorporated under Maryland law on August 19, 1993.
INVESCO Funds Group, Inc. serves as the Fund's manager.
INVESCO EQUITY INCOME FUND
Investment Objective: Seeks the best possible current income while following
sound investment practices. Capital growth potential is an additional
consideration in the selection of the portfolio securities. The portfolio
normally invests at least 65% of its total assets in dividend-paying common
stocks.
INVESCO HEALTH SCIENCES FUND
Investment Objective: Seeks capital appreciation. The portfolio normally invests
at least 80% of its total assets in equity securities of companies that develop,
produce, or distribute products or services related to health care.
INVESCO TECHNOLOGY FUND
Investment Objective: Seeks capital appreciation. The portfolio normally invests
at least 80% of its total assets in equity securities of companies in
technology-related industries such as computers, communications, video,
electronics, oceanography, office and factory automation, and robotics.
MFS7 VARIABLE INSURANCE TRUST
MFS Variable Insurance Trust is an open-end management investment company. It
was organized as a business trust under the laws of the Commonwealth of
Massachusetts by a Declaration of Trust dated February 1, 1994. Massachusetts
Financial Services Company manages each series.
MFS EMERGING GROWTH SERIES
Investment Objective: Seeks to provide long-term growth of capital. The series'
policy is to invest primarily in common stocks of small and medium-sized
companies that are early in their life cycle but which have the potential to
become major enterprises.
MFS HIGH INCOME SERIES
Investment Objective: Seeks high current income by investing primarily in a
professionally managed portfolio of fixed income securities, some of which may
involve equity features.
MFS GLOBAL GOVERNMENTS SERIES
Investment Objective: Seeks to provide income and capital appreciation. The
series invests, under normal market conditions, at least 65% of its total assets
in debt obligations that are issued or guaranteed as to principal and interest
by either (i) the U.S. Government, its agencies, authorities or
instrumentalities or (ii) the governments of foreign countries (including
emerging markets). The series may also invest in corporate bonds (including
lower rated bonds commonly known as junk bonds) and mortgage-backed and
assets-backed securities.
THE MONTGOMERY FUNDS III
The Montgomery Funds III is an open-end investment company. This Delaware
business trust was organized on August 24, 1994. The trust is managed by
Montgomery Asset Management, L.P.
MONTGOMERY VARIABLE SERIES: GROWTH FUND
Investment Objective: Seeks capital appreciation by investing primarily in
equity securities, usually common stock, of domestic companies of all sizes.
MONTGOMERY VARIABLE SERIES: EMERGING MARKETS FUND
Investment Objective: Seeks capital appreciation by investing primarily in
equity securities of companies in countries having economies and markets
generally considered by the World Bank or the United Nations to be emerging or
developing.
NEUBERGER & BERMAN ADVISERS MANAGERS TRUST
Neuberger & Berman Advisers Managers Trust is an open-end diversified series
management investment company. It was established as a Delaware business trust
on May 23, 1994. Neuberger & Berman Management Incorporated serves as manager of
the Fund.
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NEUBERGER & BERMAN LIMITED MATURITY BOND PORTFOLIO
Investment Objective: Seeks highest current income consistent with low risk to
principal and liquidity; and secondarily, total return. Principal investments
are short-to-intermediate term debt securities, primarily investment grade.
NEUBERGER & BERMAN PARTNERS PORTFOLIO
Investment Objective: Seeks capital growth. Principal investments are common
stocks and other equity securities of established companies.
PILGRIM NATURAL RESOURCES TRUST
The Pilgrim Natural Resources Trust is an open-end management investment
company. It was organized as a Massachusetts business trust on October 7, 1988.
Pilgrim Investments, Inc is the Investment Adviser of the fund.
Investment Objective: To seek long-term growth of capital through investment
primarily in common stocks of companies that own or develop natural resources
and other basic commodities, or supply goods and services to such companies.
PILGRIM EMERGING MARKETS FUND, INC.
The Pilgrim Emerging Markets Fund, Inc. is an open-end management investment
company. It was organized as a corporation under Maryland law on December 27,
1993. Pilgrim Investments, Inc is the fund's investment adviser.
Investment Objective: To seek long-term growth of capital primarily through
investment in equity securities of companies domiciled in, or doing business in,
emerging countries and emerging markets.
SAFECO RESOURCE SERIES TRUST
The SAFECO Resource Series Trust is an open-end series management investment
company. It is a Delaware business trust established by a trust instrument dated
May 13, 1993. SAFECO Asset Management Company is the fund's manager.
SAFECO EQUITY PORTFOLIO
Investment Objective: Seeks long-term growth of capital and reasonable current
income. The Equity Portfolio ordinarily invests principally in common stocks or
securities convertible into common stocks.
SAFECO GROWTH OPPORTUNITIES PORTFOLIO
Investment Objective: Seeks growth of capital and the increased income that
ordinarily follows from such growth. The Growth Portfolio ordinarily invests a
preponderance of its assets in common stock selected for potential appreciation.
STRONG VARIABLE INSURANCE FUNDS, INC.
The Strong Variable Insurance Funds, Inc. is an open-end management investment
company. It was incorporated in Wisconsin. Strong Capital Management, Inc. is
the investment adviser.
THE STRONG DISCOVERY FUND II
Investment Objective: Seeks to identify emerging investment trends and
attractive growth opportunities.
THE STRONG INTERNATIONAL STOCK FUND II
Investment Objective: Seeks capital growth. The fund invests primarily in the
equity securities of issuers located outside of the United States.
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Insurance Trust is an open-end management investment company.
It was organized as a business trust under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Van Eck Associates Corporation serves as
investment adviser and manager to the two funds listed below.
VAN ECK WORLDWIDE HARD ASSETS FUND
Investment Objective: Seeks long-term capital appreciation by investing
globally, primarily in (i) precious metals, (ii) ferrous and non-ferrous metals,
(iii) oil and gas, (iv) forest products, (v) real estate, and (vi) other basic
non-agricultural commodities.
VAN ECK WORLDWIDE BOND FUND
Investment Objective: Seeks high total return through a flexible policy of
investing globally, primarily in debt securities.
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CONTRACTS UNDER
FLEXIBLE PREMIUM DEFERRED
COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
THE WATERHOUSE VARIABLE ANNUITY
Issued by
FIRST FORTIS LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2001
This Statement of Additional Information is not a Prospectus. It is intended
that this Statement of Additional Information be read in conjunction with the
Prospectus for certificates under flexible premium deferred combination variable
and fixed annuity contracts ("Contracts"), dated May 1, 2001. A copy of the
Prospectus may be obtained without charge from Woodbury Financial Services, Inc.
1-800-827-5877, mailing address: P.O. Box 64272, St. Paul, MN 55164. You have
the option of receiving benefits under a Contract through First Fortis' Variable
Account A or through First Fortis' Fixed Account.
TABLE OF CONTENTS
First Fortis and the Variable Account..........................................1
Calculation of Annuity Payments................................................2
Postponement of Payments.......................................................3
Services.......................................................................3
- - Safekeeping of Variable Account Assets.....................................3
- - Experts....................................................................3
- - Principal Underwriter .....................................................4
Taxation Under Certain Retirement Plans........................................4
Withholding....................................................................7
Miscellaneous..................................................................7
Variable Account Financial Statements..........................................8
Appendix A -- Performance Information........................................A-1
In order to supplement the description in the Prospectus, the following provides
additional information about the Contracts and other matters which may be of
interest to you. Terms used in this Statement of Additional Information have the
same meanings as are defined in the Prospectus under the heading "Special Terms
Used in This Prospectus."
FIRST FORTIS AND THE VARIABLE ACCOUNT
First Fortis Life Insurance Company, the issuer of the Contracts, is a New York
corporation qualified to sell life insurance and annuity contracts in the state
of New York. First Fortis is a wholly-owned subsidiary of Fortis, Inc. Fortis,
Inc. is a corporation based in New York, which manages the United States
operations of Fortis (NL) N.V. and Fortis(B).
49
Fortis (NL) N.V. has been in business since 1847 and is a publicly-traded,
multi-national insurance, real estate, and financial services group
headquartered in The Netherlands. It is one of the largest holding companies in
Europe, with subsidiary companies in twelve countries on four continents. Fortis
(NL) N.V. is the third largest insurance company in the Netherlands.
Fortis (B) is a multi-national insurance, real estate and financial services
firm that has been in business since 1824. It has subsidiary companies in eight
countries. Fortis (B) is one of the largest life insurance companies in Belgium.
The assets allocated to the Variable Account are the exclusive property of First
Fortis. Registration of the Variable Account under the Investment Company Act of
1940 does not involve supervision of the management or investment practices or
policies of the Variable Account or of First Fortis by the Securities and
Exchange Commission. First Fortis may accumulate in the Variable Account
proceeds from charges under the Contracts and other amounts in excess of the
Variable Account assets representing reserves and liabilities under Contracts
and other variable annuity contracts issued by First Fortis. First Fortis may
from time to time transfer to its General Account any of such excess amounts.
Under certain remote circumstances the assets of one Subaccount may not be
insulated from liability associated with another Subaccount.
Best's Insurance Reports has assigned First Fortis a rating of A (Excellent) for
financial position and operating performance. This rating represents such rating
agency's independent opinion of First Fortis' financial strength and ability to
meet policy holder obligations, but has no relevance to the performance and
quality of the assets in Subaccounts of the Variable Account.
On April 1, 2001, The Hartford Financial Services Group ("Hartford") acquired
all of the individual life insurance and annuity business of Fortis, Inc. and
its affiliates, including First Fortis, and other assets for $1.2 billion. The
life insurance and annuity business acquisition part of the transaction was
generally in the form of an indemnity reinsurance arrangement under which
Hartford Life Insurance Company ("Hartford Life"), a subsidiary of Hartford,
reinsured all of the individual annuity business of First Fortis, although First
Fortis remains directly obligated to contract owners.
As part of this transaction, First Fortis contracted the administrative
servicing obligations for the contracts to Hartford Life. Although First Fortis
remains responsible for all contract terms and conditions, Hartford Life is
responsible for servicing the contracts, including the payment of benefits,
oversight of investment management of the assets supporting the fixed account
portion of the contract and overall contract administration. Additionally, as
part of the transaction, Hartford Life and Accident, another subsidiary of
Hartford, purchased all of the stock of Fortis Investors, Inc., now Woodbury
Financial Services, Inc., the principal underwriter of the contracts.
CALCULATION OF ANNUITY PAYMENTS
FIXED ANNUITY OPTION
The amount of each annuity payment under a Fixed Annuity Option is fixed and
guaranteed by First Fortis. Monthly fixed annuity payments will start as of the
end of the Valuation Period that contains the Annuity Commencement Date. At that
time, the Contract Value, after any Market Value Adjustment, is computed and
that portion of the Contract Value which will be applied to the Fixed Annuity
Option selected is determined. The amount of the first monthly payment under the
Fixed Annuity Option selected will be at least as large as would result from
using the annuity tables contained in the Contract to apply such amount of
Contract Value to the annuity form selected. The dollar amounts of any fixed
annuity payments after the first are specified during the entire period of
annuity payments according to the provisions of the annuity form selected.
VARIABLE ANNUITY OPTION
Annuity Units. To the extent a Variable Annuity Option has been selected, we
convert the Accumulation Units for each Subaccount of the Variable Account into
Annuity Units for each Subaccount at their values determined as of the end of
the Valuation Period which contains the Annuity Commencement Date. As of such
time, any Fixed Account Value
50
to be applied to a Variable Annuity Option is also converted, after any Market
Value Adjustment, to Annuity Units in the Subaccounts selected based on the
then-current Annuity Unit value. The initial number of Annuity Units in each
Subaccount is determined by dividing the amount of the initial monthly variable
annuity payment (see "Variable Annuity Option -- Variable Annuity Payments,"
below) allocable to that Subaccount by the value of one Annuity Unit in that
Subaccount as of the time of the conversion. The number of Annuity Units for
each Subaccount will remain constant, as long as an annuity remains in force and
the allocation among the Subaccounts has not changed.
The value of each Subaccount's Annuity Units will vary to reflect the investment
experience of the Subaccount as well as charges deducted from the Subaccount.
The value of each Subaccount's Annuity Units is equal to the prior value of the
Subaccount's Annuity Units multiplied by the net investment factor for that
Subaccount (discussed in the Prospectus under "Contract Value") for the
Valuation Period ending on that Valuation Date, with an offset for the 4%
assumed interest rate used in the annuity tables of the Contract.
Variable Annuity Payments. Variable annuity payments start at the end of the
Valuation Period that contains the Annuity Commencement Date, and will vary in
amount as the related Annuity Unit values vary. The amount of the first monthly
payment is shown on the annuity tables contained in the Contract for each $1,000
of Contract Value applied to the Variable Annuity Option selected as of the end
of such Valuation Period. The first variable annuity payment is, in effect,
allocated among the Subaccounts in the same proportion as the Contract Value is
allocated among the Subaccounts upon commencement of annuity payments.
Payments after the first will vary in amount and are determined on the first
Valuation Date of each subsequent monthly period. If the monthly payment under
the annuity form selected is based on the value of Annuity Units of a single
Subaccount, the monthly payment is found by multiplying the number of the
Contract's Annuity Units for the Subaccount by the Annuity Unit value of such
Subaccount as of the first Valuation Date in each monthly period following the
Annuity Commencement Date. If the monthly payment under the Variable Annuity
Option selected is based upon the value of Annuity Units in more than one
Subaccount, this is repeated for each applicable Subaccount. The sum of these
payments is the variable annuity payment.
GENDER OF ANNUITANT
The amount of each annuity payment ordinarily will be higher for a male
Annuitant than for a female Annuitant with an otherwise identical Contract. This
is because, statistically, females tend to have longer life expectancies than
males. However, there will be no differences between male and female Annuitants
in any jurisdiction, including Montana, where such differences are not
permitted. We will also make available Contracts with no such differences in
connection with certain employer-sponsored benefit plans. Employers should be
aware that, under most such plans, Contracts that make distinctions based on
gender are prohibited by law.
POSTPONEMENT OF PAYMENTS
With respect to amounts in the Subaccounts of the Variable Account, payment of
any amount due upon a total or partial surrender, death or under an annuity
option will ordinarily be made within seven days after all documents required
for such payment are received by First Fortis at its Home Office. However, First
Fortis may defer the determination, application or payment of any death benefit,
transfer, partial or total surrender or annuity payment, to the extent dependent
on Accumulation or Annuity Unit Values, for any period during which the New York
Stock Exchange is closed (other than customary weekend and holiday closings) or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission, for any period during which any emergency
exists as a result of which it is not reasonably practicable for First Fortis to
determine the investment experience for the Contract, or for such other periods
as the Securities and Exchange Commission may by order permit for the protection
of investors.
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51
SERVICES
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
Title to the assets of the Variable Account is held by First Fortis. The assets
of the Variable Account are kept segregated and held separate and apart from
First Fortis' other assets.
EXPERTS
The financial statements of First Fortis Life Insurance Company at December 31,
2000, and for the year then ended, and the statement of net assets of First
Fortis Life Insurance Company Variable Account A at December 31, 2000 and the
related statements of operations and changes in net assets for the period ended
December 31, 2000, appearing in the Prospectus, this Statement of Additional
Information and Registration Statement have been audited by
PricewaterhouseCoopers LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein and are included in reliance upon such
authority as experts in accounting and auditing. The financial statements of
First Fortis Insurance Company at December 31, 1999 and for each of the two
years in the period ended December 31, 1999 and the statements of operations and
changes in net assets of First Fortis Variable Account A for the period ended
December 31, 1999 appearing in the Prospectus, this Statement of Additional
Information and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such authority as experts in
accounting and auditing.
PRINCIPAL UNDERWRITER
Woodbury Financial Services, Inc. ("Woodbury Financial"), the principal
underwriter of the Contracts, is a Minnesota corporation and a member of the
Securities Investors Protection Corporation. The address of Woodbury Financial
is 500 Bielenberg Drive, Woodbury, Minnesota 55125. Contracts generally will be
issued for Annuitants from ages zero to ninety in all states.
TAXATION UNDER CERTAIN RETIREMENT PLANS
Federal income tax information concerning the purchase of Contracts for specific
types of retirement plans is set forth below. You should also refer to "Federal
Tax Matters" in the Prospectus. The tax information provided is not
comprehensive, and you should consult a qualified tax adviser before taking any
action in connection with a retirement plan.
SECTION 403(B) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS
OR PUBLIC EDUCATIONAL INSTITUTIONS
Purchase Payments. Under Section 403(b) of the Internal Revenue Code ("Code"),
payments made by certain employers (i.e., tax-exempt organizations meeting the
requirements of Section 501(c)(3) of the Code, or public educational
institutions) to purchase Contracts for their employees are excludible from the
gross income of employees to the extent that such aggregate purchase payments do
not exceed certain limitations prescribed by the Code. This is the case whether
the purchase payments are a result of voluntary salary reduction amounts or
employer contributions. Salary reduction payments are, however, subject to FICA
(social security) taxes.
Taxation of Distributions. Distributions from a Section 403(b) tax-deferred
annuity are taxed as ordinary income to the recipient as described under
"Federal Tax Matters" in the Prospectus. Taxable distributions received before
the employee attains age 59 1/2 generally are subject to a 10% penalty tax in
addition to regular income tax. Certain distributions are excepted from this
penalty tax, including distributions following the employee's death, disability,
separation from service after age 55, separation from service at any age if the
distribution is in the form of an annuity for the life (or life expectancy) of
the employee (or the employee and Beneficiary) and distributions not in excess
of deductible medical expenses. In addition, no distributions of voluntary
salary reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death,
4
52
disability or hardship. (Hardship distributions will be limited to the lesser of
the amount of the hardship or the amount of salary reduction contributions,
exclusive of earnings thereon.)
Required Distributions. Generally, distributions from Section 403(b) annuities
must commence not later than April 1 of the calendar year following the calendar
year in which the employee attains age 70 1/2, and such distributions must be
made over a period that does not exceed the life expectancy of the employee (or
the employee and Beneficiary). A penalty tax of 50% would be imposed on any
amount by which the minimum required distribution in any year exceeded the
amount actually distributed in that year. In addition, in the event that the
employee dies before his or her entire interest in the Contract has been
distributed, the employee's entire interest must be distributed in accordance
with rules similar to those applicable upon the death of the Contract Owner or
Payee in the case of a Non-Qualified Contract, as described in the Prospectus.
Certain of these and other provisions are incorporated in a special endorsement
attached to Contracts that are intended to qualify under Section 403(b), and
reference should be made to that endorsement for its complete terms.
Tax-Free Exchanges and Rollovers. The Code provides for the tax-free transfer of
one Section 403(b) annuity for another Section 403(b) annuity, and the IRS has
ruled (Revenue Ruling 90-24) that amounts transferred may qualify as tax-free
transfers under certain circumstances. In addition, Section 403(b)(8) of the
code permits tax-free rollovers from Section 403(b) programs to individual
retirement annuities or other Section 403(b) programs under certain
circumstances.
SECTION 401 QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY PLANS
Purchase Payments. Subject to certain limitations prescribed by the Code,
purchase payments made by an employer (or a self-employed individual) under a
pension, profit-sharing or annuity plan qualified under Section 401 or Section
403(a) of the Code are generally deductible by the employer and excluded from
the taxable income of the employee for federal income tax purposes, whether made
under a salary reduction agreement or directly by employer contributions. Salary
reduction payments are, however, subject to FICA (social security) taxes.
Purchase payments made directly by an employee generally are made on an
after-tax basis.
Taxation of Distributions. Distributions from Contracts purchased under these
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions, as described under "Federal Tax
Matters -- Qualified Plans," in the Prospectus. However, if an employee or other
payee receives a "lump sum" distribution, as defined in the Code, from an exempt
employees' trust, the taxable portion of the distribution may be subject to
special tax treatment. For most individuals receiving lump sum distributions
after attaining age 59 1/2, the rate of tax may be determined under a special
5-year income averaging provision. Those who attained age 50 by January 1, 1986
may instead elect to use a 10-year income averaging provision based on the
income tax rates in effect for 1986. Taxable distributions received prior to
attainment of age 59 1/2 under a Contract purchased under a qualified plan are
subject to the same 10% penalty tax (and the same exceptions) as described above
with respect to Section 403(b) annuities.
Required Distributions. The minimum distribution requirements for these
qualified plans are generally the same as described above with respect to
Section 403(b) annuities.
Tax-Free Rollovers. If, within 60 days of receipt, an employee who receives a
single sum distribution transfers all of the taxable amount received to another
plan qualified under Section 401 or 403(a), or to an individual retirement
account or annuity as provided for under the Code, the transferred amount will
not be taxed in the year of distribution. Certain "partial" distributions may
also qualify for tax-free rollover treatment, but only if transferred to an
individual retirement account or annuity. However, income tax may be withheld
from the distribution unless the distribution is transferred directly from the
qualified plan to the individual retirement account or individual retirement
annuity.
SECTION 408(P) SIMPLE IRA PLANS
Purchase Payments: Under Section 408(p) of the Code, small employers may
establish a type of IRA plan referred to as a Savings Incentive Match Plan for
Employees (SIMPLE Plan). An employee may contribute annually through his
5
53
or her employer a pre-tax salary reduction contribution not to exceed the lesser
of $6,000 or 100% of compensation. The employer must annually either (1) match
the employee contribution dollar for dollar up to 3% of pay, or (2) make a 2% of
pay contribution for each eligible employee regardless of whether the employee
makes any salary reduction contribution. In two out of every five years, the
employer has the option to reduce the matching contribution as low as 1% of pay
but advance notice must be provided to employees.
Taxation of Distributions: Generally, distributions from SIMPLE IRA Plans are
subject to the same distribution rules described above for IRAs. However, if an
individual withdraws any amount from his SIMPLE IRA Plan within the first two
years of his or her commencement of participation in the employer's SIMPLE IRA
Plan, the 10% penalty tax for premature distribution, if such tax applies, will
be increased to 25%.
Required Distributions: SIMPLE distributions are subject to the same minimum
distribution rules described above for IRAs.
Tax-Free Rollovers: Generally, rollovers and direct transfers may be made to and
from SIMPLE IRAs in the same manner as described above for IRAs, subject to the
same conditions and limitations. Rollovers or transfers to other IRAs, other
than SIMPLE IRAs, are also possible but only after the second anniversary of
commencement of participation in the employer's SIMPLE IRA Plan.
SECTION 457 UNFUNDED DEFERRED COMPENSATION PLANS OF PUBLIC EMPLOYERS
AND TAX-EXEMPT ORGANIZATIONS
Purchase Payments. Under Section 457 of the Code, all individuals who perform
services for a state or local government or governmental agency may participate
in a deferred compensation program. Other tax-exempt employers may establish
unfunded deferred compensation plans under Section 457 for employees and/or
independent contractors.
Though not actually a qualified plan as that term is normally used, this type of
program allows individuals to defer the receipt of compensation that otherwise
would be currently payable and therefore to defer the payment of federal income
taxes on such amounts. Assuming that the program meets the requirements to be
considered an eligible deferred compensation plan (an "EDCP"), an individual may
contribute (and thereby defer from current income for tax purposes) the lesser
of $7,500 or 33-1/3% of the individual's includible compensation. (Includible
compensation means compensation from the employer which would be currently
includible in gross income for federal tax purposes.) In addition, during the
last three years before an individual attains normal retirement age, additional
"catch-up" deferrals are permitted.
The amounts which are deferred may be used by the employer to purchase the
Contracts offered by this Prospectus. The Contract is owned by the employer and
is subject to the claims of the employer's creditors. The employee has no rights
or interest in the Contract and is entitled only to payment in accordance with
the EDCP provisions.
Taxation of Distributions. Amounts received by an individual from an EDCP are
includible in gross income for the taxable year in which such amounts are paid
or otherwise made available.
Distributions Before Separation from Service. Distributions generally are not
permitted under an EDCP prior to separation from service or reaching age 70 1/2,
except in cases of severe financial hardship. Hardship distributions are
includible in the gross income of the individual in the year in which paid.
Required Distributions. The distribution requirements for these qualified plans
are generally the same as described above with respect to Section 403(b)
annuities. However, if distributions do not commence before the employee's
death, the entire interest in the Contract must be distributed within 15 years
if the beneficiary is not the employee's surviving spouse.
Tax-Free Transfers. The Code permits the tax-free direct transfer of EDCP
amounts to another EDCP, subject to certain conditions. Any transfer must be
with employer consent. Any transfer must be with employer consent.
6
54
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
Purchase Payments. Private taxable employers may establish unfunded,
non-qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors. Certain
arrangements of tax-exempt employers entered into prior August 16, 1986, and not
subsequently modified, are also subject to the rules for private taxable
employer deferred compensation plans discussed below. (Unfunded deferred
compensation plans of other tax-exempt employers are generally subject to the
requirements of Section 457.)
These types of programs allow individuals to defer receipt of up to 100% of
compensation which would otherwise be includible in income and therefore to
defer the payment of federal income taxes on such amounts. Purchase payments
made by the employer, however are not immediately deductible by the employer,
and the employer is currently taxed on any increase in Contract Value.
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.
WITHHOLDING
Annuity payments and other amounts received under Contracts are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States and, with
respect to certain distributions from certain types of qualified retirement
plans, unless the proceeds are transferred directly to another qualified
retirement plan. Moreover, special "backup withholding" rules may require First
Fortis to disregard the recipient's election if the recipient fails to supply
First Fortis with a "TIN" or taxpayer identification number (social security
number for individuals), or if the Internal Revenue Service notifies First
Fortis that the TIN provided by the recipient is incorrect.
VARIABLE ACCOUNT FINANCIAL STATEMENTS
7
55
REPORT OF INDEPENDENT ACCOUNTANTS
To First Fortis Life Insurance Company and Contract Owners of First Fortis Life
Insurance Company Variable Account A:
In our opinion, the accompanying statement of net assets and the related
combined and separate statements of operations and changes in net assets present
fairly, in all material respects, the financial position of First Fortis Life
Insurance Company Variable Account A, comprised of the Fortis Series Fund, Inc.
Growth Stock, U.S. Government Securities, Money Market, Asset Allocation,
Diversified Income, Global Growth, Aggressive Growth, Growth & Income, High
Yield, International Stock II (formerly Global Asset Allocation), Multisector
Bond (formerly Global Bond), International Stock, Value, S & P 500, Blue Chip
Stock, Mid Cap Stock, Large Cap Growth, Small Cap Value, Global Equity,
Investors Growth, Blue Chip II, Capital Opportunities, and American Leaders
Subaccounts; the Alliance Variable Product 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 II and American Leader II Subaccounts; the
Lexington Funds, Inc. Natural Resources and Emerging Markets Subaccounts; the
MFS Variable Insurance Trust Emerging Growth, High Income and World Government
Subaccounts; the Montgomery Variable 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 Ins. Trust Bond and Hard Assets
Subaccounts; the Neuberger & Berman, Inc. AMT Limited Maturity Bond and AMT
Partners Subaccounts; and INVESCO, Inc. Health & Sciences, Industrial Income and
Technology Subaccounts thereof at December 31, 2000, and the results of each of
their operations and the changes in each of their net assets for the year or
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of First Fortis Life Insurance Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at December 31, 2000 by correspondence with the
custodian, provides a reasonable basis for our opinion. The financial statements
of the First Fortis Life Insurance Company Variable Account A as of December 31,
1999, and for the year then ended were audited by other independent accountants
whose report dated March 29, 2000, expressed an unqualified opinion on those
statements.
PricewaterhouseCoopers LLP
April 6, 2001
1
56
Report of Independent Auditors
Board of Directors
First Fortis Life Insurance Company
We have audited the accompanying individual and combined statement of operations
and changes in net assets of the segregated subaccounts of First Fortis Life
Insurance Company Variable Account A (comprised of, respectively, the Fortis
Series Fund, Inc.'s Growth Stock, U.S. Government Securities, Money Market,
Asset Allocation, Diversified Income, Global Growth, Aggressive Growth, Growth &
Income, High Yield, Global Asset Allocation, Global Bond, International Stock,
Value, S & P 500, Blue Chip Stock, Mid Cap Stock, Large Cap Growth and Small Cap
Value Subaccounts; the 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 Leader Series Subaccounts; the
Lexington Funds, Inc.'s Natural Resources and Emerging Markets Subaccounts; the
MFS Variable Insurance Trust's Emerging Growth, High Income and World Government
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 Subaccount; the Van Eck Worldwide Ins. Trust's Worldwide Bond Fund
and Hard Assets Subaccounts; the Neuberger & Berman, Inc.'s AMT Limited Maturity
Bond and AMT Partners Subaccounts; and INVESCO, Inc.'s Health & Sciences,
Industrial Income and Technology Subaccounts) for the period ended December 31,
1999. These financial statements are the responsibility of the management of
First Fortis Life Insurance Company. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and changes in net assets of
each of the individual and combined portfolio subaccounts of First Fortis Life
Insurance Company Variable Account A for the period described above, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 29, 2000
2
57
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENT OF NET ASSETS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
NET ASSETS ACCUMULATION
AT MARKET UNITS
SHARES COST VALUE OUTSTANDING
Investments in Fortis Series Fund, Inc.:
Growth Stock 90,128 $ 3,592,430 $ 3,664,783 602,842
U.S. Government Securities 170,001 1,795,622 1,799,769 91,543
Money Market 102,213 1,151,474 1,156,967 695,803
Asset Allocation 185,314 3,684,672 3,579,236 923,184
Diversified Income 134,195 1,574,954 1,448,457 683,922
Global Growth 95,800 2,325,379 2,433,893 90,016
Aggressive Growth 156,673 3,574,296 3,717,562 135,753
Growth & Income 485,676 9,627,235 9,627,450 390,374
High Yield 188,960 1,912,577 1,437,176 121,630
International Stock II 138,010 1,890,393 1,538,492 105,196
Multisector Bond 53,767 571,580 564,379 45,376
International Stock 195,767 2,962,155 2,954,812 168,151
Value 184,176 2,599,170 3,200,964 172,499
S & P 500 603,948 10,760,367 12,169,182 617,281
Blue Chip Stock 353,194 6,171,022 6,933,348 334,015
Mid Cap Stock 71,017 731,382 732,197 64,774
Large Cap Growth 281,224 3,630,467 3,335,824 279,248
Small Cap Value 89,710 909,484 1,053,109 78,845
Global Equity 4,439 43,339 42,520 4,590
Investors Growth 5,218 53,045 48,797 5,480
Blue Chip II 13,894 141,882 126,772 14,525
Capital Opportunities 6,858 67,142 64,251 7,338
American Leaders 3,442 36,224 37,173 3,577
Investments in Alliance Variable Product:
Money Market 2,813,189 2,814,015 2,813,189 225,661
International 17,379 283,367 278,235 20,728
Premier Growth 30,913 1,080,409 990,775 39,080
The accompanying notes are an integral part of the financial statements.
3
58
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENT OF NET ASSETS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
NET ASSETS ACCUMULATION
AT MARKET UNITS
SHARES COST VALUE OUTSTANDING
Investments in SAFECO Resource Series:
Growth 10,267 $235,501 $193,123 12,936
Equity 17,803 510,346 488,878 33,487
Investments in Federated Insurance Series:
U.S. Government Securities Fund II 23,550 253,297 261,641 20,858
High Income Fund II 15,891 147,260 134,434 11,457
Utility Series II 8,404 115,419 104,542 7,406
American Leaders Series II 7,202 145,129 147,793 7,759
Investments in Lexington Funds, Inc.:
Natural Resources 1,295 17,439 19,100 1,387
Emerging Markets 2,296 22,191 17,521 2,191
Investments in MFS Variable Insurance Trust:
Emerging Growth 12,465 404,647 359,485 13,888
High Income 18,169 209,261 178,779 14,807
World Government 6,738 65,949 67,449 6,046
Investments in Montgomery Variable Funds:
Emerging Markets 9,448 76,470 73,317 9,596
Growth 14,085 242,911 218,879 12,089
Investments in Strong Variable Annuity Funds:
Discovery II 6,505 81,378 77,284 5,966
International II 9,750 120,088 96,528 10,027
Investments in American Century Investments:
VP Balanced 16,005 120,485 116,353 7,525
VP Capital Appreciation 10,347 180,782 163,270 10,405
Investments in Van Eck Worldwide Ins. Trust:
Bond 2,328 24,584 24,139 2,203
Hard Assets 2,161 24,830 26,080 2,900
The accompanying notes are an integral part of the financial statements.
4
59
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENT OF NET ASSETS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
NET ASSETS ACCUMULATION
AT MARKET UNITS
SHARES COST VALUE OUTSTANDING
Investments in Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 3,332 $ 45,202 $ 43,954 3,749
AMT Partners 6,938 113,514 112,186 8,056
Investments in INVESCO, Inc.:
Health & Sciences 23,081 438,069 482,153 22,701
Industrial Income 4,368 92,861 90,454 5,446
Technology 44,951 1,750,743 1,275,268 45,305
----------- ----------- -----------
Total net assets $69,422,438 $70,521,922 6,199,620
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
5
60
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
FORTIS
FORTIS U.S. FORTIS FORTIS FORTIS
GROWTH GOVERNMENT MONEY ASSET DIVERSIFIED
STOCK SECURITIES MARKET ALLOCATION INCOME
OPERATIONS
Dividend income $ 580,302 $ 104,715 $ 38,654 $ 582,346 $ 115,551
Mortality and expense and
administrative charges (51,131) (20,650) (12,820) (48,894) (19,875)
Net realized gain (loss) on investments 47,689 (8,451) 17,228 21,379 (27,262)
Net change in unrealized appreciation
(depreciation) of investments (560,899) 82,287 1,214 (600,279) 16,525
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ 15,961 $ 157,901 $ 44,276 $ (45,448) $ 84,939
=========== =========== =========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 15,961 $ 157,901 $ 44,276 $ (45,448) $ 84,939
----------- ----------- ----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 774,486 594,556 1,204,870 334,230 157,545
Redemption of Variable Account units (283,993) (253,964) (1,370,526) (288,926) (325,043)
Redemptions for mortality and expense
and administrative charges 51,131 20,650 12,820 48,894 19,875
----------- ----------- ----------- ----------- -----------
Net increase (decrease) from capital
transactions 541,624 361,242 (152,836) 94,198 (147,623)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets 557,585 519,143 (108,560) 48,750 (62,684)
Net assets at beginning of year 3,107,198 1,280,626 1,265,527 3,530,486 1,511,141
----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 3,664,783 $ 1,799,769 $ 1,156,967 $ 3,579,236 $ 1,448,457
=========== =========== =========== =========== ===========
FORTIS FORTIS FORTIS
GLOBAL AGGRESSIVE GROWTH & FORTIS
GROWTH GROWTH INCOME HIGH YIELD
OPERATIONS
Dividend income $ 315,992 $ 886,394 $ 1,368,732 $ 170,110
Mortality and expense and
administrative charges (36,024) (57,679) (126,775) (21,637)
Net realized gain (loss) on investments 57,358 137,168 82,038 (84,515)
Net change in unrealized appreciation
(depreciation) of investments (892,404) (1,786,221) (979,905) (185,485)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ (555,078) $ (820,338) $ 344,090 $ (121,527)
=========== =========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (555,078) $ (820,338) $ 344,090 $ (121,527)
----------- ----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 595,417 1,289,104 673,417 175,457
Redemption of Variable Account units (206,606) (386,528) (1,136,026) (471,931)
Redemptions for mortality and expense
and administrative charges 36,024 57,679 126,775 21,637
----------- ----------- ----------- -----------
Net increase (decrease) from capital
transactions 424,835 960,255 (335,834) (274,837)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets (130,243) 139,917 8,256 (396,364)
Net assets at beginning of year 2,564,136 3,577,645 9,619,194 1,833,540
----------- ----------- ----------- -----------
Net assets at end of year $ 2,433,893 $ 3,717,562 $ 9,627,450 $ 1,437,176
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
6
61
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
FORTIS
INTERNATIONAL FORTIS
STOCK II MULTISECTOR
(FORMERLY BOND FORTIS
GLOBAL ASSET (FORMERLY INTERNATIONAL FORTIS FORTIS
ALLOCATION) GLOBAL BOND) STOCK VALUE S & P 500
OPERATIONS
Dividend income $ 128,870 $ 9,431 $ 206,166 $ 196,518 $ 240,900
Mortality and expense and
administrative charges (22,345) (6,132) (38,482) (39,533) (170,433)
Net realized gain (loss) on investments (28,475) (4,890) 11,047 53,770 109,358
Net change in unrealized appreciation
(depreciation) of investments (238,600) 18,568 (504,979) 266,851 (1,688,612)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ (160,550) $ 16,977 $ (326,248) $ 477,606 $ (1,508,787)
============ ============ ============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (160,550) $ 16,977 $ (326,248) $ 477,606 $ (1,508,787)
------------ ------------ ------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 242,201 293,356 700,004 210,232 3,809,812
Redemption of Variable Account units (320,390) (86,802) (276,104) (373,741) (3,563,468)
Redemptions for mortality and expense
and administrative charges 22,345 6,132 38,482 39,533 170,433
------------ ------------ ------------ ------------ ------------
Net increase (decrease) from capital
transactions (55,844) 212,686 462,382 (123,976) 416,777
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets (216,394) 229,663 136,134 353,630 (1,092,010)
Net assets at beginning of year 1,754,886 334,716 2,818,678 2,847,334 13,261,192
------------ ------------ ------------ ------------ ------------
Net assets at end of year $ 1,538,492 $ 564,379 $ 2,954,812 $ 3,200,964 $ 12,169,182
============ ============ ============ ============ ============
FORTIS FORTIS FORTIS FORTIS
BLUE CHIP MID CAP LARGE CAP SMALL CAP
STOCK STOCK GROWTH VALUE
OPERATIONS
Dividend income $ 611,063 $ 84,456 $ 151,916 $ 98,533
Mortality and expense and
administrative charges (97,326) (8,233) (51,005) (11,391)
Net realized gain (loss) on investments 149,797 6,296 34,371 11,215
Net change in unrealized appreciation
(depreciation) of investments (938,661) (49,276) (911,111) 114,263
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ (275,127) $ 33,243 $ (775,829) $ 212,620
=========== =========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (275,127) $ 33,243 $ (775,829) $ 212,620
----------- ----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 622,457 385,582 787,398 278,116
Redemption of Variable Account units (622,838) (72,549) (382,667) (122,974)
Redemptions for mortality and expense
and administrative charges 97,326 8,233 51,005 11,391
----------- ----------- ----------- -----------
Net increase (decrease) from capital
transactions 96,945 321,266 455,736 166,533
----------- ----------- ----------- -----------
Net increase (decrease) in net assets (178,182) 354,509 (320,093) 379,153
Net assets at beginning of year 7,111,530 377,688 3,655,917 673,956
----------- ----------- ----------- -----------
Net assets at end of year $ 6,933,348 $ 732,197 $ 3,335,824 $ 1,053,109
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
7
62
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR OR PERIOD ENDED
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
FORTIS FORTIS FORTIS FORTIS
GLOBAL INVESTORS FORTIS CAPITAL AMERICAN
EQUITY* GROWTH* BLUE CHIP II* OPPORTUNITIES* LEADERS*
OPERATIONS
Dividend income $ 96 $ 25 $ -- $ -- $ 105
Mortality and expense and
administrative charges (123) (170) (461) (180) (86)
Net realized gain (loss) on investments (1) -- (201) -- 4
Net change in unrealized appreciation
(depreciation) of investments (819) (4,248) (15,110) (2,891) 949
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations (847) (4,393) (15,772) (3,071) 972
--------- --------- --------- --------- ---------
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (847) $ (4,393) $ (15,772) $ (3,071) $ 972
--------- --------- --------- --------- ---------
Capital transactions:
Purchase of Variable Account units 43,288 53,020 144,306 67,142 36,265
Redemption of Variable Account units (44) -- (2,223) -- (150)
Redemptions for mortality and expense
and administrative charges 123 170 461 180 86
--------- --------- --------- --------- ---------
Net increase (decrease) from capital
transactions 43,367 53,190 142,544 67,322 36,201
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets 42,520 48,797 126,772 64,251 37,173
Net assets at beginning of year -- -- -- -- --
--------- --------- --------- --------- ---------
Net assets at end of year $ 42,520 $ 48,797 $ 126,772 $ 64,251 $ 37,173
========= ========= ========= ========= =========
ALLIANCE ALLIANCE
MONEY ALLIANCE PREMIER SAFECO
MARKET INTERNATIONAL GROWTH GROWTH
OPERATIONS
Dividend income $ 137,962 $ 11,489 $ 50,397 $ 21,304
Mortality and expense and
administrative charges (10,700) (835) (4,579) (908)
Net realized gain (loss) on investments -- (22,250) 161,889 (1,453)
Net change in unrealized appreciation
(depreciation) of investments (150) (31,159) (388,796) (35,292)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations 127,112 (42,755) (181,089) (16,349)
------------ ------------ ------------ ------------
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 127,112 $ (42,755) $ (181,089) $ (16,349)
------------ ------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 10,107,078 860,886 1,786,281 145,546
Redemption of Variable Account units (8,993,004) (634,123) (1,639,404) (67,870)
Redemptions for mortality and expense
and administrative charges 10,700 835 4,579 908
------------ ------------ ------------ ------------
Net increase (decrease) from capital
transactions 1,124,774 227,598 151,456 78,584
------------ ------------ ------------ ------------
Net increase (decrease) in net assets 1,251,886 184,843 (29,633) 62,235
Net assets at beginning of year 1,561,303 93,392 1,020,408 130,888
------------ ------------ ------------ ------------
Net assets at end of year $ 2,813,189 $ 278,235 $ 990,775 $ 193,123
============ ============ ============ ============
* For the period from May 1, 2000 to December 31, 2000
The accompanying notes are an integral part of the financial statements.
8
63
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
FEDERATED U.S. FEDERATED
GOVERNMENT HIGH FEDERATED
SAFECO SECURITIES INCOME FEDERATED AMERICAN
EQUITY FUND II FUND II UTILITY II LEADERS II
OPERATIONS
Dividend income $ 3,746 $ 4,970 $ 7,723 $ 3,602 $ 46
Mortality and expense and
administrative charges (1,854) (541) (514) (386) (115)
Net realized gain (loss) on investments 1,823 606 (5,004) (965) (2,899)
Net change in unrealized appreciation
(depreciation) of investments (49,662) 9,152 (12,299) (11,391) 2,415
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $ (45,947) $ 14,187 $ (10,094) $ (9,140) $ (553)
========= ========= ========= ========= =========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (45,947) $ 14,187 $ (10,094) $ (9,140) $ (553)
--------- --------- --------- --------- ---------
Capital transactions:
Purchase of Variable Account units 652,392 202,938 115,532 66,000 470,398
Redemption of Variable Account units (534,782) (50,848) (85,835) (10,560) (327,634)
Redemptions for mortality and expense
and administrative charges 1,854 541 514 386 115
--------- --------- --------- --------- ---------
Net increase (decrease) from capital
transactions 119,464 152,631 30,211 55,826 142,879
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets 73,517 166,818 20,117 46,686 142,326
Net assets at beginning of year 415,361 94,823 114,317 57,856 5,467
--------- --------- --------- --------- ---------
Net assets at end of year $ 488,878 $ 261,641 $ 134,434 $ 104,542 $ 147,793
========= ========= ========= ========= =========
LEXINGTON LEXINGTON MFS MFS
NATURAL EMERGING EMERGING HIGH
RESOURCES MARKETS GROWTH INCOME
OPERATIONS
Dividend income $ 9 $ -- $ 22,656 $ 16,450
Mortality and expense and
administrative charges (171) (73) (1,810) (854)
Net realized gain (loss) on investments 3,337 3,468 88,156 (1,426)
Net change in unrealized appreciation
(depreciation) of investments 1,720 (12,397) (210,355) (27,461)
--------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $ 4,895 $ (9,002) $(101,353) $ (13,291)
========= ========= ========= =========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 4,895 $ (9,002) $(101,353) $ (13,291)
--------- --------- --------- ---------
Capital transactions:
Purchase of Variable Account units 376,532 28,586 556,996 20,321
Redemption of Variable Account units (370,694) (15,053) (521,150) (16,205)
Redemptions for mortality and expense
and administrative charges 171 73 1,810 854
--------- --------- --------- ---------
Net increase (decrease) from capital
transactions 6,009 13,606 37,656 4,970
--------- --------- --------- ---------
Net increase (decrease) in net assets 10,904 4,604 (63,697) (8,321)
Net assets at beginning of year 8,196 12,917 423,182 187,100
--------- --------- --------- ---------
Net assets at end of year $ 19,100 $ 17,521 $ 359,485 $ 178,779
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
9
64
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
MFS MONTGOMERY STRONG
WORLD EMERGING MONTGOMERY STRONG INTERNATIONAL
GOVERNMENT MARKETS GROWTH DISCOVERY II II
OPERATIONS
Dividend income $ 2,091 $ -- $ 15,721 $ -- $ --
Mortality and expense and
administrative charges (207) (198) (1,082) (331) (472)
Net realized gain (loss) on investments (483) 2,996 5,395 (3,180) 26,326
Net change in unrealized appreciation
(depreciation) of investments 1,540 (15,206) (37,989) (4,777) (67,259)
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $ 2,941 $ (12,408) $ (17,955) $ (8,288) $ (41,405)
========= ========= ========= ========= =========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 2,941 $ (12,408) $ (17,955) $ (8,288) $ (41,405)
--------- --------- --------- --------- ---------
Capital transactions:
Purchase of Variable Account units 63,951 279,497 479,519 202,327 465,376
Redemption of Variable Account units (24,042) (251,170) (400,938) (128,277) (493,323)
Redemptions for mortality and expense
and administrative charges 207 198 1,082 331 472
--------- --------- --------- --------- ---------
Net increase (decrease) from capital
transactions 40,116 28,525 79,663 74,381 (27,475)
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets 43,057 16,117 61,708 66,093 (68,880)
Net assets at beginning of year 24,392 57,200 157,171 11,191 165,408
--------- --------- --------- --------- ---------
Net assets at end of year $ 67,449 $ 73,317 $ 218,879 $ 77,284 $ 96,528
========= ========= ========= ========= =========
AMERICAN AMERICAN
CENTURY CENTURY VAN ECK VAN ECK
VP VP CAPITAL WORLDWIDE HARD
BALANCED APPRECIATION BOND FUND ASSETS
OPERATIONS
Dividend income $ 4,709 $ 503 $ 1,223 $ 8
Mortality and expense and
administrative charges (559) (560) (122) (64)
Net realized gain (loss) on investments (1,075) 243 (723) 158
Net change in unrealized appreciation
(depreciation) of investments (5,985) (27,508) (70) 1,204
--------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $ (2,910) $ (27,322) $ 308 $ 1,306
========= ========= ========= =========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (2,910) $ (27,322) $ 308 $ 1,306
--------- --------- --------- ---------
Capital transactions:
Purchase of Variable Account units 169,282 551,908 11,766 75,204
Redemption of Variable Account units (137,758) (400,525) (14,203) (51,181)
Redemptions for mortality and expense
and administrative charges 559 560 122 64
--------- --------- --------- ---------
Net increase (decrease) from capital
transactions 32,083 151,943 (2,315) 24,087
--------- --------- --------- ---------
Net increase (decrease) in net assets 29,173 124,621 (2,007) 25,393
Net assets at beginning of year 87,180 38,649 26,146 687
--------- --------- --------- ---------
Net assets at end of year $ 116,353 $ 163,270 $ 24,139 $ 26,080
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
10
65
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 2000
- --------------------------------------------------------------------------------
NEUBERGER &
BERMAN AMT NEUBERGER &
LIMITED BERMAN INVESCO
MATURITY AMT HEALTH &
BOND PARTNERS SCIENCES
OPERATIONS
Dividend income $ 2,509 $ 7,644 $ 381
Mortality and expense and
administrative charges (174) (329) (1,308)
Net realized gain (loss) on investments (29) (2,922) 29,949
Net change in unrealized appreciation
(depreciation) of investments 138 (2,784) 31,172
------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 2,444 $ 1,609 $ 60,194
============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 2,444 $ 1,609 $ 60,194
------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 4,344 91,638 701,391
Redemption of Variable Account units (438) (26,722) (376,522)
Redemptions for mortality and expense
and administrative charges 174 329 1,308
------------ ------------ ------------
Net increase (decrease) from capital
transactions 4,080 65,245 326,177
------------ ------------ ------------
Net increase (decrease) in net assets 6,524 66,854 386,371
Net assets at beginning of year 37,430 45,332 95,782
------------ ------------ ------------
Net assets at end of year $ 43,954 $ 112,186 $ 482,153
============ ============ ============
INVESCO COMBINED
INDUSTRIAL INVESCO VARIABLE
INCOME TECHNOLOGY ACCOUNT
OPERATIONS
Dividend income $ 4,842 $ 3,152 $ 6,214,012
Mortality and expense and
administrative charges (183) (7,582) (877,896)
Net realized gain (loss) on investments 321 299,282 1,166,463
Net change in unrealized appreciation
(depreciation) of investments (3,809) (854,973) (10,610,824)
------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 1,171 $ (560,121) $ (4,108,245)
============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 1,171 $ (560,121) $ (4,108,245)
------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 78,942 3,004,238 35,041,130
Redemption of Variable Account units (4,034) (2,338,175) (28,461,963)
Redemptions for mortality and expense
and administrative charges 183 7,582 877,896
------------ ------------ ------------
Net increase (decrease) from capital
transactions 75,091 673,645 7,457,063
------------ ------------ ------------
Net increase (decrease) in net assets 76,262 113,524 2,699,283
Net assets at beginning of year 14,192 1,161,744 67,173,104
------------ ------------ ------------
Net assets at end of year $ 90,454 $ 1,275,268 $ 70,521,922
============ ============ ============
The accompanying notes are an integral part of the financial statements.
11
66
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FORTIS
FORTIS U.S. FORTIS FORTIS FORTIS
GROWTH GOVERNMENT MONEY ASSET DIVERSIFIED
STOCK SECURITIES MARKET ALLOCATION INCOME
OPERATIONS
Dividend income $ 658,079 $ 82,851 $ 39,992 $ 323,597 $ 104,687
Mortality and expense and
administrative charges (29,299) (19,603) (13,524) (44,393) (20,159)
Net realized gain (loss) on
investments 13,433 (25,956) 5,910 28,625 (14,291)
Net change in unrealized appreciation
(depreciation) of investments 444,882 (90,279) 3,239 212,643 (129,005)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ 1,087,095 $ (52,987) $ 35,617 $ 520,472 $ (58,768)
=========== =========== =========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 1,087,095 $ (52,987) $ 35,617 $ 520,472 $ (58,768)
----------- ----------- ----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 307,442 660,993 2,490,170 586,166 524,444
Redemption of Variable Account units (155,362) (658,565) (1,762,016) (504,841) (205,727)
Redemptions for mortality and expense
and administrative charges 29,299 19,603 13,524 44,393 20,159
----------- ----------- ----------- ----------- -----------
Net increase (decrease) from capital
transactions 181,379 22,031 741,678 125,718 338,876
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets 1,268,474 (30,956) 777,295 646,190 280,108
Net assets at beginning of year 1,838,724 1,311,582 488,232 2,884,296 1,231,033
----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 3,107,198 $ 1,280,626 $ 1,265,527 $ 3,530,486 $ 1,511,141
=========== =========== =========== =========== ===========
FORTIS FORTIS FORTIS
GLOBAL AGGRESSIVE GROWTH & FORTIS
GROWTH GROWTH INCOME HIGH YIELD
OPERATIONS
Dividend income $ 45,785 $ 72,968 $ 585,903 $ 174,945
Mortality and expense and
administrative charges (24,549) (27,945) (116,367) (25,525)
Net realized gain (loss) on
investments 38,023 169,219 28,994 (42,739)
Net change in unrealized appreciation
(depreciation) of investments 844,924 1,623,099 202,027 (188,482)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ 904,183 $ 1,837,341 $ 700,557 $ (81,801)
=========== =========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 904,183 $ 1,837,341 $ 700,557 $ (81,801)
----------- ----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 261,610 557,863 2,374,294 588,725
Redemption of Variable Account units (240,845) (519,910) (672,957) (399,710)
Redemptions for mortality and expense
and administrative charges 24,549 27,945 116,367 25,525
----------- ----------- ----------- -----------
Net increase (decrease) from capital
transactions 45,314 65,898 1,817,704 214,540
----------- ----------- ----------- -----------
Net increase (decrease) in net assets 949,497 1,903,239 2,518,261 132,739
Net assets at beginning of year 1,614,639 1,674,406 7,100,933 1,700,801
----------- ----------- ----------- -----------
Net assets at end of year $ 2,564,136 $ 3,577,645 $ 9,619,194 $ 1,833,540
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
12
67
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FORTIS
INTERNATIONAL FORTIS
STOCK II MULTISECTOR
(FORMERLY BOND FORTIS
GLOBAL ASSET (FORMERLY INTERNATIONAL FORTIS FORTIS
ALLOCATION) GLOBAL BOND) STOCK VALUE S & P 500
OPERATIONS
Dividend income $ 127,198 $ 12,338 $ 3,408 $ 1,985 $ 1,790
Mortality and expense and
administrative charges (22,683) (3,576) (32,871) (36,317) (136,951)
Net realized gain (loss) on
investments (2,653) (2,763) 23,460 14,225 136,910
Net change in unrealized appreciation
(depreciation) of investments (147,788) (29,538) 502,514 199,082 2,114,919
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ (45,926) $ (23,539) $ 496,511 $ 178,975 $ 2,116,668
============ ============ ============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (45,926) $ (23,539) $ 496,511 $ 178,975 $ 2,116,668
------------ ------------ ------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 395,040 226,336 614,784 434,572 5,836,816
Redemption of Variable Account units (122,632) (69,761) (353,974) (178,436) (2,028,636)
Redemptions for mortality and expense
and administrative charges 22,683 3,576 32,871 36,317 136,951
------------ ------------ ------------ ------------ ------------
Net increase (decrease) from capital
transactions 295,091 160,151 293,681 292,453 3,945,131
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets 249,165 136,612 790,192 471,428 6,061,799
Net assets at beginning of year 1,505,721 198,104 2,028,486 2,375,906 7,199,393
------------ ------------ ------------ ------------ ------------
Net assets at end of year $ 1,754,886 $ 334,716 $ 2,818,678 $ 2,847,334 $ 13,261,192
============ ============ ============ ============ ============
FORTIS FORTIS FORTIS FORTIS
BLUE CHIP MID CAP LARGE CAP SMALL CAP
STOCK STOCK GROWTH VALUE
OPERATIONS
Dividend income $ 101,380 $ 379 $ 59,457 $ 28,436
Mortality and expense and
administrative charges (82,191) (3,267) (31,800) (5,921)
Net realized gain (loss) on
investments 68,448 1,578 13,066 4,028
Net change in unrealized appreciation
(depreciation) of investments 928,761 35,684 455,213 18,445
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ 1,016,398 $ 34,374 $ 495,936 $ 44,988
=========== =========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 1,016,398 $ 34,374 $ 495,936 $ 44,988
----------- ----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 1,511,018 232,277 2,232,655 471,590
Redemption of Variable Account units (426,748) (19,587) (167,849) (71,697)
Redemptions for mortality and expense
and administrative charges 82,191 3,267 31,800 5,921
----------- ----------- ----------- -----------
Net increase (decrease) from capital
transactions 1,166,461 215,957 2,096,606 405,814
----------- ----------- ----------- -----------
Net increase (decrease) in net assets 2,182,859 250,331 2,592,542 450,802
Net assets at beginning of year 4,928,671 127,357 1,063,375 223,154
----------- ----------- ----------- -----------
Net assets at end of year $ 7,111,530 $ 377,688 $ 3,655,917 $ 673,956
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
13
68
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ALLIANCE ALLIANCE
MONEY ALLIANCE PREMIER SAFECO SAFECO
MARKET INTERNATIONAL GROWTH GROWTH EQUITY
OPERATIONS
Dividend income $ 58,009 $ 2,723 $ 13,451 $ -- $ 22,050
Mortality and expense and
administrative charges (5,560) (343) (4,234) (569) (1,939)
Net realized gain (loss) on
investments -- 1,284 99,303 (25,951) 19,907
Net change in unrealized appreciation
(depreciation) of investments (676) 23,336 162,829 33,928 (6,658)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ 51,773 $ 27,000 $ 271,349 $ 7,408 $ 33,360
=========== =========== =========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 51,773 $ 27,000 $ 271,349 $ 7,408 $ 33,360
----------- ----------- ----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 6,412,996 5,992 408,237 45,558 167,186
Redemption of Variable Account units (5,565,770) (18,859) (421,830) (139,622) (158,118)
Redemptions for mortality and expense
and administrative charges 5,560 343 4,234 569 1,939
----------- ----------- ----------- ----------- -----------
Net increase (decrease) from capital
transactions 852,786 (12,524) (9,359) (93,495) 11,007
=========== =========== =========== =========== ===========
Net increase (decrease) in net assets 904,559 14,476 261,990 (86,087) 44,367
Net assets at beginning of year 656,744 78,916 758,418 216,975 370,994
----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 1,561,303 $ 93,392 $ 1,020,408 $ 130,888 $ 415,361
=========== =========== =========== =========== ===========
FEDERATED
U.S. FEDERATED
GOVERNMENT HIGH FEDERATED LEXINGTON
SECURITIES INCOME FEDERATED AMERICAN NATIONAL
FUND II FUND II UTILITY II LEADERS II RESOURCES
OPERATIONS
Dividend income $ 2,176 $ 6,873 $ 2,915 $ 6,668 $ 35
Mortality and expense and
administrative charges (317) (1,017) (194) (461) (14)
Net realized gain (loss) on
investments (32) 24,461 9 (6,933) (3)
Net change in unrealized appreciation
(depreciation) of investments (2,168) (25,787) (1,924) (6,442) (59)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ (341) $ 4,530 $ 806 $ (7,168) $ (41)
=========== =========== =========== =========== ===========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (341) $ 4,530 $ 806 $ (7,168) $ (41)
----------- ----------- ----------- ----------- -----------
Capital transactions:
Purchase of Variable Account units 52,909 519,444 21,943 1,984,362 8,606
Redemption of Variable Account units (4,432) (871,714) (5,372) (2,036,247) (383)
Redemptions for mortality and expense
and administrative charges 317 1,017 194 461 14
----------- ----------- ----------- ----------- -----------
Net increase (decrease) from capital
transactions 48,794 (351,253) 16,765 (51,424) 8,237
=========== =========== =========== =========== ===========
Net increase (decrease) in net assets 48,453 (346,723) 17,571 (58,592) 8,196
Net assets at beginning of year 46,370 461,040 40,285 64,059 --
----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 94,823 $ 114,317 $ 57,856 $ 5,467 $ 8,196
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
14
69
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
LEXINGTON MFS MFS MFS MONTGOMERY
EMERGING EMERGING HIGH WORLD EMERGING
MARKETS GROWTH INCOME GOVERNMENT MARKETS
OPERATIONS
Dividend income $ 40 $ -- $ 35,219 $ -- $ 5
Mortality and expense and
administrative charges (34) (811) (1,378) (31) (133)
Net realized gain (loss) on
investments 70 13,660 10,246 5 1,695
Net change in unrealized appreciation
(depreciation) of investments 7,192 136,499 (21,397) (40) 15,373
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $ 7,268 $ 149,348 $ 22,690 $ (66) $ 16,940
========= ========= ========= ========= =========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 7,268 $ 149,348 $ 22,690 $ (66) $ 16,940
--------- --------- --------- --------- ---------
Capital transactions:
Purchase of Variable Account units -- 211,509 429,977 25,477 51,098
Redemption of Variable Account units (247) (66,446) (799,852) (1,050) (26,932)
Redemptions for mortality and expense
and administrative charges 34 811 1,378 31 133
--------- --------- --------- --------- ---------
Net increase (decrease) from capital
transactions (213) 145,874 (368,497) 24,458 24,299
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets 7,055 295,222 (345,807) 24,392 41,239
Net assets at beginning of year 5,862 127,960 532,907 -- 15,961
--------- --------- --------- --------- ---------
Net assets at end of year $ 12,917 $ 423,182 $ 187,100 $ 24,392 $ 57,200
========= ========= ========= ========= =========
AMERICAN AMERICAN
STRONG CENTURY CENTURY
MONTGOMERY STRONG INTERNATIONAL VP VP CAPITAL
GROWTH DISCOVERY II II BALANCED APPRECIATION
OPERATIONS
Dividend income $ 2,144 $ 2,814 $ 228 $ 3,799 $ --
Mortality and expense and
administrative charges (785) (72) (306) (176) (45)
Net realized gain (loss) on
investments 3,423 (1,603) 11,259 (316) 64
Net change in unrealized appreciation
(depreciation) of investments 16,500 (1,073) 42,311 894 8,758
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $ 21,282 $ 66 $ 53,492 $ 4,201 $ 8,777
========= ========= ========= ========= =========
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 21,282 $ 66 $ 53,492 $ 4,201 $ 8,777
--------- --------- --------- --------- ---------
Capital transactions:
Purchase of Variable Account units 140,335 6,293 293,472 61,723 23,499
Redemption of Variable Account units (107,677) (16,951) (246,379) (4,012) (237)
Redemptions for mortality and expense
and administrative charges 785 72 306 176 45
--------- --------- --------- --------- ---------
Net increase (decrease) from capital
transactions 33,443 (10,586) 47,399 57,887 23,307
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets 54,725 (10,520) 100,891 62,088 32,084
Net assets at beginning of year 102,446 21,711 64,517 25,092 6,565
--------- --------- --------- --------- ---------
Net assets at end of year $ 157,171 $ 11,191 $ 165,408 $ 87,180 $ 38,649
========= ========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
15
70
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NEUBERGER &
BERMAN AMT NEUBERGER &
VAN ECK VAN ECK LIMITED BERMAN
WORLDWIDE HARD MATURITY AMT
BOND FUND ASSETS BOND PARTNERS
OPERATIONS
Dividend income $ 14 $ -- $ 3,202 $ 1,695
Mortality and expense and
administrative charges (43) -- (253) (262)
Net realized gain (loss) on
investments (50) 1 (779) 356
Net change in unrealized appreciation
(depreciation) of investments (373) 46 (1,575) 532
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ (452) $ 47 $ 595 $ 2,321
============ ============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ (452) $ 47 $ 595 $ 2,321
------------ ------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 28,940 650 -- 64,440
Redemption of Variable Account units (2,635) (10) (20,879) (73,521)
Redemptions for mortality and expense
and administrative charges 43 -- 253 262
------------ ------------ ------------ ------------
Net increase (decrease) from capital
transactions 26,348 640 (20,626) (8,819)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets 25,896 687 (20,031) (6,498)
Net assets at beginning of year 250 -- 57,461 51,830
------------ ------------ ------------ ------------
Net assets at end of year $ 26,146 $ 687 $ 37,430 $ 45,332
============ ============ ============ ============
INVESCO INVESCO COMBINED
HEALTH & INDUSTRIAL INVESCO VARIABLE
SCIENCES INCOME TECHNOLOGY ACCOUNT
OPERATIONS
Dividend income $ 73 $ 314 $ -- $ 2,589,625
Mortality and expense and
administrative charges (521) (123) (1,338) (697,900)
Net realized gain (loss) on
investments 14,076 1,746 66,122 689,537
Net change in unrealized appreciation
(depreciation) of investments (5,677) 670 375,843 7,751,202
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 7,951 $ 2,607 $ 440,627 $ 10,332,464
============ ============ ============ ============
CHANGES IN NET ASSETS
Operations:
Net increase (decrease) in net assets
resulting from operations $ 7,951 $ 2,607 $ 440,627 $ 10,332,464
------------ ------------ ------------ ------------
Capital transactions:
Purchase of Variable Account units 107,819 12,383 904,844 32,296,487
Redemption of Variable Account units (145,592) (24,373) (216,389) (19,534,782)
Redemptions for mortality and expense
and administrative charges 521 123 1,338 697,900
------------ ------------ ------------ ------------
Net increase (decrease) from capital
transactions (37,252) (11,867) 689,793 13,459,605
------------ ------------ ------------ ------------
Net increase (decrease) in net assets (29,301) (9,260) 1,130,420 23,792,069
Net assets at beginning of year 125,083 23,452 31,324 43,381,035
------------ ------------ ------------ ------------
Net assets at end of year $ 95,782 $ 14,192 $ 1,161,744 $ 67,173,104
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
16
71
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
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 of Opportunity Variable Annuity, Masters Variable Annuity and TD
Waterhouse Variable Annuity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Account are segregated from First Fortis' other assets.
The following is a summary of significant accounting policies
consistently followed by the Account in the preparation of its financial
statements.
INVESTMENT TRANSACTIONS
All assets of each Subaccount of the Account are invested in shares of
the corresponding portfolios of Fortis Series Fund, Inc.; Alliance
Variable Product; SAFECO Resource Series; Federated Insurance Series;
Lexington Funds, Inc.; MFS Variable Insurance Trust; Montgomery Variable
Funds; Strong Variable Annuity Funds; American Century Investments; Van
Eck Worldwide Insurance Trust; Neuberger & Berman, Inc.; and INVESCO,
Inc. (collectively known as "the Funds"). The shares are valued at the
Funds' offering and redemption prices per share.
Purchases and sales of shares of the Funds are recorded on the trade
date. The cost of investments sold and redeemed is determined on the
average cost method.
Dividend income from the Funds are recorded on the ex-dividend date. All
distributions from the Funds are reinvested upon receipt.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of net assets at the date of the financial statements and the
reported results of operations and changes in net assets during the
reporting period. Actual results could differ from these estimates.
17
72
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
3. INVESTMENTS
There are 50 subaccounts within the Account (only 45 of which were active
in 1999).
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, 2000
-----------------------------------------------------------------------
SHARES
-------------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTION
Fortis Series Fund, Inc.:
Growth Stock 27,443 6,151 $ 1,354,788 $ 236,304
U.S. Government Securities 68,246 24,711 699,271 262,415
Money Market 109,958 120,724 1,243,525 1,353,299
Asset Allocation 43,850 13,515 916,576 267,547
Diversified Income 25,383 29,728 273,096 352,305
Global Growth 28,443 6,493 911,409 149,248
Aggressive Growth 62,529 11,736 2,175,498 249,359
Growth & Income 100,568 53,320 2,042,150 1,053,988
High Yield 40,758 53,437 345,567 556,446
International Stock II 22,706 25,039 371,071 348,866
Multisector Bond 29,695 8,540 302,787 91,692
International Stock 63,306 17,602 906,170 265,057
Value 25,168 22,921 406,750 319,972
S & P 500 183,191 164,442 4,050,712 3,454,110
Blue Chip Stock 57,016 28,036 1,233,520 473,041
Mid Cap Stock 42,213 6,556 470,037 66,253
Large Cap Growth 65,619 27,258 939,314 348,296
Small Cap Value 34,856 11,191 376,649 111,760
Global Equity 4,444 5 43,383 44
Investors Growth 5,218 -- 53,045 --
Blue Chip II 14,127 234 144,306 2,424
Capital Opportunities 6,858 -- 67,142 --
American Leaders 3,454 14 36,370 146
Alliance Variable Product:
Money Market 10,106,867 8,993,004 10,245,040 8,993,004
International 49,016 36,512 872,375 656,373
Premier Growth 47,429 43,008 1,836,678 1,477,515
SAFECO Resource Series:
Growth 6,260 2,945 166,850 69,323
Equity 22,434 18,156 656,137 532,959
Federated Insurance Series:
U.S. Government Securities Fund II 18,805 4,724 207,908 50,242
High Income Fund II 13,072 9,188 123,255 90,839
Utility II 4,943 829 69,603 11,524
American Leaders II 23,277 16,347 470,443 330,533
18
73
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------------------
SHARES
----------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTION
Lexington Funds, Inc.:
Natural Resources 28,612 27,973 $ 376,541 $ 367,357
Emerging Markets 2,677 1,389 28,586 11,585
MFS Variable Insurance Trust:
Emerging Growth 15,336 14,675 579,653 432,994
High Income 1,850 1,523 36,770 17,631
World Government 6,559 2,472 66,041 24,525
Montgomery Variable Funds:
Emerging Markets 29,820 25,639 279,497 248,175
Growth 26,778 22,206 495,240 395,543
Strong Variable Annuity Funds:
Discovery II 15,889 10,367 202,327 131,457
International II 32,957 33,311 465,376 466,998
American Century Investments:
VP Balanced 22,593 18,416 173,991 138,833
VP Capital Appreciation 32,266 24,551 552,411 400,282
Van Eck Worldwide Ins. Trust:
Worldwide Bond Fund 1,173 1,412 12,990 14,925
Hard Assets 6,586 4,489 75,212 51,022
Neuberger & Berman, Inc.:
AMT Limited Maturity Bond 337 34 6,853 467
AMT Partners 5,776 1,659 99,282 29,644
INVESCO, Inc.:
Health & Sciences 36,795 19,713 701,772 346,574
Industrial Income 3,632 187 83,784 3,713
Technology 71,044 57,502 3,007,390 2,038,893
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------
SHARES
------------------------ COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTION
Fortis Series Fund, Inc.:
Growth Stock 28,004 3,918 $ 965,521 $ 141,929
U.S. Government Securities 69,724 63,276 743,844 684,521
Money Market 226,209 157,361 2,530,162 1,756,106
Asset Allocation 42,609 24,377 909,763 476,216
Diversified Income 53,490 18,277 629,131 220,018
Global Growth 12,145 9,843 307,395 202,823
Aggressive Growth 30,073 24,181 630,831 350,691
Growth & Income 136,745 32,839 2,960,197 643,964
High Yield 71,363 26,439 763,670 442,449
International Stock II 37,001 8,894 522,238 125,285
Multisector Bond 21,872 6,395 238,674 72,524
International Stock 39,676 22,576 618,192 330,514
Value 28,597 11,953 436,557 164,211
S & P 500 303,284 100,341 5,838,606 1,891,726
19
74
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------
SHARES
-------------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTION
Fortis Series Fund, Inc. (continued)
Blue Chip Stock 80,702 21,822 $1,612,398 $ 358,300
Mid Cap Stock 23,758 1,988 232,656 18,009
Large Cap Growth 167,564 12,988 2,292,112 154,783
Small Cap Value 49,317 10,708 500,026 67,668
Alliance Variable Product:
Money Market 6,413,592 4,183,954 6,471,005 5,565,770
International 358 1,122 8,715 17,575
Premier Growth 11,968 11,607 421,688 322,527
SAFECO Resource Series:
Growth 2,275 2,064 45,558 165,573
Equity 5,117 4,141 189,236 138,211
Federated Insurance Series:
U.S. Government Securities Fund II 5,034 419 55,085 4,463
High Income Fund II 50,218 81,924 526,317 847,253
Utility II 1,554 375 24,858 5,363
American Leaders II 92,256 39,195 1,991,030 2,043,179
Lexington Funds, Inc.:
Natural Resources 683 31 8,641 386
Emerging Markets -- 34 40 179
MFS Variable Insurance Trust:
Emerging Growth 8,046 2,853 211,509 52,786
High Income 35,963 67,645 465,196 789,606
World Government 2,536 104 25,477 1,045
Montgomery Variable Funds:
Emerging Markets 5,974 3,130 51,103 25,237
Growth 8,030 6,262 142,479 104,254
Strong Variable Annuity Funds:
Discovery II 662 1,684 9,107 18,554
International II 28,808 26,063 293,700 235,120
American Century Investments:
VP Balanced 8,208 557 65,522 4,328
VP Capital Appreciation 1,900 23 23,499 173
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund 2,668 243 28,954 2,685
Hard Assets 64 1 650 9
Neuberger & Berman, Inc.:
AMT Limited Maturity Bond -- 577 3,202 21,658
AMT Partners 3,302 290 66,135 73,164
INVESCO, Inc.:
Health & Sciences 7,513 9,720 107,892 131,516
Industrial Income 611 1,211 12,697 22,627
Technology 35,548 6,444 904,850 150,267
20
75
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
4. ACCOUNT CHARGES
ADMINISTRATION CHARGE
A $30 annual contract administrative charge is deducted each contract
year from the value of each Opportunity Variable Annuity on each
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 TD Waterhouse
Variable Annuity, the mortality and expense risk charge is assessed at an
annual rate of 0.45%.
5. SURRENDER AND PREMIUM TAX CHARGES
AMOUNT OF SURRENDER CHARGE
Surrender charges apply only if the amount being withdrawn exceeds the
sum of the amounts listed 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 Masters Variable Annuity contracts, with a
sliding scale down to zero by the end of the seventh year.
FREE SURRENDERS
The following amounts can be withdrawn from the contract without a
surrender charge:
- For TD Waterhouse Variable Annuity, there is no surrender charge.
- Any purchase payments received more than five years prior to the
surrender date for Opportunity Variable Annuity and seven years for
Masters Variable Annuity and have not been previously surrendered.
- In any contract year, up to 10% of the purchase payments received less
than five years prior to the surrender date for Opportunity Variable
Annuity and seven years prior to the surrender date for Masters
Variable Annuity.
- For Masters Variable Annuity, any earnings that have not been
previously surrendered.
21
76
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
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 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.
Redemptions are reported prior to the deduction of surrender and premium
tax charges which are paid directly to First Fortis. The surrender and
premium tax charges collected by First Fortis were $120,622 and $191,947
in 2000 and 1999, 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 values 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 through reduced percentages as average daily net assets
increase. The fees represent an investment expense to Fortis Series Fund,
Inc. which reduces the portfolios' net assets. The fees charged by Fortis
Advisers are not available on an individual variable account basis. Fees
for all variable accounts to which Fortis Advisers provided investment
management services amounted to $28,398,906 and $21,779,394 in 2000 and
1999, respectively.
8. SUBSEQUENT EVENT
On April 1, 2001, Fortis, Inc. completed the sale (the "Sale") of its
Fortis Financial Group division (the "Division") to The Hartford
Financial Services Group ("The Hartford"). The Division includes, among
other blocks of business, certain individual life insurance policies
(including variable universal life insurance policies) and all annuity
contracts (collectively, the "Insurance Contracts") written by Fortis
Benefits Insurance Company (the "Company"). Certain of the Insurance
Contracts permit investment in, among other investment options, various
series of the Fortis Series Fund (the "Fund").
22
77
FIRST FORTIS LIFE INSURANCE COMPANY VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
To effect the Sale as it relates to the Company, Hartford Life Insurance
Company, an indirect wholly-owned subsidiary of The Hartford, reinsured
the Insurance Contracts on a 100% coinsurance basis and agreed to
administer the Insurance Contracts going forward. Also as part of the
Sale, Hartford Life and Accidence Insurance Company purchased 100% of the
outstanding stock of Fortis Advisers, Inc. ("Fortis Advisers"), which is
the investment adviser for the Fund. The Sale also included 100% of the
outstanding stock of Fortis Investors, Inc., which is a wholly-owned
subsidiary of Fortis Advisers and acts as principal distributor for the
Fund. Fortis and the Company received in connection with the Sale
aggregate cash consideration of approximately $1.15 billion from The
Hartford and its affiliates.
23
78
APPENDIX A
PERFORMANCE INFORMATION
In advertising and other sales material for the Certificates, yield and total
return information for the Subaccounts of the Variable Account may be included.
The information below provides investment results for the indicated Subaccounts
of the Variable Account. The results shown in this section are not an estimate
or guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
YIELD CALCULATIONS
Yield information for the Alliance Money Market Subaccount will be based on the
seven days ended on a specified date. It will be computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account (after the deduction of all asset based charges) having a
balance of one Accumulation Unit at the beginning of the period and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by
(365/7), with the resulting yield figure carried to the nearest hundredth of one
percent. The seven day yield for the Alliance Money Market Subaccount as of
December 31, 2000 was 4.44%.
An effective yield may also be quoted for the Alliance Money Market Subaccount.
Effective yield is calculated by compounding the current yield as follows:
Effective Yield = [(Base Period Return + 1) 365/7 ] - 1
The seven day effective yield for the Alliance Money Market Subaccount as of
December 31, 2000 was 4.55%.
Yield information for the other Subaccounts will be based on the thirty days
ended on a specified date and carried to the nearest hundredth of a percent,
according to the following formula:
A - B 6
2 [(----- + 1) - 1]
CD
Where:
A = net investment income earned during the period by the Portfolio whose shares
are owned by the Subaccount,
B = expenses accrued for the period,
C = the average daily number of Accumulation Units outstanding during the
period, and
D = the offering price per Accumulation Unit at the end of the last day of the
period.
The following table sets figures for the thirty days ended December 31, 2000.
Subaccount Yield
---------- -----
Federated High Yield Bond .................................4.47%
Federated U.S. Government Securities.......................2.61%
MFS High Income ...........................................5.23%
MFS World Governments......................................2.06%
Van Eck Worldwide Bond ....................................7.72%
A-1
79
TOTAL RETURN CALCULATIONS
Total return information will be given for the one-year and five-year periods
ended on a specified date, provided that, if the registration statement has been
effective for a Subaccount only during a shorter period, then such shorter
period will be used.
AVERAGE ANNUAL TOTAL RETURN
Total average annual compounded rates of return for each period will be computed
to the nearest one hundredth of a percent, according to the following formula:
P(1 + T)n = CSV
WHERE: P = a hypothetical initial purchase payment of $1,000,
T = average annual total return,
n = number of years, and
CSV = end of period Cash Surrender Value of hypothetical
$1,000 purchase payment made at the beginning of the period,
assuming deduction of a proportionate amount of the annual
administrative charge (based on average Contract size).
The following table show total average annual rates of return for the periods
indicated:
Subaccount One Year Period Commencement to
Ended Dec 31, Dec 31, 2000
2000
- ---------------------------------------------------------------- -------------------------------------
Alliance International Portfolio -20.28% 6.36%
Alliance Premier Growth Portfolio -16.90% 20.82%
American Century VP Balanced Fund -3.11% 9.25%
American Century VP Capital Appreciation Fund 8.57% 9.59%
Federated High Income Bond Fund II -9.44% 3.30%
Federated Utility II -9.29% 7.26%
Federated American Leaders II 2.01% 13.99%
Federated U.S. Gov't Securities II 10.49% 6.37%
INVESCO Industrial Income Portfolio 4.21% 14.79%
INVESCO Health Sciences Portfolio 29.95% 22.78%
INVESCO Technology Portfolio -23.76% 32.57%
Lexington Natural Resources Trust 17.84% 6.72%
Lexington Emerging Markets Fund -40.70% -4.45%
MFS Emerging Growth Series -19.84% 33.92%
MFS High Income Series -7.09% 3.91%
MFS World Governments Series 4.39% 2.24%
Montgomery Emerging Markets Fund -28.87% -5.32%
Montgomery Growth Fund -9.32% 12.86%
A-2
80
Neuberger & Berman Limited Maturity Bond Portfolio 6.30% 4.41%
Neuberger & Berman Partners Portfolio 0.33% 9.34%
SAFECO Equity Portfolio -8.91% 9.71%
SAFECO Growth Portfolio -8.91% 10.40%
Strong Discovery Fund II 3.92% 5.40%
Strong International Stock Fund II -39.80% -0.76%
Van Eck Worldwide Bond Fund 1.36% 1.87%
Van Eck Worldwide Hard Assets Fund 10.89% -2.14%
CUMULATIVE TOTAL RETURN
Total cumulative rates of return for each period will be computed to the nearest
one hundredth of a percent, according to the following formula:
CTR = (CSV - P) 100
-------
P
Where: P = a hypothetical initial purchase payment of $1,000,
CTR = cumulative total return, and
CSV = end of period Cash Surrender Value of hypothetical
$1,000 purchase payment made at the beginning of the period,
assuming deduction of a proportional amount of the annual
administrative charge (based on average Contract size).
The following table shows cumulative total rates of return for the periods
indicated:
CUMULATIVE TOTAL RETURN
Subaccount One Year Period Commencement to
Ended Dec 31, 2000 Dec 31, 2000
- ---------------------------------------------------------------- -----------------------------------------
Alliance International Portfolio -20.28% 35.44%
Alliance Premier Growth Portfolio -16.90% 153.57%
American Century VP Balanced Fund -3.11% 54.56%
American Century VP Capital Appreciation Fund 8.57% 56.91%
Federated High Income Bond Fund II -9.44% 17.33%
Federated Utility II -9.29% 41.15%
Federated American Leaders II 2.01% 90.46%
Federated U.S. Gov't Securities II 10.49% 25.43%
INVESCO Industrial Income Portfolio 4.21% 65.92%
INVESCO Health Sciences Portfolio 29.95% 112.36%
INVESCO Technology Portfolio -23.76% 181.44%
Lexington Natural Resources Trust 17.84% 37.68%
Lexington Emerging Markets Fund -40.70% -20.07%
MFS Emerging Growth Series -19.84% 159.12%
MFS High Income Series -7.09% 20.77%
MFS World Governments Series 4.39% 11.54%
A-3
81
Montgomery Emerging Markets Fund -28.87% -23.60%
Montgomery Growth Fund -9.32% 81.36%
Neuberger & Berman Limited Maturity Bond Portfolio 6.30% 17.18%
Neuberger & Berman Partners Portfolio 0.33% 38.80%
SAFECO Equity Portfolio -8.91% 45.96%
SAFECO Growth Portfolio -8.91% 49.72%
Strong Discovery Fund II 3.92% 29.54%
Strong International Stock Fund II -39.80% -3.76%
Van Eck Worldwide Bond Fund 1.36% 9.54%
Van Eck Worldwide Hard Assets Fund 10.89% -10.09%
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:
Portfolio Name Rating Service Category
- -------------- -------------- --------
Alliance Money Market Morningstar Publications, Inc.
Subaccount Lipper Analytical Services, Inc.
Alliance International Morningstar Publications, Inc. International
Subaccount Lipper Analytical Services, Inc. International
Alliance Premier Growth Morningstar Publications, Inc. Growth
Subaccount Lipper Analytical Services, Inc. Growth
Federated High Yield Bond Morningstar Publications, Inc. High Yield Bond
Subaccount Lipper Analytical Services, Inc.
Federated Utility Morningstar Publications, Inc. Specialty Fund
Subaccount Lipper Analytical Services, Inc.
Federated American Leaders Morningstar Publications, Inc. Growth & Income
Subaccount Lipper Analytical Services, Inc.
Lexington Natural Resources Morningstar Publications, Inc. Specialty Fund
Subaccount Lipper Analytical Services, Inc.
Lexington Emerging Markets Morningstar Publications, Inc. International Stock
Subaccount Lipper Analytical Services, Inc.
MFS Emerging Growth Morningstar Publications, Inc. Aggressive Growth
Subaccount Lipper Analytical Services, Inc. Mid Cap Funds
A-4
82
MFS High Income Morningstar Publications, Inc. High Yield Bonds
Subaccount Lipper Analytical Services, Inc. Mid Cap Funds
MFS Global Government Morningstar Publications, Inc. International Bonds
Subaccount Lipper Analytical Services, Inc.
Montgomery Emerging Markets Morningstar Publications, Inc. Diversified Emerging Markets
Subaccount Lipper Analytical Services, Inc. Emerging Markets Funds
Montgomery Growth Morningstar Publications, Inc. Growth
Subaccount Lipper Analytical Services, Inc. Growth
Strong Discovery Morningstar Publications, Inc. Aggressive Growth
Subaccount Lipper Analytical Services, Inc. Capital Appreciation Fund
Strong Government Securities Morningstar Publications, Inc. Government Bond-General
Subaccount Lipper Analytical Services, Inc.
Strong Advantage Morningstar Publications, Inc. Corporate Bond - General
Subaccount Lipper Analytical Services, Inc.
Strong International Stock Morningstar Publications, Inc. Foreign Stock
Subaccount Lipper Analytical Services, Inc. International Fund
TCI Balanced Morningstar Publications, Inc. Balanced
Subaccount Lipper Analytical Services, Inc.
TCI Growth Morningstar Publications, Inc. Growth
Subaccount Lipper Analytical Services, Inc.
Van Eck Worldwide Bond Morningstar Publications, Inc. International Bond
Subaccount Lipper Analytical Services, Inc.
Van Eck Gold and Natural Morningstar Publications, Inc. Specialty Fund
Resources Subaccount Lipper Analytical Services, Inc. Gold Oriented Fund
A-5
83
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses of the issuance and distribution of the Contracts,
other than commissions on sales of the Contracts are as follows:
Amount
------
Securities and Exchange Commission
registration fee $ -0-
Printing and engraving $1,500.00
Accounting fees and expenses $1,500.00
Legal fees and expenses $3,000.00
Item 15. Indemnification of Directors and Officers
First Fortis' By-Laws provide for indemnity and payment of expenses of
First Fortis' officers and directors in connection with certain legal
proceedings, judgments, and settlements arising by reason of their service as
such, all to the extent and in the manner permitted by law. Applicable New York
law generally permits payment of such indemnification and expenses if the person
seeking indemnification has acted in good faith and for a purpose that he
reasonably believed to be in, or not opposed to, the best interests of the
Company, and, in a criminal proceeding, if the person seeking indemnification
also has no reasonable cause to believe his conduct was unlawful. No
indemnification is further permitted to an individual if there has been an
adjudication, and a judgement rendered adverse to the individual seeking
indemnification, finding that the acts were committed in bad faith, as the
result of active and deliberate dishonesty, or that there was personal gain,
financial profit, or other advantage which he or she was not otherwise legally
entitled.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the indemnification provision described in response to
Item 14, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 16. Exhibits and Financial Statement Schedule
a. Exhibits
1. Form of Principal Underwriter and Servicing Agreement -- filed as an
exhibit to Registration Statement No. 33-71686 on Form N-4 filed April
11, 1994 and incorporated by reference.
2. None.
3. (a) Charter of First Fortis Life Insurance Company (Incorporated by
reference from Form 10-K405, File No. 33-71690, of registrant filed
March 29, 1996).
(b) By-laws of First Fortis Life Insurance Company (Incorporated by
reference from Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed on November 15, 1993);
4. (a) Form of Combination Fixed and Variable Annuity Contract
(Incorporated by Reference from Form N-4 Registration Statement, File
No. 333-20343, of Registrant and its Separate Account A, filed May 9,
1997);
(b) Form of Application to be used in connection with Contract
(Incorporated by Reference from Form N-4 Registration Statement, File
No. 333-20343, of Registrant and its Separate Account A, filed May 9,
1997);
(c) Form of IRA Endorsement (Incorporated by reference from Form N-4
Registration Statement, File No. 33-71686, of registrant and its
Separate Account A filed April 27, 1995);
(d) Form of Section 403(b) Annuity Endorsement (Incorporated by
reference from Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed April 27, 1995);
84
(e) Form of Automatic Portfolio Rebalancing Endorsement (Incorporated
by reference from Form N-4 Registration Statement, File No. 33-71686,
of registrant and its Separate Account A filed April 27, 1995);
(f) Form of Systematic Withdrawal Option Endorsement (Incorporated by
reference from Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed April 27, 1995);
(g) Form of Systematic Transfer Endorsement (Incorporated by reference
from Form N-4 Registration Statement, File No. 33-71686, of registrant
and its Separate Account A filed April 27, 1995);
5. Opinion and consent of David A. Peterson, Esq., Corporate Counsel of
Fortis Benefits Insurance Company, as to the legality of the
securities being registered (filed as a part of this Form S-1
registration statement filed on January 24, 1997).
10. Administrative Service Agreement (Incorporated by reference from Form
N-4 Registration Statement, File No. 33-71686, of registrant and its
Separate Account A filed on November 15, 1993).
24. Consent of PricewaterhouseCoopers LLP and Ernst & Young LLP --
filed herewith.
25. (a) Power of Attorney for Madame Gharib. (Incorporated by
reference from Form N-4 Registration Statement, File No. 33-71686, of
registrant and its Separate Account A filed on November 15, 1993).
(b) Power of Attorney for Messrs. Gardner, Nelson and Galston.
(Incorporated by reference from Form N-4 Registration Statement, File
No. 33-71686, of registrant and its Separate Account A filed on April
12, 1994.)
(c) Power of Attorney for Messr. Kopperud (Incorporated by reference
from Form N-4 Registration Statement, File No. 33-71686, of registrant
and its Separate Account A filed April 27, 1995.)
28. (b) Financial statement schedules.
None.
Item 17. Undertakings
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement,
including (but not limited to) any addition or deletion of a managing
underwriter.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
85
SIGNATURES
As required by the Securities Act of 1933, the Registrant has caused this
Registration Statement to be signed on its behalf in the Town of Salina, County
of Onondaga, State of New York on this 17th day of April 2001.
FIRST FORTIS LIFE INSURANCE COMPANY
By: /s/ Robert B. Pollack
-------------------------------------
Robert B. Pollack
President & Chief Executive Officer
(Principal Executive Officer)
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons, in the capacities indicated, on April 17, 2001.
SIGNATURE TITLE WITH FIRST FORTIS
- --------- -----------------------
/s/ Robert B. Pollack President, Chief Executive
- ------------------------ Chairman of the Board
Robert B. Pollack (Principal Executive Officer)
/s/ Terry J. Kryshak Sr. Vice President and Chief
- ------------------------ Administrative Officer and
Terry J. Kryshak Director
/s/ Larry M. Cains Treasurer and Director
- ------------------------ (Principal Financial Officer)
Larry M. Cains
/s/ Barbara R. Hege Assistant Treasurer and
- ------------------------ Director of Accounting
Barbara R. Hege (Principal Accounting Officer)
* Director
- ------------------------
Allen R. Freedman
* Director
- ------------------------
Dale Edward Gardner
* Director
- ------------------------
Kenneth Warwick Nelson
/s/ Esther L. Nelson Director
- ------------------------
Esther L. Nelson
* Director
- ------------------------
Clarence Elkus Galston
*By /s/ Terry J. Kryshak
--------------------
Terry J. Kryshak
Attorney-in-fact
86
EXHIBIT INDEX
Item
Number Description
- ------ -----------
24. Consent of PricewaterhouseCoopers LLP
24.1 Consent of Ernst & Young LLP