<PAGE>
1933 Act Registration No. 2-11387
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
-----
Post-Effective Amendment No. 79
-----
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No.
-----
(Check appropriate box or boxes)
FORTIS EQUITY PORTFOLIOS, INC.
(Exact Name of Registrant as Specified in Charter)
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Address of Principal Executive Offices, Zip Code)
(612) 738-4000
(Registrant's Telephone Number, including Area Code)
Scott R. Plummer, Esq.
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Name and Address of Agent for Service)
COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
---
X on January 1, 1998 pursuant to paragraph (b) of Rule 485
---
75 days after filing pursuant to paragraph (a) of Rule 485
---
60 days after filing pursuant to paragraph (a) of Rule 485
---
- --------------------------------------------------------------------------------
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<PAGE>
FORTIS EQUITY PORTFOLIOS, INC.
Registration Statement on Form N-1A
-------------------------
Cross Reference Sheet
Pursuant to Rule 481(a)
-------------------------
Item No. Prospectus Heading
- -------- ------------------
1. Cover Page. . . . . . . . . . . . . . Cover Page (no caption)
2. Synopsis. . . . . . . . . . . . . . . Summary of Fund Expenses
3. Financial Highlights. . . . . . . . . Financial Highlights
4. General Description of Registrant . . Organization and Classification;
Investment Objectives and Policies
5. Management of the Fund. . . . . . . . Management
6. Capital Stock and Other Securities. . Capital Stock; Shareholder
Inquiries; Dividends and Capital
Gain Distributions; Taxation
7. Purchase of Securities Being Offered. How to Buy Fund Shares; Valuation
of Securities
8. Redemption or Repurchase. . . . . . . Redemption
9. Pending Legal Proceedings . . . . . . None
Heading Statement of Additional Information
- ------- -----------------------------------
10. Cover Page. . . . . . . . . . . . . . Cover Page (no caption)
11. Table of Contents . . . . . . . . . . Table of Contents
12. General Information and History . . . Organization and Classification
13. Investment Objectives and Policies. . Investment Objectives and Policies
14. Management of the Fund. . . . . . . . Directors and Executive Officers
15. Control Persons and Principal
Holders of Securities . . . . . . . . Capital Stock
16. Investment Advisory and Other
Services. . . . . . . . . . . . . . . Investment Advisory and Other
Services
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . Portfolio Transactions and
Allocation of Brokerage
18. Capital Stock and Other Securities. . Capital Stock
19. Purchase, Redemption and Pricing
of Securities Being Offered . . . . . Computation of Net Asset Value and
Pricing; Special Purchase Plans;
Redemption
20. Tax Status. . . . . . . . . . . . . . Taxation
21. Underwriters. . . . . . . . . . . . . Underwriter
22. Calculations of Performance Data. . . Performance
23. Financial Statements. . . . . . . . . Financial Statements
<PAGE>
FORTIS
STOCK FUNDS
PROSPECTUS
Dated January 1, 1998
- ------------------------------------
Asset Allocation
- ----------------------------------
Value
- ----------------------------------
Growth & Income
- ----------------------------------
Capital
- ----------------------------------
Fiduciary
- ----------------------------------
Growth
- ----------------------------------
Capital Appreciation
- ----------------------------------
[LOGO]
SOLID ANSWERS FOR A CHANGING WORLD-Registered Trademark-
MAILING ADDRESS:
P.O. Box 64284
St. Paul
Minnesota 55164
STREET ADDRESS:
500 Bielenberg Drive
Woodbury
Minnesota 55125
Telephone: (612) 738-4000
Toll Free: (800) 800-2638, Ext. 3012
THIS PROSPECTUS CONCISELY SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR
SHOULD KNOW ABOUT THE FUNDS BEFORE INVESTING. INVESTORS SHOULD RETAIN THIS
PROSPECTUS FOR FUTURE REFERENCE. THE FUNDS HAVE FILED A STATEMENT OF ADDITIONAL
INFORMATION (ALSO DATED JANUARY 1, 1998) WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION"). THE STATEMENT OF ADDITIONAL INFORMATION IS
AVAILABLE FREE OF CHARGE FROM FORTIS INVESTORS, INC. ("INVESTORS") AT THE ABOVE
MAILING ADDRESS OF THE FUNDS, AND IS INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS IN ACCORDANCE WITH THE COMMISSION'S RULES. THE COMMISSION MAINTAINS A
WORLD WIDE WEB SITE THAT CONTAINS REPORTS AND INFORMATION REGARDING ISSUERS THAT
FILE ELECTRONICALLY WITH THE COMMISSION. THE ADDRESS OF SUCH SITE IS
"http://www.sec.gov."
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK: ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY: AND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[LOGO]
and Fortis-Registered Trademark- are registered servicemarks
of Fortis AMEV and Fortis AG.
<PAGE>
RISK FACTORS
Investments in stock funds expose investors to potential declines in the price
of stocks contained in the funds' portfolios, which may result in a decline in
the price of the shares of such funds. In addition, investment in the Asset
Allocation Portfolio exposes investors to the risks associated with bonds
including market risk (when interest rates rise, bond prices fall) and credit
risk (when the issuer of a bond defaults on its obligations). The price of each
Fund's shares will fluctuate and there is no assurance that investors will be
able to redeem their Fund shares for a price equal to or greater than their
original cost. For more information on the risks associated with investing in
the Funds see "Investment Objectives and Policies; Risk Considerations."
SUMMARY OF INVESTMENT OBJECTIVES
The investment objectives of the Funds offered in this Prospectus are as
follows:
The ASSET ALLOCATION PORTFOLIO'S investment objective is maximum total return on
invested capital, to be derived mainly from capital appreciation, dividends and
interest. The Fund follows a flexible asset allocation strategy and invests in
equity securities, debt securities and money market instruments. ("ASSET
ALLOCATION")
The VALUE FUND'S investment objective is short and long term capital
appreciation. Current income is only a secondary objective. The Fund invests
primarily in equity securities and selects stocks based on a concept of
fundamental value. Under normal market conditions, it is the intention of this
Fund to maintain a median market capitalization for its portfolio of over $1
billion. ("MID TO LARGE CAP VALUE")
The GROWTH & INCOME FUND'S investment objectives are capital appreciation and
current income. The Fund invests primarily in equity securities that provide an
income component. Under normal market condtions, it is the intention of this
Fund to maintain a median market capitalization for its portfolio of greater
than $5 billion ("LARGE CAP GROWTH & INCOME")
The CAPITAL FUND'S investment objective is short and long term capital
appreciation. Current income is only a secondary objective. The Fund invests
primarily in equity securities and selects stocks based upon their growth
potential. Under normal market conditions, it is the intention of this Fund to
maintain a median market capitalization for its portfolio of greater than $5
billion. ("LARGE CAP GROWTH")
The FIDUCIARY FUND'S investment objective is short and long term capital
appreciation. Current income is only a secondary objective. The Fund invests
primarily in equity securities and selects stocks based upon their growth
potential. Under normal market conditions, it is the intention of this Fund to
maintain a median market capitalization for its portfolio of over $1 billion.
("MID TO LARGE CAP GROWTH")
The GROWTH FUND'S investment objective is short and long term capital
appreciation. Current income is only a secondary objective. The Fund invests
primarily in equity securities and selects stocks based upon their growth
potential. Under normal market conditions, it is the intention of this Fund to
maintain a median market capitalization for its portfolio of from $1 billion to
$5 billion ("MID CAP GROWTH")
The CAPITAL APPRECIATION PORTFOLIO'S investment objective is maximum long term
capital appreciation. Dividend and interest income from investments, if any, is
incidental. The Fund invests primarily in equity securities and selects stocks
based upon their growth potential. Under normal market conditions, it is the
intention of this Fund to maintain a median market capitalization for its
portfolio of less than $1 billion ("SMALL CAP GROWTH")
For information on "growth" and "value" investing as well as "median market
capitalization" see "Investment Objectives and Policies; Risk Considerations."
TABLE OF CONTENTS
PAGE
Risk Factors.............................................................. 2
Summary of Investment Objectives.......................................... 2
Class Shares.............................................................. 3
Summary of Fund Expenses.................................................. 4
Financial Highlights...................................................... 7
Organization and Classification........................................... 13
Investment Objectives and Policies; Risk Considerations................... 13
Management................................................................ 20
- Board of Directors.................................................. 20
- The Investment Adviser/Transfer Agent/Dividend Agent................ 20
- Portfolio Management................................................ 20
- The Underwriter and Distribution Expenses........................... 21
- Brokerage Allocation................................................ 22
Valuation of Securities................................................... 22
Capital Stock............................................................. 22
Dividends and Capital Gains Distributions................................. 22
Taxation.................................................................. 22
How To Buy Fund Shares.................................................... 23
- General Purchase Information........................................ 23
- Alternative Purchase Arrangements................................... 23
- Class A Shares--Initial Sales Charge Alternative.................... 24
- Class B and H Shares--Contingent Deferred Sales Charge
Alternatives...................................................... 25
- Class C Shares--Level Sales Charge Alternative...................... 26
- Class Z Shares (Growth Fund only)................................... 26
- Special Purchase Plans for all Classes.............................. 26
Redemption................................................................ 27
- Contingent Deferred Sales Charge.................................... 28
Shareholder Inquiries..................................................... 29
Application
ACH Authorization Agreement
No broker-dealer, sales representative, or other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus, and if given or made, such information or representations
must not be relied upon as having been authorized by the Funds or Investors.
This Prospectus does not constitute an offer or solicitation by anyone in any
state in which such offer or solicitation is not authorized, or in which the
person making such offer or solicitation is not qualified to do so, or to any
person to whom it is unlawful to make such offer or solicitation.
2
<PAGE>
CLASS SHARES
Each Fund offers investors the choice of four classes of shares (except Growth
Fund, which offers five classes) with different sales charges and expenses.
These alternatives permit choosing the most beneficial method of purchasing
shares given the amount of the purchase, the length of time the investor expects
to hold the shares, and other circumstances.
CLASS A SHARES. Generally, an investor who purchases Class A shares pays a sales
charge at the time of purchase. As a result, Class A shares are not subject to
any charges when they are redeemed (except for sales at net asset value in
excess of $1 million which may be subject to a contingent deferred sales
charge). The initial sales charge may be reduced or waived for certain
purchases. Class A shares are subject to an annual Rule 12b-1 fee of .25% of
average daily net assets attributable to Class A shares (.45% on Class A shares
of the Asset Allocation and Capital Appreciation Portfolios.) This fee is lower
than the other classes which have 12b-1 fees, and therefore Class A shares have
lower expenses and pay higher dividends. See "How to Buy Fund Shares--Class A
Shares."
CLASS B AND H SHARES. The only difference between Class B and H shares is the
percentage of dealer concession paid to dealers. This difference does not in any
way affect the charges on an investor's shares. Class B and H shares both are
sold without an initial sales charge, but are subject to a contingent deferred
sales charge of 4% if redeemed within two years of purchase, with declining
charges for redemptions thereafter up to six years after purchase. Class B and H
shares are also subject to a higher annual Rule 12b-1 fee than Class A
shares--1.00% of the applicable Fund's average daily net assets attributable to
Class B or H shares, as applicable. However, after eight years, Class B and H
shares automatically will be converted to Class A shares at no charge to the
investor, resulting in a lower Rule 12b-1 fee thereafter. Class B and H shares
provide the benefit of putting all dollars to work from the time of investment,
but will have a higher expense ratio and pay lower dividends than Class A shares
due to the higher Rule 12b-1 fee and any other class specific expenses. See "How
to Buy Fund Shares--Class B and H Shares."
CLASS C SHARES. Class C shares are: 1) sold without an initial sales charge, but
are subject to a contingent deferred sales charge; 2) subject to the higher
annual Rule 12b-1 fee of 1.00% of the applicable Fund's average daily net assets
attributable to Class C shares; and 3) provide the benefit of putting all
dollars to work from the time of investment, but will have a higher expense
ratio and pay lower dividends than Class A shares due to the higher Rule 12b-1
fee and any other class specific expenses. While Class C shares, do not convert
to Class A shares, they are subject to a lower contingent deferred sales charge
(1%) than Class B or H shares and do not have to be held for as long a time (one
year) to avoid paying the contingent deferred sales charge. See "How to Buy Fund
Shares--Class C Shares."
CLASS Z SHARES. Growth Fund will also have Class Z shares, which will not be
subject to a Rule 12b-1 fee and therefore will have the lowest expenses and pay
the highest dividends. However, Class Z shares will only be available for
investment to:
1) Fortis, Inc. or its subsidiaries, and the following persons associated
with such companies, if all account owners fit this description: (1)
officers and directors; (2) employees or sales representatives (including
agencies and their employees); (3) spouses of any such persons; or (4) any
of such persons' children, grandchildren, parents, grandparents, or
siblings--or spouses of any of these persons. (All such persons may continue
to add to their account even after their company relationships have ended);
2) Fund directors, officers, or their spouses (or such persons' children,
grandchildren, parents, or grandparents--or spouses of any such persons), if
all account owners fit this description;
3) Representatives, employees or their spouses (or such persons' children,
grandchildren, parents or grandparents--or spouses of any such persons) of
Investors (including agencies)--if all account owners fit this description;
4) Pension, profit sharing and other retirement plans created for the
benefit of any of the above persons;
5) Accounts which were exchanged from Special Portfolios, Inc., Stock
Portfolio.
IN SELECTING WHICH CLASS OF SHARES TO PURCHASE, YOU SHOULD CONSIDER, AMONG OTHER
THINGS, (1) the length of time you expect to hold your investment, (2) the
amount of any applicable sales charge (whether imposed at the time of purchase
or redemption) and Rule 12b-1 fees, as noted above, (3) whether you qualify for
any reduction or waiver of any applicable sales charge (e.g., if you are exempt
from the sales charge, you must invest in Class A shares or, where applicable,
Class Z shares), (4) the various exchange privileges among the different classes
of shares and (5) the fact that Class B and H shares automatically convert to
Class A shares after eight years.
3
<PAGE>
SUMMARY OF FUND EXPENSES
The Funds' front-end and asset-based sales charges are within the limitations
imposed by the NASD. Such charges are shown below:
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B AND H CLASS C CLASS Z
SHARES SHARES SHARES SHARES ****
---------- ------- ----------- -------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)................... 4.75%* 0.00%** 0.00%** 0.00%
Maximum Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds, as
applicable)....................... *** 4.00% 1.00% 0.00%
</TABLE>
- ------------------------
*Since the Funds also pay an asset based sales charge, long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales
charge permitted by NASD rules.
**Class B, H, and C shares are sold without a front end sales charge, but
their contingent deferred sales charge and Rule 12b-1 fees may cause
long-term shareholders to pay more than the economic equivalent of the
maximum permitted front end sales charges.
***A contingent deferred sales charge of 1.00% is imposed on certain
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. See "How to Buy Fund
Shares--Class A Shares."
****Only available for Growth Fund.
The purpose of the tables set forth below is to assist you in understanding the
various costs and expenses that an investor in the Funds will bear directly or
indirectly. For a more complete description of the various costs and expenses,
see "Management" and "How to Buy Fund Shares."
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CLASS A CLASS B, H AND
ASSET ALLOCATION PORTFOLIO SHARES C SHARES
- -------------------------- ---------- --------------
<S> <C> <C>
Management Fees..................................... .92% .92%
12b-1 fees.......................................... .45% 1.00%
Other Expenses...................................... .11% .11%
--- ---
TOTAL FUND OPERATING EXPENSES..................... 1.48% 2.03%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B, H AND
VALUE FUND SHARES C SHARES
- ----------- ---------- --------------
<S> <C> <C>
Management Fees..................................... 1.00% 1.00%
12b-1 fees.......................................... .25% 1.00%
Other Expenses...................................... .34% .34%
--- ---
TOTAL FUND OPERATING EXPENSES..................... 1.59% 2.34%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B, H AND
GROWTH & INCOME FUND SHARES C SHARES
- ----------------------- ---------- --------------
<S> <C> <C>
Management Fees..................................... 1.00% 1.00%
12b-1 fees.......................................... .25% 1.00%
Other Expenses...................................... .50% .50%
--- ---
TOTAL FUND OPERATING EXPENSES..................... 1.75% 2.50%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B, H AND
CAPITAL FUND SHARES C SHARES
- ------------ ---------- --------------
<S> <C> <C>
Management Fees..................................... .84% .84%
12b-1 fees.......................................... .25% 1.00%
Other Expenses...................................... .09% .09%
--- ---
TOTAL FUND OPERATING EXPENSES..................... 1.18% 1.93%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B, H AND
FIDUCIARY FUND SHARES C SHARES
- --------------- ---------- ---------------
<S> <C> <C>
Management Fees..................................... 1.00% 1.00%
12b-1 fees.......................................... .25% 1.00%
Other Expenses...................................... .16% .16%
--- ---
TOTAL FUND OPERATING EXPENSES..................... 1.41% 2.16%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B, H AND CLASS Z
GROWTH FUND SHARES C SHARES SHARES
- ------------ --------- -------------- -----------
<S> <C> <C> <C>
Management Fees..................................... .75% .75% .75%
12b-1 fees.......................................... .25% 1.00% --
Other Expenses...................................... .07% .07% .07%
--- --- ---
TOTAL FUND OPERATING EXPENSES..................... 1.07% 1.82% .82%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B, H AND
CAPITAL APPRECIATION PORTFOLIO SHARES C SHARES
- ------------------------------- --------- --------------
<S> <C> <C>
Management Fees..................................... .96% .96%
12b-1 fees.......................................... .45% 1.00%
Other Expenses...................................... .14% .14%
--- ---
TOTAL FUND OPERATING EXPENSES..................... 1.55% 2.10%
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment over various time
periods assuming: (1) 5% annual return; and (2) redemption at the end of each
time period. This example includes conversion of Class B and H shares to Class A
shares after eight years and a waiver of deferred sales charges on Class B and H
shares of 10% of the amount invested. See "Contingent Deferred Sales
Charge--Class B, H, and C Shares."
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares........................ $62 $92 $124 $216
Class B and H Shares.................. $57 $91 $127 $222
Class C Shares........................ $31 $64 $109 $236
</TABLE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares.................. $21 $64 $109 $222
Class C Shares........................ $21 $64 $109 $236
</TABLE>
<TABLE>
<CAPTION>
VALUE FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares........................ $63 $95 $130 $227
Class B and H Shares.................. $60 $100 $143 $249
Class C Shares........................ $34 $73 $125 $268
</TABLE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares.................. $24 $73 $125 $249
Class C Shares........................ $24 $73 $125 $268
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares........................ $64 $100 $138 $244
Class B and H Shares.................. $61 $105 $151 $265
Class C Shares........................ $35 $78 $133 $284
</TABLE>
5
<PAGE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares.................. $25 $78 $133 $265
Class C Shares........................ $25 $78 $133 $284
</TABLE>
<TABLE>
<CAPTION>
CAPITAL FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares........................ $59 $83 $109 $184
Class B and H Shares.................. $56 $88 $122 $206
Class C Shares........................ $30 $61 $104 $225
</TABLE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares.................. $20 $61 $104 $206
Class C Shares........................ $20 $61 $104 $225
</TABLE>
<TABLE>
<CAPTION>
FIDUCIARY FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares........................ $61 $ 90 $121 $209
Class B and H Shares.................. $58 $ 95 $134 $230
Class C Shares........................ $32 $ 68 $116 $249
</TABLE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares.................. $22 $68 $116 $230
Class C Shares........................ $22 $68 $116 $249
</TABLE>
<TABLE>
<CAPTION>
GROWTH FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares........................ $58 $80 $104 $172
Class B and H Shares.................. $54 $84 $117 $194
Class C Shares........................ $28 $57 $ 99 $214
Class Z Shares........................ $ 8 $26 $ 43 $ 97
</TABLE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares.................. $18 $57 $ 99 $194
Class C Shares........................ $18 $57 $ 99 $214
</TABLE>
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares........................ $63 $94 $128 $223
Class B and H Shares.................. $57 $93 $131 $229
Class C Shares........................ $31 $66 $113 $243
</TABLE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares.................. $21 $66 $113 $229
Class C Shares........................ $21 $66 $113 $243
</TABLE>
The above examples use 1997 historical data as a basis for the estimated
expenses of the time periods indicated and should not be considered a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
6
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The following audited financial highlights for the Funds should be read in
conjunction with the financial statements of the applicable Fund and the
independent auditors' report of KPMG Peat Marwick LLP found in the Funds' 1997
Annual Report to Shareholders which may be obtained without charge.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, YEAR ENDED OCTOBER 31,
ASSET ALLOCATION --------------------------------- ---------------------------------------------------------------------
PORTFOLIO 1997 1996 1995** 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $16.48 $16.52 $14.44 $15.43 $14.00 $13.34 $10.72 $11.91 $10.37
- -------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment
income--net...... .39 .47 .43 .37 .42 .53 .50 .42 .45
Net realized and
unrealized gain
(loss) on
investments...... 3.47 .29 2.14 (.31) 1.52 .96 2.37 (1.00) 1.54
- -------------------------------------------------------------------------------------------------------------------------------
Total from
operations......... 3.86 .76 2.57 .06 1.94 1.49 2.87 (.58) 1.99
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income--net...... (.41) (.47) (.40) (.33) (.51) (.82) (.25) (.61) (.45)
From net realized
gains............ (.95) (.32) (.09) (.72) -- -- -- -- --
Excess
distributions of
net realized
gains............ -- (.01) -- -- -- (.01) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders.... (1.36) (.80) (.49) (1.05) (.51) (.83) (.25) (.61) (.45)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $ 18.98 $ 16.48 $ 16.52 $ 14.44 $ 15.43 $ 14.00 $ 13.34 $ 10.72 $ 11.91
- -------------------------------------------------------------------------------------------------------------------------------
Total return@....... 24.62% 4.73% 18.25% .48% 14.20% 11.55% 27.25% (5.27%) 20.10%
Net assets end of
period (000s
omitted)........... $156,734 $136,656 $132,939 $119,395 $108,488 $89,674 $27,270 $21,691 $8,820
Ratio of expenses to
average daily net
assets............. 1.48% 1.50% 1.57%* 1.55% 1.58% 1.58% 1.83% 1.98% 1.95%
Ratio of net
investment income
to average daily
net assets......... 2.22% 2.85% 3.31%* 2.60% 2.90% 4.05% 4.11% 3.89% 4.62%
Portfolio turnover
rate............... 109% 89% 94% 94% 103% 45% 64% 112% 67%
Average commission
rate
paid(DIAMOND)...... $ 0.0701 $ 0.0743 -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------
ASSET ALLOCATION
PORTFOLIO 1988***
- --------------------
<S> <C>
Net asset value,
beginning of
period............. $10.00
- --------------------
Operations:
Investment
income--net...... .32
Net realized and
unrealized gain
(loss) on
investments...... .05
- --------------------
Total from
operations......... .37
- --------------------
Distributions to
shareholders:
From investment
income--net...... --
From net realized
gains............ --
Excess
distributions of
net realized
gains............ --
- --------------------
Total distributions
to shareholders.... --
- --------------------
Net asset value, end
of period.......... $ 10.37
- --------------------
Total return@....... 3.80%
Net assets end of
period (000s
omitted)........... $6,889
Ratio of expenses to
average daily net
assets............. 1.95%*
Ratio of net
investment income
to average daily
net assets......... 5.55%*
Portfolio turnover
rate............... 52%
Average commission
rate
paid(DIAMOND)...... --
- --------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C CLASS H
--------------------------------- --------------------------------- ---------------------------------
YEAR ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION ---------------------------------------------------------------------------------------------------------
PORTFOLIO 1997 1996 1995+ 1997 1996 1995+ 1997 1996 1995+
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of
period............. $16.40 $16.46 $14.27 $16.35 $16.41 $14.27 $16.39 $16.44 $14.27
- -------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment
income--net...... .27 .37 .39 .26 .37 .39 .27 .38 .39
Net realized and
unrealized gain
on investments... 3.47 .29 2.26 3.47 .29 2.21 3.47 .29 2.24
- -------------------------------------------------------------------------------------------------------------------------------
Total from
operations......... 3.74 .66 2.65 3.73 .66 2.60 3.74 .67 2.63
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income--net...... (.32) (.39) (.37) (.32) (.39) (.37) (.32) (.39) (.37)
From net realized
gains............ (.95) (.32) (.09) (.95) (.32) (.09) (.95) (.32) (.09)
Excess
distributions of
net realized
gains............ -- (.01) -- -- (.01) -- -- (.01) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders.... (1.27) (.72) (.46) (1.27) (.72) (.46) (1.27) (.72) (.46)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $18.87 $16.40 $16.46 $18.81 $16.35 $16.41 $18.86 $16.39 $16.44
- -------------------------------------------------------------------------------------------------------------------------------
Total return@....... 23.92% 4.12% 19.00% 23.93% 4.13% 18.64% 23.93% 4.19% 18.86%
Net assets end of
period (000's
omitted)........... $ 7,462 $ 4,411 $ 692 $ 4,789 $ 2,641 $ 777 $ 17,142 $ 10,904 $ 4,676
Ratio of expenses to
average daily net
assets............. 2.03% 2.05% 2.12%* 2.03% 2.05% 2.12%* 2.03% 2.05% 2.12%*
Ratio of net
investment income
to average daily
net assets......... 1.67% 2.34% 2.51%* 1.67% 2.33% 2.52%* 1.67% 2.32% 2.54%*
Portfolio turnover
rate............... 109% 89% 94% 109% 89% 94% 109% 89% 94%
Average commission
rate
paid(DIAMOND)...... $ 0.0701 $ 0.0743 -- $ 0.0701 $ 0.0743 -- $ 0.0701 $ 0.0743 --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Ten-month period ended August 31, 1995.
*** January 4, 1988 to October 31, 1988.
@ These are the total returns during the period, including reinvestment of all
dividend and capital gains distributions without adjustments for sales
charge.
+ For the period from November 14, 1994 (initial offering of shares) to August
31, 1995.
(DIAMOND) In accordance with rules adopted by the Securities and Exchange
Commission, disclosure of average commission rate paid is required
beginning with fiscal year 1996. The amount represents total
brokerage commission paid on applicable purchases and sales of equity
securities for the period, divided by the total number of related
shares purchased and sold.
7
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS H
--------------------- --------------------- --------------------- ---------------------
YEAR ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
VALUE FUND 1997 1996** 1997 1996** 1997 1996** 1997 1996**
- -------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of
period............. $10.75 $10.00 $10.70 $10.00 $10.70 $10.00 $10.70 $10.00
- -------------------------------------------------------------------------------------------------------------------
Operations:
Investment income
(loss)--net...... .09 .05 (.01) -- (.01) -- (.01) --
Net realized and
unrealized gain
on investments... 2.94 .70 2.94 .70 2.94 .70 2.94 .70
- -------------------------------------------------------------------------------------------------------------------
Total from
operations......... 3.03 .75 2.93 .70 2.93 .70 2.93 .70
- -------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income--net...... (.06) -- (.03) -- (.03) -- (.03) --
From net realized
gains............ (.21) -- (.21) -- (.21) -- (.21) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders.... (.27) -- (.24) -- (.24) -- (.24) --
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $ 13.51 $ 10.75 $ 13.39 $ 10.70 $ 13.39 $ 10.70 $ 13.39 $ 10.70
- -------------------------------------------------------------------------------------------------------------------
Total return@....... 28.66% 7.50% 27.75% 7.00% 27.75% 7.00% 27.75% 7.00%
Net assets end of
period (000s
omitted)........... $21,855 $9,847 $2,480 $642 $1,002 $223 $4,896 $1,605
Ratio of expenses to
average daily net
assets............. 1.59% 1.65%* 2.34% 2.40%* 2.34% 2.40%* 2.34% 2.40%*
Ratio of net
investment income
(loss) to average
daily net assets... .72% .75%* (.04%) .00%* (.04%) .00%* (.04%) .00%*
Portfolio turnover
rate............... 93% 41% 93% 41% 93% 41% 93% 41%
Average commission
rate
paid(DIAMOND)...... $ 0.0657 $ 0.0521 $ 0.0657 $ 0.0521 $ 0.0657 $ 0.0521 $ 0.0657 $ 0.0521
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A CLASS B CLASS C CLASS H
--------------------- --------------------- --------------------- ---------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------------------------
GROWTH & INCOME FUND 1997 1996** 1997 1996** 1997 1996** 1997 1996**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of
period............. $10.35 $10.00 $10.32 $10.00 $10.33 $10.00 $10.33 $10.00
- -------------------------------------------------------------------------------------------------------------------
Operations:
Investment
income--net...... .20 .07 .11 .02 .10 .03 .10 .03
Net realized and
unrealized gain
on investments... 2.77 .34 2.77 .34 2.77 .34 2.77 .34
- -------------------------------------------------------------------------------------------------------------------
Total from
operations......... 2.97 .41 2.88 .36 2.87 .37 2.87 .37
- -------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income--net...... (.16) (.06) (.07) (.04) (.07) (.04) (.07) (.04)
From realized
gains............ (.10) -- (.10) -- (.10) -- (.10) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders.... (.26) (.06) (.17) (.04) (.17) (.04) (.17) (.04)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $13.06 $10.35 $13.03 $10.32 $13.03 $10.33 $13.03 $10.33
- -------------------------------------------------------------------------------------------------------------------
Total Return@....... 29.00% 4.11% 28.16% 3.55% 28.03% 3.65% 28.03% 3.65%
Net assets at end of
period (000s
omitted)........... $13,907 $3,117 $2,306 $508 $1,290 $302 $5,085 $1,286
Ratio of expenses to
average daily net
assets............. 1.75% 2.33%* 2.50% 3.08%* 2.50% 3.08%* 2.50% 3.08%*
Ratio of net
investment income
to average daily
net assets......... 1.68% 1.16%* .92% .35%* .94% .54%* .93% .44%*
Portfolio turnover
rate............... 15% 5% 15% 5% 15% 5% 15% 5%
Average commission
rate
paid(DIAMOND)...... $ 0.0592 $ 0.0597 $ 0.0592 $ 0.0597 $ 0.0592 $ 0.0597 $ 0.0592 $ 0.0597
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** For the period from January 2, 1996 (commencement of operations) to August
31, 1996.
@ These are the total returns during the period, including reinvestment of all
dividend and capital gains distributions without adjustments for sales
charge.
(DIAMOND) In accordance with rules adopted by the Securities and Exchange
Commission, disclosure of average commission rate paid is required
beginning with fiscal year 1996. The amount represents total
brokerage commission paid on applicable purchases and sales of
securities for the period, divided by the total number of related
shares purchased and sold.
8
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------------------------------------
NINE-MONTH
PERIOD YEAR ENDED NOVEMBER
YEAR ENDED AUGUST 31, ENDED 30,
--------------------------------------------------------------------- AUGUST ---------------------
CAPITAL FUND 1997 1996 1995 1994 1993 1992 31, 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $21.89 $21.22 $18.36 $18.12 $17.86 $16.50 $13.55 $16.30 $11.63
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment
income
(loss)--net.... (.08) .04 .08 .07 .14 .13 .13 .23 .21
Net realized and
unrealized
gains (loss) on
investments.... 7.06 .67 3.62 1.73 1.25 1.63 4.03 (1.92) 4.69
- -----------------------------------------------------------------------------------------------------------------------------
Total from
operations....... 6.98 .71 3.70 1.80 1.39 1.76 4.16 (1.69) 4.90
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income--net.... (.01) (.04) (.08) (.12) (.09) (.11) (.18) (.25) (.23)
From net
realized
gains.......... (2.73) -- (.76) (1.44) (1.04) (.29) (1.03) (.81) --
- -----------------------------------------------------------------------------------------------------------------------------
Total
distributions to
shareholders..... (2.74) (.04) (.84) (1.56) (1.13) (.40) (1.21) (1.06) (.23)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period.... $26.13 $21.89 $21.22 $18.36 $18.12 $17.86 $16.50 $13.55 $16.30
- -----------------------------------------------------------------------------------------------------------------------------
Total return(AT
SIGN)............ 34.57% 3.36% 21.49% 10.56% 7.88% 10.77% 33.36% (10.99%) 42.53%
Net assets end of
period (000s
omitted)......... $340,949 $277,587 $291,263 $245,776 $246,369 $223,865 $191,390 $143,367 $142,459
Ratio of expenses
to average daily
net assets....... 1.18% 1.21% 1.24% 1.21% 1.22% 1.23% 1.28%* 1.25% 1.09%
Ratio of net
investment income
(loss) to average
daily net
assets........... (.33%) .17% .42% .41% .77% .72% 1.19%* 1.66% 1.42%
Portfolio turnover
rate............. 43% 28% 14% 41% 68% 18% 34% 62% 42%
Average commission
rate
paid(DIAMOND).... $ 0.0693 $ 0.0718 -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------
CAPITAL FUND 1988
- ------------------
<S> <C>
Net asset value,
beginning of
period........... $12.24
- ------------------
Operations:
Investment
income
(loss)--net.... .19
Net realized and
unrealized
gains (loss) on
investments.... 1.04
- ------------------
Total from
operations....... 1.23
- ------------------
Distributions to
shareholders:
From investment
income--net.... (.17)
From net
realized
gains.......... (1.67)
- ------------------
Total
distributions to
shareholders..... (1.84)
- ------------------
Net asset value,
end of period.... $11.63
- ------------------
Total return(AT
SIGN)............ 11.36%
Net assets end of
period (000s
omitted)......... $110,168
Ratio of expenses
to average daily
net assets....... 1.11%
Ratio of net
investment income
(loss) to average
daily net
assets........... 1.59%
Portfolio turnover
rate............. 92%
Average commission
rate
paid(DIAMOND).... --
- ------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C CLASS H
--------------------------------- --------------------------------- ---------------------------------
YEAR ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
CAPITAL FUND 1997 1996 1995+ 1997 1996 1995+ 1997 1996 1995+
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of
period............. $21.69 $21.14 $18.35 $21.68 $21.13 $18.35 $21.69 $21.14 $18.35
- -------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment
loss--net........ (.35) (.12) -- (.33) (.12) -- (.34) (.12) --
Net realized and
unrealized gain
on investments... 7.06 .67 3.58 7.06 .67 3.57 7.06 .67 3.58
- -------------------------------------------------------------------------------------------------------------------------------
Total from
operations......... 6.71 .55 3.58 6.73 .55 3.57 6.72 .55 3.58
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income--net...... -- -- (.03) -- -- (.03) -- -- (.03)
From net realized
gains............ (2.73) -- (.76) (2.73) -- (.76) (2.73) -- (.76)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders.... (2.73) -- (.79) (2.73) -- (.79) (2.73) -- (.79)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $25.67 $21.69 $21.14 $25.68 $21.68 $21.13 $25.68 $21.69 $21.14
- -------------------------------------------------------------------------------------------------------------------------------
Total return(AT
SIGN).............. 33.55% 2.60% 20.74% 33.68% 2.60% 20.68% 33.61% 2.60% 20.74%
Net assets end of
period (000s
omitted)........... $7,284 $4,097 $1,527 $1,432 $824 $344 $14,468 $8,052 $4,052
Ratio of expenses to
average daily net
assets............. 1.93% 1.96% 1.99%* 1.93% 1.96% 1.99%* 1.93% 1.96% 1.99%*
Ratio of net
investment income
(loss) to average
daily net assets... (1.08%) (.60%) (.36%)* (1.08%) (.60%) (.36%)* (1.08%) (.60%) (.37%)*
Portfolio turnover
rate............... 43% 28% 14% 43% 28% 14% 43% 28% 14%
Average commission
rate
paid(DIAMOND)...... $ 0.0693 $ 0.0718 -- $ 0.0693 $ 0.0718 -- $ 0.0693 $ 0.0718 --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
@ These are total returns during the periods, including reinvestment of all
dividend and capital gains distributions without adjustments for sales
charge.
+ For the period From November 14, 1994 (initial public offering of shares) to
August 31, 1995.
(DIAMOND) In accordance with rules adopted by the Securities and Exchange
Commission, disclosure of average commission rate paid is required
beginning with fiscal year 1996. The amount represents total
brokerage commission paid on applicable purchases and sales of
securities for the period, divided by the total number of related
shares purchased and sold.
9
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------------------------------------
EIGHT-MONTH
PERIOD YEAR ENDED DECEMBER
YEAR ENDED AUGUST 31, ENDED 31,
--------------------------------------------------------------------- AUGUST ---------------------
FIDUCIARY FUND 1997 1996 1995 1994 1993 1992 31, 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of
period........... $36.75 $35.54 $30.23 $30.07 $28.74 $26.77 $20.27 $25.96 $18.67
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment
income
(loss)--net.... (.28) (.03) (.16) (.14) (.09) .04 .06 .22 .18
Net realized and
unrealized gain
(loss) on
investments.... 12.56 1.50 6.68 2.99 3.11 2.68 6.48 (3.09) 7.32
- -----------------------------------------------------------------------------------------------------------------------------
Total from
operations....... 12.28 1.47 6.52 2.85 3.02 2.72 6.54 (2.87) 7.50
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income--net.... -- -- -- -- -- (.11) (.02) (.24) (.18)
From net
realized
gains.......... (2.88) (.26) 1.21 (2.69) (1.69) (.64) (.02) (2.58) (.03)
- -----------------------------------------------------------------------------------------------------------------------------
Total
distributions to
shareholders..... (2.88) (.26) 1.21 (2.69) (1.69) (.75) (.04) (2.82) (.21)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period.... $46.15 $36.75 $35.54 $30.23 $30.07 $28.74 $26.77 $20.27 $25.96
- -----------------------------------------------------------------------------------------------------------------------------
Total return@..... 35.08% 4.18% 22.71% 10.17% 10.58% 10.28% 32.23% (11.07%) 40.30%
Net assets end of
period (000's
omitted)......... $83,847 $65,641 $63,195 $48,833 $47,543 $43,504 $39,367 $30,517 $33,647
Ratio of expenses
to average daily
net assets....... 1.41% 1.42% 1.62% 1.45% 1.45% 1.47% 1.46%* 1.44% 1.42%
Ratio of net
investment income
(loss) to average
daily net
assets........... (.70%) (.07%) (.53%) (.45%) (.31%) .14% .42%* 1.00% .67%
Portfolio turnover
rate............. 46% 30% 12% 25% 53% 26% 34% 68% 41%
Average commission
rate
paid(DIAMOND).... $0.0684 $0.0715 -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------
FIDUCIARY FUND 1988
- ------------------
<S> <C>
Net asset value
beginning of
period........... $17.57
- ------------------
Operations:
Investment
income
(loss)--net.... .14
Net realized and
unrealized gain
(loss) on
investments.... 1.09
- ------------------
Total from
operations....... 1.23
- ------------------
Distributions to
shareholders:
From investment
income--net.... (.12)
From net
realized
gains.......... (.01)
- ------------------
Total
distributions to
shareholders..... (.13)
- ------------------
Net asset value,
end of period.... $18.67
- ------------------
Total return@..... 7.01%
Net assets end of
period (000's
omitted)......... $29,720
Ratio of expenses
to average daily
net assets....... 1.55%
Ratio of net
investment income
(loss) to average
daily net
assets........... .69%
Portfolio turnover
rate............. 97%
Average commission
rate
paid(DIAMOND).... --
- ------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C CLASS H
--------------------------------- --------------------------------- ---------------------------------
YEAR ENDED AUGUST 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
FIDUCIARY FUND 1997 1996 1995+ 1997 1996 1995+ 1997 1996 1995+
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of
period............ $36.26 $35.35 $30.15 $36.32 $35.40 $30.15 $36.26 $35.35 $30.15
- ------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment
loss--net....... (.79) (.33) (.13) (.83) (.32) (.12) (.78) (.33) (.17)
Net realized and
unrealized gain
on
investments..... 12.56 1.50 6.54 12.56 1.50 6.58 12.56 1.50 6.58
- ------------------------------------------------------------------------------------------------------------------------------
Total from
operations........ 11.77 1.17 6.41 11.73 1.18 6.46 11.78 1.17 6.41
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From net realized
gains........... (2.88) (.26) (1.21) (2.88) (.26) (1.21) (2.88) (.26) (1.21)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders... (2.88) (.26) (1.21) (2.88) (.26) (1.21) (2.88) (.26) (1.21)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period..... $45.15 $36.26 $35.35 $45.17 $36.32 $35.40 $45.16 $36.26 $35.35
- ------------------------------------------------------------------------------------------------------------------------------
Total Return(AT
SIGN)............. 34.10% 3.35% 22.38% 33.92% 3.38% 22.55% 34.13% 3.35% 22.38%
Net assets at end
of period (000's
omitted).......... $2,663 $1,360 $473 $828 $491 $272 $6,508 $3,164 $1,481
Ratio of expenses
to average daily
net assets........ 2.16% 2.17% 2.37%* 2.16% 2.17% 2.37%* 2.16% 2.17% 2.37%*
Ratio of net
investment (loss)
to average daily
net assets........ (1.44%) (.78%) (1.31%)* (1.44%) (.82%) (1.31%)* (1.44%) (.80%) (1.29%)*
Portfolio turnover
rate.............. 46% 30% 12% 46% 30% 12% 46% 30% 12%
Average commission
rate
paid(DIAMOND)..... $ 0.0684 $ 0.0715 -- $ 0.0684 $ 0.0715 -- $ 0.0684 $ 0.0715 --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
@ These are total returns during the periods, including reinvestment of all
dividend and capital gains distributions without adjustments for sales
charge.
+ For the period From November 14, 1994 (initial offering of shares) to August
31, 1995.
(DIAMOND) In accordance with rules adopted by the Securities and Exchange
Commission, disclosure of average commission rate paid is required
beginning with fiscal year 1996. The amount represents total
brokerage commission paid on applicable purchases and sales of
securities for the period, divided by the total number of related
shares purchased and sold.
10
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------------------------------------------
EIGHT-MONTH
PERIOD
YEAR ENDED AUGUST 31, ENDED YEAR ENDED DECEMBER 31,
---------------------------------------------------------------- AUGUST 31, -------------------------------
GROWTH FUND 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period $32.14 $32.66 $26.25 $29.09 $24.31 $24.40 $17.47 $20.92 $15.04 $14.07
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment
income
(loss)--net... (.16) (.11) (.04) (.10) (.06) .05 -- .24 .05 .10
Net realized
and
unrealized
gain (loss)
on
investments... 8.41 1.30 6.95 (.88) 5.52 1.16 6.93 (1.55) 6.36 .99
- -----------------------------------------------------------------------------------------------------------------------------
Total from
operations.... 8.25 1.19 6.91 (.98) 5.46 1.21 6.93 (1.31) 6.41 1.09
- -----------------------------------------------------------------------------------------------------------------------------
Distributions
to
shareholders:
From
investment
income--net... -- -- -- -- (.04) (.02) -- (.24) (.05) (.09)
From net
realized
gains....... (3.07) (1.71) (.50) (1.86) (.64) (1.28) -- (1.90) (.48) (.03))
- -----------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... (3.07) (1.71) (.50) (1.86) (.68) (1.30) -- (2.14) (.53) (.12))
- -----------------------------------------------------------------------------------------------------------------------------
Net asset
value, end of
period........ $37.32 $32.14 $32.66 $26.25 $29.09 $24.31 $24.40 $17.47 $20.92 $15.04
- -----------------------------------------------------------------------------------------------------------------------------
Total return
@............. 27.01% 4.09% 26.92% (3.77%) 22.69% 4.72% 39.67% (6.31%) 42.76% 7.76%)
Net assets end
of period
(000's
omitted)...... $734,654 $641,061 $670,753 $558,589 $585,117 $473,258 $325,901 $237,182 $232,005 $189,810
Ratio of
expenses to
average daily
net assets.... 1.07% 1.09% 1.13% 1.09% 1.10% 1.13% 1.20%* 1.21% 1.01% 1.05%
Ratio of net
investment
income (loss)
to average
daily net
assets........ (.45%) (.33%) (.13%) (.36%) (.20%) .24% (.03%)* 1.30% .23% .64%
Portfolio
turnover
rate.......... 28% 32% 27% 23% 49% 33% 33% 58% 43% 102%
Average
commission
rate
paid(DIAMOND)... $ 0.0679 $ 0.0709 -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS H
------------------------------------- ------------------------------------- -----------------------
YEAR ENDED AUGUST 31,
-------------------------------------------------------------------------------------------------------
GROWTH FUND 1997 1996 1995** 1997 1996 1995** 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period..... $31.75 $32.48 $25.85 $31.75 $32.49 $25.85 $31.75 $32.49
- ----------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment loss--net... (.56) (.32) (.13) (.57) (.33) (.10) (.55) (.33)
Net realized and
unrealized gain on
investments........... 8.41 1.30 7.26 8.41 1.30 7.24 8.41 1.30
- ----------------------------------------------------------------------------------------------------------------------------------
Total from operations.... 7.85 .98 7.13 7.84 .97 7.14 7.86 .97
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From net realized
gains................. (3.07) (1.71) (.50) (3.07) (1.71) (.50) (3.07) (1.71)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders............ (3.07) (1.71) (.50) (3.07) (1.71) (.50) (3.07) (1.71)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period.................. $36.53 $31.75 $32.48 $36.52 $31.75 $32.49 $36.54 $31.75
- ----------------------------------------------------------------------------------------------------------------------------------
Total return @........... 26.02% 3.45% 28.17% 25.98% 3.41% 28.21% 26.05% 3.41%
$ 12,149 $ 6,710 $ 2,179 $ 2,367 $ 1,077 $ 264 $ 34,941 $ 21,176
Ratio of expenses to
average daily net
assets.................. 1.82% 1.84% 1.88%* 1.82% 1.84% 1.88%* 1.82% 1.84%
Ratio of net investment
income (loss) to average
daily net assets........ (1.19%) (1.07%) (1.09%)* (1.19%) (1.07%) (1.10%)* (1.19%) (1.07%)
Portfolio turnover
rate.................... 28% 32% 27% 28% 32% 27% 28% 32%
Average commission rate
paid(DIAMOND)........... $ 0.0679 $ 0.0709 -- $ 0.0679 $ 0.0709 -- $ 0.0679 $ 0.0709
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS Z
------------------------
GROWTH FUND 1995** 1997 1996***
<S> <C> <C> <C>
- -------------------------
Net asset value,
beginning of period..... $25.85 $32.18 $31.61
- -------------------------
Operations:
Investment loss--net... (.11) (.05) --
Net realized and
unrealized gain on
investments........... 7.25 8.41 .57
- -------------------------
Total from operations.... 7.14 8.36 .57
- -------------------------
Distributions to
shareholders:
From net realized
gains................. (.50) (3.07) --
- -------------------------
Total distributions to
shareholders............ (.50) (3.07) --
- -------------------------
Net asset value, end of
period.................. $32.49 $37.47 $32.18
- -------------------------
Total return @........... 28.21% 27.34% 1.80%
$ 6,867 $ 112,356 $ 93,006
Ratio of expenses to
average daily net
assets.................. 1.88%* .82% .84%*
Ratio of net investment
income (loss) to average
daily net assets........ (1.10%)* (.20%) .01%*
Portfolio turnover
rate.................... 27% 28% 32%
Average commission rate
paid(DIAMOND)........... -- $ 0.0679 $ 0.0709
- -------------------------
</TABLE>
* Annualized.
** For the period from November 14, 1994 (initial offering of shares)
to August 31, 1995.
*** For the period from March 1, 1996 (commencement of operations) to
August 31, 1996.
(AT SIGN) These are the total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
(DIAMOND) In accordance with rules adopted by the Securities and Exchange
Commission, disclosure of average commission rate paid is required
beginning with fiscal year 1996. The amount represents total
brokerage commission paid on applicable purchases and sales of
securities for the period, divided by the total number of related
shares purchased and sold.
11
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, YEAR ENDED OCTOBER 31,
CAPITAL APPRECIATION -------------------------------- ---------------------------------------------------------------
PORTFOLIO 1997 1996 1995+ 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $34.76 $30.67 $23.05 $27.38 $19.85 $19.80 $11.58 $15.44 $10.80
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income
(loss)--net........... (.26) (.29) (.17) (.12) (.30) (.17) (.14) (.07) .05
Net realized and
unrealized gain (loss)
on investments........ (2.45) 4.61 7.79 (2.45) 7.83 .22 8.36 (3.06) 4.70
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations.... (2.71) 4.32 7.62 (2.57) 7.53 .05 8.22 (3.13) 4.75
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income--net........... -- -- -- -- -- -- -- (.02) (.11)
From net realized
gains................. (1.18) (.23) -- (1.76) -- -- -- (.71) --
Tax return of
capital............... (.27) -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders............ (1.45) (.23) -- (1.76) -- -- -- (.73) (.11)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period.................. $30.60 $34.76 $30.67 $23.05 $27.38 $19.85 $19.80 $11.58 $15.44
- -----------------------------------------------------------------------------------------------------------------------------
Total return @........... (7.89%) 14.21% 33.06% (9.56%) 37.93% .25% 70.98% (21.21)% 44.38%
Net assets end of period
(000s omitted).......... $105,422 $114,310 $90,918 $68,352 $58,434 $43,207 $29,992 $15,194 $13,046
Ratio of expenses to
average daily net
assets.................. 1.55% 1.56% 1.69%* 1.62% 1.62% 1.68% 1.82% 1.88% 1.97%
Ratio of net investment
income (loss) to average
daily net assets........ (.84%) (.96%) (.82%)* (.61%) (1.23%) (.88%) (.97%) (.56%) .29%
Portfolio turnover
rate.................... 25% 34% 21% 36% 60% 43% 93% 62% 69%
Average commission rate
paid(DIAMOND)........... $ 0.0611 $ 0.0691 -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------
CAPITAL APPRECIATION
PORTFOLIO 1988***
- -------------------------
<S> <C>
Net asset value,
beginning of period..... $10.00
- -------------------------
Operations:
Investment income
(loss)--net........... .06
Net realized and
unrealized gain (loss)
on investments........ .74
- -------------------------
Total from operations.... .80
- -------------------------
Distributions to
shareholders:
From investment
income--net........... --
From net realized
gains................. --
Tax return of
capital............... --
- -------------------------
Total distributions to
shareholders............ --
- -------------------------
Net asset value, end of
period.................. $10.80
- -------------------------
Total return @........... 8.00%
Net assets end of period
(000s omitted).......... $4,144
Ratio of expenses to
average daily net
assets.................. 1.95%*
Ratio of net investment
income (loss) to average
daily net assets........ 1.54%*
Portfolio turnover
rate.................... 65%
Average commission rate
paid(DIAMOND)........... --
- -------------------------
- -------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
--------------------------------- ---------------------------------
YEAR ENDED AUGUST 31,
CAPITAL APPRECIATION ---------------------------------------------------------------------
PORTFOLIO 1997 1996 1995** 1997 1996 1995**
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Net asset value,
beginning of period..... $34.46 $30.57 $22.45 $34.48 $30.58 $22.45
- ------------------------------------------------------------------------------------------------
Operations:
Investment loss -
net................... (.40) (.49) (.35) (.40) (.48) (.36)
Net realized and
unrealized gain (loss)
on investments........ (2.45) 4.61 8.47 (2.45) 4.61 8.49
- ------------------------------------------------------------------------------------------------
Total from operations.... (2.85) 4.12 8.12 (2.85) 4.13 8.13
- ------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From net realized
gains................. (1.18) (.23) -- (1.18) (.23) --
Tax return of
capital............... (.27) -- -- (.27) -- --
- ------------------------------------------------------------------------------------------------
Total distributions to
shareholders............ (1.45) (.23) -- (1.45) (.23) --
- ------------------------------------------------------------------------------------------------
Net asset value, end of
period.................. $30.16 $34.46 $30.57 $30.18 $34.48 $30.58
- ------------------------------------------------------------------------------------------------
Total return @........... (8.38%) 13.60% 36.17% (8.38%) 13.62% 36.21%
Net assets end of period
(000s omitted).......... $6,561 $4,522 $841 $1,875 $1,004 $227
Ratio of expenses to
average daily net
assets.................. 2.10% 2.11% 2.24%* 2.10% 2.11% 2.24%*
Ratio of net investment
income (loss) to average
daily net assets........ (1.39%) (1.47%) (1.61%)* (1.39%) (1.46%) (1.62%)*
Portfolio turnover
rate.................... 25% 34% 21% 25% 34% 21%
Average commission rate
paid(DIAMOND)........... $ 0.0611 $ 0.0691 -- $ 0.0611 $ 0.0691 --
- ------------------------------------------------------------------------------------------------
<CAPTION>
CLASS H
---------------------------------
CAPITAL APPRECIATION
PORTFOLIO 1997 1996 1995**
<S> <C> <C> <C>
- -------------------------
Net asset value,
beginning of period..... $34.48 $30.58 $22.45
- -------------------------
Operations:
Investment loss -
net................... (.40) (.48) (.36)
Net realized and
unrealized gain (loss)
on investments........ (2.45) 4.61 8.49
- -------------------------
Total from operations.... (2.85) 4.13 8.13
- -------------------------
Distributions to
shareholders:
From net realized
gains................. (1.18) (.23) --
Tax return of
capital............... (.27) -- --
- -------------------------
Total distributions to
shareholders............ (1.45) (.23) --
- -------------------------
Net asset value, end of
period.................. $30.18 $34.48 $30.58
- -------------------------
Total return @........... (8.38%) 13.62% 36.21%
Net assets end of period
(000s omitted).......... $13,379 $9,575 $2,115
Ratio of expenses to
average daily net
assets.................. 2.10% 2.11% 2.24%*
Ratio of net investment
income (loss) to average
daily net assets........ (1.39%) (1.46%) (1.62%)*
Portfolio turnover
rate.................... 25% 34% 21%
Average commission rate
paid(DIAMOND)........... $ 0.0611 $ 0.0691 --
- -------------------------
</TABLE>
* Annualized.
** For the period from November 14, 1994 (initial offering of shares)
to August 31, 1995.
*** January 4, 1988 to October 31, 1988.
(AT SIGN) These are the total returns during the period, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
+ Ten-month period ended August 31, 1995.
(DIAMOND) In accordance with rules adopted by the Securities and Exchange
Commission, disclosure of average commission rate paid is required
beginning with fiscal year 1996. The amount represents total
brokerage commission paid on applicable purchases and sales of
securities for the period divided by the total number of related
shares purchased and sold.
12
<PAGE>
Each Fund may advertise its "cumulative total return," "average annual total
return," "systematic investment plan cumulative total return," and "systematic
investment plan average annual total return," and may compare such figures to
recognized indices. Performance figures are calculated separately for each class
of shares, and figures for each class will be presented. Each Fund may advertise
its relative performance as compiled by outside organizations such as Lipper
Analytical or Wiesenberger, or refer to publications which have mentioned the
Fund, Advisers, or their personnel, and also may advertise other performance
items as set forth in the Statement of Additional Information. The performance
discussion required by the SEC is found in the applicable Fund's Annual Report
to Shareholders and will be made available without charge upon request.
ORGANIZATION AND CLASSIFICATION
Fortis Asset Allocation Portfolio ("Asset Allocation Portfolio") and Fortis
Capital Appreciation Portfolio ("Capital Appreciation Portfolio") are portfolios
of Fortis Advantage Portfolios, Inc. ("Fortis Advantage"). Fortis Value Fund
("Value Fund"), Fortis Growth & Income Fund ("Growth & Income Fund"), and Fortis
Capital Fund ("Capital Fund") are the three portfolios of Fortis Equity
Portfolios, Inc. ("Fortis Equity"). Fortis Fiduciary Fund, Inc. ("Fiduciary
Fund") and Fortis Growth Fund, Inc. ("Growth Fund") are single portfolio funds.
The shares of each of these seven portfolios/funds (collectively, the "Funds")
currently are of four classes (A, B, H, and C) (except Growth Fund, which also
has Class Z Shares) each with different sales arrangements and expenses.
Fortis Advantage, Growth Fund, Fiduciary Fund, and Fortis Equity were each
incorporated under Minnesota law in 1987, 1958, 1981, and 1949, respectively,
and each is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company.
While Fortis Advantage is currently comprised of three Portfolios-- Capital
Appreciation Portfolio, High Yield Portfolio, and Asset Allocation Portfolio,
only Asset Allocation Portfolio and Capital Appreciation Portfolio are offered
through this Prospectus.
Regarding Fortis Advantage and Fortis Equity, each portfolio is (with respect to
the other portfolio(s) in its investment company) for investment purposes, in
effect a separate investment fund. A separate series of capital shares is issued
for each portfolio. Each share issued with respect to a portfolio has a pro-rata
interest in the assets of that portfolio and has no interest in the assets of
any other portfolio. Each portfolio bears its own liabilities and also its
proportionate share of the general liabilities of its respective fund. In other
respects, each respective fund is treated as one entity.
INVESTMENT OBJECTIVES AND POLICIES; RISK CONSIDERATIONS
Through careful selection, broad diversification, and constant supervision, the
management of each Fund aims to limit and counteract various types of risk that
are inherent in all securities, and advance the value of the Fund's assets.
There is risk in all investments and fulfillment of the Fund's objectives cannot
be assured.
The Funds' investment objectives, which are set forth on page 2 and restated
below, may be changed without shareholder approval. While no such change is
contemplated, such a change could result in a Fund's objectives differing from
those deemed appropriate by an investor at the time of investment.
Any investment restriction or limitation, fundamental or otherwise, that
involves a maximum percentage of securities or assets shall not be considered to
be violated unless an excess over the percentage occurs immediately after an
acquisition of securities or utilization of assets, and such excess results
therefrom.
In seeking to obtain their investment objectives, each Fund, except Asset
Allocation Portfolio, will invest primarily in common stock or securities
convertible into common stocks. Occasionally, however, limited amounts may be
invested in other types of securities (such as nonconvertible preferred and debt
securities). In periods when a more defensive position is deemed warranted, the
Funds may invest in high grade preferred stocks, bonds, other fixed income
securities (whether or not convertible into or carrying rights to purchase
common stock), short-term money market instruments, commercial paper,
obligations of banks or the United States Government, other high quality
short-term debt instruments, or cash, all without limitation. The Funds may
invest in both listed and unlisted securities.
Asset Allocation Portfolio, as more fully explained in "Investment Objectives
and Policies--Asset Allocation Portfolio", invests in a combination of equity
securities, debt securities and money market instruments.
It is expected that even when a Fund is "fully invested," generally a small
percentage of the Fund's assets will be held in short-term money market
instruments or cash, to pay redemption requests and Fund expenses.
INVESTMENT PHILOSOPHIES. In selecting equity securities for the Funds'
portfolios, Fortis Advisers, Inc. ("Advisers"), the investment adviser of the
Funds, uses two distinct equity investment philosophies. Specifically, Asset
Allocation Portfolio, Capital Fund, Fiduciary Fund, Growth Fund and Capital
Appreciation Portfolio use a "growth" philosophy and Value Fund uses a "value"
philosophy. Growth & Income Fund may at times use either or both philosophies.
Under both philosophies, Advisers uses a "bottom up" investment style in which
stock selection is driven primarily by the merits of the company itself.
13
<PAGE>
In managing "GROWTH" portfolios, Advisers invests based on a concept of growth
potential, seeking to identify companies whose earnings and revenue growth
potential exceed industry averages. In addition to superior earnings growth
potential, Advisers seeks companies which it believes to be well managed with
above average returns on equity and invested capital, healthy balance sheets and
the potential to gain market share. Companies of this nature typically have
above average growth potential and a correspondingly higher than average
valuation level as measured by price to earnings, price to cash flow and price
to book value ratios. Depending upon the market capitalization goals of a growth
portfolio, the manager will select stocks of small, mid or large capitalization
companies (or a combination of all three).
In managing "VALUE" portfolios, Advisers invests based on a concept of
fundamental value, seeking to identify companies whose shares appear inexpensive
relative to anticipated profit and dividend growth. The primary emphasis is
placed on companies expected to experience a significant acceleration in
earnings over the next three to five years. The prices of these stocks typically
do not fully reflect such improvement. Often such a stock is "out of favor" and
priced low relative to the company's earnings, cash flow and book value. A
second source of "value" stocks are companies expected to sustain their historic
rate of growth but which are selling at a low price to earnings ratio in
relation to this anticipated growth.
MEDIAN MARKET CAPITALIZATION. "Market capitalization" is a measure of a
company's relative size and is calculated by multiplying the number of
outstanding shares of a company by the market price of those shares. Half of a
portfolio's assets are invested in securities of companies with market
capitalizations larger than the "median market capitalization" of the portfolio,
and half are invested in the securities of companies with market capitalizations
smaller than the median. For example, in a portfolio of nine securities with
respective market capitalizations of $1 billion, $1.5 billion, $2 billion, $3
billion, $5 billion, $8 billion, $8 billion, $8.75 billion and $9 billion, the
median market capitalization of this portfolio would be $5 billion because half
of the portfolio securities have market capitalizations that are smaller than
the median and half have market capitalizations that are larger than the median.
Median market capitalization is used as a measure of the "average" market
capitalization of a portfolio and is sometimes used in the mutual fund industry
to categorize a fund as "small cap", "mid cap" or "large cap." For purposes of
this Prospectus, the Funds consider "small cap" portfolios to have median market
capitalizations of less than $1 billion, "mid cap" portfolios to have median
market capitalizations of $1 billion to $5 billion and "large cap" portfolios to
have median market capitalizations of more than $5 billion.
As discussed on page 2 and in the "Investment Objective and Policies" for each
Fund, each Fund, except Asset Allocation Portfolio, intends to maintain its
median market capitalization within a certain range. There is, however, no
assurance that the Funds' median market capitalizations will always remain
within the designated ranges in light of constantly fluctuating market
conditions and the performance of the stocks held in the Funds' portfolios.
ASSET ALLOCATION PORTFOLIO
The Asset Allocation Portfolio's investment objective is maximum total return on
invested capital, to be derived mainly from capital appreciation, dividends and
interest.
Asset Allocation Portfolio will endeavor to achieve its investment objective by
following a flexible asset allocation strategy that contemplates shifts, which
may be frequent, among a wide range of investments and markets. Asset Allocation
Portfolio will invest in equity securities of domestic and foreign issuers,
including common stocks, preferred stocks, convertible securities, and warrants;
debt securities of domestic and foreign issuers, including bonds, debentures,
and notes; and money market instruments.
Advisers has broad latitude in selecting the class of investments and market
sectors in which the Fund will invest. Asset Allocation Portfolio will not be a
"balanced" fund and, therefore, will not be required continually to maintain a
portion of its investments in each of its permitted investment types.
Depending upon prevailing economic and market conditions, Asset Allocation
Portfolio may at any given time be primarily comprised of equity securities
(including debt securities convertible into equity securities), short-term money
market securities, investment grade bonds and other debt securities, or any
combination thereof. For example, during periods when Advisers believes that the
overall return on equity securities will exceed the return on debt securities,
Asset Allocation Portfolio may be fully or substantially invested in equity
securities. In contrast, Asset Allocation Portfolio normally would be invested
primarily in debt securities during periods when Advisers believes that the
total return from investing in debt securities will exceed the return on equity
securities. Finally, during periods when Advisers believes interest rates will
rise, Asset Allocation Portfolio may be primarily invested in short-term money
market securities.
Unlike shareholders of other funds, a shareholder of Asset Allocation Portfolio
confers substantially more investment discretion on the investment adviser,
enabling the investment adviser to invest in a wide variety of investment
securities.
EQUITY SECURITIES. Asset Allocation Portfolio may invest, without limitation, in
equity securities, including common stocks, preferred stocks, and securities
convertible into equity securities. In selecting investments in equity
securities for the Fund, Advisers uses a "growth" philosophy and primarily looks
for the potential for capital appreciation. The Fund generally invests in equity
securities of companies which, in Adviser's judgment, are undervalued and show
promise of substantial capital appreciation because of new management, products,
services, markets, or other factors.
14
<PAGE>
CMOS AND MULTI-CLASS PASS-THROUGH SECURITIES. CMOs are debt instruments issued
by special purpose entities which are secured by pools of mortgage loans or
other mortgage-backed Securities. Multi-class pass-through securities are
interests in a trust composed of mortgage loans or other mortgage-backed
securities. Payments of principal and interest on underlying collateral provide
the funds to pay debt service on the CMO or make scheduled distributions on the
multi-class pass-through security. Multi-class pass-through securities, CMOs,
and classes thereof (including those discussed below) are examples of the types
of financial instruments commonly referred to as "derivatives".
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specified coupon
rate and has a stated maturity or final distribution date. Principal prepayments
on collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturities or final distribution dates. Interest is paid or
accrues on all classes of a CMO on a monthly, quarterly or semi-annual basis.
The principal and interest on the underlying mortgages may be allocated among
the several classes of a series of a CMO in many ways. In a common structure,
payments of principal, including any principal prepayments, on the underlying
mortgages are applied according to scheduled cash flow priorities to classes of
the series of a CMO.
ZERO COUPON OBLIGATIONS. Asset Allocation Portfolio may invest in zero coupon
obligations of the U.S. Government, U.S. Government agencies, and corporate
issuers, including rights to "stripped" coupon and principal payments. Certain
U.S. Government obligations (principally, Treasury Notes and Treasury Bonds) and
corporate obligations are "stripped" of their coupons, and the rights to receive
each coupon payment and the principal payment are sold as separate securities.
Once separated, each coupon as well as the principal amount represents a
different single-payment claim due from the issuer of the security. Each
single-payment claim (coupon or principal) is equivalent to a zero coupon bond.
A zero coupon security pays no interest to its holder during its life, and its
value consists of the difference between its face value at maturity (the coupon
or principal amount), if held to maturity, or its market price on the date of
sale, if sold prior to maturity, and its acquisition price (the discounted
"present value" of the payment to be received).
Certain zero coupon obligations represent direct obligations of the issuer of
the "stripped" coupon and principal payments. Other zero coupon obligations are
securities issued by financial institutions which constitute a proportionate
ownership of an underlying pool of stripped coupon or principal payments. Asset
Allocation Portfolio may invest in either type of zero coupon obligation. The
investment policies and restrictions applicable to corporate and government
securities in such Portfolio shall apply equally to the Portfolio's investments
in zero coupon securities (including, for example, minimum corporate bond
ratings and percentage limitations).
MUNICIPAL SECURITIES. Asset Allocation Portfolio may invest not more than 20% of
its total assets in municipal securities during periods when such securities
appear to offer more attractive returns than taxable securities.
OTHER DEBT AND MONEY MARKET SECURITIES. In addition to its investments in equity
securities and in obligations of the United States Government, its agencies, and
instrumentalities, Asset Allocation Portfolio may invest in a variety of long,
intermediate, and short-term debt securities. Such instruments may include the
following:
(a) CORPORATE BONDS. Asset Allocation Portfolio may invest, without
limitation, in corporate bonds rated within the four highest rating grades
assigned by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Ratings Services ("S&P"), or comparably rated by another nationally
recognized rating agency, may invest up to 30% of its total assets in lower
rated bonds commonly known as "junk bonds" and may also invest up to 10% of
its total assets in corporate bonds that are rated in one of the four
highest rating categories described above, and at the same time are rated
below such categories by another nationally recognized agency (or in the
alternative, any such bonds may be included with those subject to the 30%
limitation on lower rated bonds); however, the Fund will not invest in bonds
rated below Caa by Moody's or CCC by S&P, or comparably rated by another
nationally recognized rating agency. Securities in the Caa/CCC rating
categories are considered to be of poor standing and are predominantly
speculative. Lower ratings may reflect a greater possibility that the
financial condition of the issuer, or adverse changes in general economic
conditions, or both, may impair the ability of the issuer to make payments
of interest and principal. Additionally, investments in securities rated Caa
or CCC involve significant risk exposure to adverse conditions. Such
securities may be in default, or there may be present elements of danger
with respect to the payment of principal or interest. For a description of
ratings assigned by both Moody's and S&P, see Statement of Additional
Information.
(b) BANK OBLIGATIONS. Asset Allocation Portfolio may invest in: (i)
obligations (including certificates of deposit and bankers acceptances) of
United States banks, savings and loan associations, and savings banks, which
institutions have total assets (as of the date of their most recent annual
financial statements at the time of investment) of not less than $1 billion;
(ii) U.S. dollar denominated obligations of Canadian chartered banks, London
branches of United States banks, and United States branches or agencies of
foreign banks which meet the asset size referred to in (i) above; and (iii)
obligations of the institutions referred to in (i) above which have total
assets of less than $1 billion, provided that the amount of the obligations
purchased does not exceed $100,000 for any one such institution,
15
<PAGE>
and the payment of the principal is insured by the Federal Deposit Insurance
Corporation or the Federal Savings and Loan Insurance Corporation.
(c) COMMERCIAL PAPER. Asset Allocation Portfolio may invest, without
limitation, in commercial paper issued by United States corporations or
affiliated foreign corporations and rated (or guaranteed by a company whose
commercial paper is rated) at the date of investment Prime-2 or higher by
Moody's or A-2 or higher by S&P, or comparably rated by another nationally
recognized rating agency, or, if not rated, issued by a corporation having
an outstanding debt issue rated A or better by Moody's or S&P, or comparably
rated by another nationally recognized rating agency, and, if issued by an
affiliated foreign corporation, such commercial paper (not to exceed in the
aggregate 20% of the Fund's net assets) is U.S. dollar denominated and not
subject at the time of purchase to foreign tax withholding.
RISKS OF TRANSACTIONS IN HIGH-YIELDING, HIGH-RISK SECURITIES. Participation in
high-yielding securities transactions generally involves greater returns in the
form of higher average yields. However, participation in such transactions
involves greater risks, often related to sensitivity to interest rates, economic
changes, solvency, and relative liquidity in the secondary trading market.
Yields on high yield securities will fluctuate over time. The prices of
high-yielding securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to adverse economic
changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest rates
highly leveraged issuers may experience financial stress which would adversely
affect their ability to serve their principal and interest payment obligations,
to meet projected business goals, and to obtain additional financing. If the
issuer of a security held by Asset Allocation Portfolio defaulted, Asset
Allocation Portfolio may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high-yielding securities and the
Fund's assets. Furthermore, in the case of high-yielding securities structured
as zero coupon or debentures the interest on which may be paid in other
securities rather than cash ("PIKs"), their market prices are affected to a
greater extent by interest rate changes and thereby tend to be more volatile
than securities which pay interest periodically and in cash.
High-yielding securities present risks based on payment expectations. For
example, high-yielding securities may contain redemption or call provisions. If
an issuer exercises these provisions in a declining interest rate market, Asset
Allocation Portfolio would have to replace the security with a lower-yielding
security, resulting in a decreased return for investors. Conversely, a
high-yielding security's value will decrease in a rising interest rate market,
as will the value of such Fund's assets. If Asset Allocation Portfolio
experiences unexpected net redemptions, this may force it to sell its
high-yielding securities, without regard to their investment merits, thereby
decreasing the asset base upon which such Fund's expenses can be spread and
possibly reducing the rate of return.
To the extent that there is no established secondary market, there may be thin
trading of high-yielding securities. This may adversely affect the ability of
Fortis Advantage's Board of Directors to accurately value high-yielding
securities and Asset Allocation Portfolio's assets and the Fund's ability to
dispose of the securities. Securities valuation becomes more difficult and
judgment plays a greater role in valuation because there is less reliable,
objective data available. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of
high-yielding securities, especially in a thinly traded market. Illiquid or
restricted high-yielding securities purchased by Asset Allocation Portfolio may
involve special registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties.
Certain risks are associated with applying credit ratings as a method of
evaluating high-yielding securities. For example, credit ratings evaluate the
safety of principal and interest payments, not market value risk of
high-yielding securities. Since credit rating agencies may fail to timely change
the credit ratings to reflect subsequent events, Advisers continuously monitors
the issuers of high-yielding securities held by Asset Allocation Portfolio to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments, and to assure the securities'
liquidity so Asset Allocation Portfolio can meet redemption requests. The
achievement of the investment objective of Asset Allocation Portfolio may be
more dependent upon Advisers' own credit analysis than is the case for higher
quality bonds. Also, Asset Allocation Portfolio may retain a portfolio security
whose rating has been changed if the security otherwise meets the Fund's
investment objective and investment criteria.
As noted above, the Asset Allocation Portfolio may invest up to 30% of its total
assets in lower rated bonds. The Asset Allocation Portfolio may retain a
portfolio security whose rating has been changed if the security otherwise meets
the Fund's investment objective and investment criteria. Lower rated bonds in
which the Asset Allocation Portfolio may invest include high yield securities.
For the fiscal year ended
16
<PAGE>
August 31, 1997, the weighted average percentage of Asset Allocation Portfolio's
long-term bond investments represented by certain securities is set forth in the
following table:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
STANDARD & POOR'S RATING LONG-TERM BOND
(OR EQUIVALENT) INVESTMENTS
- -------------------------- ------------------
<S> <C>
AAA........................................... 55.8%
AA............................................ 7.2%
A............................................. 6.6%
BBB........................................... 17.7%
BB............................................ 3.3%
B............................................. 7.8%
CCC........................................... .2%
Below CCC..................................... 0%
All unrated bonds as a group.................. 1.4%
-----
100.0%
</TABLE>
VALUE FUND
The Value Fund's investment objective is short and long term capital
appreciation. Current income is only a secondary objective. The Fund invests
primarily in equity securities and selects stocks based on the "value"
philosophy. Under normal market conditions, it is the intention of this Fund to
maintain a median market capitalization of over $1 billion, making it a "mid to
large cap value fund." On September 30, 1997, the Fund's median market
capitalization was $14.6 billion.
GROWTH & INCOME FUND
The Growth & Income Fund's investment objectives are capital appreciation and
current income. Under normal market conditions, it is the intention of the Fund
to maintain a median market capitalization of over $5 billion, making it a
"large cap fund." On September 30, 1997, the Fund's median market capitalization
was $8.2 billion.
Growth & Income Fund will pursue its investment objectives by investing in a
broadly diversified portfolio of primarily equity securities, with an emphasis
on securities of companies that have a history of dividend payments. Companies
will be selected on the basis of both historical and potential long-term growth
and continued dividend payments.
CAPITAL FUND
The Capital Fund's investment objective is short and long term capital
appreciation. Current income is only a secondary objective. The Fund uses a
"growth" philosophy and invests primarily in equity securities. Under normal
market conditions, it is the intention of this Fund to maintain a median market
capitalization for its portfolio of greater than $5 billion, making it a "large
cap growth fund." On September 30, 1997, the Fund's median market capitalization
was $6.5 billion.
FIDUCIARY FUND
The Fiduciary Fund's investment objective is short and long term capital
appreciation. Current income is only a secondary objective. The Fund uses a
"growth" philosophy and invests primarily in equity securities. Under normal
market conditions, it is the intention of this Fund to maintain a median market
capitalization for its portfolio of over $1 billion, making it a "mid to large
cap growth fund." On September 30, 1997, the Fund's median market capitalization
was $6.6 billion.
GROWTH FUND
The Growth Fund's investment objective is short and long term capital
appreciation. Current income is only a secondary objective. The Fund uses a
"growth" philosophy and invests primarily in equity securities. Under normal
market conditions, it is the intention of this Fund to maintain a median market
capitalization for its portfolio of from $1 billion to $5 billion, making it a
"mid cap growth fund." On September 30, 1997, the Fund's median market
capitalization was $5.6 billion.
CAPITAL APPRECIATION PORTFOLIO
The Capital Appreciation Portfolio's investment objective is maximum long term
capital appreciation. Dividend and interest income from investments, if any, is
incidental. The Fund uses a "growth" philosophy and invests primarily in equity
securities. Under normal market conditions, it is the intention of this Fund to
maintain a median market capitalization for its portfolio of less than $1
billion, making it a "small cap growth fund." On September 30, 1997, the Fund's
median market capitalization was $1.4 billion.
Capital Appreciation Portfolio's policy is to invest, under normal
circumstances, at least 65% of its total assets (exclusive of collateral in
connection with securities lending) in: (a) common stocks of small and
medium-sized companies that are early in their life cycles, but which have the
potential to become major enterprises ("emerging growth companies"); and (b)
equity securities of some more established companies whose rates of earnings
growth are expected to accelerate because of special factors such as new
products or services, changes in demand factors, basic changes in the economic
environment, or rejuvenated management. Emerging growth companies generally have
annual gross revenues ranging from $50 million to $300 million, would be
expected to show earnings growth over time that is well above the growth rate of
the overall economy and the rate of inflation, and would have products,
management, and market opportunities which are usually necessary to become more
widely recognized as growth companies.
While Capital Appreciation Portfolio will invest primarily in common stocks, the
Fund may, to a limited extent, seek appreciation in other types of securities
such as foreign or convertible securities and warrants when relative values make
such purchases appear attractive either as individual issues or as types of
securities in certain economic environments. The Fund may also write covered
call and secured put options and purchase call and put options on securities
17
<PAGE>
and stock indexes in an effort to increase total return and for hedging
purposes, and may purchase and sell stock index futures contracts and options
thereon for hedging purposes.
The nature of investing in emerging growth companies involves greater risk than
is customarily associated with investments in more established companies.
Emerging growth companies often have limited product lines, markets, or
financial resources, and they may be dependent on one-person management. The
securities of emerging growth companies may have limited market stability and
may be subject to more abrupt or erratic market movements than securities of
larger, more established growth companies or the market averages in general.
Shares of Capital Appreciation Portfolio, therefore, are subject to greater
fluctuation in value than shares of a conservative equity fund or of a growth
fund which invests entirely in more established growth stocks.
OTHER INVESTMENT PRACTICES OF THE FUNDS
ILLIQUID SECURITIES. Policies which could be changed without shareholder
approval prohibit each Fund, (except Growth Fund), from investing more than 15%
of its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Securities that have been determined to be liquid by the applicable Board of
Directors, or by Advisers subject to the oversight of such Board of Directors,
will not be subject to this limitation. Commercial paper issued pursuant to the
private placement exemption of Section 4(2) of the 1933 Act and securities that
are eligible for resale under Rule 144A under the 1933 Act that have legal or
contractual restrictions on resale but have a readily available market are not
deemed illiquid securities for this purpose.
With respect to Growth Fund, a policy which may not be changed without
shareholder approval is that the Fund may invest up to 5% of its assets (at the
time of investment) in each of the following: (a) securities which it might not
be free to sell to the public without registration of such securities under the
Securities Act of 1933; and (b) in bonds, debentures or other debt securities
which are not publicly distributed.
MORTGAGE-RELATED SECURITIES. Asset Allocation Portfolio and Growth & Income Fund
may invest in certain types of mortgage-related
securities. Mortgage-related securities are securities that, directly or
indirectly, represent a participation in (or are secured by and payable from)
mortgage loans on real property. Mortgage-related securities may represent the
right to receive both principal and interest payments on underlying mortgages or
may represent the right to receive varying proportions of such payments. One
type of mortgage-related security includes certificates which represent pools of
mortgage loans assembled for sale to investors by various governmental and
private organizations. Another type of mortgage-related security includes debt
securities which are secured, directly or indirectly, by mortgages on commercial
or residential real estate. Such Funds may invest to a limited extent in
collateralized mortgage obligations.
Investments in mortgage-related securities involve certain risks. In periods of
declining interest rates, prices of fixed income securities tend to rise.
However, during such periods, the rate of prepayment of mortgages underlying
mortgage-related securities tends to increase, with the result that such
prepayments must be reinvested at lower rates. In addition, the value of such
securities may fluctuate in response to the market's perception of the
creditworthiness of the issuers of mortgage-related securities owned by the
Funds. The ability of the issuer of mortgage-related securities to reinvest
favorably in underlying mortgages may be limited by prevailing economic
conditions or by government regulation. Additionally, although mortgages and
mortgage-related securities are generally supported by some form of government
or private guarantee and/or insurance, there is no assurance that private
guarantors or insurers will be able to meet their obligations.
TRANSACTIONS IN OPTIONS, FUTURES, AND FORWARD CONTRACTS. Each Fund, except
Growth Fund, may, to a limited extent, enter into options, futures, and forward
contracts on a variety of investments and indexes, in order to protect against
declines in the value of portfolio securities or increases in the cost of
securities to be acquired ("hedging") and, in the case of options on securities
or indexes of securities, to increase a Fund's gross income.
REPURCHASE AGREEMENTS. Each Fund may invest in repurchase agreements.
BORROWINGS. Each Fund, except Growth Fund, may borrow money from banks as a
temporary measure to facilitate redemptions.
FOREIGN SECURITIES. Each Fund, except Asset Allocation Portfolio, may invest up
to 10%, and Asset Allocation Portfolio may invest up to 20%, of its total assets
(at the time of investment) in foreign securities.
Investors should recognize that investing in foreign companies involves certain
considerations, including those discussed below, which are not typically
associated with investing in the United States issuers. Since the indicated
Funds may invest in securities denominated in currencies other than U.S.
dollars, and since they may temporarily hold funds in bank deposits or other
money market investments denominated in foreign currencies, they may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. A change in the value of a
foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of the indicated Fund's assets denominated in that
foreign currency. Changes in
18
<PAGE>
foreign currency exchange rates may also affect the value of dividends and
interest earned, gains and losses realized in the sale of securities, and net
investment income and gains, if any, to be distributed to shareholders by the
indicated Funds. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balances of
payments and other economic and financial conditions, government intervention,
speculation, and other factors.
Foreign securities held by the Funds may not be registered with, nor the issuers
thereof be subject to, reporting requirements of the U.S. Securities and
Exchange Commission. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Foreign companies are generally not subject to uniform financial reporting
standards, practices, and requirements comparable to those applicable to
domestic companies. In addition, with respect to some foreign countries, there
is the possibility of expropriation or confiscatory taxation, limitations of the
removal of funds or other assets of the Funds, political or social instability,
or domestic developments which could affect United States investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the United States economy in such respects as growth of Gross
National Product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payment positions.
Securities of some foreign companies are less liquid and their prices are more
volatile than securities of comparable domestic companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. Due to the increased exposure to the
Funds of market and foreign exchange fluctuations brought about by such delays,
and due to the corresponding negative impact on liquidity, the Funds will avoid
investing in countries which are known to experience settlement delays which may
expose the Funds to unreasonable risk of loss.
The Funds will calculate their net asset values to complete orders to purchase,
exchange, or redeem shares only on a Monday through Friday basis (excluding
holidays on which the New York Stock Exchange is closed). A material portion of
the Fund's investment securities may be listed on foreign stock exchanges which
may trade on other days (such as a Saturday). As a result, the Fund's net asset
values may be materially affected by such trading on days when a shareholder has
no access to the Funds.
VARIABLE AMOUNT MASTER DEMAND NOTES. Each Fund may invest in variable amount
master demand notes.
DELAYED DELIVERY TRANSACTIONS. Each of the Funds, except Growth Fund, may
purchase securities on a "when issued" or delayed delivery basis and purchase or
sell securities on a "forward commitment" basis.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, each Fund, except Growth Fund, may lend its portfolio securities
(principally to broker-dealers) where such loans are callable at any time and
are continuously secured by collateral equal to no less than the market value,
determined daily, of the securities loaned. Such Funds will receive amounts
equal to dividends or interest on the securities loaned. The Funds will also
earn income for having made the loan. Any cash collateral pursuant to these
loans will be invested in short-term money market instruments. Management will
limit such lending to not more than 33 1/3% percent of the value of each Fund's
total assets. (For purposes of lending of portfolio securities "Total assets" of
a Fund includes the amount lent as well as the collateral securing such loans.)
Where voting or consent rights with respect to loaned securities pass to the
borrower, management will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such voting or consent
rights if the issues involved have a material effect on the Fund's investment in
the securities loaned. Apart from lending its securities, investing in
repurchase agreements, and acquiring debt securities, as described in the
Prospectus and Statement of Additional Information, the Funds will not make
loans to other persons.
INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE INVESTMENT TRUSTS. Each
Fund, except Growth Fund, may invest in equity or debt real estate investment
trusts ("REITs"), real estate development and real estate operating companies,
and other real estate related businesses. Such Funds intend to invest the REIT
portion of its portfolio primarily in equity REITs, which are trusts that sell
shares to investors and use the proceeds to invest in real estate or interest in
real estate. A REIT may focus on particular projects, such as apartment
complexes or shopping centers, or geographic regions, such as the Southeastern
United States, or both. Debt REITs invest in obligations secured by mortgages on
real property or interests in real property. The Funds' investments in REITs may
be subject to certain of the same risks associated with the direct ownership of
real estate. These risks include: declines in the value of real estate; risks
related to general and local economic conditions, overbuilding and competition;
increases in property taxes and operating expenses; and variations in rental
income. In addition, REITs may not be diversified. REITs are subject to the
possibility of failing to qualify for tax-free pass-through of income under the
Internal Revenue Code and failing to maintain exemption from the 1940 Act. Also,
equity REITs may be dependent upon management skill and may be subject to the
risks of obtaining adequate financing for projects on favorable terms. With the
exception of Growth & Income Fund, the Funds will limit their investment in
REITs to 10% of their total assets and to publicly distributed REITs.
19
<PAGE>
SHORT SALES AGAINST THE BOX. Each Fund, except Growth Fund, may sell a security
short to the extent the Fund contemporaneously owns or has the right to obtain
equivalent securities. Such a short sale is referred to as a short sale "against
the box."
SHORT-TERM MONEY MARKET INSTRUMENTS. Each Fund may at any time invest funds
awaiting investment or held as reserves for the purposes of satisfying
redemption requests, payment of dividends making other distributions to
shareholders, or for defensive purposes, in cash and short-term money market
instruments. Short-term money market instruments in which the Funds may invest
include (i) short-term U.S. government securities and short-term obligations of
foreign sovereign governments and their agencies and instrumentalities, (ii)
interest bearing savings deposits on, and certificates of deposit and bankers'
acceptances of, United States and foreign banks, (iii) commercial paper of U.S.
or foreign issuers rated A-1 or higher by S&P or Prime-1 by Moody's or
comparably rated by another nationally recognized rating agency, or, if not
rated, determined by Advisers to be of comparable quality and (iv) repurchase
agreements relating to the foregoing.
U.S. GOVERNMENT SECURITIES. Each Fund may invest in U.S. government securities,
which include: (i) the following U.S. Treasury obligations: U.S. Treasury bills
(initial maturities of one year or less), U.S. Treasury notes (initial
maturities of one to 10 years), and U.S. Treasury bonds (generally initial
maturities of greater than 10 years), all of which are backed by the full faith
and credit of the United States; and (ii) obligations issued or guaranteed by
U.S. government agencies or instrumentalities, including government guaranteed
mortgage-related securities, some of which are backed by the full faith and
credit of the U.S. Treasury, e.g., direct pass-through certificates of the
Government National Mortgage Association; some of which are supported by the
right of the issuer to borrow from the U.S. government, e.g., obligations of
Federal Home Loan Banks; and some of which are backed only by the credit of the
issuer itself, e.g., obligations of the Student Loan Marketing Association. U.S.
government securities are backed by the full faith and credit of the U.S.
government or guaranteed by the issuing agency or instrumentality and,
therefore, there is generally considered to be no risk as to the issuer's
capacity to pay interest and repay principal. Nevertheless, due to fluctuations
in interest rates, there is no guarantee as to the market value of U.S.
government securities.
SHORT-TERM TRADING. Consistent with its investment objectives, each of the Funds
intends to purchase securities primarily for investment, but also may seek
short-term capital appreciation. They reserve freedom of action, however, to
sell portfolio securities whenever management believes more favorable investment
opportunities are available, regardless of any additional brokerage costs which
may be incurred, and regardless of any income tax consequences.
For additional information on the investment techniques used in managing the
Funds, and the risks associated with those techniques, see the Statement of
Additional Information.
MANAGEMENT
BOARD OF DIRECTORS
Under Minnesota law, the Board of Directors of each Fund (the "Board of
Directors") has overall responsibility for managing it in good faith, in a
manner reasonably believed to be in the best interests of such Fund, and with
the care an ordinarily prudent person would exercise in similar circumstances.
However, this management may be delegated.
The Articles of Incorporation of each Fund limit the liability of directors to
the fullest extent permitted by law.
THE INVESTMENT ADVISER/TRANSFER AGENT/
DIVIDEND AGENT
Fortis Advisers, Inc. ("Advisers") is the investment adviser, transfer agent,
and dividend agent for the Funds. Advisers has been managing investment company
portfolios since 1949, and is indirectly owned 50% by Fortis AMEV and 50% by
Fortis AG, diversified financial services companies. In addition to providing
investment advice, Advisers is responsible for management of each Fund's
business affairs, subject to the overall authority of the applicable Board of
Directors. Advisers' address is that of the Fund. Under an Investment Advisory
and Management Agreement with each Fund, Advisers receives a fee from each Fund
calculated at annual rate of 1% of average daily net assets up to $100 million.
These fees are higher than fees paid by most other investment companies. These
fees are scaled downward as net assets increase to as low as .70% on net assets
over $250 million.
PORTFOLIO MANAGEMENT
The equity portion of the Asset Allocation Portfolio has been managed by Charles
L. Mehlhouse since May 1996. Prior to May 1996, Mr. Mehlhouse was a Portfolio
Manager at Marshall & Ilsley Bank Corporation in Milwaukee, Wisconsin since
1993. The fixed income portion of this Portfolio is managed by Howard G. Hudson
(supervisory function), Charles J. Dudley (below investment grade securities),
Maroun M. Hayek (corporate bonds), Robert C. Lindberg (municipal securities),
Christopher J. Pagano (mortgage backed securities) and Christopher J. Woods
(treasury securities). Prior to 1995, Mr. Hudson was managing debt securities
for Fortis. Mr. Dudley was a Senior Vice President and Senior Portfolio Manager
for SunAmerica Asset Management in Los Angeles, California prior to 1995. Mr.
Hayek has been managing debt securities for Fortis since 1987. Mr. Lindberg has
been employed by Advisers since 1993. Mr. Pagano has been a Vice President of
Advisers since 1996, and prior to March 1996, he was a Government Strategist
with Merrill Lynch in New York. Mr. Woods has been managing debt securities for
Fortis since 1993. The Value Fund has been managed since its inception by
Nicholas L.M. de Peyster and Daniel Dubin. Mr. de Peyster has
20
<PAGE>
managed equity portfolios for Fortis since 1991. Mr. Dubin is a Second Vice
President of Advisers and has been involved in the management of equity
securities for Fortis since 1994, prior to which he was a trader for Rockrimmon
Securities. The Growth & Income, Capital and Fiduciary Funds have been managed
by Charles L. Mehlhouse since May 1996. The Growth Fund has been managed by
Stephen M. Poling since 1983. The Capital Appreciation Portfolio has been
managed by Keith R. Thomson since 1988.
THE UNDERWRITER AND DISTRIBUTION EXPENSES
Fortis Investors, Inc. ("Investors"), a subsidiary of Advisers, is each Fund's
underwriter. Investors' address is that of the Funds.
Pursuant to Plans of Distribution adopted by each Fund under Rule 12b-1 under
the 1940 Act, each Fund is obligated to pay Investors an annual fee. This fee is
a percentage of average daily net assets attributable to the various classes of
each Fund's shares as follows:
<TABLE>
<CAPTION>
CLASSES
CLASS A B, H, & C CLASS Z
------- --------- -------
<S> <C> <C> <C>
Asset Allocation Portfolio .45% 1.00% N/A
Value Fund .25% 1.00% N/A
Growth & Income Fund .25% 1.00% N/A
Capital Fund .25% 1.00% N/A
Fiduciary Fund .25% 1.00% N/A
Growth Fund .25% 1.00% 0.00%
Capital Appreciation Portfolio .45% 1.00% N/A
</TABLE>
For Asset Allocation Portfolio and Capital Appreciation Portfolio, the standard
payout to broker-dealers not affiliated with Investors for selling each Fund's
shares is equal to an annual rate of .25 of 1% of the net asset value of the
shares sold (the "Base Fee"). However, should any of such broker-dealers have
sold currently outstanding shares of a Fund that, coupled with the shares of the
same Fund currently being sold and computed at the time of each individual sale,
have an aggregate net asset value of greater than $1,000,000 (this $1,000,000 to
be calculated separately for each Fund), then with respect to such Fund, the
broker-dealer would be entitled to an additional fee of .20 of 1% of the net
asset value of Fund shares sold (the "Service Fee"). While all of Class A's Rule
12b-1 fee constitutes a "distribution fee", only 75% of Class B, H, and C's fees
constitute distribution fees.
The higher distribution fee attributable to Class B, H, and C shares is designed
to permit an investor to purchase such shares through registered representatives
of Investors and other broker-dealers without the assessment of an initial sales
charge and at the same time to permit Investors to compensate its registered
representatives and other broker-dealers in connection with the sale of such
shares. The distribution fee for all classes may be used by Investors for the
purpose of financing any activity which is primarily intended to result in the
sale of shares of the applicable Fund. For example, such distribution fee may be
used by Investors: (a) to compensate broker-dealers, including Investors and its
registered representatives, for their sale of Fund shares, including the
implementation of various incentive programs with respect to broker-dealers,
banks, and other financial institutions, and (b) to pay other advertising and
promotional expenses in connection with the distribution of Fund shares. These
advertising and promotional expenses include, by way of example but not by way
of limitation, costs of prospectuses for other than current shareholders;
preparation and distribution of sales literature; advertising of any type;
expenses of branch offices provided jointly by Investors and affiliated
insurance companies; and compensation paid to and expenses incurred by officers,
employees or representatives of Investors or of other broker-dealers, banks, or
other financial institutions, including travel, entertainment, and telephone
expenses.
A portion of the Rule 12b-1 fee equal to .25% of the average net assets of each
Fund attributable to its Class B, H, and C shares constitutes a shareholder
servicing fee designed to compensate Investors for the provision of certain
services to shareholders. The services provided may include personal services
provided to shareholders, such as answering shareholder inquiries regarding the
Funds and providing reports and other information, and services related to the
maintenance of shareholder accounts. Investors may use the Rule 12b-1 fee to
make payments to qualifying broker-dealers and financial institutions that
provide such services.
Investors may also enter into sales or servicing agreements with certain
institutions such as banks ("Service Organizations") which have purchased shares
of the Funds for the accounts of their clients, or which have made Fund shares
available for purchase by their clients, and/or which provide continuing service
to such clients. The Glass-Steagall Act and other applicable laws prohibit
certain banks from engaging in the business of underwriting securities. In such
circumstances, Investors, if so requested, will engage such banks as Service
Organizations only to perform administrative and shareholder servicing
functions, but at the same fees and other terms applicable to dealers. (If a
bank were later prohibited from acting as a Service Organization, its
shareholder clients would be permitted to remain Fund shareholders and
alternative means for continuing servicing of such shareholders would be
sought.) In such event changes in the operation of the Funds might occur and a
shareholder serviced by such bank might no longer be able to avail itself of any
automatic investment or other services then being provided by the Bank. (State
securities laws on this issue may differ from the interpretations of Federal law
expressed above and banks and other financial institutions may be required to
register as dealers pursuant to state law.)
BROKERAGE ALLOCATION
Advisers may consider sales of shares of the Fund, and of other funds advised by
Advisers, as a factor in the selection of broker-dealers to execute Fund
securities transactions when it is believed that this can be done without
causing the Fund to pay more in brokerage commissions than it would otherwise.
21
<PAGE>
VALUATION OF SECURITIES
Each Fund's net asset value per share is determined by dividing the value of the
securities owned by the Fund, plus any cash or other assets, less all
liabilities, by the number of the Fund's shares outstanding. The portfolio
securities in which the Funds invest fluctuate in value, and hence the net asset
value per share of each Fund also fluctuates. The net asset value of each Fund's
shares is determined as of the close of regular trading on the New York Stock
Exchange (the "Exchange") on each day on which the Exchange is open. If shares
are purchased through another broker-dealer who receives the order prior to the
close of the Exchange, then Investors will apply that day's price to the order
as long as the broker-dealer places the order with Investors by the end of the
day.
Securities are generally valued at market value. A security listed or traded on
the exchange is valued at its last sale price on the exchange where it is
principally traded on the day of valuation. Lacking any sales on the exchange
where it is principally traded on the day of valuation, prior to the time as of
which assets are valued, the security generally is valued at the previous day's
last sale price on that exchange. A security listed or traded on the NASDAQ
National Market System is valued at its last sale price that day, and lacking
any sales that day on the NASDAQ National Market System, the security generally
is valued at the last bid price.
An outside pricing service may be utlilized to provide valuations of debt
securities. The pricing service may employ electronic data processing techniques
and/or a matrix system to determine valuations using methods which include
consideration of yields or prices of bonds of comparable quality, type of issue,
coupon, maturity and rating; indications as to value from dealers; and general
market conditions. When market quotations are not readily available, or when
illiquid securities or other assets are being valued, such securities or other
assets are valued at fair value as determined in good faith by management under
supervision of the applicable Fund's Board of Directors. Short-term investments
in debt securities with maturities of less than 60 days when acquired, or which
subsequently are within 60 days of maturity, are valued at amortized cost.
Purchases and sales by a Fund after 2:00 P.M. Central Time normally are not
recorded until the following business day.
CAPITAL STOCK
Each Fund (except Growth Fund) currently offers its shares in four classes, each
with different sales arrangements and bearing differing expenses. Growth Fund
offers its shares in five classes. Class A, B, H, C, and Z shares each represent
interests in the assets of the applicable Fund and have identical voting,
dividend, liquidation, and other rights on the same terms and conditions except
that expenses related to the distribution of each class are borne solely by such
class and each class of shares has exclusive voting rights with respect to
provisions of the Fund's Rule 12b-1 distribution plan which pertain to that
particular class and other matters for which separate class voting is
appropriate under applicable law. The Funds may offer additional classes of
shares.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund, other than Asset Allocation Portfolio and Growth & Income Fund, pays
annual dividends from net investment income and makes distributions of any
realized capital gains annually. Asset Allocation Portfolio and Growth & Income
Fund pay quarterly dividends from net investment income and make distributions
of any realized capital gain annually. Distributions paid by the Funds with
respect to all classes of shares will be calculated in the same manner, at the
same time, on the same day, and will be in the same amount, except that the
higher Rule 12b-1 fees applicable to Class B, H, and C shares will be borne
exclusively by such shares. The per share dividends on Class B, H, and C shares
will be lower than those on Class A or Z shares as a result of the higher Rule
12b-1 fees applicable to Class B, H, and C shares.
Both dividends and capital gains distributions will be made in the form of
additional Fund shares of the same class (at net asset value) unless the
shareholder sends the applicable Fund a written request that either or both be
sent to the shareholder or reinvested (at net asset value) in shares of the same
class of another Fortis fund. If dividends and capital gains distributions are
automatically reinvested in a Fund, such reinvestment takes place on the
dividend record date. If they are to be reinvested in another fund, processing
normally takes up to three business days.
TAXATION
Each Fund will distribute substantially all of its net income and capital gains
to its shareholders. Distributions are taxable to shareholders, whether paid in
cash or reinvested. Dividends paid from the net income of a Fund must be treated
as ordinary income by its shareholders. Dividends paid from a Fund's net capital
gains are generally treated as long-term capital gains by shareholders,
regardless of the length of time for which they have held their shares in the
Fund. However, for individuals, estates and trusts, the Taxpayer Relief Act of
1997 has created new "mid-term capital gain" rates that apply to the sale of
capital assets held more than one year but not more than 18 months. Under
regulations announced by the Internal Revenue Service, each Fund will designate
the portion of its capital gain dividends that must be treated by shareholders
who are individuals, estates or trusts as mid-term capital gains and the portion
that must be treated by such shareholders as long-term capital gains.
A shareholder will recognize capital gain or loss upon the sale or exchange of
shares in a Fund if, as is normally the case, the shares
22
<PAGE>
are capital assets in the shareholder's hands. For corporate shareholders, the
capital gain or loss will be long-term if the shares have been held for more
than one year. For shareholders that are individuals, estates or trusts, the
gain or loss will be long-term if the shareholder has held the shares for more
than 18 months and mid-term if the shareholder has held the shares for more than
one year but not more than 18 months.
Information about the tax status of each year's dividends and distributions will
be mailed annually.
Prior to purchasing shares of a Fund, prospective shareholders (except for tax
qualified retirement plans) should consider the impact of dividends or capital
gains distributions which are expected to be announced, or have been announced
but not paid. Any such dividends or capital gains distributions paid shortly
after a purchase of shares by an investor prior to the record date will have the
effect of reducing the per share net asset value by the amount of the dividends
or distributions. All or a portion of such dividends or distributions, although
in effect a return of capital, is subject to taxation. As of August 31, 1997,
the following approximate percentages of the Funds' net assets represented
unrealized appreciation, undistributed net investment income, and accumulated
net realized gains or losses:
<TABLE>
<S> <C>
Asset Allocation Portfolio................................ 31.0%
Value Fund................................................ 16.5%
Growth and Income Fund.................................... 11.2%
Capital Fund.............................................. 53.5%
Fiduciary Fund............................................ 52.8%
Growth Fund............................................... 54.6%
Capital Appreciation Portfolio............................ 33.5%
</TABLE>
HOW TO BUY FUND SHARES
GENERAL PURCHASE INFORMATION
MINIMUM AND MAXIMUM INVESTMENTS
A minimum initial investment of $500 normally is required. An exception to this
minimum (except on telephone or wire orders) is the "Systematic Investment Plan"
($25 per month by "Pre-authorized Check Plan" or $50 per month on any other
basis). The minimum subsequent investment normally is $50, again subject to the
above exceptions.
While Class A and Z shares have no maximum order, Class B and H shares have a
$500,000 maximum and Class C shares have a $1,000,000 maximum. Orders greater
than these limits will be treated as orders for Class A shares.
INVESTING BY TELEPHONE
Your registered representative may make your purchase ($500 minimum) by
telephoning the number on the cover page of this Prospectus. In addition, your
check and the Account Application which accompanies this Prospectus must be
promptly forwarded, so that Investors receives your check within three business
days. Please make your check payable to Fortis Investors, Inc. and mail it with
your Application to "CM-9651, St. Paul, MN 55170-9651." If you have a bank
account authorization form on file, you may purchase $100 - $10,000 worth of
Fund shares via telephone through the automated Fortis Information Line.
INVESTING BY WIRE
A shareholder having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares ($500 minimum) by requesting their
banks to transmit immediately available funds (Federal Funds) by wire to:
U.S. Bank National Association
ABA #091000022, credit account no: 1-702-2514-1341
Fortis Funds Purchase Account
For further credit to __________________________________________________________
(name of client)
Fortis Account NBR _____________________________________________________________
Before making an initial investment by wire, your broker-dealer must first
telephone Investors at the number on the cover page of this Prospectus to open
your account and obtain your account number. In addition, the Account
Application which accompanies this Prospectus must be promptly forwarded to
Investors at the mailing address in the "Investing by Mail" section of this
Prospectus. Additional investments may be made at any time by having your bank
wire Federal Funds to the above address for credit to your account. Such
investments may be made by wire even if the initial investment was by mail.
INVESTING BY MAIL (ADDRESS: CM-9614, ST. PAUL, MN 55170-9614)
The Account Application which accompanies this Prospectus must be completed,
signed, and sent with a check or other negotiable bank draft, payable to "Fortis
Funds." Additional purchases may be made at any time by mailing a check or other
negotiable bank draft along with your confirmation stub. The account to which
the subsequent purchase is to be credited should be identified as to the name(s)
of the registered owner(s) and by account number.
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund offers investors the choice between multiple classes of shares which
offer differing sales charges and bear different expenses. These alternatives
permit an investor to choose the more beneficial method of purchasing shares
given the amount of the purchase, the length of time the investor expects to
hold the shares, and other circumstances. Page 3 of the Prospectus contains a
summary of these alternative purchase arrangements. A broker-dealer may receive
different levels of compensation depending on which class of shares is sold.
Investors may also provide additional cash compensation to dealers in connection
with selling shares of the Fortis Funds or for their own company-sponsored sales
programs. Additional compensation or assistance may be provided to dealers
23
<PAGE>
and includes payment or reimbursement for educational, training and sales
conferences or programs for their employees. In some cases, this compensation
may only be available to dealers whose representatives have sold or are expected
to sell significant amounts of shares. Investors will make these payments from
its own resources and none of the aforementioned additional compensation is paid
for by the applicable Fund or its shareholders.
CLASS A SHARES--INITIAL SALES CHARGE ALTERNATIVE
The public offering price of Class A shares is determined once daily, by adding
a sales charge to the net asset value per share of the shares next calculated
after receipt of the purchase order. The sales charges and broker-dealer
concessions, which vary with the size of the purchase, are shown in the
following table. Additional compensation (as a percentage of sales charge) will
be paid to a broker-dealer when its annual sales of Fortis funds having a sales
charge exceed $10,000,000 (2%), $25,000,000 (4%), and $50,000,000 (5%).
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS PERCENTAGE AS PERCENTAGE
OF THE OF THE NET
OFFERING AMOUNT BROKER- DEALER
AMOUNT OF SALE PRICE INVESTED CONCESSION
<S> <C> <C> <C>
Less than $100,000.................. 4.750% 4.987% 4.00%
$100,000 but less than $250,000..... 3.500% 3.627% 3.00%
$250,000 but less than $500,000..... 2.500% 2.564% 2.25%
$500,000 but less than $1,000,000... 2.000% 2.041% 1.75%
$1,000,000 or more*................. -0- -0- 1.00%
</TABLE>
- ------------------------
* Each Fund imposes a contingent deferred sales charge in connection with
certain purchases of Class A shares of $1,000,000 or more. See
"Redemption--Contingent Deferred Sales Charge."
The above scale applies to purchases of Class A shares by the following:
(1) Any individual, his or her spouse, and their children under the age of
21, and any of such persons' tax-qualified plans (provided there is only one
participant);
(2) A trustee or fiduciary of a single trust estate or single fiduciary
account; and
(3) Any organized group, provided that the purchase is made by means which
result in economy of sales effort or expense, whether the purchase is made
through a central administrator, through a single broker-dealer, or by other
means, and the group has a tax identification number. An organized group
does not include clients of an investment adviser.
SPECIAL PURCHASE PLANS FOR CLASS A SHARES
For information on any of the following special purchase or exchange plans
applicable to Class A shares, see the Statement of Additional Information or
contact your broker-dealer or sales representative. It is the purchaser's
obligation to notify his or her broker-dealer or sales representative about the
purchaser's eligibility for any of the following special purchase or exchange
plans.
- RIGHT OF ACCUMULATION The preceding table's sales charge discount
applies to the current purchase plus the net asset value of shares
already owned of any Fortis fund having a sales charge.
- STATEMENT OF INTENTION The preceding table's sales charge discount
applies to an initial purchase of at least $1,000, with an intention to
purchase the balance needed to qualify within 13 months--excluding
shares purchased by reinvesting dividends or capital gains.
- REINVESTED DIVIDEND/CAPITAL GAINS DISTRIBUTIONS BETWEEN THE FORTIS
FUNDS Shareholders of any fund may reinvest their dividend and/or
capital gains distributions in any of such Funds at net asset value.
- CONVERSION FROM CLASS B OR H SHARES Class B or H shares will
automatically be converted to Class A shares (at net asset value) after
eight years.
EXEMPTIONS FROM SALES CHARGE
- Fortis, Inc. or its subsidiaries, and the following persons associated
with such companies, if all account owners fit this description: (1)
officers and directors; (2) employees or sales representatives
(including agencies and their employees); (3) spouses of any such
persons; or (4) any of such persons' children, grandchildren, parents,
grandparents, or siblings--or spouses of any of these persons. (All
such persons may continue to add to their account even after their
company relationships have ended).
- Fund directors, officers, or their spouses (or such persons' children,
grandchildren, parents, or grandparents--or spouses of any such
persons), if all account owners fit this description.
- Representatives or employees (or their spouses) of Investors
(including agencies) or of other broker-dealers having a sales
agreement with Investors (or such persons' children, grandchildren,
parents, or grandparents--or spouses of any such persons), if all
account owners fit this description.
- Pension, profit-sharing, and other retirement plans of directors,
officers, employees, representatives, and other relatives and
affiliates (as set forth in the preceding three paragraphs) of the
Fund, Fortis, Inc., and
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<PAGE>
broker-dealers (and certain affiliated companies) having a sales
agreement with Investors and purchases with the proceeds from such
plans upon the retirement or employment termination of such persons.
- (Fiduciary Fund only) Shareholders having an open Fiduciary Fund
account before May 1, 1986, when its sales charge was implemented.
- Registered investment companies.
- Shareholders of unrelated mutual funds with front-end and/or deferred
sales loads, to the extent that the purchase price of such Fund shares
is funded by the proceeds from the redemption of shares of any such
unrelated mutual fund (within 60 days of the purchase of Fund shares),
provided that the shareholder's application so specifies and is
accompanied either by the redemption check of such unrelated mutual
fund (or a copy of the check) or a copy of the confirmation statement
showing the redemption. Similarly, anyone who is or has been the owner
of a fixed annuity contract not deemed a security under the securities
laws who wishes to surrender such contract and invest the proceeds in
a Fund, to the extent that the purchase price of such Fund shares is
funded by the proceeds from the surrender of the contract (within 60
days of the purchase of Fund shares), provided that such owner's
application so specifies and is accompanied either by the insurance
company's check (or a copy of the check) or a copy of the insurance
company surrender form. From time to time, Investors may pay
commissions to broker-dealers and registered representatives on
transfers from mutual funds or annuities as described above.
- Purchases by employees (including their spouses and dependent
children) of banks and other financial institutions that provide
referral and administrative services related to order placement and
payment to facilitate transactions in shares of the Fund for their
clients pursuant to a sales or servicing agreement with Investors;
provided, however, that only those employees of such banks and other
firms who as a part of their usual duties provide such services
related to such transactions in Fund shares shall qualify.
- Commercial banks offering self directed 401(k) programs containing
both pooled and individual investment options may purchase Fund shares
for such programs at a reduced sales charge of 2.5% on sales of less
than $500,000. For sales of $500,000 or more, normal sales charges
apply.
- Registered investment advisers, trust companies, and bank trust
departments exercising discretionary investment authority or using a
money management/mutual fund "wrap" program with respect to the money
to be invested in a Fund, provided that the investment adviser, trust
company or trust department provides Advisers with evidence of such
authority or the existence of such a wrap program with respect to the
money invested.
- Purchasers of Medical Savings Accounts ("MSAs") from Time Insurance
Company who maintain certain minimum balances in their MSA may invest
a portion of such account balances in Asset Allocation Portfolio,
Value Fund, Growth & Income Fund and Capital Fund.
RULE 12b-1 FEES
Class A shares are subject to a Rule 12b-1 fee payable at an annual percentage
of the average daily net assets of the respective Fund attributable to such
shares. For additional information, see "Management--The Underwriter and
Distribution Expenses."
DEFERRED SALES CHARGES
Although there is no initial sales charge on purchases of Class A shares of
$1,000,000 or more, Investors pays broker-dealers out of its own assets, a fee
of up to 1% of the offering price of such shares. If these shares are redeemed
within two years, the redemption proceeds will be reduced by 1%. For additional
information, see "Redemption-- Contingent Deferred Sales Charge."
CLASS B AND H SHARES--CONTINGENT DEFERRED SALES CHARGE ALTERNATIVES
The public offering price of Class B and H shares is the net asset value of each
Fund's shares. Such shares are sold without an initial sales charge so that a
Fund receives the full amount of the investor's purchase. However, a contingent
deferred sales charge ("CDSC") of 4% will be imposed if shares are redeemed
within two years of purchase, with lower CDSCs as follows if redemptions occur
later:
3 years -- 3%
4 years -- 3%
5 years -- 2%
6 years -- 1%
For additional information, see "Redemption--Contingent Deferred Sales Charge."
In addition, Class B and H shares are subject to higher annual Rule 12b-1 fees
as described below.
Proceeds from the CDSC are paid to Investors and are used to defray its expenses
related to providing distribution-related services to the applicable Fund in
connection with the sale of Class B and H shares, such as the payment of
compensation to selected broker-dealers, and
25
<PAGE>
for selling such shares. The combination of the CDSC and the Rule 12b-1 fee
enables the Fund to sell such shares without deduction of a sales charge at the
time of purchase. Although such shares are sold without an initial sales charge,
Investors pays a dealer concession equal to: (1) 4.00% of the amount invested to
broker-dealers who sell Class B shares at the time the shares are sold and an
annual fee of .25% of the average daily net assets of the respective Fund
attributable to such shares; or (2) 5.25% of the amount invested to
broker-dealers who sell Class H shares at the time the shares are sold (with no
annual fee). Under alternative (2), from time to time the dealer concession paid
to broker-dealers who sell Class H shares may be increased up to 5.50%.
RULE 12b-1 FEES
For each Fund, Class B and H shares are subject to a Rule 12b-1 fee payable at
an annual rate of 1.00% of the average daily net assets of the respective Fund
attributable to such shares. The higher Rule 12b-1 fee will cause Class B and H
shares to have a higher expense ratio and to pay lower dividends than Class A
shares (and Class Z shares of Growth Fund). For additional information about
this fee, see "Management--The Underwriter and Distribution Expenses."
CONVERSION TO CLASS A SHARES
Class B and H shares (except for those purchased by reinvestment of dividends
and other distributions) will automatically convert to Class A shares after
eight years. Each time any such shares in the shareholder's account convert to
Class A, a proportionate amount of the Class B and H shares purchased through
the reinvestment of dividends and other distributions paid on such shares will
also convert to Class A.
CLASS C SHARES--LEVEL SALES CHARGE ALTERNATIVE
The public offering price of Class C shares is the net asset value of such
shares. Class C shares are sold without an initial sales charge so that the
applicable Fund receives the full amount of the investor's purchase. However, a
CDSC of 1% will be imposed if shares are redeemed within one year of purchase.
For additional information, see "Redemption--Contingent Deferred Sales Charge."
In addition, Class C shares are subject to higher annual Rule 12b-1 fees as
described below.
Proceeds from the CDSC are paid to Investors and are used to defray its expenses
related to providing distribution-related services to the applicable Fund in
connection with the sale of Class C shares, such as the payment of compensation
to selected broker-dealers, and for selling Class C shares. The combination of
the CDSC and the Rule 12b-1 fee enables the Fund to sell the Class C shares
without deduction of a sales charge at the time of purchase. Although Class C
shares are sold without an initial sales charge, Investors pays a dealer
concession equal to 1.00% of the amount invested to broker-dealers who sell
Class C shares at the time the shares are sold and an annual fee of 1.00% of the
amount invested that begins to accrue one year after the shares are sold.
RULE 12b-1 FEES
Class C shares are subject to a Rule 12b-1 fee payable at an annual rate of
1.00% of the average daily net assets of the respective Fund attributable to
such shares. The higher Rule 12b-1 fee will cause Class C shares to have a
higher expense ratio and to pay lower dividends than Class A shares (and Class Z
shares of Growth Fund). For additional information about this fee, see
"Management--The Underwriter and Distribution Expenses."
CLASS Z SHARES (GROWTH FUND ONLY)
(See "Class Shares--Class Z Shares")
SPECIAL PURCHASE PLANS FOR ALL CLASSES
- TAX SHELTERED RETIREMENT PLANS Individual Retirement Accounts
("IRAs"), Keogh, Pension, Profit Sharing, and 403(b) accounts are
available.
- GIFTS OR TRANSFERS TO MINOR CHILDREN Adults can make an irrevocable
gift or transfer of up to $10,000 annually per child ($20,000 for
married couples) to as many children as they choose without having to
file a Federal gift tax return.
- SYSTEMATIC INVESTMENT PLAN Voluntary $25 or more per month purchases
by automatic financial institution transfers (see Systematic Investment
Plan Authorization Agreement in this Prospectus) or $50 or more per
month by any other means enable an investor to lower his or her average
cost per share through the principle of "dollar cost averaging."
- EXCHANGE PRIVILEGE Except for participants in the Fortis, Inc. 401(k)
Plan, Fund shares may be exchanged among other funds of the same class
managed by Advisers without payment of an exchange fee or additional
sales charge. Similarly, shareholders of other Fortis funds may
exchange shares for Fund shares of the same class (at net asset value
if the shares to be exchanged have already been subject to a sales
charge). Also, holders of Class E shares of Fortis Tax-Free Portfolios,
Inc. and Fortis Income Portfolios, Inc. (which also have a front-end
sales charge) may exchange their shares for Class A Fund shares and
holders of Fortis Money Fund Class A shares may exchange their shares
for any class of Fund shares (at net asset value and only into Class A
if the
26
<PAGE>
shares have already incurred a sales charge). A shareholder initiates
an exchange by writing to or telephoning his or her broker-dealer,
sales representative, or the applicable Fund regarding the shares to be
exchanged. Telephone exchanges will be permitted only if the
shareholder completes and returns the Telephone Exchange section of the
Account Application. During times of chaotic economic or market
circumstances, a shareholder may have difficulty reaching his or her
broker-dealer, sales representative, or the Fund by telephone.
Consequently, a telephone exchange may be difficult to implement at
those times. See "Redemption." An exchange of shares of one Fund for
those of another Fund pursuant to the exchange privilege is considered
to be a sale for federal income tax purposes, and may result in a
taxable capital gain or loss.
Purchases and exchanges should be made for investment purposes only. The Funds,
Advisers and Investors each reserves the right to reject any specific purchase
order or to restrict purchases by a particular purchaser (or group of
purchasers) at any time. For instance, if a Fund, Advisers or Investors believes
a certain purchase may be contrary to the best interest of the Fund's
shareholders or would otherwise disrupt the management of the Fund, the Fund,
Advisors or Investors may reject such purchase. The Funds, Advisers and
Investors also reserve the right to restrict, terminate or impose charges upon
exchange and/or telephone transfer privileges, with 30 days notice to the
shareholder.
REDEMPTION
Registered holders of each Fund's shares may redeem their shares without any
charge (except any applicable CDSC) at the per share net asset value next
determined following receipt by the Fund of a written redemption request in
proper form (and a properly endorsed stock certificate if one has been issued).
However, if shares are redeemed through another broker-dealer who receives the
order prior to the close of the Exchange, then Investors will apply that day's
price to the order as long as the broker-dealer places the order with Investors
by the end of the day. Some broker-dealers may charge a fee to process
redemptions.
Any certificates should be sent to the Fund by certified mail. Share
certificates and/or stock powers, if any, tendered in redemption must be
endorsed and executed exactly as the Fund shares are registered. If the
redemption proceeds are to be paid to the registered holder and sent to the
address of record, normally no signature guarantee is required unless Advisers
does not have the shareholder's signature on file and the redemption proceeds
are greater than $25,000. However, for example, if the redemption proceeds are
to be paid to someone other than the registered holder, sent to a different
address, or the shares are to be transferred, the owner's signature must be
guaranteed by a bank, broker (including government or municipal), dealer
(including government or municipal), credit union, national securities exchange,
registered securities association, clearing agency, or savings association.
Class A shares may be registered in broker-dealer "street name accounts" only if
the broker-dealer has a selling agreement with Investors. In such cases,
instructions from the broker-dealer are required to redeem shares or transfer
ownership and transfer to another broker-dealer requires the new broker-dealer
to also have a selling agreement with Investors. If the proposed new
broker-dealer does not have a selling agreement with Investors, the shareholder
can, of course, leave the shares under the original street name account or have
the broker-dealer transfer ownership to the shareholder's name.
Broker-dealers having a sales agreement with Investors may orally place a
redemption order, but proceeds will not be released until the appropriate
written materials are received.
An individual shareholder (or in the case of multiple owners, any shareholder)
may orally redeem up to $25,000, provided that the account is not a
tax-qualified plan, and the check will be sent to the address of record if such
address has not changed in the last 30 days. During times of chaotic economic or
market circumstances, a shareholder may have difficulty reaching his or her
broker-dealer, sales representative, or the Funds by telephone. Consequently, a
telephone redemption may be difficult to implement at those times. If a
shareholder is unable to reach the applicable Fund by telephone, written
instructions should be sent. Advisers reserves the right to modify, condition,
terminate, or impose charges upon this telephone redemption privilege, with 30
days notice to shareholders. Advisers, Investors, and the Funds will not be
responsible for, and the shareholder will bear the risk of loss from, oral
instructions, including fraudulent instructions, which are reasonably believed
to be genuine. The telephone redemption procedure is automatically available to
shareholders. The Funds will employ reasonable procedures to confirm that
telephone instructions are genuine, but if such procedures are not deemed
reasonable, it may be liable for any losses due to unauthorized or fraudulent
instructions. The Funds' procedures are to verify address and social security
number, tape record the telephone call, and provide written confirmation of the
transaction. Shareholders may also use the automated Fortis Information Line for
redemptions of $500 - $25,000 on non-tax qualified accounts. The security
measures for automated telephone redemptions involve use of a personal
identification number and providing written confirmation of the transaction.
Payment will be made as soon as possible, but not later than three business days
after receipt of a proper redemption request. However, if shares subject to the
redemption request were recently purchased with non-guaranteed funds (e.g.,
personal check), the mailing of a
27
<PAGE>
redemption check may be delayed by up to fifteen days. A shareholder wishing to
avoid these delays should consider the wire purchase method described under "How
to Buy Fund Shares."
Employees of certain Texas public educational institutions who direct investment
in Fund shares under their State of Texas Optional Retirement Plan generally
must obtain the prior written consent of their authorized employer
representative in order to redeem.
Each Fund has the right to redeem accounts with a current value of less than
$500 unless the original purchase price of the remaining shares (including sales
commissions) was at least $500. Fund shareholders actively participating in the
Fund's Systematic Investment Plan or Group Systematic Investment Plan will not
have their accounts redeemed. Before redeeming an account, the Fund will mail to
the shareholder a notice of its intention to redeem, which will give the
shareholder an opportunity to make an additional investment. If no additional
investment is received by the Fund within 60 days of the date the notice was
mailed, the shareholder's account will be redeemed.
Each Fund has a "Systematic Withdrawal Plan," which provides for voluntary
automatic withdrawals of at least $50 monthly, quarterly, semiannually, or
annually. Deferred sales charges may apply to monthly redemptions.
There is also a "Reinvestment Privilege," which is a one-time opportunity to
reinvest sums redeemed within the prior 60 days without payment of an additional
sales charge. For further information about these plans, contact your
broker-dealer or sales representative.
CONTINGENT DEFERRED SALES CHARGE
CLASS A SHARES
Each Fund imposes a CDSC on Class A shares in certain circumstances. Under the
CDSC arrangement, for sales of shares of $1,000,000 or more, including right of
accumulation and statements of intention, (see "How to Buy Fund Shares--Special
Purchase Plans") the front-end sales charge will no longer be imposed (although
Investors intends to pay its registered representatives and other dealers that
sell Fund shares, out of its own assets, a fee of up to 1% of the offering price
of such sales except on purchases exempt from the front-end sales charge).
However, if such shares are redeemed within two years after their purchase date
(the "CDSC Period"), the redemption proceeds will be reduced by the 1% CDSC.
The CDSC will be applied to the lesser of (a) the net asset value of shares
subject to the CDSC at the time of purchase, or (b) the net asset value of such
shares at the time of redemption. No charge will be imposed on amounts
representing an increase in share value due to capital appreciation. The CDSC
will not be applied to shares acquired through reinvestment of income dividends
or capital gain distributions or shares held for longer than the applicable CDSC
Period. In determining which shares to redeem, unless instructed otherwise,
shares that are not subject to the CDSC and having a higher Rule 12b-1 fee will
be redeemed first, shares not subject to the CDSC having a lower Rule 12b-1 fee
will be redeemed next, and shares subject to the CDSC then will be redeemed in
the order purchased.
Each Fund will waive the CDSC in the event of a shareholder's death or
disability, as defined in Section 72(m)(7) of the Internal Revenue Code (the
"Code") (if satisfactory evidence is provided to the Fund) and for tax-qualified
retirement plans (excluding IRAs, SEPS, 403(b) plans, and 457 plans). Shares of
the Fund that are acquired in exchange for shares of another Fortis fund that
were subject to a CDSC will remain subject to the CDSC that applied to the
shares of the other Fortis fund. Additionally, the CDSC will not be imposed at
the time that Fund shares subject to the CDSC are exchanged for shares of Fortis
Money Fund or at the time such Fortis Money Fund shares are reexchanged for
shares of any Fortis fund subject to a CDSC; provided, however, that, in each
such case, the shares acquired will remain subject to the CDSC if redeemed
within the CDSC Period.
Investors, upon notification, will provide a PRO RATA refund of any CDSC paid in
connection with a redemption of shares of any Fortis Fund (by crediting such
refunded CDSC to such shareholder's account) if, within 60 days of such
redemption, all or any portion of the redemption proceeds are reinvested in
shares of a Fund. Any reinvestment within 60 days of a redemption on which the
CDSC was paid will be made without the imposition of a front-end sales charge
but will be subject to the same CDSC to which such amount was subject prior to
the redemption, but the CDSC Period will run from the original investment date.
CLASS B, H, AND C SHARES
The CDSC on Class B, H, and C shares will be calculated on an amount equal to
the lesser of the net asset value of the shares at the time of purchase or their
net asset value at the time of redemption. No charge will be imposed on amounts
representing an increase in share value due to capital appreciation. In
addition, no charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions or on shares held for longer than the
applicable CDSC Period.
Upon any request for redemption of shares of any class of shares that imposes a
CDSC, it will be assumed, unless otherwise requested, that shares subject to no
CDSC will be redeemed first in the order purchased and all remaining shares that
are subject to a CDSC will be redeemed in the order purchased. With respect to
the redemption of shares subject to no CDSC where the shareholder owns more than
one class of shares, those shares with the highest Rule 12b-1 fee will be
redeemed in full prior to any redemption of shares with a lower Rule 12b-1 fee.
28
<PAGE>
The CDSC does not apply to: (1) redemption of shares when a Fund exercises its
right to liquidate accounts which are less than the minimum account size; (2)
death or disability of any owner, as defined in Section 72(m)(7) of the Code (if
satisfactory evidence is provided to the Fund); (3) with respect to Class B and
H shares only, an amount that represents, on an annual (non-cumulative) basis,
up to 10% of the amount (at the time of the investment) of the shareholder's
purchases; and (4) with respect to Class B, H, and C shares, qualified plan
benefit distributions due to participant's separation from service, loans or
financial hardship (excluding IRAs, SEPs, and 403(b), 457, and Fortis KEY plans)
upon a Fund's receipt from the plan's administrator or trustee of written
instructions detailing the reason for the distribution.
As an illustration of CDSC calculations, assume that Shareholder X purchases on
Year 1/Day 1 100 shares at $10 per share. Assume further that, on Year 2/Day 1,
Shareholder X purchased an additional 100 shares at $12 per share. Finally,
assume that, on Year 3/Day 1, Shareholder X wishes to redeem shares worth
$1,300, and that the net asset value per share as of the close of business on
such day is $13. To effect Shareholder X's redemption request, 100 shares at $13
per share (totaling $1,300) would be redeemed. The CDSC would be waived in
connection with the redemption of that number of shares equal in value (at the
time of redemption) to $220 (10% of $1,000-- the purchase amount of the shares
purchased by Shareholder X on Year 1/Day 1--plus 10% of $1200--the purchase
amount of the shares purchased by Shareholder X on Year 2/Day 1.) In addition,
no CDSC would apply to the $400 in capital appreciation on Shareholder X's
shares ($2,600 Year 3 value minus $2,200 purchase cost of shares).
If a shareholder exchanges shares subject to a CDSC for Class B, H, or C shares
of a different Fortis Fund, the transaction will not be subject to a CDSC.
However, when shares acquired through the exchange are redeemed, the shareholder
will be treated as if no exchange took place for the purpose of determining the
CDSC Period and applying the CDSC.
Investors, upon notification, will provide, out of its own assets, a PRO RATA
refund of any CDSC paid in connection with a redemption of Class B, H, or C
shares of any Fund (by crediting such refunded CDSC to such shareholder's
account) if, within 60 days of such redemption, all or any portion of the
redemption proceeds are reinvested in shares of the same class in any of the
Fortis Funds. Any reinvestment within 60 days of a redemption to which the CDSC
was paid will be made without the imposition of a front-end sales charge but
will be subject to the same CDSC to which such amount was subject prior to the
redemption. The CDSC Period will run from the original investment date.
SHAREHOLDER INQUIRIES
Inquiries should be directed to your broker-dealer or sales representative, or
to the Funds at the telephone number or mailing address listed on the cover of
this Prospectus. A $10 fee will be charged for copies of Annual Account
Summaries older than the preceding year.
29
<PAGE>
FORTIS-Registered Trademark-
--------------------------------------------------------
ACCOUNT APPLICATION
Complete this application to open a new Fortis
account or to add services to an existing Fortis
account. For personal service, please call your
Mail to: investment professional or Fortis customer service at
FORTIS MUTUAL FUNDS 1-800-800-2638, ext. 3012.
CM-9614 DO NOT USE TO OPEN A FORTIS IRA, SEP, 403(B) OR
St. Paul, MN 55170-9614 FORTIS MONEY FUND ACCOUNT.
________________________________________________________________________________
1 ACCOUNT INFORMATION
________________________________________________________________________________
Please provide the information requested below:
/ /INDIVIDUAL: Please print your name, Social Security number, U.S. citizen
status.
/ /JOINT TENANT: List all names, one Social Security number, one U.S. citizen
status.
/ /UNIFORM GIFT/TRANSFER TO MINORS: Provide name of custodian (ONLY ONE) and
minor, minor's Social Security number, minor's U.S. citizen status and date
of birth of minor.
/ /TRUST: List trustee and trust title, including trust date, trust's Taxpayer
ID number; also include a photocopy of first page of the trust agreement.
/ /CORPORATION, ASSOCIATION, PARTNERSHIP: Include full name, Taxpayer ID number.
/ /FORTIS KEY PLAN: Include Social Security number.
/ /QUALIFIED PLAN: Include name of Plan and trustee, Plan's Taxpayer ID number.
/ / OTHER: _____________________________________________________________________
- ---------------------------------------------------------------
Owner (Individual, 1st Joint Tenant, Custodian, Trustee) (Please print)
- ------------------------------------------------------------------------
Owner (2nd Joint Tenant, Minor, Trust Name) (Please print)
- ------------------------------------------------------------------------
Additional information, if needed
- ------------------------------------------------------------------------
Street address
- ------------------------------------------------------------------------
City State Zip
- ------------------------------------------------------------------------
Social Security number (Taxpayer ID)
( )
- ---------------------------------------------------------------
Daytime phone Date of birth
(Uniform Gift/Transfer to Minors)
Date of Trust (if applicable) __________________________________________________
Are you a U.S. citizen? / / Yes / / No
If no, country of permanent residence __________________________________________
95749 (12/96)
________________________________________________________________________________
2 TRANSFER ON DEATH
________________________________________________________________________________
Please indicate the Primary Beneficiary with "PB" after the beneficiary(ies)
name(s). Indicate Contingent Beneficiary with "CB." Indicate Lineal Descendant
Per Stirpes with "LDPS" if you want ownership to pass to the legal heirs of the
primary beneficiary in the event a designated beneficiary dies before the
account owner.
TOD IS ONLY AVAILABLE FOR INDIVIDUAL AND JOINT TENANTS (JTWROS) ACCOUNTS.
BENEFICIARY(IES):
Name _____________________________ SS# _________________________________________
Name _____________________________ SS# _________________________________________
Name _____________________________ SS# _________________________________________
________________________________________________________________________________
3 INVESTMENT ACCOUNT
________________________________________________________________________________
A. PHONE ORDERS
Was order previously phoned in? If yes, date ___________________________________
Confirmation # ___________________________ Account # ___________________________
FOR PHONE ORDERS, CHECK MUST BE MADE PAYABLE TO FORTIS INVESTORS
B. MAIL-IN ORDERS
Check enclosed for $____________________________. (MADE PAYABLE TO FORTIS FUNDS)
MUST INDICATE CLASS
<TABLE>
<C> <S> <C> <C>
1) ---------- $ ----------- A / / B / / C / / H / /
Fund Name Amount or % Class
2) $ A / / B / / C / / H / /
---------- -----------
Fund Name Amount or % Class
3) $ A / / B / / C / / H / /
---------- -----------
Fund Name Amount or % Class
4) $ A / / B / / C / / H / /
---------- -----------
Fund Name Amount or % Class
5) $ A / / B / / C / / H / /
---------- -----------
Fund Name Amount or % Class
</TABLE>
________________________________________________________________________________
4 EXEMPTION FROM SALES CHARGE
________________________________________________________________________________
CHECK IF APPLICABLE (for net asset value purchases):
/ / I am a member of one of the categories of persons listed under "Exemptions
from Sales Charge" in the prospectus. I qualify for exemption from the sales
charge because ____________________________________________________________.
/ / I was (within the past 60 days) the owner of a fixed annuity contract not
deemed a security or a shareholder of an unrelated mutual fund with a
front-end and/or deferred sales charge. I have attached the mutual
fund/insurance check (or copy of the redemption confirmation/surrender
form).
<PAGE>
________________________________________________________________________________
5 SIGNATURE & CERTIFICATION
________________________________________________________________________________
I have received and read each appropriate fund prospectus and understand that
its terms are incorporated by reference into this application. I am of legal age
and legal capacity.
I understand that this application is subject to acceptance by Fortis Investors,
Inc.
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:
(1) THE SOCIAL SECURITY NUMBER OR TAXPAYER ID NUMBER PROVIDED IS CORRECT; AND
(CROSS OUT THE FOLLOWING IF NOT TRUE)
(2) THAT THE IRS HAS NEVER NOTIFIED ME THAT I AM SUBJECT TO 31% BACKUP
WITHHOLDING, OR HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO SUCH BACKUP
WITHHOLDING.
Each person signing on behalf of any entity represents that his or her actions
are authorized. It is agreed that all Fortis Funds, Fortis Investors, Fortis
Advisers and their officers, directors, agents and employees will not be liable
for any loss, liability, damage or expense for relying upon this application or
any instruction believed genuine.
IF YOU ARE NOT SIGNING AS AN INDIVIDUAL, STATE YOUR TITLE OR CAPACITY (INCLUDE
APPROPRIATE DOCUMENTS VERIFYING YOUR CAPACITY).
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
AUTHORIZED SIGNATURE(S)
X
- ---------------------------------------------------------------
Owner, Custodian, Trustee Date
X
- ---------------------------------------------------------------
Joint Owner, Trustee Date
________________________________________________________________________________
6 DEALER/REPRESENTATIVE INFORMATION
________________________________________________________________________________
- --------------------------------------------------
Representative's name (please print)
- ------------------------------------------------------------------------
Name of Broker/Dealer
- ------------------------------------------------------------------------
Branch Office address
- ------------------------------------------------------------------------
Representative's signature
( )
- ------------------------------------------------------------------------
Representative's number Representative's Phone Number
- ------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF BROKER/DEALER
________________________________________________________________________________
7 DISTRIBUTION OPTIONS
________________________________________________________________________________
If no option is selected, all distributions will be reinvested in the same
Fortis fund(s) selected above. Please note that distributions can only be
reinvested in the SAME CLASS.
/ / Reinvest dividends and capital gains
/ / Dividends in cash and reinvest capital gains (See Section 9 for payment
options.)
/ / Dividends and capital gains in cash (See Section 9 for payment options.)
/ / Distributions into another Fortis fund (must be SAME CLASS).
____________________________________________________________________________
Fund Name Fund/Account # (if existing account)
________________________________________________________________________________
8 SYSTEMATIC EXCHANGE PROGRAM
________________________________________________________________________________
Fortis' Systematic Transfer Program allows you to transfer money from any Fortis
fund, in which you have a current balance of at least $1,000, into any other
Fortis fund (maximum of three), on a monthly basis. The minimum amount for each
transfer is $50. Generally, transfers between funds must be within the SAME
CLASS. See prospectus for details.
- ------------------------------------------------------------------------
Fund from which shares will be exchanged: Effective Date
FUND(S) TO RECEIVE INVESTMENT(S):
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Fund Amount to invest monthly
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
________________________________________________________________________________
9 WITHDRAWAL OPTIONS
________________________________________________________________________________
A. CASH DIVIDENDS
PLEASE FORWARD THE PAYMENT TO:
<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)
/ / Via U.S. Mail
/ / Via ACH (electronic transfer)
/ / My address of record.
</TABLE>
B. SYSTEMATIC WITHDRAWAL PLAN
Please consult your financial or tax adviser before electing a Systematic
Withdrawal Plan.
Please redeem shares from my Fortis ______________________________________ Fund,
account number _______________________ in the amount of $______________________.
Effective Withdrawal Date __________________________ __________________________
Month Day
<TABLE>
<S> <C> <C> <C>
FREQUENCY: / / Monthly / / Semi-Annually
/ / Quarterly / / Annually
</TABLE>
PLEASE FORWARD THE PAYMENT TO:
<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)
/ / Via U.S. Mail
/ / Via ACH (electronic transfer)
/ / My address of record.
</TABLE>
C. TELEPHONE OPTIONS
/ / TELEPHONE EXCHANGE. All exchanges must be into accounts having the identical
registration-ownership. All authorized signatures listed in Section 5 (or
your registered representative with shareholder consent) can make telephone
transfers.
/ / TELEPHONE REDEMPTION ($25,000 LIMIT AND NOT AVAILABLE FOR QUALIFIED PLANS)
If you have not changed your address in the past 60 days, you are eligible
for this service. This option allows all authorized signatures in Section 5
(or your registered representative with shareholder consent) to redeem up to
$25,000 from your Fortis account.
PLEASE FORWARD THE PAYMENT TO:
<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)
/ / Via U.S. Mail
/ / Via ACH (electronic transfer)
/ / My address of record.
</TABLE>
<PAGE>
(WITHDRAWAL OPTIONS, CONTINUED)
D. BANK INFORMATION
I request Fortis Financial Group (FFG) to pay sums due me by crediting my bank
account in the form of electronic entries. This authorization will remain in
effect until I notify FFG.
TYPE OF ACCOUNT: / / Checking / / Savings
Bank name ______________________________________________________________________
Address ________________________________________________________________________
City, State, Zip _______________________________________________________________
Name of bank account ___________________________________________________________
Bank account number ____________________________________________________________
Bank transit number ____________________________________________________________
Bank phone number ______________________________________________________________
ATTACH A VOIDED CHECK FROM YOUR BANK CHECKING ACCOUNT
________________________________________________________________________________
10 REDUCED FRONT-END SALES CHARGES
________________________________________________________________________________
A. RIGHT OF ACCUMULATION
/ / I own shares of more than one fund in the Fortis Family of Funds, which may
entitle me to a reduced sales charge.
- --------------------------------------------------------------------------------
Name on account Account number
- --------------------------------------------------------------------------------
Name on account Account number
- --------------------------------------------------------------------------------
Name on account Account number
B. STATEMENT OF INTENT
I agree to invest $_________ over a 13-month period beginning __________, 19__
(not more than 90 days prior to this application). I understand that an
additional sales charge must be paid if I do not complete my purchase.
________________________________________________________________________________
11 PRIVILEGED ACCOUNT SERVICE
________________________________________________________________________________
Fortis' Privileged Account Service systematically rebalances your funds back to
your original specifications ($10,000 minimum per account). All funds must be
within the SAME CLASS.
Frequency: / / quarterly / / semi-annually / / annually
<TABLE>
<S> <C> <C>
Fund Selected Percentage
(up to 5) (whole %)
1)
------------------------- ---------------
2)
------------------------- ---------------
3)
------------------------- ---------------
4)
------------------------- ---------------
5)
------------------------- ---------------
</TABLE>
________________________________________________________________________________
12 SUITABILITY
________________________________________________________________________________
NOTE: Must be completed with each fund application unless you provide
suitability information to your broker/dealer on a different form.
State In Which Application Was Signed ______________________________________
- --------------------------------------------------------------------------------
Employer
- --------------------------------------------------------------------------------
Business Address
- --------------------------------------------------------------------------------
City, State, ZIP
- --------------------------------------------------------------------------------
Occupation Age (optional)
Is customer associated with or employed by another
NASD member? / / Yes / / No
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Please mark one box under ESTIMATED
ESTIMATED ANNUAL INCOME ESTIMATED NET
and one box under ANNUAL WORTH
ESTIMATED NET WORTH INCOME (Exclusive of
(All Sources) Family Residence)
- --------------------------------------------------------------------------------
under $10,000
- --------------------------------------------------------------------------------
$10,000 - $25,000
- --------------------------------------------------------------------------------
$25,000 - $50,000
- --------------------------------------------------------------------------------
$50,000 - $100,000
- --------------------------------------------------------------------------------
$100,000 - $500,000
- --------------------------------------------------------------------------------
$500,000 - $1,000,000
- --------------------------------------------------------------------------------
Over $1,000,000
- --------------------------------------------------------------------------------
Declined
- --------------------------------------------------------------------------------
</TABLE>
Source of Funds
- --------------------------------------------------------------------------------
ESTIMATED FEDERAL TAX BRACKET
/ / 15% / / 28% / / 31% / / 36% / / 39.6% / / Declined
INVESTMENT OBJECTIVES
/ / Growth (long-term capital appreciation)
/ / Income (cash generating)
/ / Tax-free Income
/ / Diversification
/ / Other (please specify) _________________________________________
Did you use a Fortis Asset Allocation model? / / Yes / / No
________________________________________________________________________________
13 SYSTEMATIC INVESTMENT PLAN
________________________________________________________________________________
Complete the Automated Clearing House (ACH) Authorization Agreement Form in the
prospectus and attach a VOIDED check from your bank checking account. These
plans may be established for as little as $25.
________________________________________________________________________________
14 OTHER SPECIAL INSTRUCTIONS
________________________________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[This page intentionally left blank]
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 3794
MINNEAPOLIS, MN
FORTIS
FORTIS FINANCIAL GROUP
P.O. BOX 64284
ST. PAUL, MN 55164
PROSPECTUS
JANUARY 1, 1998
FORTIS ASSET ALLOCATION PORTFOLIO
FORTIS VALUE FUND
FORTIS GROWTH & INCOME FUND
FORTIS CAPITAL FUND
FORTIS FIDUCIARY FUND
FORTIS GROWTH FUND
FORTIS CAPITAL APPRECIATION PORTFOLIO
98225 (ED. 1/98)
<PAGE>
FORTIS ASSET ALLOCATION PORTFOLIO
FORTIS VALUE FUND
FORTIS GROWTH & INCOME FUND
FORTIS CAPITAL FUND
FORTIS FIDUCIARY FUND
FORTIS GROWTH FUND
FORTIS CAPITAL APPRECIATION PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 1, 1998
Fortis Asset Allocation Portfolio ("Asset Allocation Portfolio") is a portfolio
of Fortis Advantage Inc. ("Fortis Advantage"). Fortis Value Fund, Fortis Growth
& Income Fund and Fortis Capital Fund are the three portfolios of Fortis Equity
Portfolios, Inc. ("Fortis Equity"). Fortis Fiduciary Fund, Inc. ("Fiduciary
Fund") and Fortis Growth Fund, Inc. ("Growth Fund") are single portfolio funds.
Fortis Capital Appreciation Portfolio ("Capital Appreciation Portfolio") is a
portfolio of Fortis Advantage. These seven portfolios/funds are individually
referred to as a "Fund" and collectively referred to as the "Funds". This
Statement of Additional Information is NOT a prospectus, but should be read in
conjunction with the Funds' Prospectus dated January 1, 1998. A copy of that
prospectus may be obtained from your broker-dealer or sales representative. The
address of Fortis Investors, Inc. ("Investors") is P.O. Box 64284, St. Paul,
Minnesota 55164. Telephone: (612) 738-4000. Toll Free 1-(800) 800-2638 (x3012).
No broker-dealer, sales representative, or other person has been authorized to
give any information or to make any representations other than those contained
in this Statement of Additional Information, and if given or made, such
information or representations must not be relied upon as having been authorized
by the Fund or Investors. This Statement of Additional Information does not
constitute an offer or solicitation by anyone in any state in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation.
30
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ORGANIZATION AND CLASSIFICATION........................ 32
INVESTMENT OBJECTIVES AND POLICIES..................... 32
- General.......................................... 32
ASSET ALLOCATION & CAPITAL APPRECIATION PORTFOLIOS..... 32
- Mortgage-Related Securities...................... 32
- Foreign Securities............................... 35
- Options.......................................... 35
- Futures Contracts and Options on Futures
Contracts........................................ 36
- Forward Foreign Currency Exchange Contracts...... 36
- Risks of Transactions in Options, Futures
Contracts, and Forward Contracts................. 37
- Regulatory Restrictions.......................... 37
- Borrowing Money.................................. 37
- Repurchase Agreements............................ 37
- Variable Amount Master Demand Notes.............. 38
- Illiquid Securities.............................. 38
- Delayed Delivery Transactions.................... 39
- Investment Restrictions.......................... 39
VALUE, CAPITAL, FIDUCIARY AND GROWTH FUNDS............. 41
- Repurchase Agreements............................ 41
- Variable Amount Master Demand Notes.............. 42
- Lending of Portfolio Securities.................. 42
- Illiquid Securities.............................. 42
- Real Estate or Real Estate Investment Trusts..... 43
- Options.......................................... 43
- Delayed Delivery Transactions.................... 44
- Investment Restrictions.......................... 44
GROWTH & INCOME FUND................................... 46
- Certificates of Deposit and Bankers'
Acceptance....................................... 46
- Mortgage-Related Securities...................... 46
- Securities of Foreign Companies.................. 49
- Repurchase Agreements............................ 49
- Delayed Delivery Transactions.................... 49
- Dollar Rolls..................................... 49
- Lending of Portfolio Securities.................. 50
- Restricted or Illiquid Securities................ 50
- Short Sales Against the Box...................... 50
- Investment Restrictions.......................... 50
DIRECTORS AND EXECUTIVE OFFICERS....................... 53
INVESTMENT ADVISORY AND OTHER SERVICES................. 56
- General.......................................... 56
- Control and Management of Advisers and
Investors........................................ 56
- Investment Advisory and Management Agreement..... 57
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE..... 58
<CAPTION>
PAGE
<S> <C>
CAPITAL STOCK.......................................... 60
COMPUTATION OF NET ASSET VALUE AND PRICING............. 60
SPECIAL PURCHASE PLANS................................. 62
- Statement of Intention........................... 62
- Tax Sheltered Retirement Plans................... 62
- Gifts or Transfers to Minor Children............. 64
- Systematic Investment Plan....................... 64
- Exchange Privilege............................... 65
- Reinvested Dividend/Capital Gains Distributions
between Fortis Funds............................. 65
- Purchases by Fortis, Inc. (or its Subsidiaries)
or Associated Persons............................ 65
- Purchases by Fund Directors or Officers.......... 65
- Purchases by Representatives or Employees of
Broker-Dealers................................... 65
- Purchases by Certain Retirement
Plans............................................ 65
- Purchases by Registered Investment Companies..... 65
- Purchases with Proceeds from Redemption of
Unrelated Mutual Fund Shares or Surrender of
Certain Fixed Annuity Contracts.................. 65
- Purchases by Employees of Certain Banks and Other
Financial Services Firms......................... 65
- Purchases by Commercial Banks Offering Self-
Directed 401(k) Programs Containing both Pooled
and Individual Investment Options................ 65
- Purchases by Investment Advisers, Trust
Companies, and Bank Trust Departments Exercising
Discretionary Investment Authority or Using a
Money Management Mutual Fund "Wrap" Program...... 65
REDEMPTION............................................. 65
- Systematic Withdrawal Plan....................... 66
- Reinvestment Privilege........................... 66
TAXATION............................................... 66
UNDERWRITER............................................ 67
PLAN OF DISTRIBUTION................................... 67
PERFORMANCE............................................ 69
FINANCIAL STATEMENTS................................... 86
CUSTODIAN; COUNSEL; ACCOUNTANTS........................ 86
LIMITATION OF DIRECTOR LIABILITY....................... 86
ADDITIONAL INFORMATION................................. 86
APPENDIX A--DESCRIPTION OF FUTURES, OPTIONS AND FORWARD
CONTRACTS............................................. 87
APPENDIX B--CORPORATE BOND, PREFERRED STOCK AND
COMMERCIAL PAPER RATINGS.............................. 90
</TABLE>
31
<PAGE>
ORGANIZATION AND CLASSIFICATION
Fortis Advantage includes three separate portfolios, two of which are included
in this Statement of Additional Information: Asset Allocation Portfolio and
Capital Appreciation Portfolio.
Fortis Equity includes three separate portfolios, all of which are included in
this Statement of Additional Information: Value Fund, Growth & Income Fund and
Capital Fund.
Fortis Fiduciary and Fortis Growth are single portfolio funds.
An investment company is an arrangement by which a number of persons invest in a
company that in turn invests in securities of other companies. Each Fund
operates as an "open-end" investment company because it generally must redeem an
investor's shares upon request. Each Fund operates as a "diversified" investment
company because it offers investors an opportunity to minimize the risk inherent
in all investments in securities by spreading their investment over a number of
companies in various industries. However, diversification cannot eliminate such
risks.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
Each Fund will operate as a "diversified" investment company as defined under
the Investment Company Act of 1940 (the "1940 Act"), which means that it must
meet the following requirements:
At least 75% of the value of its total assets will be
represented by cash and cash items (including receivables),
Government securities, securities of other investment companies,
and other securities for the purposes of this calculation
limited in respect of any one issuer to an amount not greater in
value than 5% of the value of the total assets of the Fund and
to not more than 10% of the outstanding voting securities of
such issuer.
In implementing the objectives of each of these Funds set forth in the
Prospectus under "Investment Objectives and Policies," the proportion of its
assets invested in common stocks, preferred stocks and bonds, short-term
investments such as repurchase agreements or retained in cash may vary from time
to time as economic and financial conditions change. As of August 31, 1997, the
following percentages of the Funds' net assets were invested in common stock:
Asset Allocation Portfolio--50%; Value Fund--90%; Growth and Income Fund--73%;
Capital Fund--92%; Fiduciary Fund--94%; Growth Fund--91%; and Capital
Appreciation Portfolio--90%.
Each of these Funds will not concentrate its investments in any particular
industry, nor will it purchase a security if as a result of such purchase more
than 25% of its assets will be invested in a particular industry. This policy
may not be changed without shareholder approval. (See "Investment
Restrictions.")
Consistent with its investment objectives, each of the Funds intends to purchase
securities primarily for investment, but also may seek short-term capital
appreciation. They reserve freedom of action, however, to sell portfolio
securities whenever management believes more favorable investment opportunities
are available, regardless of any additional brokerage costs which may be
incurred, and regardless of any income tax consequences.
Any investment policy or restriction in the Prospectus or Statement of
Additional Information involving any Fund which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or
utilization of assets and results therefrom.
ASSET ALLOCATION AND CAPITAL APPRECIATION PORTFOLIOS
Asset Allocation Portfolio's investment objective is maximum total return on
invested capital, to be derived primarily from capital appreciation, dividends,
and interest.
Capital Appreciation Portfolio's investment objective is maximum long-term
capital appreciation. Dividend and interest income from securities, if any, is
incidental.
MORTGAGE-RELATED SECURITIES
Consistent with the investment objectives and policies of Asset Allocation
Portfolio as set forth in the Prospectus, and the investment restrictions set
forth below, such Fund may invest in certain types of mortgage-related
securities. One type of mortgage-related security includes certificates which
represent pools of mortgage loans assembled for sale to investors by various
governmental and private organizations. These securities provide a monthly
payment, which consists of both an interest and a principal payment, which is in
effect a "pass-through" of the monthly payment made by each individual borrower
on his or her residential mortgage loan, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying residential property,
refinancing, or foreclosure, net of fees or costs which may be incurred. Some
certificates (such as those issued by the Government National Mortgage
Association) are described as "modified pass-through." These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, regardless of whether the mortgagor actually makes
the payment.
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A major governmental guarantor of pass-through certificates is the Government
National Mortgage Association ("GNMA"). GNMA guarantees, with the full faith and
credit of the United States government, the timely payments of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks, and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. Other governmental guarantors
(but not backed by the full faith and credit of the United States Government)
include the Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA purchases residential mortgages from a
list of approved seller/servicers which include state and federally chartered
savings and loan associations, mutual savings banks, commercial banks, credit
unions, and mortgage bankers.
(i) GNMA CERTIFICATES. Certificates of the GNMA ("GNMA Certificates")
evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly as
payments of principal, including prepayments, on the mortgages in the
underlying pool are passed through to holders of the GNMA Certificates
representing interests in the pool, rather than returned in a lump sum at
maturity. The GNMA Certificates that the Government Total Return Portfolio
purchases are the "modified pass-through" type. "Modified pass-through" GNMA
Certificates entitle the holder to receive a share of all interest and
principal payments paid or owed to the mortgage pool, net of fees paid or
due to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
(ii) GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee
the timely payment of principal and interest on securities backed by a pool
of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers' Home Administration ("FmHA"), or guaranteed by the Veterans
Administration ("VA"). GNMA is also empowered to borrow without limitation
from the U.S. Treasury, if necessary, to make any payments required under
its guarantee.
(iii) LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is
likely to be substantially less than the stated maturity of the mortgages
underlying the securities. Prepayments of principal by mortgagors and
mortgage foreclosures will usually result in the return of the greater part
of principal investment long before the maturity of the mortgages in the
pool. Foreclosures impose no risk of loss of the principal balance of a
Certificate, because of the GNMA guarantee, but foreclosure may impact the
yield to shareholders because of the need to reinvest proceeds of
foreclosure.
As prepayment rates of individual mortgage pools vary widely, it is not
possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA indicate that
the average life of single family dwelling mortgages with 25 to 30-year
maturities, the type of mortgages backing the vast majority of GNMA
Certificates, is approximately 12 years. Prepayments are likely to increase
in periods of falling interest rates. It is customary to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year.
(iv) YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest
of GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the certificates, by the
amount of the fees paid to GNMA and the issuer.
The coupon rate by itself, however, does not indicate the yield which will
be earned on GNMA Certificates. First, GNMA Certificates may be issued at a
premium or discount, rather than at par, and, after issuance, GNMA
Certificates may trade in the secondary market at a premium or discount.
Second, interest is earned monthly, rather than semi-annually as with
traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying it. For example, if
interest rates decline, prepayments may occur faster than had been
originally projected and the yield to maturity and the investment income of
the Government Total Return Portfolio would be reduced.
(v) FHLMC SECURITIES. "FHLMC" is a federally chartered corporation created
in 1970 through enactment of Title III of the Emergency Home Finance Act of
1970. Its purpose is to promote development of a nationwide secondary market
in conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made or owed on the
underlying pool. The FHLMC guarantees timely payment of interest on PCs and
the ultimate payment of principal. Like GNMA Certificates, PCs are assumed
to be prepaid fully in their twelfth year.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a
year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years.
(vi) FNMA SECURITIES. "FNMA" is a federally chartered and privately owned
corporation which was established in 1938 to create a secondary market in
mortgages insured by the FHA. It was originally established as a government
agency and was transformed into a private corporation in 1968.
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FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all interest and principal
payments made or owed on the underlying pool. FNMA guarantees timely payment
of interest on FNMA certificates and the full return of principal. Like GNMA
Certificates, FNMA Certificates are assumed to be prepaid fully in their
twelfth year.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the pass-through certificates. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
governmental pools because there are no direct or indirect governmental
guarantees of payments in the former pools. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool, and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers,
and the mortgage poolers.
Fortis Advantage expects that governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. As new types of pass-through securities are developed and
offered to investors, Advisers may, consistent with Asset Allocation Portfolio's
investment objectives, policies, and restrictions, consider making investments
in such new types of securities.
Other types of mortgage-related securities include debt securities which are
secured, directly or indirectly, by mortgages on commercial real estate or
residential rental properties, or by first liens on residential manufactured
homes (as defined in section 603(6) of the National Manufactured Housing
Construction and Safety Standards Act of 1974), whether such manufactured homes
are considered real or personal property under the laws of the states in which
they are located.
Securities in this investment category include, among others, standard
mortgage-backed bonds and newer collateralized mortgage obligations (CMO's).
Mortgage-backed bonds are secured by pools of mortgages, but, unlike
pass-through securities, payments to bondholders are not determined by payments
on the mortgages. The bonds consist of a single class, with interest payable
periodically and principal payable on the stated date of maturity. CMO's have
characteristics of both pass-through securities and mortgage-backed bonds. CMO's
are secured by pools of mortgages, typically in the form of "guaranteed"
pass-through certificates such as GNMA, FNMA, or FHLMC securities. The payments
on the collateral securities determine the payments to the bondholders, but
there is not a direct "pass-through" of payments. CMO's are structured into
multiple classes, each bearing a different date of maturity. Monthly payments of
principal received from the pool of underlying mortgages, including prepayments,
is first returned to investors holding the shortest maturity class. Investors
holding the longest maturity classes receive principal only after the shorter
maturity classes have been retired.
CMO's are issued by entities that operate under orders from the Securities and
Exchange Commission (the SEC) exempting such issuers from the provisions of the
Investment Company Act of 1940 (the 1940 Act). Until recently, the staff of the
SEC had taken the position that such issuers were investment companies and that,
accordingly, an investment by an investment company (such as Asset Allocation
Portfolio) in the securities of such issuers was subject to limitations imposed
by Section 12 of the 1940 Act. However, in reliance on a SEC staff
interpretation, the Funds may invest in securities issued by certain "exempted
issuers" without regard to the limitations of Section 12 of the 1940 Act. In its
interpretation, the SEC staff defined "exempted issuers" as unmanaged, fixed
asset issuers that (a) invest primarily in mortgage-backed securities, (b) do
not issue redeemable securities as defined in Section 2(a)(32) of the 1940 Act,
(c) operate under general exemptive orders exempting them from "all provisions
of the [1940] Act" and (d) are not registered or regulated under the 1940 Act as
investment companies.
There are many classes of CMOs. There are IOs, which entitle the holder to
receive distributions consisting solely or primarily of all or a portion of the
interest in an underlying pool of mortgage loans or mortgage-backed securities),
("Mortgage Assets"). There are also "POs", which entitle the holder to receive
distributions consisting solely or primarily of all or a portion of the
principal of the underlying pool of Mortgage Assets. In addition, there are
"inverse floaters", which have a coupon rate that moves in the reverse direction
to an applicable index, and accrual (or "Z") bonds, which are described below.
As to IOs, POs, inverse floaters, and accrual bonds, not more than 7.5% of the
Asset Allocation Portfolio's net assets will be invested in any one of these
items at any one time, and no more than 15% of the net assets of the Fund will
be invested in all such obligations at any one time.
Inverse floating CMOs are typically more volatile than fixed or adjustable rate
tranches of CMOs. Investments in inverse floating CMOs would be purchased by
Asset Allocation Portfolio to attempt to protect against a reduction in the
income earned on the Fund investments due to a decline in interest rates. The
Fund would be adversely affected by the purchase of such CMOs in the event of an
increase in interest rates since the coupon rate thereon will decrease as
interest rates increase, and, like other mortgage-backed securities, the value
will decrease as interest rates increase.
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The cash flows and yields on IO and PO classes are extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
pool of mortgage loans or mortgage-backed securities ("Mortgage Assets"). For
example, a rapid or slow rate of principal payments may have a material adverse
effect on the yield to maturity of IOs or POs, respectively. If the underlying
Mortgage Assets experience greater than anticipated prepayments of principal,
the holder of an IO may incur substantial losses, even if the IO class is rated
AAA. Conversely, if the underlying Mortgage Assets experience slower than
anticipated prepayments of principal, the yield and market value for the holder
of a PO will be affected more severely than would be the case with a traditional
Mortgage Backed Security.
However, if interest rates were expected to rise, the value of an IO might
increase and may partially offset other bond value declines, and if rates were
expected to fall, the inclusion of POs could balance lower reinvestment rates.
An accrual or "Z" bond holder is not entitled to receive cash payments until one
or more other classes of the CMO have been paid in full from payments on the
mortgage loans underlying the CMO. During the period in which cash payments are
not being made on the Z tranche, interest accrues on the Z tranche at a stated
rate, and this accrued interest is added to the amount of principal which is due
to the holder of the Z tranche. After the other classes have been paid in full,
cash payments are made on the Z tranche until its principal (including
previously accrued interest which was added to principal, as described above)
and accrued interest at the stated rate have been paid in full. Generally, the
date upon which cash payments begin to be made on a Z tranche depends on the
rate at which the mortgage loans underlying the CMO are prepaid, with a faster
prepayment rate resulting in an earlier commencement of cash payments on the Z
tranche. Like a zero coupon bond, during its accrual period the Z tranche of a
CMO has the advantage of eliminating the risk of reinvesting interest payments
at lower rates during a period of declining market interest rates. At the same
time, however, and also like a zero coupon bond, the market value of a Z tranche
can be expected to fluctuate more widely with changes in market interest rates
than would the market value of a tranche which pays interest currently. Changes
in market interest rates also can be expected to influence prepayment rates on
the mortgage loans underlying the CMO of which a Z tranche is a part. As noted
above, such changes in prepayment rates will affect the date at which cash
payments begin to be made on a Z tranche, and therefore also will influence its
market value.
Investments in mortgage-related securities involve certain risks. In periods of
declining interest rates, prices of fixed income securities tend to rise.
However, during such periods, the rate of prepayment of mortgages underlying
mortgage-related securities tends to increase, with the result that such
prepayments must be reinvested by the issuer at lower rates. In addition, the
value of such securities may fluctuate in response to the market's perception of
the creditworthiness of the issuers of mortgage-related securities owned by
Asset Allocation Portfolio. Because investments in mortgage-related securities
are interest sensitive, the ability of the issuer to reinvest favorably in
underlying mortgages may be limited by government regulation or tax policy. For
example, action by the Board of Governors of the Federal Reserve System to limit
the growth of the nation's money supply may cause interest rates to rise and
thereby reduce the volume of new residential mortgages. Additionally, although
mortgages and mortgage-related securities are generally supported by some form
of government or private guarantees and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligations.
FOREIGN SECURITIES
Capital Appreciation Portfolio may invest up to 10%, and Asset Allocation
Portfolio may invest up to 20%, of its total assets in securities of foreign
governments and companies (provided that no more than 15% of Asset Allocation
Portfolio's total assets may be invested in foreign securities that are not
traded on national foreign securities exchanges or traded in the United States).
Domestic branches of foreign banks and foreign branches of domestic banks are
deemed by Fortis Advantage to be domestic, not foreign, companies. Investing in
foreign securities may result in greater risk than that incurred by investing in
domestic securities. The obligations of foreign issuers may be affected by
political or economic instabilities. Financial information published by foreign
companies may be less reliable or complete than information disclosed by
domestic companies pursuant to United States Government securities laws, and may
not have been prepared in accordance with generally accepted accounting
principles. Fluctuations in exchange rates may affect the value of foreign
securities not denominated in United States currency.
OPTIONS
As provided below, Capital Appreciation Portfolio and Asset Allocation Portfolio
may enter into transactions in options on a variety of instruments and indexes,
in order to protect against declines in the value of portfolio securities or
increases in the costs of securities to be acquired and in order to increase the
gross income of the Funds. The types of instruments to be purchased and sold are
further described in the Appendix of this Statement of Additional Information,
which should be read in conjunction with the following sections.
It is currently the intention of Fortis Advantage Portfolios to limit the
investment in options by each Fund so that such investments do not expose more
than 5% of such Fund's total assets to risk of loss.
OPTIONS ON SECURITIES. Both Funds may write (sell) covered call and secured put
options and purchase call and put options on securities (provided that Capital
Appreciation Portfolio will write and purchase options only on equity
securities). Where a Fund writes an option
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which expires unexercised or is closed out by the Fund at a profit, it will
retain all or a portion of the premium received for the option, which will
increase its gross income and will offset in part the reduced value of the Fund
security underlying the option, or the increased cost of portfolio securities to
be acquired. In contrast, however, if the price of the underlying security moves
adversely to the Fund's position, the option may be exercised and the Fund will
be required to purchase or sell the underlying security at a disadvantageous
price, which may only be partially offset by the amount of the premium, if at
all. The Funds may also write combinations of put and call options on the same
security, known as "straddles." Such transactions can generate additional
premium income but also present increased risk.
Both Funds may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the prices
of securities that the Fund wants to purchase at a later date. In the event that
the expected market fluctuations occur, the Fund may be able to offset the
resulting adverse effect on its Fund, in whole or in part, through the options
purchased. The premium paid for a put or call option plus any transaction costs
will reduce the benefit, if any, realized by the Fund upon exercise or
liquidation of the option, and, unless the price of the underlying security
changes sufficiently, the option may expire without value to the Fund.
OPTIONS ON STOCK INDEXES. Both Funds may write (sell) covered call and secured
put options and purchase call and put options on stock indexes. When a Fund
writes an option on a stock index, and the value of the index moves adversely to
the holder's position, the option will not be exercised, and the Fund will
either close out the option at a profit or allow it to expire unexercised. The
Fund will thereby retain the amount of the premium, which will increase its
gross income and offset part of the reduced value of portfolio securities or the
increased cost of securities to be acquired. Such transactions, however, will
constitute only partial hedges against adverse price fluctuations, since any
such fluctuations will be offset only to the extent of the premium received by
the Fund for the writing of the option. In addition, if the value of an
underlying index moves adversely to a Fund's option position, the option may be
exercised, and the Fund will experience a loss which may only be partially
offset by the amount of the premium received.
A Fund may also purchase put or call options on stock indexes in order either to
hedge its investments against a decline in value or to attempt to reduce the
risk of missing a market or industry segment advance. The Fund's possible loss
in either case will be limited to the premium paid for the option, plus related
transaction costs.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS. Asset Allocation Portfolio may enter into interest rate
futures contracts for hedging purposes. In addition, Capital Appreciation
Portfolio and Asset Allocation Portfolio may enter into stock index futures
contracts for hedging purposes. Both Funds may also enter into foreign currency
futures contracts. (Unless otherwise specified, interest rate futures contracts,
stock index futures contracts and foreign currency futures contracts are
collectively referred to as "Futures Contracts.")
Purchases or sales of stock index futures contracts are used to attempt to
protect a Fund's current or intended stock investments from broad fluctuations
in stock prices, and interest rate and foreign currency futures contracts are
purchased or sold to attempt to hedge against the effects of interest or
exchange rate changes on a Fund's current or intended investments in fixed
income or foreign securities. In the event that an anticipated decrease in the
value of portfolio securities occurs as a result of a general stock market
decline, a general increase in interest rates, or a decline in the dollar value
of foreign currencies in which portfolio securities are denominated, the adverse
effects of such changes may be offset, in whole or in part, by gains on the sale
of Futures Contracts. Conversely, the increased cost of portfolio securities to
be acquired, caused by a general rise in the stock market, a general decline in
interest rates, or a rise in the dollar value of foreign currencies, may be
offset, in whole or in part, by gains on Futures Contracts purchased by a Fund.
A Fund will incur brokerage fees when it purchases and sells Futures Contracts,
and it will be required to make and maintain margin deposits.
OPTIONS ON FUTURES CONTRACTS. Asset Allocation Portfolio may purchase and write
options to buy or sell interest rate futures contracts. In addition, Capital
Appreciation Portfolio and Asset Allocation Portfolio may purchase and write
options on stock index futures contracts, and both Funds may purchase and write
options on foreign currency futures contracts. (Unless otherwise specified,
options on interest rate futures contracts, options on stock index futures
contracts, and options on foreign currency futures contracts are collectively
referred to as "Options on Futures Contracts.") Such investment strategies will
be used as a hedge and not for speculation.
Put and call options on Futures Contracts may be traded by the Funds in order to
protect against declines in the values of portfolio securities or against
increases in the cost of securities to be acquired. Purchases of options on
Futures Contracts may present less risk in hedging the portfolios of the Funds
than the purchase or sale of the underlying Futures Contracts since the
potential loss is limited to the amount of the premium plus related transaction
costs. The writing of such options, however, does not present less risk than the
trading of futures contracts and will constitute only a partial hedge, up to the
amount of the premium received, and, if an option is exercised, a Fund may
suffer a loss on the transaction.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Both Funds may enter into contracts for the purchase or sale of a specific
currency at a future date at a price set at the time of the
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contract (a "Currency Contract"). The Funds will enter into Currency Contracts
for hedging purposes only, in a manner similar to the Funds' use of foreign
currency futures contracts. These transactions will include forward purchases or
sales of foreign currencies for the purpose of protecting the dollar value of
securities denominated in a foreign currency or protecting the dollar equivalent
of interest or dividends to be paid on such securities. By entering into such
transactions, however, the Fund may be required to forego the benefits of
advantageous changes in exchange rates. Currency Contracts are traded
over-the-counter, and not on organized commodities or securities exchanges. As a
result, such contracts operate in a manner distinct from exchange-traded
instruments, and their use involves certain risks beyond those associated with
transactions in the futures and option contracts described above.
OPTIONS ON FOREIGN CURRENCIES. Both Funds may purchase and write put and call
options on foreign currencies for the purpose of protecting against declines in
the dollar value of foreign portfolio securities and against increases in the
dollar cost of foreign securities to be acquired. As in the case of other types
of options, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received, and a
portfolio could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against
fluctuations in exchange rates, although, in the event of rate movements adverse
to a Fund's position, it may forfeit the entire amount of the premium plus
related transaction costs. As in the case of Currency Contracts, certain options
on foreign currencies are traded over-the-counter and involve risks which may
not be present in the case of exchange-traded instruments.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS, AND FORWARD CONTRACTS
Although the indicated Funds will enter into transaction in Futures Contracts,
Options on Futures Contracts, Currency Contracts, and certain options solely for
hedging purposes, their use does involve certain risks. For example, a lack of
correlation between the index or instrument underlying an option or Futures
Contract and the assets being hedged, or unexpected adverse price movements,
could render a Fund's hedging strategy unsuccessful and could result in losses.
The indicated Funds also may enter into transactions in options on securities
and indexes of securities for other than hedging purposes, which involves
greater risk. In addition, there can be no assurance that a liquid secondary
market will exist for any contract purchased or sold, and a Fund may be required
to maintain a position until exercise or expiration, which could result in
losses.
Transactions in options, Futures Contracts, Options on Futures Contracts, and
Currency Contracts may be entered into on United States exchanges regulated by
the SEC or the Commodity Futures Trading Commission (the "CFTC"), as well as in
the over-the-counter market and on foreign exchanges. In addition, the
securities underlying options and Futures Contracts traded by the Funds may
include domestic as well as foreign securities. Investors should recognize that
transactions involving foreign securities or foreign currencies, and
transactions entered into in foreign countries, may involve considerations and
risks not typically associated with investing in U.S. markets. See "Other
Investment Practices of the Portfolios--Foreign Securities" in the Prospectus.
REGULATORY RESTRICTIONS
To the extent required to comply with Securities and Exchange Commission Release
No. 10666, when purchasing a futures contract, writing a put option, or entering
into a delayed delivery purchase, the Funds will each maintain in a segregated
account cash or any security that is not considered restricted or illiquid equal
to the value of such contracts.
To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid "commodity pool operator" status, none of the
Funds will enter into a futures contract or purchase an option thereon if
immediately thereafter the initial margin deposits for futures contracts held by
the Fund, plus premiums paid by it for open options on futures (less the amount
by which the value of the underlying futures contract exceeds the exercise price
at the time of purchase), would exceed 5% of the Fund's total assets. The Funds
will not engage in transactions in financial futures contracts or options
thereon for speculation, but only to attempt to hedge against changes in market
conditions affecting the values of securities which the Funds hold or intend to
purchase. When futures contracts or options thereon are purchased to protect
against a price increase on securities intended to be purchased later, it is
anticipated that at least 75% of such intended purchases will be completed. When
other futures contracts or options thereon are purchased, the underlying value
of such contracts will at all times not exceed the sum of: (1) accrued profit on
such contracts held by the broker; (2) cash or high quality money market
instruments set aside in an identifiable manner; and (3) cash proceeds from
investments due in 30 days.
BORROWING MONEY
Both Funds may borrow money from banks as a temporary measure to facilitate
redemptions. As a fundamental policy, however, borrowings may not exceed 10% of
the value of such Fund's total assets and no additional investment securities
may be purchased by a Fund while outstanding bank borrowings exceed 5% of the
value of such Fund's total assets. Interest paid on borrowings will not be
available for investment.
REPURCHASE AGREEMENTS
A repurchase agreement is an instrument under which securities are purchased
from a bank or securities dealer with an agreement by the seller to repurchase
the securities at a mutually agreed upon date,
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interest rate, and price. Generally, repurchase agreements are of short
duration--usually less than a week, but on occasion for longer periods. Each
Fund will limit its investment in repurchase agreements with a maturity of more
than seven days to 15% of its net assets.
In investing in repurchase agreements, a Fund's risk is limited to the ability
of such bank or securities dealer to pay the agreed upon amount at the maturity
of the repurchase agreement. In the opinion of management, such risk is not
material; if the other party defaults, the underlying security constitutes
collateral for the obligation to pay--although the Fund may incur certain delays
in obtaining direct ownership of the collateral, plus costs in liquidating the
collateral. In the event a bank or securities dealer defaults on the repurchase
agreement, management believes that, barring extraordinary circumstances, the
Fund will be entitled to sell the underlying securities or otherwise receive
adequate protection (as defined in the federal Bankruptcy Code) for its interest
in such securities. To the extent that proceeds from any sale upon a default
were less than the repurchase price, however, the Fund could suffer a loss. If
the Fund owns underlying securities following a default on the repurchase
agreement, the Fund will be subject to risk associated with changes in the
market value of such securities. The Fund's custodian will hold the securities
underlying any repurchase agreement or such securities may be part of the
Federal Reserve Book Entry System. The market value of the collateral underlying
the repurchase agreement will be determined on each business day. If at any time
the market value of the collateral falls below the repurchase price of the
repurchase agreement (including any accrued interest), the Fund will promptly
receive additional collateral (so the total collateral is in an amount at least
equal to the repurchase price plus accrued interest).
VARIABLE AMOUNT MASTER DEMAND NOTES
Variable amount master demand notes are short-term, unsecured promissory notes
issued by corporations to finance short-term credit needs. They allow the
investment of fluctuating amounts by the Fund at varying market rates of
interest pursuant to arrangements between the Fund and a financial institution
which has lent money to a borrower. Variable amount master demand notes permit a
series of short-term borrowings under a single note. Both the lender and the
borrower have the right to reduce the amount of outstanding indebtedness at any
time. Such notes provide that the interest rate on the amount outstanding varies
on a daily basis depending upon a stated short-term interest rate barometer.
Advisers will monitor the creditworthiness of the borrower throughout the term
of the variable master demand note. It is not generally contemplated that such
instruments will be traded and there is no secondary market for the notes.
Typically, agreements relating to such notes provide that the lender shall not
sell or otherwise transfer the note without the borrower's consent. Thus,
variable amount master demand notes may under certain circumstances be deemed
illiquid assets. However, such notes will not be considered illiquid where the
Fund has a "same day withdrawal option," I.E., where it has the unconditional
right to demand and receive payment in full of the principal amount then
outstanding together with interest to the date of payment.
ILLIQUID SECURITIES
Both Funds may invest in illiquid securities, including "restricted" securities.
(A restricted security is one which was originally sold in a private placement
and was not registered with the Commission under the Securities Act of 1933 (the
"1933 Act") and which is not free to be resold unless it is registered with the
Commission or its sale is exempt from registration. For this purpose illiquid
securities include, among others, (i) securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale, (ii) options purchased over-the-counter and the cover for options
written over-the-counter, and (iii) repurchase agreements not terminable within
seven days.) However, each Fund will not invest more than 15% of the value of
its net assets in illiquid securities, as determined pursuant to applicable
Commission rules and interpretations.
The staff of the Securities and Exchange Commission has taken the position that
the liquidity of securities in the portfolio of a fund offering redeemable
securities is a question of fact for a board of directors of such a fund to
determine, based upon a consideration by such board of the readily available
trading markets and a review of any contractual restrictions. The SEC staff also
acknowledges that, while such a board retains ultimate responsibility, it may
delegate this function to the fund's investment adviser.
The Board of Directors of Fortis Advantage has adopted procedures to determine
the liquidity of certain securities, including commercial paper issued pursuant
to the private placement exemption of Section 4(2) of the 1933 Act and
securities that are eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the 1933 Act. Under these procedures, factors taken
into account in determining the liquidity of a security include (a) the
frequency of trades and quotes for the security, (b) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, (c) dealer undertakings to make a market in the security, and (d)
the nature of the security and the nature of the marketplace trades (E.G., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). Section 4(2) commercial paper or a Rule 144A security
that when purchased enjoyed a fair degree of marketability may subsequently
become illiquid, thereby adversely affecting the liquidity of the applicable
Fund.
Illiquid securities may offer a higher yield than securities that are more
readily marketable. The sale of illiquid securities, however, often requires
more time and results in higher brokerage charges or dealer discounts or other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. A Fund may
also be restricted in its ability to
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sell such securities at a time when it is advisable to do so. Illiquid
securities often sell at a price lower than similar securities that are not
subject to restrictions on resale.
DELAYED DELIVERY TRANSACTIONS
The Funds may purchase securities on a "when issued" or delayed delivery basis
and purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. At the time the
Fund enters into a transaction on a when-issued or forward commitment basis, a
segregated account consisting of cash, U.S. Government securities or any
security that is not considered restricted or illiquid at least equal to the
value of the when-issued or forward commitment securities will be established
and maintained with the custodian and will be marked to the market daily. During
the period between a commitment and settlement, no payment is made for the
securities purchased by the purchaser and, thus, no interest accrues to the
purchaser from the transaction. If the Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it can incur a gain or loss due
to market fluctuation. The use of when-issued transactions and forward
commitments enables the Fund to hedge against anticipated changes in interest
rates and prices. The Fund may also enter into such transactions to generate
incremental income. In some instances, the third-party seller of when-issued or
forward commitment securities may determine prior to the settlement date that it
will be unable or unwilling to meet its existing transaction commitments without
borrowing securities. If advantageous from a yield perspective, the Funds may,
in that event, agree to resell its purchase commitment to the third-party seller
at the current market price on the date of sale and concurrently enter into
another purchase commitment for such securities at a later date. As an
inducement for the Fund to "roll over" its purchase commitment, the Fund may
receive a negotiated fee. The purchase of securities on a when-issued, delayed
delivery, or forward commitment basis exposes the Fund to risk because the
securities may decrease in value prior to their delivery. Purchasing securities
on a when-issued, delayed delivery, or forward commitment basis involves the
additional risk that the return available in the market when the delivery takes
place will be higher than that obtained in the transaction itself. These risks
could result in increased volatility of the Fund's net asset value to the extent
that the Fund purchases securities on a when-issued, delayed delivery, or
forward commitment basis while remaining substantially fully invested. There is
also a risk that the securities may not be delivered or that a Fund may incur a
loss or will have lost the opportunity to invest the amount set aside for such
transaction in the segregated asset account. As to each such Fund, no more than
20% of its net assets may be invested in when-issued, delayed delivery or
forward commitment transactions, and of such 20%, no more than one-half (i.e.,
10% of its net assets) may be invested in when-issued, delayed delivery or
forward commitment transactions without the intention of actually acquiring
securities (i.e., dollar rolls).
INVESTMENT RESTRICTIONS
Certain investment restrictions are fundamental to the operation of the Funds
and may not be changed except with the approval of the holders of a majority of
the outstanding shares of the Fund(s) affected. For this purpose, "majority of
the outstanding voting securities" means the lesser of (i) 67% of the
outstanding shares of the affected Fund(s) present at the meeting of
shareholders if more than 50% of the outstanding shares of the affected
Portfolio(s) are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of the affected Fund(s).
As a result of these fundamental investment restrictions, except as set forth
below, neither of the Funds will:
1. Purchase securities on margin or otherwise borrow money or issue senior
securities, except that the Funds, in accordance with their investment
objectives and policies, may purchase securities on a when-issued and delayed
delivery basis, within the limitations set forth in the Prospectus and Statement
of Additional Information. Fortis Advantage may also obtain such short-term
credit as it needs for the clearance of securities transactions, and may borrow
from a bank, for the account of any Fund, as a temporary measure to facilitate
redemptions (but not for leveraging or investment) an amount that does not
exceed 10% of the value of the Fund's total assets. Investment securities will
not be purchased for a Fund while outstanding bank borrowings exceed 5% of the
value of such Fund's total assets.
2. Mortgage, pledge or hypothecate its assets, except in an amount not
exceeding 10% of the value of its total assets to secure temporary or emergency
borrowing.
3. Invest in commodities or commodity contracts, other than for hedging
purposes only.
4. Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, Fortis
Advantage may be deemed an underwriter under applicable laws.
5. Participate on a joint or a joint and several basis in any securities
trading account.
6. Invest in real estate, except a Fund may invest in securities issued by
companies owning real estate or interests therein.
7. Make loans to other persons. Repurchase agreements, the lending of
securities and the acquiring of debt securities in accordance with the
Prospectus and Statement of Additional Information are not considered to be
"loans" for this purpose.
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8. Concentrate its investments in any particular industry, except that (i)
it may invest up to 25% of the value of its total assets in any particular
industry, and (ii) there is no limitation with respect to investments in
obligations issued or guaranteed by the United States Government or its agencies
and instrumentalities, or obligations of domestic commercial banks. As to
utility companies, gas, electric, water and telephone companies will be
considered as separate industries. As to finance companies, the following
categories will be considered as separate industries: (a) captive automobile
finance, such as General Motors Acceptance Corp. and Ford Motor Credit Corp.;
(b) captive equipment finance companies, such as Honeywell Finance Corporation
and General Electric Credit Corp.; (c) captive retail finance companies, such as
Macy Credit Corp. and Sears Roebuck Acceptance Corp.; (d) consumer loan
companies, such as Beneficial Finance Corporation and Household Finance
Corporation; (e) diversified finance companies such as CIT Financial Corp.,
Commercial Credit Corporation and Borg Warner Acceptance Corp.; and (f) captive
oil finance companies, such as Shell Credit, Inc., Mobil Oil Credit Corp. and
Texaco Financial Services, Inc.
9. Purchase from or sell to any officer, director, or employee of Fortis
Advantage, or its adviser or underwriter, or any of their officers or directors,
any securities other than shares of Fortis Advantage's common stock.
10. Make short sales, except for sales "against the box." While a short sale
is made by selling a security the Fund does not own, a short sale is "against
the box" to the extent that the Fund contemporaneously owns or has the right to
obtain securities identical to those sold short at no added cost.
The following investment restrictions may be changed without shareholder
approval. Neither of the Funds, unless otherwise noted, will:
1. Invest more than 5% of the value of its total assets in securities of
other investment companies, except in connection with a merger, consolidation,
acquisition or reorganization.
2. Invest in a company for the purposes of exercising control or management.
3. Buy or sell foreign exchange, except as incidental to the purchase or
sale of permissible foreign investments.
4. Invest in interests (including partnership interests or leases) in oil,
gas, or other mineral exploration or development programs, except it may
purchase or sell securities issued by corporations engaging in oil, gas, or
other mineral exploration or development business.
5. Purchase or retain the securities of any issuer if those officers and
directors of Fortis Advantage or its investment adviser owning (including
beneficial ownership) individually more than 1/2 of 1% of the securities of such
issuer together own (including beneficial ownership) more than 5% of the
securities of such issuer.
6. Invest more than 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and Exchange
Commission rules and interpretations. (Securities that have been determined to
be liquid by the Board of Directors of Fortis Advantage or Advisers subject to
the oversight of such Board of Directors will not be subject to this
limitation.)
7. Invest more than 5% of its total assets in warrants, nor invest more than
2% of its total assets in warrants not traded on the New York Stock Exchange or
the American Stock Exchange.
8. Invest in real estate limited partnership interests.
9. Invest more than 20% of its net assets in when-issued, delayed delivery
or forward commitment transactions, and of such 20%, no more than one-half
(i.e., 10% of its net assets) may be invested in when-issued, delayed delivery
or forward commitment transactions without the intention of actually acquiring
securities (i.e., dollar rolls).
ADDITIONAL LIMITATIONS
ASSET ALLOCATION PORTFOLIO
As to IOs, POs, inverse floaters, and accrual bonds, not more than 7.5% of Asset
Allocation Portfolio's net assets will be invested in any one of these items at
any one time, and no more than 15% of the net assets of the Fund will be
invested in all such obligations at any one time.
OTHER DEBT AND MONEY MARKET SECURITIES. In addition to its investments in equity
securities and in obligations of the United States Government, its agencies, and
instrumentalities, Asset Allocation Portfolio may invest in a variety of long,
intermediate, and short-term debt securities. Such instruments may include the
following:
(a) CORPORATE BONDS. Asset Allocation Portfolio may invest, without
limitation, in corporate bonds rated within the four highest rating grades
assigned by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Ratings Services ("S&P"), or comparably rated by another nationally
recognized rating agency, and may invest up to 30% of its total assets in
lower rated bonds; however, the Fund will not invest in bonds rated below
Caa by Moody's or CCC by S&P, or comparably rated by another nationally
recognized rating agency;
(b) BANK OBLIGATIONS. Asset Allocation Portfolio may invest in: (i)
obligations (including certificates of deposit and bankers acceptances) of
United States banks, savings and loan associations, and savings banks, which
institutions have total assets (as of the date of their most recent annual
financial statements at the time of investment) of not less than $1 billion;
(ii) U.S. dollar denominated obligations of Canadian chartered banks, London
branches of United States banks, and United States branches or agencies of
foreign banks which meet the asset size referred to in (i) above; and (iii)
obligations of the institutions
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referred to in (i) above which have total assets of less than $1 billion,
provided that the amount of the obligations purchased does not exceed
$100,000 for any one such institution, and the payment of the principal is
insured by the Federal Deposit Insurance Corporation or the Federal Savings
and Loan Insurance Corporation; and
(c) COMMERCIAL PAPER. Asset Allocation Portfolio may invest, without
limitation, in commercial paper issued by United States corporations or
affiliated foreign corporations and rated (or guaranteed by a company whose
commercial paper is rated) at the date of investment Prime-2 or higher by
Moody's or A-2 or higher by S&P, or comparably rated by another nationally
recognized rating agency, or, if not rated, issued by a corporation having
an outstanding debt issue rated A or better by Moody's or S&P, or comparably
rated by another nationally recognized rating agency, and, if issued by an
affiliated foreign corporation, such commercial paper (not to exceed in the
aggregate 20% of the Fund's net assets) is U.S. dollar denominated and not
subject at the time of purchase to foreign tax withholding.
CAPITAL APPRECIATION PORTFOLIO
Capital Appreciation Portfolio's policy is to invest, under normal
circumstances, at least 65% of its total assets (exclusive of collateral in
connection with securities lending) in: (a) common stocks of small and
medium-sized companies that are early in their life cycles, but which have the
potential to become major enterprises ("emerging growth companies"); and (b)
equity securities of some more established companies whose rates of earnings
growth are expected to accelerate because of special factors such as new
products, changes in consumer demand, basic changes in the economic environment,
or rejuvenated management. However, when Fortis Advisers, Inc. ("Advisers")
considers a more defensive posture appropriate, the Fund temporarily can be 100%
invested in commercial paper, obligations of banks or the United States
Government, and other high quality, short-term debt instruments.
OTHER INVESTMENT PRACTICES OF ASSET ALLOCATION AND CAPITAL APPRECIATION
PORTFOLIOS
It is currently the intention of Fortis Advantage Portfolios to limit the
investment in options by each Fund so that such investments do not expose more
than 5% of such Fund's assets to risk of loss.
MUNICIPAL SECURITIES. Asset Allocation Portfolio may invest not more than 20% of
its total assets in municipal securities during periods when such securities
appear to offer more attractive returns than taxable securities.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Funds may lend their portfolio securities (principally to
broker-dealers) where such loans are callable at any time and are continuously
secured by collateral equal to no less than the market value, determined daily,
of the securities loaned. The Fund will receive amounts equal to dividends or
interest on the securities loaned. The Funds will also earn income for having
made the loan. Any cash collateral pursuant to these loans will be invested in
short-term money market instruments. Management will limit such lending to not
more than 33 1/3% percent of the value of each Fund's total assets. ("Total
assets" of a Fund includes the amount lent as well as the collateral securing
such loans.)
PAYMENT-IN-KIND DEBENTURES. Asset Allocation Portfolio may invest in debentures
the interest on which may be paid in other securities rather than cash ("PIKs").
Typically, during a specified term prior to the debenture's maturity, the issuer
of a PIK may provide for the option or the obligation to make interest payments
in debentures, common stock, or other instruments (I.E., "in kind" rather than
in cash). The type of instrument in which interest may or will be paid would be
known by the Portfolio at the time of the investment. While PIKs generate income
for generally accepted accounting standards purposes, they do not generate cash
flow and thus could cause the Portfolio to be forced to liquidate securities at
an inopportune time in order to distribute cash, as required by the Internal
Revenue Code.
Any investment policy or restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or
utilization of assets, and such excess results therefrom.
VALUE, CAPITAL, FIDUCIARY AND GROWTH FUNDS
Value Fund's investment objective is short and long term capital appreciation.
Current income is only a secondary objective.
Capital Fund's primary investment objective is short and long-term capital
appreciation. Current income is only a secondary objective.
Fiduciary Fund's primary investment objective is short and long-term capital
appreciation. Current income is only a secondary objective.
Growth Fund's investment objective is short and long-term capital appreciation.
Current income is only a secondary objective.
REPURCHASE AGREEMENTS
As noted in the Prospectus, these Funds may invest in repurchase agreements
("repos") and variable amount master demand notes.
Repos are short-term instruments under which securities are purchased from a
bank or a securities dealer with an agreement by the seller to repurchase the
securities at a mutually agreeable date, interest rate, and price. In investing
in repos, the Funds' risk is
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limited to the ability of such seller to pay the agreed upon amount at the
maturity of the repo. In the opinion of Advisers, such risk is not material,
since in the event of default, barring extraordinary circumstances, the Funds
would be entitled to sell the underlying securities or otherwise receive
adequate protection under Federal bankruptcy laws for its interest in such
securities. However, to the extent that proceeds from any sale upon a default
were less than the repurchase price, the Funds could suffer a loss.
VARIABLE AMOUNT MASTER DEMAND NOTES
Variable amount master demand notes allow the investment of fluctuating amounts
by the Funds at varying market rates of interest pursuant to arrangements
between the Funds and a financial institution which has lent money to a
borrower. Variable amount master demand notes permit a series of short-term
borrowings under a single note. Both the lender and the borrower have the right
to reduce the amount of outstanding indebtedness at any time. Such notes provide
that the interest rate on the amount outstanding varies on a daily basis
depending upon a stated short-term interest rate barometer. Advisers will
monitor the creditworthiness of the borrower throughout the term of the variable
master demand note. It is not generally contemplated that such instruments will
be traded and there is no secondary market for the notes. Typically, agreements
relating to such notes provide that the lender shall not sell or otherwise
transfer the note without the borrower's consent. Thus, variable amount master
demand notes may under certain circumstances be deemed illiquid assets. However,
such notes will not be considered illiquid where the Fund has a "same day
withdrawal option," I.E., where it has the unconditional right to demand and
receive payment in full of the principal amount then outstanding together with
interest to the date of payment.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, Value, Capital, and
Fiduciary Funds each may lend its portfolio securities (principally to
broker-dealers) where such loans are callable at any time and are continuously
secured by collateral securities equal to no less than the market value,
determined daily, of the securities loaned. The Funds will receive amounts equal
to dividends or interest on the securities loaned. The Funds will also earn
income for having made the loan. Any cash collateral pursuant to these loans
will be invested in government securities, certificates of deposit or other
high-grade, short-term obligations or interest-bearing cash equivalents. The
Funds will limit such lending to not more than 33 1/3% of the value of its total
assets (including the amount lent as well as the collateral securing such
loans). Where voting or consent rights with respect to loaned securities pass to
the borrower, management will follow the policy of calling the loan, in whole or
in part as may be appropriate, to permit the exercise of such voting or consent
rights if the issues involved have a material effect on the Funds' investment in
the securities loaned. Apart from lending its securities, investing in
repurchase agreements and acquiring debt securities, as described in the
Prospectus and Statement of Additional Information, the Funds will not make
loans to other persons.
The risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms deemed by Fortis
Advisers, Inc. ("Advisers") to be of good standing and will not be made unless,
in the judgment of Advisers, the consideration to be earned from such loans
would justify the risk.
ILLIQUID SECURITIES
Value, Capital, and Fiduciary Funds each may invest in illiquid securities,
including "restricted" securities. (A restricted security is one which was
originally sold in a private placement and was not registered with the
Commission under the Securities Act of 1933 (the "1933 Act") and which is not
free to be resold unless it is registered with the Commission or its sale is
exempt from registration.) However, the Fund will not invest more than 15% of
the value of its net assets in illiquid securities, as determined pursuant to
applicable Commission rules and interpretations.
The staff of the Securities and Exchange Commission has taken the position that
the liquidity of securities in the portfolio of a fund offering redeemable
securities is a question of fact for a board of directors of such a fund to
determine, based upon a consideration by such board of the readily available
trading markets and a review of any contractual restrictions. The SEC staff also
acknowledges that, while such a board retains ultimate responsibility, it may
delegate this function to the fund's investment adviser.
The Boards of Directors of Fortis Equity and Fiduciary Fund each have adopted
procedures to determine the liquidity of certain securities, including
commercial paper issued pursuant to the private placement exemption of Section
4(2) of the 1933 Act and securities that are eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the 1933 Act. Under these
procedures, factors taken into account in determining the liquidity of a
security include (a) the frequency of trades and quotes for the security, (b)
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, (c) dealer undertakings to make a market in the
security, and (d) the nature of the security and the nature of the marketplace
trades (E.G., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). Section 4(2) commercial paper
or a Rule 144A security that when purchased enjoyed a fair degree of
marketability may subsequently become illiquid, thereby adversely affecting the
liquidity of the Fund.
Illiquid securities may offer a higher yield than securities that are more
readily marketable. The sale of illiquid securities, however, often
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requires more time and results in higher brokerage charges or dealer discounts
or other selling expenses than does the sale of securities eligible for trading
on national securities exchanges or in the over-the-counter markets. The Fund
may also be restricted in its ability to sell such securities at a time when it
is advisable to do so. Illiquid securities often sell at a price lower than
similar securities that are not subject to restrictions on resale.
REAL ESTATE OR REAL ESTATE INVESTMENT TRUSTS
Value, Capital, and Fiduciary Funds each are authorized to invest in real estate
investment trusts ("REITs"), real estate development and real estate operating
companies and other real estate related businesses. Each Fund presently intends
to invest the REIT portion of its portfolio primarily in equity REITs, which are
trusts that sell shares to investors and use the proceeds to invest in real
estate or interests in real estate. A REIT may focus on particular projects,
such as apartment complexes or shopping centers, or geographic regions, such as
the Southeastern United States, or both. Debt REITs invest in obligations
secured by mortgages on real property or interests in real property.
These Funds have adopted a nonfundamental investment restriction that they will
not invest more than 10% of their respective total assets in REITs and will
invest only in REITs that are publicly distributed.
The Funds' investments in real estate securities may be subject to certain of
the same risks associated with the direct ownership of real estate. These risks
include: declines in the value of real estate; risks related to general and
local economic conditions, overbuilding and competition; increases in property
taxes and operating expenses; and variations in rental income. In addition,
REITs may not be diversified. REITs are subject to the possibility of failing to
qualify for tax-free pass-through of income under the Internal Revenue Code and
failing to maintain exemption from the 1940 Act. Also, REITs may be dependent
upon management skill and may be subject to the risks of obtaining adequate
financing for projects on favorable terms.
OPTIONS
Value, Capital, and Fiduciary Funds each may use options and futures strategies
to attempt to increase return and to hedge its portfolio, i.e., reduce the
overall level of investment risk normally associated with the Fund. The Fund may
use stock index futures contracts and options thereon to hedge all or part of
the equity portion of its portfolio against negative stock market movements.
Similarly, the Fund may use interest rate futures contracts and options thereon
to hedge the debt portion of its portfolio against changes in the general level
of interest rates.
The Funds' use of options and futures strategies would involve certain
investment risks and transaction costs. These risks include: dependence on
Advisers' ability to predict movements in the prices of individual securities,
fluctuations in the general securities markets, and movements in interest rates;
imperfect correlation between movements in the price of options, futures
contracts, or options thereon and movements in the price of the security hedged
or used for cover, the fact that skills and techniques needed to trade options,
futures contracts and options thereon are different from those needed to select
the securities in which the Fund invests; lack of assurance that a liquid
secondary market will exist for any particular option, futures contract or
option thereon at any particular time; and the possible need to defer closing
out certain options, futures contracts, and options thereon in order to continue
to qualify for the beneficial tax treatment afforded "regulated investment
companies" under the Code.
As noted above, it is the Funds' present intention to only write "covered" call
options.
The Funds would attempt to reduce the risk associated with the use of options
and futures strategies by writing only "covered" call options as described below
and through the adoption of a nonfundamental investment restriction on the use
of options, futures, and forward contracts. This nonfundamental investment
restriction provides that the Fund will not enter into any options, futures, or
forward contract transactions if immediately thereafter (a) the amount of
premiums paid for all options, initial margin deposits on all futures contracts
and/or options on futures contracts, and collateral deposited with respect to
forward contracts held by or entered into by the Fund would exceed 5% of the
value of the total assets of the Fund or (b) the Fund's assets covering, subject
to, or committed to all options, futures, and forward contracts would exceed 20%
of the value of the total assets of the Fund.
A put option gives the purchaser (holder) of the option the right to sell (put)
a security or other instrument to a third party at a stated price for a stated
period or on a stated date. A call option gives the purchaser (holder) of the
option the right to purchase (call) a security or other instrument from a third
party at a stated price for a stated period or on a stated date. A person who
sells (writes) a put option gives a third party the right to require the writer
to purchase a security or other instrument at a stated price for a stated period
or on a stated date, while a person who sells (writes) a call option gives a
third party the right to require the writer to sell a security or other
instrument at a stated price for a stated period or on a stated date. A person
who writes a call option may do so either on a "covered" basis, in which case
the writer already owns or has the right to acquire the security or other
instrument which the writer agrees may be called away from such writer, or on an
"uncovered" basis, in which case the writer does not own or have the right to
acquire such security or instrument. In the case of an uncovered call option,
the writer bears the risk that the writer will have to purchase the security or
instrument subject to the option in the open market at an increased price if the
purchaser of the call option exercises it.
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Put and call options may be used for a variety of purposes. For example, if a
portfolio manager wishes to hedge a security which the manager owns against a
decline in price, the manager may purchase a put option on the underlying
security, i.e., purchase the right to sell the security to a third party at a
stated price. If the underlying security then declines in price, the manager can
exercise the put option, thus limiting the amount of the manager's loss
resulting from the decline in price. Similarly, if the manager intends to
purchase a security at some date in the future, the manager may purchase a call
option on the security today in order to hedge against an increase in its price
before the intended purchase date. On the other hand, put and call options also
can be used for speculative purposes. For example, if a portfolio manager
believes that the price of stocks generally is going to rise, the manager may
purchase a call option on a stock index, the components of which are unrelated
to the stocks the manager holds in portfolio or intends to purchase. Finally, a
portfolio manager may write covered call options on securities the manager owns
in order to realize additional income with respect to his portfolio, or the
manager may write put options for similar income-producing purposes. If the
options expire unexercised, the manager has increased the portfolio's income by
the amount of the price (premium) received upon sale of the option. On the other
hand, if a covered call option is exercised and the underlying security is
"called" away, the manager has limited the amount of his gain to the exercise
price of the options plus the premium.
As noted above, these Funds have adopted a nonfundamental policy to the effect
that the Fund will not write, purchase or sell put or call options except that
it may write covered call options. Although the writing of covered call options
can have the effect of limiting a Fund's gains on the securities or other
instruments covered thereby, Advisers believes that this technique represents a
relatively low-risk way for a portfolio manager to attempt to enhance a
portfolio's return.
DELAYED DELIVERY TRANSACTIONS.
Each of these Funds, except Growth Fund, may purchase securities on a "when
issued" or delayed delivery basis and purchase or sell securities on a "forward
commitment" basis. When such transactions are negotiated, the price is fixed at
the time the commitment is made, but delivery and payment for the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but delayed settlements beyond two months may be
negotiated. At the time the Fund enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash, U.S.
Government securities or any security that is not considered restricted or
illiquid equal to the value of the when-issued or forward commitment securities
will be established and maintained with the custodian and will be marked to the
market daily. During the period between a commitment and settlement, no payment
is made for the securities purchased by the purchaser and, thus, no interest
accrues to the purchaser from the transaction. If the Fund disposes of the right
to acquire a when-issued security prior to its acquisition or disposes of its
right to deliver or receive against a forward commitment, it can incur a gain or
loss due to market fluctuation. The use of when-issued transactions and forward
commitments enables the Fund to hedge against anticipated changes in interest
rates and prices. The Fund may also enter into such transactions to generate
incremental income. In some instances, the third-party seller of when-issued or
forward commitment securities may determine prior to the settlement date that it
will be unable or unwilling to meet its existing transaction commitments without
borrowing securities. If advantageous from a yield perspective, the Funds may,
in that event, agree to resell its purchase commitment to the third-party seller
at the current market price on the date of sale and concurrently enter into
another purchase commitment for such securities at a later date. As an
inducement for the Fund to "roll over" its purchase commitment, the Fund may
receive a negotiated fee. The purchase of securities on a when-issued, delayed
delivery, or forward commitment basis exposes the Fund to risk because the
securities may decrease in value prior to their delivery. Purchasing securities
on a when-issued, delayed delivery, or forward commitment basis involves the
additional risk that the return available in the market when the delivery takes
place will be higher than that obtained in the transaction itself. These risks
could result in increased volatility of the Fund's net asset value to the extent
that the Fund purchases securities on a when-issued, delayed delivery, or
forward commitment basis while remaining substantially fully invested. There is
also a risk that the securities may not be delivered or that a Fund may incur a
loss or will have lost the opportunity to invest the amount set aside for such
transaction in the segregated asset account. As to each such Fund, no more than
20% of its net assets may be invested in when-issued, delayed delivery or
forward commitment transactions, and of such 20%, no more than one-half (i.e.,
10% of its net assets) may be invested in when-issued, delayed delivery or
forward commitment transactions without the intention of actually acquiring
securities (i.e., dollar rolls).
INVESTMENT RESTRICTIONS
The following investment restrictions are deemed fundamental policies. They may
be changed only by the vote of a "majority" of the applicable Fund's outstanding
shares, which as used in this Statement of Additional Information, means the
lesser of (i) 67% of the applicable Fund's outstanding shares present at a
meeting of the holders if more than 50% of the outstanding shares are present in
person or by proxy or (ii) more than 50% of the applicable Fund's outstanding
shares.
Value, Capital, and Fiduciary Funds each will not:
(1) Concentrate its investments, that is, invest more than 25% of the value
of its assets in any particular industry.
(2) Purchase or sell physical commodities (such as grains, livestock, etc.)
or futures or options contracts thereon; however, it may purchase or sell any
forms of financial instruments or contracts that might be deemed commodities.
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(3) Invest directly in real estate or interests in real estate; however, the
Fund may invest in interests in real estate investment trusts, debt securities
secured by real estate or interests therein, or debt or equity securities issued
by companies which invest in real estate or interests therein.
(4) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, the
Fund may be deemed an underwriter under applicable laws.
(5) Purchase securities on margin or otherwise borrow money, except that the
Fund, in accordance with its investment objectives and policies, may purchase
securities on a when-issued, delayed delivery, or forward commitment basis, and
may make margin deposits in connection with dealing in commodities or options
thereon. The Fund may also obtain such short-term credit as it needs for the
clearance of securities transactions, and may borrow from a bank as a temporary
measure to facilitate redemptions (but not for leveraging or investment) an
amount that does not exceed 10% of the value of the Fund's total assets.
Investment securities will not be purchased while outstanding bank borrowings
(including "roll" transactions) exceed 5% of the value of the Fund's total
assets.
(6) Issue senior securities (as defined in the 1940 Act) other than as set
forth in restriction #5 above concerning borrowing and except to the extent that
using options and futures contracts or purchasing or selling securities on a
when issued, delayed delivery, or forward commitment basis (including the
entering into of roll transactions) may be deemed to constitute issuing a senior
security.
(7) Make loans to other persons, except that it may lend its portfolio
securities in an amount not to exceed 33 1/3% of the value of the Fund's total
assets (including the amount lent) if such loans are secured by collateral at
least equal to the market value of the securities lent, provided that such
collateral shall be limited to cash, securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, certificates of deposit or
other high-grade, short term obligations or interest-bearing cash equivalents.
Loans shall not be deemed to include repurchase agreements or the purchase or
acquisition of a portion of an issue of notes, bonds, debentures, or other debt
securities, whether or not such purchase or acquisition is made upon the
original issuance of the securities. ("Total assets" of the Fund includes the
amount lent as well as the collateral securing such loans.)
Growth Fund will not:
(1) Concentrate its investments, that is, invest more than 25% of the value
of its assets, in any particular industry.
(2) Buy or sell commodities or commodity contracts.
(3) Purchase or sell real estate or other interests in real estate, or
interests in real estate investment trusts.
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as security for
indebtedness, any securities owned or held by the Fund.
(5) Act as an underwriter of securities of other issuers, except that the
Fund may invest up to 5% of the value of its assets (at time of investment) in
portfolio securities which the Fund might not be free to sell to the public
without registration of such securities under the Securities Act of 1933.
(6) Write, purchase, or sell puts, calls, or combinations thereof.
(7) Purchase or sell securities on margin or sell short.
(8) Make loans to other persons, except that it may purchase bonds,
debentures, or other debt securities, which are not publicly distributed in an
amount not to exceed 5% of the value of its total assets. The purchase of a
portion of an issue of publicly distributed bonds, debentures, or other debt
securities, does not constitute the making of a loan.
(9) Borrow money or issue debt securities.
The following investment restrictions may be changed without shareholder
approval.
Value, Capital, and Fiduciary Funds each will not:
(1) Invest more than 5% of the value of its total assets in securities of
other investment companies, except in connection with a merger, consolidation,
acquisition or reorganization; provided that the Fund shall not purchase or
otherwise acquire more than 3% of the total outstanding voting stock of any
other investment company.
(2) Invest in a company for the purposes of exercising control or management.
(3) Buy or sell foreign exchange.
(4) Invest in securities which would expose the Fund to liabilities exceeding
the amount invested.
(5) Invest in interests (including partnership interests or leases) in oil,
gas, or other mineral exploration or development programs, except the Fund may
purchase or sell securities issued by corporations engaging in oil, gas, or
other mineral exploration or development business.
(6) Purchase or retain the securities of any issuer if those officers and
directors of the Fund or its investment adviser owning (including beneficial
ownership) individually more than 1/2 of 1% of the securities of such issuer
together own (including beneficial ownership) more than 5% of the securities of
such issuer.
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(7) Invest more than 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and Exchange
Commission rules and interpretations. Securities that have been determined to be
liquid by the Board of Directors of the Fund or Advisers subject to the
oversight of such Board of Directors will not be subject to this limitation.
(8) Make short sales, except for sales "against the box."
(9) Mortgage, pledge, or hypothecate its assets except to the extent
necessary to secure permitted borrowings.
(10) Invest in real estate limited partnership interests.
(11) Purchase the securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any issuer to be
held by the Fund.
(12) Invest more than 5% of its net assets, valued at the lower of cost or
market, in warrants; nor, within such amount, invest more than 2% of such net
assets in warrants not listed on the New York Stock Exchange or American Stock
Exchange. Warrants attached to securities or acquired in units are excepted from
the above limitations.
(13) Invest more than 10% of its total assets in real estate investment trusts
or invest in real estate investment trusts that are not publicly distributed.
(14) Enter into any options, futures, or forward contract transactions if
immediately thereafter (a) the amount of premiums paid for all options, initial
margin deposits on all futures contracts and/or options on futures contracts,
and collateral deposited with respect to forward contracts held by or entered
into by the Fund would exceed 5% of the value of the total assets of the Fund or
(b) the Fund's assets covering, subject to, or committed to all options,
futures, and forward contracts would exceed 20% of the value of the total assets
of the Fund. (This restriction does not apply to securities purchased on a
when-issued, delayed delivery, or forward commitment basis.)
(15) Write, purchase, or sell put or call options, except that it may write
covered call options.
(16) Invest more than 10% of its assets in foreign securities.
Growth Fund will not:
(1) Invest more than 5% of the value of its total assets in securities of
other investment companies, except in connection with a merger, consolidation,
acquisition or reorganization.
(2) Invest in a company for the purposes of exercising control or management.
(3) Buy or sell foreign exchange.
(4) Invest in securities which would expose the Fund to liabilities exceeding
the amount invested.
(5) Invest in interests (including partnership interests) in oil, gas, or
other mineral exploration or development programs, except the Fund may purchase
or sell securities issued by corporations engaging in oil, gas, or other mineral
exploration or development business.
(6) Purchase or retain the securities of any issuer if those officers and
directors of the Fund or its investment adviser owning (including beneficial
ownership) individually more than 1/2 of 1% of the securities of such issuer
together own (including beneficial ownership) more than 5% of the securities of
such issuer.
(7) Invest more than 5% of its net assets in warrants, not more than 2% of
net assets in warrants not listed on the New York Stock Exchange or American
Stock Exchange.
(8) Invest more than 10% of its assets in foreign securities.
In seeking to attain its investment objective, the Fund will invest primarily in
common stocks or securities convertible into common stocks. In periods when a
more defensive position is deemed warranted, the Fund may invest all or a
portion of its assets in short-term money market securities.
GROWTH & INCOME FUND
The investment objectives of Growth & Income Fund are capital appreciation and
current income, which it seeks by investing primarily in equity securities that
provide an income component and the potential for growth.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
As noted in the Prospectus, the Fund may invest in certificates of deposits.
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
MORTGAGE-RELATED SECURITIES
Consistent with the investment objectives and policies as set forth in the
Prospectus, and the investment restrictions set forth below, the
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Fund may invest in certain types of mortgage-related securities. One type of
mortgage-related security includes certificates which represent pools of
mortgage loans assembled for sale to investors by various governmental and
private organizations. These securities provide a monthly payment, which
consists of both an interest and a principal payment, which is in effect a
"pass-through" of the monthly payment made by each individual borrower on his or
her residential mortgage loan, net of any fees paid to the issuer or guarantor
of such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying residential property, refinancing, or
foreclosure, net of fees or costs which may be incurred. Some certificates (such
as those issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
regardless of whether the mortgagor actually makes the payment.
A major governmental guarantor of pass-through certificates is the Government
National Mortgage Association ("GNMA"). GNMA guarantees, with the full faith and
credit of the United States government, the timely payments of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks, and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. Other governmental guarantors
(but not backed by the full faith and credit of the United States Government)
include the Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA purchases residential mortgages from a
list of approved seller/servicers which include state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers.
(i) GNMA CERTIFICATES. Certificates of the GNMA ("GNMA Certificates")
evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly as
payments of principal, including prepayments, on the mortgages in the
underlying pool are passed through to holders of the GNMA Certificates
representing interests in the pool, rather than returned in a lump sum at
maturity. "Modified pass-through" GNMA Certificates entitle the holder to
receive a share of all interest and principal payments paid or owed to the
mortgage pool, net of fees paid or due to the "issuer" and GNMA, regardless
of whether or not the mortgagor actually makes the payment.
(ii) GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee
the timely payment of principal and interest on securities backed by a pool
of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers' Home Administration ("FmHA"), or guaranteed by the Veterans
Administration ("VA"). GNMA is also empowered to borrow without limitation
from the U.S. Treasury, if necessary, to make any payments required under
its guarantee.
(iii) LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is
likely to be substantially less than the stated maturity of the mortgages
underlying the securities. Prepayments of principal by mortgagors and
mortgage foreclosures will usually result in the return of the greater part
of principal investment long before the maturity of the mortgages in the
pool. Foreclosures impose no risk of loss of the principal balance of a
Certificate, because of the GNMA guarantee, but foreclosure may impact the
yield to shareholders because of the need to reinvest proceeds of
foreclosure.
As prepayment rates of individual mortgage pools vary widely, it is not
possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA indicate that
the average life of single family dwelling mortgages with 25 to 30-year
maturities, the type of mortgages backing the vast majority of GNMA
Certificates, is approximately 12 years. Prepayments are likely to increase
in periods of falling interest rates. It is customary to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year.
(iv) YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest
of GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the certificates, by the
amount of the fees paid to GNMA and the issuer.
The coupon rate by itself, however, does not indicate the yield which will
be earned on GNMA Certificates. First, GNMA Certificates may be issued at a
premium or discount, rather than at par, and, after issuance, GNMA
Certificates may trade in the secondary market at a premium or discount.
Second, interest is earned monthly, rather than semi-annually as with
traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying it. For example, if
interest rates decline, prepayments may occur faster than had been
originally projected and the yield to maturity and investment income would
be reduced.
(v) FHLMC SECURITIES. "FHLMC" is a federally chartered corporation created
in 1970 through enactment of Title III of the Emergency Home Finance Act of
1970. Its purpose is to promote development of a nationwide secondary market
in conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made or owed on the
underlying
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pool. The FHLMC guarantees timely payment of interest on PCs and the
ultimate payment of principal. Like GNMA Certificates, PCs are assumed to be
prepaid fully in their twelfth year.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a
year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years.
(vi) FNMA SECURITIES. "FNMA" is a federally chartered and privately owned
corporation which was established in 1938 to create a secondary market in
mortgages insured by the FHA. It was originally established as a government
agency and was transformed into a private corporation in 1968.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all interest and principal
payments made or owed on the underlying pool. FNMA guarantees timely payment
of interest on FNMA certificates and the full return of principal. Like GNMA
Certificates, FNMA Certificates are assumed to be prepaid fully in their
twelfth year.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the pass-through certificates. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
governmental pools because there are no direct or indirect governmental
guarantees of payments in the former pools. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool, and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers,
and the mortgage poolers.
The Fund expects that governmental or private entities may create mortgage loan
pools offering pass-through investments in addition to those described above. As
new types of pass-through securities are developed and offered to investors,
Advisers may, consistent with Fund's investment objectives, policies, and
restrictions, consider making investments in such new types of securities.
Other types of mortgage-related securities include debt securities which are
secured, directly or indirectly, by mortgages on commercial real estate or
residential rental properties, or by first liens on residential manufactured
homes (as defined in section 603(6) of the National Manufactured Housing
Construction and Safety Standards Act of 1974), whether such manufactured homes
are considered real or personal property under the laws of the states in which
they are located.
Securities in this investment category include, among others, standard
mortgage-backed bonds and newer collateralized mortgage obligations (CMO's).
Mortgage-related bonds are secured by pools of mortgages, but, unlike
pass-through securities, payments to bondholders are not determined by payments
on the mortgages. The bonds consist of a single class, with interest payable
monthly and principal payable on the stated date of maturity. CMO's have
characteristics of both pass-through securities and mortgage-related bonds.
CMO's are secured by pools of mortgages, typically in the form of "guaranteed"
pass-through certificates such as GNMA, FNMA, or FHLMC securities. The payments
on the collateral securities determine the payments to the bondholders, but
there is not a direct "pass-through" of payments. CMO's are structured into
multiple classes, each bearing a different date of maturity. Monthly payments of
principal received from the pool of underlying mortgages, including prepayments,
is first returned to investors holding the shortest maturity class. Investors
holding the longest maturity classes receive principal only after the shorter
maturity classes have been retired.
CMO's are issued by entities that operate under orders from the Securities and
Exchange Commission (the SEC) exempting such issuers from the provisions of the
Investment Company Act of 1940 (the 1940 Act). Until recently, the staff of the
SEC had taken the position that such issuers were investment companies and that,
accordingly, an investment by an investment company (such as the Fund) in the
securities of such issuers was subject to limitations imposed by Section 12 of
the 1940 Act. However, in reliance on a recent SEC staff interpretation, the
Fund may invest in securities issued by certain "exempted issuers" without
regard to the limitations of Section 12 of the 1940 Act. In its interpretation,
the SEC staff defined "exempted issuers" as unmanaged, fixed asset issuers that
(a) invest primarily in mortgage-backed securities, (b) do not issue redeemable
securities as defined in Section 2(a)(32) of the 1940 Act, (c) operate under
general exemptive orders exempting them from "all provisions of the [1940] Act"
and (d) are not registered or regulated under the 1940 Act as investment
companies.
Investments in mortgage-related securities involve certain risks. In periods of
declining interest rates, prices of fixed income securities tend to rise.
However, during such periods, the rate of prepayment of mortgages underlying
mortgage-related securities tends to increase, with the result that such
prepayments must be reinvested by the issuer at lower rates. In addition, the
value of such securities may fluctuate in response to the market's perception of
the creditworthiness of the issuers of mortgage-related securities owned by the
Fund. Because investments in mortgage-related securities are interest sensitive,
the ability of the issuer to reinvest or to reinvest favorably in underlying
mortgages may be limited by government regulation or tax policy. For example,
action by the Board of Governors of the Federal Reserve System to limit the
growth of the nation's money supply may cause interest rates to rise and thereby
reduce the volume of new
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residential mortgages. Additionally, although mortgages and mortgage-related
securities are generally supported by some form of government or private
guarantees and/or insurance, there is no assurance that private guarantors or
insurers will be able to meet their obligations.
SECURITIES OF FOREIGN COMPANIES
The Fund may invest up to 10% of its total assets in securities of foreign
governments and companies.
Investing in foreign securities may result in greater risk than that incurred by
investing in domestic securities. See "Risk Factors."
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. A repurchase agreement is an
instrument under which securities are purchased from a bank or securities dealer
with an agreement by the seller to repurchase the securities at a mutually
agreed upon date, interest rate, and price. Generally, repurchase agreements are
of short duration--usually less than a week, but on occasion for longer periods.
In investing in repurchase agreements, the Fund's risk is limited to the ability
of such bank or securities dealer to pay the agreed upon amount at the maturity
of the repurchase agreement. In the opinion of management, such risk is not
material; if the other party defaults, the underlying security constitutes
collateral for the obligation to pay--although the Fund may incur certain delays
in obtaining direct ownership of the collateral, plus costs in liquidating the
collateral. In the event a bank or securities dealer defaults on the repurchase
agreement, management believes that, barring extraordinary circumstances, the
Fund will be entitled to sell the underlying securities or otherwise receive
adequate protection (as defined in the federal Bankruptcy Code) for its interest
in such securities. To the extent that proceeds from any sale upon a default
were less than the repurchase price, the Fund could suffer a loss. If the Fund
owns underlying securities following a default on the repurchase agreement, the
Fund will be subject to risk associated with changes in the market value of such
securities. The Fund's custodian will hold the securities underlying any
repurchase agreement or such securities may be part of the Federal Reserve Book
Entry System. The market value of the collateral underlying the repurchase
agreement will be determined on each business day. If at any time the market
value of the collateral falls below the repurchase price of the repurchase
agreement (including any accrued interest), the Fund will promptly receive
additional collateral (so the total collateral is in an amount at least equal to
the repurchase price plus accrued interest). The Board of Directors evaluates
the creditworthiness of issuers which are securities dealers.
DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a "when issued" or delayed delivery basis
and purchase or sell securities on a "forward commitment" basis. When such
transactions are negotiated, the price is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. At the time the
Fund enters into a transaction on a when-issued or forward commitment basis, a
segregated account consisting of cash, U.S. Government securities or any
security that is not considered restricted or illiquid equal to the value of the
when-issued or forward commitment securities will be established and maintained
with the custodian and will be marked to the market daily. During the period
between a commitment and settlement, no payment is made for the securities
purchased by the purchaser and, thus, no interest accrues to the purchaser from
the transaction. If the Fund disposes of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it can incur a gain or loss due to market
fluctuation. The use of when-issued transactions and forward commitments enables
the Fund to hedge against anticipated changes in interest rates and prices. The
Fund may also enter into such transactions to generate incremental income. In
some instances, the third-party seller of when-issued or forward commitment
securities may determine prior to the settlement date that it will be unable or
unwilling to meet its existing transaction commitments without borrowing
securities. If advantageous from a yield perspective, the Funds may, in that
event, agree to resell its purchase commitment to the third-party seller at the
current market price on the date of sale and concurrently enter into another
purchase commitment for such securities at a later date. As an inducement for
the Fund to "roll over" its purchase commitment, the Fund may receive a
negotiated fee. The purchase of securities on a when-issued, delayed delivery,
or forward commitment basis exposes the Fund to risk because the securities may
decrease in value prior to their delivery. Purchasing securities on a
when-issued, delayed delivery, or forward commitment basis involves the
additional risk that the return available in the market when the delivery takes
place will be higher than that obtained in the transaction itself. These risks
could result in increased volatility of the Fund's net asset value to the extent
that the Fund purchases securities on a when-issued, delayed delivery, or
forward commitment basis while remaining substantially fully invested. There is
also a risk that the securities may not be delivered or that a Fund may incur a
loss or will have lost the opportunity to invest the amount set aside for such
transaction in the segregated asset account. As to each such Fund, no more than
20% of its net assets may be invested in when-issued, delayed delivery or
forward commitment transactions, and of such 20%, no more than one-half (i.e.,
10% of its net assets) may be invested in when-issued, delayed delivery or
forward commitment transactions without the intention of actually acquiring
securities (i.e., dollar rolls).
DOLLAR ROLLS
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into "dollar rolls" in which the
Fund sells securities for delivery in the current month
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and simultaneously contracts with the same counterparty to repurchase similar
(same type, coupon and maturity) but not identical securities on a specified
future date. The Fund gives up the right to receive principal and interest paid
on the securities sold. However, the Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase plus any fee income received. Unless such
benefits exceed the income and capital appreciation that would have been
realized on the securities sold as part of the dollar roll, the use of this
technique will diminish the investment performance of the Fund compared with
what such performance would have been without the use of dollar rolls. The Fund
will hold and maintain in a segregated account until the settlement date cash,
government securities or liquid high-grade debt securities in an amount equal to
the value of the when-issued or forward commitment securities. The benefits
derived from the use of dollar rolls may depend, among other things, upon
Advisers ability to predict interest rates correctly. There is no assurance that
dollar rolls can be successfully employed. In addition, the use of dollar rolls
by the Fund while remaining substantially fully invested increases the amount of
the Fund's assets that are subject to market risk to an amount that is greater
than the Fund's net asset value, which could result in increased volatility of
the price of the Fund's shares.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities (principally to broker-dealers) where such loans are
callable at any time and are continuously secured by collateral (as, U.S.
government securities, certificates of deposit, or other high-grade, short-term
obligations or interest-bearing cash equivalents) equal to no less than the
market value, determined daily, of the securities loaned. The Fund will receive
amounts equal to dividends or interest on the securities loaned. The Fund will
also earn income for having made the loan. The Fund will limit such lending to
not more than 33 1/3% of the value of the Fund's total assets (including the
amount lent as well as the collateral securing such loans). Where voting or
consent rights with respect to loaned securities pass to the borrower,
management will follow the policy of calling the loan, in whole or in part as
may be appropriate, to permit the exercise of such voting or consent rights if
the issues involved have a material effect on the Fund's investment in the
securities loaned. Apart from lending its securities, investing in repurchase
agreements, and acquiring debt securities, as described in the Prospectus and
Statement of Additional Information, the Fund will not make loans to other
persons.
The risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms deemed by Fortis
Advisers, Inc. ("Advisers") to be of good standing and will not be made unless,
in the judgment of Advisers, the consideration to be earned from such loans
would justify the risk.
Borrowings by the Fund through banks and "roll" transactions will not exceed
33 1/3% of the total assets of the Fund; however, an investment policy
changeable without shareholder approval further restricts the Fund's borrowings
to 10% of its total assets. No additional investment securities may be purchased
by the Fund when outstanding borrowings, (including "roll" transactions) exceed
5% of the value of its total assets. If market fluctuations in the value of the
portfolio holdings or other factors cause the ratio of total assets to
outstanding borrowings to fall below 300%, within three days (excluding Sundays
and holidays) of such event the Fund may be required to sell portfolio
securities to restore the 300% asset coverage, even though from an investment
standpoint such sales might be disadvantageous. Interest paid on borrowings will
not be available for investment.
RESTRICTED OR ILLIQUID SECURITIES
The Fund has a nonfundamental policy prohibiting investment of more than 15% of
its net assets in illiquid securities. This restriction does not include
securities which may be resold to qualified institutional buyers in accordance
with the provisions of Rule 144A under the Securities Act of 1933 ("Rule 144A
securities"). The staff of the Securities and Exchange Commission has taken the
position that the liquidity of Rule 144A securities in the portfolio of a fund
offering redeemable securities is a question of fact for a board of directors of
such a fund to determine, based upon a consideration by such board of the
readily available trading markets and a review of any contractual restrictions.
The SEC staff also acknowledges that, while such a board retains ultimate
responsibility, if may delegate this function to the fund's investment adviser.
At the present time, it is not possible to predict with assurance exactly how
the market for Rule 144A securities will develop. A Rule 144A security which
when purchased enjoyed a fair degree of marketability may subsequently become
illiquid, thereby adversely affecting the liquidity of the Fund's portfolio.
SHORT SALES AGAINST THE BOX
The Fund may sell a security to the extent the Fund contemporaneously owns or
has the right to obtain securities identical to those sold short without payment
of any additional consideration. Such a short sale is referred to as a short
sale "against the box." The aggregate market value of the underlying securities
subject to all outstanding short sales may not exceed 5% of the net assets of
the Fund.
INVESTMENT RESTRICTIONS
As a result of the following fundamental investment restrictions, except as
otherwise noted below, Growth & Income Fund will not:
(1) Concentrate its investments in any particular industry, except that (i)
it may invest up to 25% of the value of its total assets in any particular
industry, and (ii) there is no limitation with respect to investments in
obligations issued or guaranteed by the United States Government or its agencies
and instrumentalities, or obligations of
50
<PAGE>
domestic commercial banks. As to utility companies, gas, electric, water and
telephone companies will be considered as separate industries. As to finance
companies, the following categories will be considered as separate industries:
(a) captive automobile finance, such as General Motors Acceptance Corp. and Ford
Motor Credit Corp.; (b) captive equipment finance companies, such as Honeywell
Finance Corporation and General Electric Credit Corp.; (c) captive retail
finance companies, such as Macy Credit Corp. and Sears Roebuck Acceptance Corp.;
(d) consumer loan companies, such as Beneficial Finance Corporation and
Household Finance Corporation; (e) diversified finance companies such as CIT
Financial Corp., Commercial Credit Corporation and Borg Warner Acceptance Corp.;
and (f) captive oil finance companies, such as Shell Credit, Inc., Mobile Oil
Credit Corp. and Texaco Financial Services, Inc.
(2) Purchase or sell physical commodities (such as grains, livestock, etc.)
or futures or options contracts thereon. However, it may purchase or sell any
forms of financial instruments or contracts that might be deemed commodities.
(3) Invest directly in real estate or interests in real estate; however, the
Fund may invest in interests in real estate investment trusts, debt securities
secured by real estate or interests therein, or debt or equity securities issued
by companies which invest in real estate or interests therein.
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as security for
indebtedness, any securities owned or held by the Fund, provided that this
restriction shall not apply to the transfer of securities in connection with any
permissible borrowing or the collateral arrangements in connection with
permissible activities.
(5) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, the
Fund may be deemed an underwriter under applicable laws.
(6) Purchase securities on margin, except that the Fund, in accordance with
its investment objectives and policies, may purchase securities on a
when-issued, delayed delivery or forward commitment basis. The Fund may also
obtain such short-term credit as it needs for the clearance of securities
transactions and may make margin deposits in connection with futures contracts.
(7) Make short sales, except for sales "against the box." While a short sale
is made by selling a security the Fund does not own, a short sale is "against
the box" to the extent the Fund contemporaneously owns or has the right to
obtain securities identical to those sold without payment of any additional
consideration.
(8) Make loans to other persons, except (i) the Fund may lend its portfolio
securities in an amount not to exceed 33 1/3% of the value of its total assets
if such loans are secured by collateral equal to at least the market value of
the securities lent, provided that such collateral shall be limited to cash,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit or other high-grade, short-term
obligations or interest-bearing cash equivalents; and (ii) it may purchase debt
securities through private placements (restricted securities) in accordance with
its investment objectives and policies.
(9) Issue senior securities (as defined in the 1940 Act) other than as set
forth in restriction #10 below and except to the extent that using options and
futures contracts or purchasing or selling securities on a when issued, delayed
delivery or forward commitment basis (including the entering into of roll
transactions) may be deemed to constitute issuing a senior security.
(10) Borrow money except from banks for temporary or emergency purposes not in
excess of 33 1/3% of the value of the Fund's total assets. The Fund will not
purchase securities while borrowings (including "roll" transactions) in excess
of 5% of total assets are outstanding. In the event that the asset coverage for
the Fund's borrowings falls below 300%, the Fund will reduce, within three days
(excluding Sundays and holidays), the amount of its borrowings in order to
provide for 300% asset coverage.
The following investment restrictions may be changed by the Board of Directors
without shareholder approval.
The Growth & Income Fund will not:
(1) Invest more than 5% of the value of its total assets in securities of
other investment companies, except in connection with a merger, consolidation,
acquisition, or reorganization; provided that the Fund shall not purchase or
otherwise acquire more than 3% of the total outstanding voting stock of any
other investment company. (Since the Fund indirectly absorbs its pro rata share
of the other investment companies' expenses through the return received on these
securities, "double" investment advisory fees in effect are paid on those
portfolio assets invested in shares of other investment companies. However,
management believes that at times the return and liquidity features of these
securities will be more beneficial to the Fund than other types of securities,
and that the indirect absorption of these expenses has a de minimis effect on
the Fund's return.)
(2) Invest in a company for the purpose of exercising control or management.
(3) Invest in interests (including partnership interests or leases) in oil,
gas, or other mineral exploration or development programs, except the Fund may
purchase or sell securities issued by corporations engaging in oil, gas, or
other mineral exploration or development business.
(4) Purchase or retain the securities of any issuer if those officers and
directors of the Fund or its investment adviser owning (including beneficial
ownership) individually more than 1/2 of 1% of the securities of such issuer
together own (including beneficial ownership) more than 5% of the securities of
such issuer.
51
<PAGE>
(5) Invest more than 5% of its total assets in securities of unseasoned
issuers, including their predecessors, which have been in operation for less
than three years.
(6) Invest more than 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and Exchange
Commission rules and interpretations.
(7) Enter into any options, futures, or forward contract transactions if
immediately thereafter (a) the amount of premiums paid for all options, initial
margin deposits on all futures contracts and/or options on futures contracts,
and collateral deposited with respect to forward contracts held by or entered
into by the Fund would exceed 5% of the value of the total assets of the Fund or
(b) the Fund's assets covering, subject to, or committed to all options,
futures, and forward contracts would exceed 20% of the value of the total assets
of the Fund. (This restriction does not apply to securities purchased on a
when-issued, delayed delivery, or forward commitment basis.)
(8) Invest in real estate limited partnership interests.
(9) Purchase the securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any issuer to be
held by the Fund.
(10) Borrow money in excess of 10% of its total assets, except as a temporary
or emergency measure. ("Roll" transactions will not be considered borrowing for
purposes of this restriction).
In seeking to attain its investment objectives, the Fund will invest primarily
in common stocks or securities convertible into common stocks. Occasionally,
however, limited amounts may be invested in other types of securities (such as
nonconvertible preferred and debt securities). In periods when a more defensive
position is deemed warranted, the Fund may invest in high grade preferred
stocks, bonds, and other fixed income securities (whether or not convertible
into or carrying rights to purchase common stock) or retain cash, all without
limitation. The Fund may invest in repurchase agreements and in both listed and
unlisted securities.
The Fund may also invest up to 10% of its total assets (at the time in
investment) in foreign securities.
No more than 20% of the Fund's net assets may be invested to when-issued,
delayed delivery, or forward commitment transactions, and of such 20%, no more
than one-half (i.e., 10% of its net assets) may be invested in when-issued,
delayed delivery, or forward commitment transactions without the intention of
actually acquiring securities (i.e., dollar rolls).
52
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses, principal occupations, and other affiliations of directors
and executive officers of the Funds are given below. All positions have been
held at least five years unless otherwise stated.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND AFFILIATIONS
NAME & ADDRESS AGE THE FUNDS DURING PAST 5 YEARS
- ------------------------------ --- --------------- ------------------------------------------------------------
<S> <C> <C> <C>
Richard W. Cutting 66 Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York
Allen R. Freedman* 57 Director Chairman and Chief Executive Officer of Fortis, Inc.; a
One Chase Manhattan Plaza Managing Director of Fortis International, N. V.
New York, New York
Dr. Robert M. Gavin 57 Director President, Cranbrook Education Community. Prior to July
Office of the President 1996, President, Macalester College.
370 Lancaster Ave
Haverford, PA 19041
Benjamin S. Jaffray 67 Director Chairman of the Sheffield Group, Ltd., a financial
4040 IDS Center consulting group.
Minneapolis, Minnesota
Jean L. King 53 Director President, Communi-King, a communications consulting firm.
12 Evergreen Lane
St. Paul, Minnesota
Dean C. Kopperud* 45 President and Chief Executive Officer and a Director of Advisers,
500 Bielenberg Drive Director President and a Director of Investors, President of Fortis
Woodbury, Minnesota Financial Group, a Director of Fortis Benefits Insurance
Company and a Senior Vice President of Time Insurance
Company.
Edward M. Mahoney 67 Director Retired. Prior to December 1994, Chairman, Chief Executive
2760 Pheasant Road Officer and a Director of Advisers and Investors, Senior
Excelsior, Minnesota Vice President and a Director of Fortis Benefits Insurance
Company, and Senior Vice President of Time Insurance
Company.
Robb L. Prince 56 Director Financial and Employee Benefit Consultant. Prior to July
5108 Duggan Plaza 1995, Vice President and Treasurer, Jostens, Inc., a
Edina, Minnesota producer of products and services for the youth, education,
sports award, and recognition markets.
Leonard J. Santow 61 Director Principal, Griggs & Santow, Incorporated, economic and
75 Wall Street financial consultants.
21st Floor
New York, New York
Noel S. Shadko 43 Director Marketing Consultant. Prior to May 1996, Senior Vice
1908 W. 49th St. President of Marketing & Strategic Planning, Rollerblade,
Minneapolis, MN Inc.
Joseph M. Wikler 56 Director Investment consultant and private investor. Prior to 1994,
12520 Davan Drive Director of Research, Chief Investment Officer, Principal,
Silver Spring, Maryland and a Director, The Rothschild Co., Baltimore, MD.
Gary N. Yalen 55 Vice President President and Chief Investment Officer of Advisers (since
One Chase Manhattan Plaza August 1995) and Senior Vice President, Investments, Fortis,
New York, New York Inc. Prior to 1996, President and Chief Investment Officer,
Fortis Asset Management, a former division of Fortis, Inc.
Howard G. Hudson 60 Vice President Executive Vice President and Head of Fixed Income
One Chase Manhattan Plaza Investments of Advisers (since August 1995). Prior to 1996,
New York, New York Senior Vice President, Fixed Income, Fortis Asset
Management.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND AFFILIATIONS
NAME & ADDRESS AGE THE FUNDS DURING PAST 5 YEARS
- ------------------------------ --- --------------- ------------------------------------------------------------
<S> <C> <C> <C>
Lucinda S. Mezey 50 Vice President Executive Vice President and Head of Equity Investments of
500 Bielenberg Drive Advisers since October 1997. From 1995 to October 1997,
Woodbury, Minnesota Chief Investment Officer, Alex Brown Capital Advisory and
Trust Co., Baltimore, MD and prior to 1995, Senior Vice
President and Head of Equity Investments, PNC Bank,
Philadelphia, PA.
James S. Byrd 46 Vice President Executive Vice President of Advisers. Prior to 1995, Vice
5500 Wayzata Boulevard President of Advisers and Investors.
Golden Valley, Minnesota
Nicholas L. M. de Peyster 31 Vice President Vice President of Advisers since August 1995. Prior to 1996,
One Chase Manhattan Plaza Vice President, Equities, Fortis Asset Management.
New York, New York
Charles J. Dudley 38 Vice President Vice President of Advisers and Fortis Asset Management since
One Chase Manhattan Plaza 1995. Prior to 1995, Senior Vice President, Sun America
New York, New York Asset Management, Los Angeles, CA.
Maroun M. Hayek 49 Vice President Vice President of Advisers since 1995. Prior to 1996, Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management.
New York, New York
Robert C. Lindberg 45 Vice President Vice President of Advisers.
One Chase Manhattan Plaza
New York, New York
Charles L. Mehlhouse 55 Vice President Vice President of Advisers. Prior to March 1996, Portfolio
One Chase Manhattan Plaza Manager, Marshall & Ilsley Bank Corporation, Milwaukee, WI.
New York, New York
Kevin J. Michels 46 Vice President Vice President of Advisers since 1995. Prior to 1996, Vice
One Chase Manhattan Plaza President, Administration, Fortis Asset Management.
New York, New York
Christopher J. Pagano 34 Vice President Vice President of Advisers since 1996. Prior to March 1996,
One Chase Manhattan Plaza Government Strategist, Merrill Lynch, New York, N.Y.
New York, N.Y.
Christopher J. Woods 37 Vice President Vice President of Advisers since 1995. Prior to 1996, Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management.
New York, New York
Robert W. Beltz, Jr. 48 Vice President Vice President--Securities Operations of Advisers and
500 Bielenberg Drive Investors.
Woodbury, Minnesota
Peggy Ettestad 40 Vice President Senior Vice President, Operations of Advisers. Prior to
500 Bielenberg Drive March 1997, Vice President of G.E. Capital Fleet Services,
Woodbury, Minnesota Minneapolis, MN.
Dickson Lewis 48 Vice President Senior Vice President, Marketing and Sales of Advisers since
500 Bielenberg Drive July 1997. From 1993 to July 1997, President and Chief
Woodbury, Minnesota Executive Officer Hedstrum/Blessing, Inc., Minneapolis, MN.
Tamara L. Fagely 39 Vice President Second Vice President of Advisers and Investors.
500 Bielenberg Drive and Treasurer
Woodbury, Minnesota
David A. Peterson 55 Vice President Vice President and Assistant General Counsel, Fortis
500 Bielenberg Drive Benefits Insurance Company.
Woodbury, Minnesota
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND AFFILIATIONS
NAME & ADDRESS AGE THE FUNDS DURING PAST 5 YEARS
- ------------------------------ --- --------------- ------------------------------------------------------------
<S> <C> <C> <C>
Scott R. Plummer 38 Vice President Vice President, Associate General Counsel and Assistant
500 Bielenberg Dr. Secretary of Advisers. Prior to September 1993, Attorney,
Woodbury, Minnesota Zelle & Larson, Minneapolis, MN.
Michael J. Radmer 52 Secretary Partner, Dorsey & Whitney LLP, the Funds' General Counsel.
220 South Sixth Street
Minneapolis, Minnesota
Rhonda J. Schwartz 39 Vice President Since January 1996, Senior Vice President and General
500 Bielenberg Drive Counsel of Advisers, Senior Vice President and General
Woodbury, Minnesota Counsel, Life and Investment Products, Fortis Benefits
Insurance Company and Vice President and General Counsel,
Life and Investment Products, Time Insurance Company. From
1993 to January 1996, Vice President and General Counsel,
Fortis, Inc.
Melinda S. Urion 45 Vice President Senior Vice President and Chief Financial Officer of
500 Bielenberg Drive Advisers. Prior to December 1997, Senior Vice President of
Woodbury, Minnesota Finance and Chief Financial Officer, American Express
Financial Corporation; prior to March 1995, Corporate
Controller, American Express Financial Corporation and prior
to 1994, Controller and Treasurer, IDS Life Insurance
Company, Minneapolis, MN.
</TABLE>
- -------------------------------------------
* Mr. Kopperud is an "interested person" (as defined under the 1940 Act) of the
Funds, Advisers, and Investors primarily because he is an officer and a
director of each. Mr. Freedman is an "interested person" of the Funds,
Advisers, and Investors because he is Chairman and Chief Executive Officer of
Fortis, Inc. ("Fortis"), the parent company of Advisers and indirect parent
company of Investors, and a Managing Director of Fortis International, N. V.,
the parent company of Fortis.
Each director who is not affiliated with Advisers or Investors receives a
monthly fee and a fee for each meeting attended. The monthly fees paid are:
Asset Allocation Portfolio and Capital Appreciation Portfolio--$200; Value Fund,
Capital Fund and Growth & Income Fund-- $150; Fiduciary Fund--$100; and Growth
Fund--$350. In addition, each Fund pays a fee of $100 for each meeting attended
and each committee meeting attended. The following table sets forth the
aggregate compensation received by each director during the fiscal year ended
August 31, 1997 for Fortis Advantage Portfolios, Fortis Equity Portfolios,
Fortis Fiduciary, and Fortis Growth Fund as well as the total compensation
received by each director from the Funds and all other open-end investment
companies managed by Advisers during the calendar year ended December 31, 1997.
Neither Mr. Freedman, who is an officer of the parent company of Advisers, nor
Mr. Kopperud, who is an officer of Advisers and Investors, received any such
compensation. No executive officer receives any compensation from the Funds.
<TABLE>
<CAPTION>
AGGREGATE
AGGREGATE COMPENSATION TOTAL
COMPENSATION FROM FROM FORTIS COMPENSATION FROM
FORTIS EQUITY ADVANTAGE COMPENSATION FROM COMPENSATION FROM FUND COMPLEX PAID
DIRECTOR PORTFOLIO PORTFOLIOS(2) FORTIS FIDUCIARY FORTIS GROWTH TO DIRECTOR(1)
- -------------------------------- ----------------- --------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Richard W. Cutting.............. $ 2,400 $ 3,000 $ 1,800 $ 4,800 $ 31,200
Dr. Robert M. Gavin............. $ 2,400 $ 3,000 $ 1,800 $ 4,800 $ 31,200
Benjamin S. Jaffray............. $ 2,516 $ 3,200 $ 1,751 $ 5,234 $ 24,300
Jean L. King.................... $ 2,544 $ 3,200 $ 1,834 $ 5,156 $ 32,200
Edward M. Mahoney............... $ 2,400 $ 3,000 $ 1,800 $ 4,800 $ 31,200
Robb L. Prince.................. $ 2,544 $ 3,200 $ 1,834 $ 5,156 $ 33,200
Leonard J. Santow............... $ 2,300 $ 2,900 $ 1,700 $ 4,700 $ 30,200
Noel S. Shadko.................. $ 2,400 $ 3,000 $ 1,800 $ 4,800 $ 22,200
Joseph M. Wikler................ $ 2,400 $ 3,000 $ 1,800 $ 4,800 $ 31,200
</TABLE>
- ------------------------
(1) Includes aggregate compensation paid by the Funds and all Other Fortis Funds
to the director.
(2) The compensation paid by Fortis Advantage covers three separate portfolios.
Asset Allocation Portfolio and Capital Appreciation Portfolio are included
in this Statement of Additional Information.
55
<PAGE>
As of November 30, 1997, the directors and executive officers of each Fund
beneficially owned less than 1% of the outstanding shares of each Fund.
Directors Kopperud, Prince, Gavin, Shadko, Mahoney and Jaffray are members of
the Executive Committee of each Fund's Board of Directors. While the Executive
Committee is authorized to act in the intervals between regular board meetings
with full capacity and authority of the full Board of Directors, except as
limited by law, it is expected that the Committee will meet at least twice a
year.
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL
Fortis Advisers, Inc. ("Advisers") has been the investment adviser and manager
of each Fund since inception. Investors acts as the Funds' underwriter. Both act
as such pursuant to written agreements periodically approved by the directors or
shareholders of each Fund. The address of both is that of the Funds.
As of September 30, 1997, Advisers managed twenty-nine investment company
portfolios with combined net assets of approximately $5.6 billion and one
private account with net assets of approximately $24 million. As of the same
date, the investment company portfolios had an aggregate of 271,785
shareholders.
During the past three fiscal periods the following amounts were paid to Advisers
(as its compensation for acting as the investment adviser and manager of the
Fund), Investors (for underwriting the Fund's shares), and sales representatives
and dealers (by Investors as commissions):
<TABLE>
<CAPTION>
ASSET ALLOCATION GROWTH & CAPITAL
PORTFOLIO VALUE FUND INCOME FUND FUND
------------------------------ ------------------ ------------------ --------------------------------
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
FISCAL PERIOD ENDED: 1997 1996 1995 1997 1996 1997 1996 1997 1996 1995
---------- ---------- -------- ---------- ------- ------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount Paid to:
Advisers.............. $1,577,254 $1,396,000 $997,289 $ 207,623 $56,988 $125,226 $ 19,129 $2,735,421 $2,519,746 $2,246,268
Investors............. $ 438,308 $ 559,079 $318,143 $ 149,014 $58,069 $145,005 $ 56,833 $ 461,654 $ 488,205 $ 491,336
Sales Representatives
and Dealers.......... $ 320,920 $ 417,554 $255,056 $ 113,187 $43,116 $130,015 $ 41,884 $ 326,685 $ 385,588 $ 400,273
</TABLE>
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED:
<S>
Amount Paid to:
Advisers..............
Investors.............
Sales Representatives
and Dealers..........
<CAPTION>
FIDUCIARY GROWTH CAPITAL APPRECIATION
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amount Paid to:
Advisers.............. $818,135 $708,986 $537,646 $6,323,998 $5,563,562 $4,517,570 $1,190,025 $1,086,889 $627,249
Investors............. $154,080 $179,937 $149,141 $1,439,303 $1,716,774 $1,598,991 $ 526,431 $572,493 $269,096
Sales Representatives
and Dealers.......... $115,777 $137,391 $115,197 $1,063,586 $1,335,651 $1,309,566 $ 366,263 $444,245 $217,531
</TABLE>
During the fiscal period year August 31, 1997, Investors received the following
amounts pursuant to the Plan of Distribution (see "Plan of Distribution"), paid
the following amounts to broker-dealers and
registered representatives, and in addition to such amount (along with Advisers)
spent the following amounts on activities related to the distribution of each
Fund's shares:
<TABLE>
<CAPTION>
ASSET
ALLOCATION
PORTFOLIO VALUE GROWTH & CAPITAL FIDUCIARY GROWTH CAPITAL
----------- FUND INCOME FUND FUND FUND APPRECIATION
---------- FUND ---------- ---------- ---------- PORTFOLIO
---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Amount received............................. $ 903,963 $ 90,880 $ 68,398 $ 949,813 $ 259,087 $2,134,099 $ 655,447
Amount paid................................. $ 816,967 $ 189,164 $ 202,090 $ 827,535 $ 281,171 $1,982,006 $ 665,965
Additional expenses paid.................... $ 153,795 $ 77,572 $ 64,554 $ 138,230 $ 63,993 $ 385,378 $ 189,543
</TABLE>
- --------------------------------------------------------------------------------
CONTROL AND MANAGEMENT OF ADVISERS AND INVESTORS
Fortis owns 100% of the outstanding voting securities of Advisers, and Advisers
owns all of the outstanding voting securities of Investors.
Fortis, located in New York, New York, is a wholly owned subsidiary of Fortis
International, N.V., which has approximately $100 billion in assets worldwide
and is in turn an indirect wholly owned subsidiary of AMEV/VSB 1990 N.V.
("AMEV/VSB 1990").
AMEV/VSB 1990 is a corporation organized under the laws of The Netherlands to
serve as the holding company for all U.S. operations
56
<PAGE>
and is owned 50% by Fortis AMEV and 50% by Fortis AG ("Group AG"). AMEV/VSB 1990
owns a group of companies active in insurance, banking and financial services,
and real estate development in The Netherlands, the United States, Western
Europe, Australia, and New Zealand.
Fortis AMEV is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis AMEV and Fortis AG
own a group of companies (of which AMEV/VSB 1990 is one) active in insurance,
banking and financial services, and real estate development in The Netherlands,
Belgium, the United States, Western Europe, and the Pacific Rim.
Dean C. Kopperud is Chief Executive Officer of Advisers and President of
Investors; Gary N. Yalen is President and Chief Investment Officer of Advisers;
James S. Byrd, Howard G. Hudson and Lucinda S. Mezey are Executive Vice
Presidents of Advisers; Debra L. Foss, Jon H. Nicholson, Dickson Lewis, Peggy
Ettestad and Melinda S. Urion are Senior Vice Presidents of Advisers; Rhonda J.
Schwartz is Senior Vice President, General Counsel, and Secretary of Advisers;
Robert W. Beltz, Jr. is a Vice President of Advisers and Investors; Nicholas L.
M. de Peyster, Charles J. Dudley, Maroun H. Hayek; Kevin J. Michels, Christopher
Pagano, Stephen M. Rickert, Christopher J. Woods Charles L. Mehlhouse, Eugene
Glazer, Robert C. Lindberg, Ann B. Ray and Thomas C. Britton are Vice Presidents
of Advisers; John E. Hite is 2nd Vice President and Assistant Secretary of
Advisers; Carol M. Houghtby is Vice President and Treasurer of Advisers and
Investors; Tamara L. Fagely is 2nd Vice President of Advisers and Investors;
Barbara W. Kirby is 2nd Vice President of Advisers. David C. Greenzang is Money
Market Portfolio Officer of Advisers; Michael D. O'Connor is qualified Plan
Officer of Advisers; Scott R. Plummer is Vice President, Associate General
Counsel and Assistant Secretary of Advisers; Joanne M. Herron is Assistant
Treasurer of Advisers and Investors and Debbie Malewski and Daniel Dubin are 2nd
Vice Presidents of Advisers.
Messrs. Kopperud, Yalen, and Byrd are the Directors of Advisers.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Advisers acts as investment adviser and manager of each Fund under separate
Investment Advisory and Management Agreements. These agreements are individually
referred to as an "Agreement" and collectively referred to as the "Agreements."
Each Agreement will terminate automatically in the event of its assignment. In
addition, each Agreement is terminable at any time, without penalty, by the
applicable Board of Directors or, with respect to any particular portfolio, by
vote of a majority of the outstanding voting securities of the applicable
portfolio, on not more than 60 days' written notice to Advisers, and by Advisers
on 60 days' notice to the applicable Fund. Unless sooner terminated, each
Agreement shall continue in effect for more than two years after its execution
only so long as such continuance is specifically approved at least annually by
either the applicable Board of Directors or, with respect to any particular
portfolio, by vote of a majority of the outstanding voting securities of the
applicable portfolio, provided that in either event such continuance is also
approved by the vote of a majority of the directors who are not parties to such
Agreement, or interested persons of such parties, cast in person at a meeting
called for the purpose of voting on such approval.
Each Agreement provides for an investment advisory and management fee paid by
each Fund calculated as described in the following table.
<TABLE>
<CAPTION>
ANNUAL
INVESTMENT ADVISORY
AVERAGE NET ASSETS AND MANAGEMENT FEE
- ---------------------------- -------------------
For the first $100,000,000 1.0%
<S> <C>
For the next $150,000,000 .8%
For assets over $250,000,000 .7%
</TABLE>
The Agreements require each Fund to pay all its expenses which are not assumed
by Advisers and/or Investors. These Fund expenses include, by way of example,
but not by way of limitation, the fees and expenses of directors and officers of
the Fund who are not "affiliated persons" of Advisers, interest expenses, taxes,
brokerage fees and commissions, fees and expenses of registering and qualifying
the Fund and its shares for distribution under Federal and state securities
laws, expenses of preparing prospectuses and of printing and distributing
prospectuses annually to existing shareholders, custodian charges, auditing and
legal expenses, insurance expenses, association membership dues, and the expense
of reports to shareholders, shareholders' meetings, and proxy solicitations.
Advisers bears the costs of acting as each Fund's transfer agent, registrar, and
dividend disbursing agent.
Advisers reserves the right, but shall not be obligated, to institute voluntary
expense reimbursement programs which, if instituted, shall be in such amounts
and based on such terms and conditions as Advisers, in its sole and absolute
discretion, determines. Furthermore, Advisers reserves the absolute right to
discontinue any of such reimbursement programs at any time without notice to the
applicable Fund.
Expenses that relate exclusively to a particular Fund, such as custodian charges
and registration fees for shares, are charged to that Fund. Other expenses are
allocated pro rata among the Funds in an equitable manner as determined by
officers under the supervision of the Board of Directors, usually on the basis
of net assets or number of accounts.
57
<PAGE>
Under each Agreement, Advisers, as investment adviser to the Fund, has the sole
authority and responsibility to make and execute investment decisions for the
Fund within the framework of the Fund's investment policies, subject to review
by the Board of Directors. Advisers also furnishes the Fund with all required
management services, facilities, equipment, and personnel.
Although investment decisions for each Fund are made independently from those of
the other funds or private accounts managed by Advisers, sometimes the same
security is suitable for more than one fund or account. If and when two or more
funds or accounts simultaneously purchase or sell the same security, the
transactions will be allocated as to price and amount in accordance with
arrangements equitable to each fund or account. The simultaneous purchase or
sale of the same securities by one Fund and other Funds or accounts may have a
detrimental effect on a Fund, as this may affect the price paid or received by a
Fund or the size of the position obtainable by a Fund.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
In a number of security transactions, it is possible for the Funds to deal in
the over-the-counter security markets (including the so-called "third market"
which is the "over-the-counter" market for securities listed on the New York
Stock Exchange) without the payment of brokerage commissions, but at net prices
including a spread or markup. The Funds will continue to trade in this manner
whenever the net price appears advantageous. During the fiscal year ended August
31, 1997, transactions having an aggregate dollar value (excluding short-term
securities) of approximately $297,365,797 for Asset Allocation Portfolio,
$1,757,973 for Value Fund, $2,656,514 for Growth & Income Fund, $87,264,419 for
Capital Fund, $27,992,249 for Fiduciary Fund, $274,274,555 for Growth Fund, and
$52,387,255 for Capital Appreciation Portfolio were traded in this manner.
Generally, the Funds must deal through brokers, and for the fiscal periods ended
August 31, 1997, 1996, and 1995, they paid brokerage commissions as follows:
<TABLE>
<CAPTION>
GROWTH &
ASSET ALLOCATION INCOME
PORTFOLIO VALUE FUND FUND
------------------------------------ ---------------------- ----------
AUGUST 31, AUGUST 31, AUGUST 31,
FISCAL PERIOD ENDED: 1997 1996 1995 1997 1996 1997
------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Brokerage Commissions.............................. $ 131,066 $ 74,894 $ 29,635 $ 67,046 $ 19,061 $ 17,192
Percentage of Average Net Assets................... 0.08% 0.05% 0.03% 0.32% 0.22% 0.14%
<CAPTION>
CAPITAL
FUND
-----------------------------------------
AUGUST 31,
FISCAL PERIOD ENDED: 1996 1997 1996 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Brokerage Commissions.............................. $ 5,040 $ 360,210 $ 190,273 $ 109,933
Percentage of Average Net Assets................... 0.18% 0.11% 0.06% 0.04%
</TABLE>
<TABLE>
<CAPTION>
FIDUCIARY GROWTH
FUND FUND
------------------------------------ ----------------------------------------
AUGUST 31, AUGUST 31,
FISCAL PERIOD ENDED: 1997 1996 1995 1997 1996 1995
------------ ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Brokerage Commissions............................. $ 91,083 $ 48,486 $ 20,327 $ 421,163 $ 359,800 $ 283,153
Percentage of Average Net Assets.................. 0.11% 0.07% 0.04% 0.05% 0.05% 0.05%
<CAPTION>
CAPITAL APPRECIATION
PORTFOLIO
-------------------------------------
AUGUST 31,
FISCAL PERIOD ENDED: 1997 1996 1995
------------ ---------- -----------
<S> <C> <C> <C>
Brokerage Commissions............................. $ 36,593 $ 45,448 $ 13,428
Percentage of Average Net Assets.................. 0.03% 0.04% 0.02%
</TABLE>
- --------------------------------------------------------------------------------
The average commission rates (calculated by dividing the total dollar amount of
transactions into the total dollar amount of commissions paid) paid by the Funds
for the fiscal year ended August 31, 1997, were .19% for Asset Allocation
Portfolio, .15% for Value Fund, .14% for Growth & Income Fund, .20% for Capital
Fund, .20% for Fiduciary Fund, .20% for Growth Fund, and .27% for Capital
Appreciation Portfolio.
Advisers selects and (where applicable) negotiates commissions with the
broker-dealers who execute the transactions for each Fund. The primary criterion
for the selection of a broker-dealer is the ability of the broker-dealer, in the
opinion of Advisers, to secure prompt execution of the transactions on favorable
terms, including the reasonableness of the commission and considering the state
of the market at the time. When consistent with these objectives, business may
be placed with broker-dealers who furnish investment research services to
Advisers. Such research services include advice, both directly and in writing,
as to the value of securities; the advisability of investing in, purchasing, or
selling securities; and the availability of securities, or purchasers or sellers
of securities; as well as analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts. This allows Advisers to supplement its own investment research
activities and enables Advisers to obtain the views and information of
individuals and research staffs of many different securities research firms
prior to making investment decisions for the Fund. To the extent such
commissions are directed to these other broker-dealers who furnish research
services to Advisers, Advisers receives a benefit, not capable of evaluation in
dollar amounts, without providing any direct monetary benefit to the Fund from
these commissions. Advisers believes that most research services obtained by it
generally benefit several or all of the investment companies and private
accounts which it manages, as opposed to solely benefiting one specific managed
fund or account. Research services obtained through commissions paid by the Fund
may be used by Advisers in servicing all of its accounts, and not all such
services would necessarily be used by Advisers in connection with the Fund.
58
<PAGE>
Advisers has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of Fund portfolio transactions in exchange for
research services provided Advisers, except as noted below. However, Advisers
does maintain an informal list of broker-dealers, which is used from time to
time as a general guide in the placement of Fund business, in order to encourage
certain broker-dealers to provide Advisers with research services which Advisers
anticipates will be useful to it. Because the list is merely a general guide,
which is to be used only after the primary criterion for the selection of
broker-dealers (discussed above) has been met, substantial deviations from the
list are permissible and may be expected to occur. Advisers will authorize each
Fund to pay an amount of commission for effecting a securities transaction in
excess of the amount of commission another broker-dealer would have charged only
if Advisers determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or Advisers' overall responsibilities with respect to the accounts
as to which Advisers exercises investment discretion. Generally, the Funds pay
higher commissions than the lowest rates available.
During the fiscal year ended August 31, 1997, the Funds paid virtually all
commissions to broker-dealers who furnished investment research to Advisers, as
outlined above.
No Fund will effect any brokerage transactions in its portfolio securities with
any broker-dealer affiliated directly or indirectly with Advisers, unless such
transactions, including the frequency thereof, the receipt of commissions
payable in connection therewith, and the selection of the affiliated
broker-dealer effecting such transactions are not unfair or unreasonable to the
shareholders of the Fund. No commissions were paid to any affiliate of Advisers
by any of the Funds during the fiscal years ended August 31, 1997, 1996, and
1995.
The Funds' acquisition during the fiscal year ended August 31, 1997, of
securities of its regular brokers or dealers or of the parent of those brokers
or dealers that derive more than fifteen percent of their gross revenue from
securities-related activities is presented below:
<TABLE>
<CAPTION>
VALUE OF
SECURITIES
OWNED AT
NAME OF ISSUER END OF PERIOD
- ----------------------------------------------- ----------------
<S> <C>
ASSET ALLOCATION PORTFOLIO
Bear Stearns Capital Trust I................. $ 500,311
DLJ Mtg. Acceptance Corp. ................... $ 3,562,038
First Union Lehman Brothers Commercial
Mortgage.................................... $ 1,284,180
J.P. Morgan Commercial Mortgage Finance
Corp. ...................................... $ 1,911,924
Lehman Brothers Holdings..................... $ 1,015,236
Merrill Lynch Mtg Investors, Inc............. $ 921,387
Morgan Stanley Capital I, Inc. .............. $ 1,894,273
Salomon, Inc. ............................... $ 493,266
U.S. Bank N.A. .............................. $ 6,271,000
VALUE FUND
U.S. Bank N.A. .............................. $ 1,201,360
GROWTH & INCOME FUND
U.S. Bank N.A. .............................. $ 709,110
CAPITAL FUND
U.S. Bank N.A. .............................. $ 15,302,802
FIDUCIARY FUND
U.S. Bank N.A. .............................. $ 2,066,941
GROWTH FUND
American Express Co. ........................ $ 5,831,250
U.S. Bank N.A. .............................. $ 33,659,000
CAPITAL APPRECIATION PORTFOLIO
U.S. Bank N.A. .............................. $ 2,733,064
</TABLE>
Advisers has developed written trade allocation procedures for its management of
the securities trading activities of its clients. Advisers manages multiple
portfolios, both public (mutual funds) and private. The purpose of the trade
allocation procedures is to treat the portfolios fairly and reasonably in
situations where the amount of a security that is available is insufficient to
satisfy the volume or price requirements of each portfolio that is interested in
purchasing that security.
Generally, when the amount of securities available in a public offering or the
secondary market is insufficient to satisfy the requirements for the interested
portfolios, the procedures require a pro rata allocation based upon the amounts
initially requested by each portfolio manager. In allocating trades made on
combined basis, Advisers seeks to achieve the average price of the securities
for each participating portfolio.
Because a pro rata allocation may not always adequately accommodate all facts
and circumstances, the procedures provide for exceptions to allocate trades on a
basis other than pro rata. Examples of
59
<PAGE>
where adjustments may be made include: (i) the cash position of the portfolios
involved in the transaction; and (ii) the relative importance of the security to
a portfolio in seeking to achieve its investment objective.
CAPITAL STOCK
Each Fund's shares have a par value of $.01 per share and equal rights to share
in dividends and assets. The shares possess no preemptive or conversion rights.
On November 30, 1997, no person owned of record or, to the Funds' knowledge,
beneficially as much as 5% of the outstanding shares of any class of the Funds,
except as follows:
Capital Fund: Class C--9% Carol S. Atha IRA, RR 7 Box 246, Fairmont, WV 26554;
5% Rex Disposal Inc., Salary Savings Plan, P.O. Box 461, Geneva, IL 60134; 6%
St. John Hardware & Imple Co., 401K & Profit Sharing Plan, 3 Front St., St.
John, WA 99171.
Value Fund: Class A--19% Fortis Benefits Ins. Co., 1 Chase Manhattan Plaza, New
York, NY 10005.
Fiduciary Fund: Class C--16% Carol S. Atha IRA, RR 7 Box 246, Fairmont, WV
26554; 13% St. John Hardware & Imple Co., 401K & Profit Sharing Plan, 3 Front
St., St. John, WA 99171; 7% Christine Daross IRA, 5467 Thames Ct., Santa
Barbara, CA 93111.
Growth Fund: Class Z--51% Mitra & Co., 1000 N. Water Street, Milwaukee, WI
53202; 7% Fortis Holdings Profit Sharing Trust, 1000 N. Water Street, Milwaukee,
WI 53202.
Each Fund currently offers it shares in multiple classes, each with different
sales arrangements and bearing different expenses. Under the Funds' Articles of
Incorporation, the Board of Directors is authorized to create new portfolios or
classes without the approval of the shareholders of a Fund. Each share will have
a pro rata interest in the assets of the portfolio to which the shares of that
series relate, and will have no interest in the assets of any other portfolio.
In the event of liquidation, each share of a portfolio would have the same
rights to dividends and assets as every other share of that portfolio, except
that, in the case of a series with more than one class of shares, such
distributions will be adjusted to appropriately reflect any charges and expenses
borne by each individual class.
Cumulative voting is not authorized. This means that the holders of more than
50% of the shares voting for the election of directors can elect 100% of the
directors if they choose to do so, and in such event the holders of the
remaining shares will be unable to elect any directors.
None of the Funds are required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders. Minnesota corporation
law provides for the Board of Directors to convene shareholder meetings when it
deems appropriate. In addition, if a regular meeting of shareholders has not
been held during the immediately preceding fifteen months, a shareholder or
shareholders holding three percent or more of the voting shares may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or the chief financial officer. Within ninety days after
receipt of the demand, a regular meeting of shareholders must be held at the
Fund's expense. Additionally, the 1940 Act requires shareholder votes for all
amendments to fundamental investment policies and restrictions, for all
investment advisory contracts and for certain amendments to Rule 12b-1
distribution plans.
COMPUTATION OF NET ASSET VALUE AND PRICING
On August 31, 1997, the Funds' net asset values per share were calculated as
follows:
<TABLE>
<S> <C>
ASSET ALLOCATION PORTFOLIO
CLASS A
Net Assets ($156,734,333)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (8,256,735) ($18.98)
CLASS B
Net Assets ($7,462,289)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (395,411) ($18.87)
CLASS H
Net Assets ($17,141,935)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (908,812) ($18.86)
CLASS C
Net Assets ($4,788,716)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (254,567) ($18.81)
VALUE FUND
CLASS A
Net Assets ($21,855,384)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (1,617,645) ($13.51)
CLASS B
Net Assets ($2,479,971)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (185,261) ($13.39)
CLASS H
Net Assets ($4,895,705)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (365,626) ($13.39)
CLASS C
Net Assets ($1,002,402)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (74,879) ($13.39)
</TABLE>
60
<PAGE>
<TABLE>
<S> <C>
GROWTH & INCOME FUND
CLASS A
Net Assets ($13,907,096)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (1,064,915) ($13.06)
CLASS B
Net Assets ($2,306,360)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (177,069) ($13.03)
CLASS H
Net Assets ($5,085,448)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (390,337) ($13.03)
CLASS C
Net Assets ($1,289,697)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (98,998) ($13.03)
CAPITAL FUND
CLASS A
Net Assets ($340,949,145)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (13,047,974) ($26.13)
CLASS B
Net Assets ($7,283,691)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (283,746) ($25.67)
CLASS H
Net Assets ($14,468,046)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (563,335) ($25.68)
CLASS C
Net Assets ($1,432,148)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (55,777) ($25.68)
FIDUCIARY FUND
CLASS A
Net Assets ($83,847,376)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (1,816,855) ($46.15)
CLASS B
Net Assets ($2,663,422)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (58,988) ($45.15)
CLASS H
Net Assets ($6,508,206)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (144,129) ($45.16)
CLASS C
Net Assets ($827,541)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (18,321) ($45.17)
GROWTH FUND
CLASS A
Net Assets ($734,654,387)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (19,687,321) ($37.32)
CLASS B
Net Assets ($12,148,679)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (332,607) ($36.53)
CLASS H
Net Assets ($34,941,204)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (956,183) ($36.54)
CLASS C
Net Assets ($2,366,917)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (64,816) ($36.52)
CLASS Z
Net Assets ($112,355,929)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (2,998,889) ($37.47)
CAPITAL APPRECIATION PORTFOLIO
CLASS A
Net Assets ($105,421,967)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (3,444,948) ($30.60)
CLASS B
Net Assets ($6,560,806)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (217,519) ($30.16)
CLASS H
Net Assets ($13,379,082)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (443,288) ($30.18)
CLASS C
Net Assets ($1,874,684)
- ------------------------- = Net Asset Value Per Share
Shares Outstanding (62,116) ($30.18)
</TABLE>
To obtain the public offering price per share, the 4.75% sales charge had to be
added to the net asset value obtained above:
ASSET ALLOCATION PORTFOLIO
CLASS A
$18.98
---- = Public Offering Price Per Share
.9525 ($19.93)
VALUE FUND
CLASS A
$13.51
---- = Public Offering Price Per Share
.9525 ($14.18)
GROWTH & INCOME FUND
CLASS A
$13.06
---- = Public Offering Price Per Share
.9525 ($13.71)
61
<PAGE>
CAPITAL FUND
CLASS A
$26.13
---- = Public Offering Price Per Share
.9525 ($27.43)
FIDUCIARY FUND
CLASS A
$46.15
---- = Public Offering Price Per Share
.9525 ($48.45)
GROWTH FUND
CLASS A
$37.32
---- = Public Offering Price Per Share
.9525 ($39.18)
CAPITAL APPRECIATION PORTFOLIO
CLASS A
$30.60
---- = Public Offering Price Per Share
.9525 ($32.13)
The primary close of trading of the New York Stock Exchange (the "Exchange")
currently is 3:00 P.M. (Central Time), but this time may be changed. The
offering price for purchase orders received in the office of the Funds after the
beginning of each day the Exchange is open for trading is based on net asset
value determined as of the primary closing time for business on the Exchange
that day; the price in effect for orders received after such close is based on
the net asset value as of such close of the Exchange on the next day the
Exchange is open for trading.
Generally, the net asset value of each Fund's shares is determined on each day
on which the Exchange is open for business. The Exchange is not open for
business on the following holidays (nor on the nearest Monday or Friday if the
holiday falls on a weekend): New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. Additionally, net asset value need not be
determined (i) on days on which changes in the value of the Fund's portfolio
securities will not materially affect the current net asset value of the Fund's
shares; or (ii) on days during which no Fund shares are tendered for redemption
and no orders to purchase or sell Fund shares are received by the Fund.
SPECIAL PURCHASE PLANS
Each Fund offers several special purchase plans, described in the Prospectus,
which allow reduction or elimination of the sales charge on Class A shares under
certain circumstances. Additional information regarding some of the plans is as
follows:
STATEMENT OF INTENTION
The 13-month period is measured from the date the letter of intent is approved
by Investors, or at the purchaser's option it may be made retroactive 90 days,
in which case Investors will make appropriate adjustments on purchases during
the 90-day period.
In computing the total amount purchased for purposes of determining the
applicable sales commission, the public offering price (at the time they were
purchased) of shares currently held in the Fortis Funds having a sales charge
and purchased within the past 90 days may be used as a credit toward Fund shares
to be purchased under the Statement of Intention. Any such fund shares purchased
during the remainder of the 13-month period also may be included as purchases
made under the Statement of Intention.
The Statement of Intention includes a provision for payment of additional
applicable sales charges at the end of the period in the event the investor
fails to purchase the amount indicated. This is accomplished by holding in
escrow the number of shares represented by the sales charge discount. If the
investor's purchases equal those specified in the Statement of Intention, the
escrow is released. If the purchases do not equal those specified in the
Statement of Intention, the shareholder may remit to Investors an amount equal
to the difference between the dollar amount of sales charges actually paid and
the amount of sales charges that would have been paid on the aggregate purchases
if the total of such purchases had been made at a single time. If the purchaser
does not remit this sum to Investors on a timely basis, Investors will redeem
the escrowed shares. The Statement of Intention is not a binding obligation on
the part of the investor to purchase, or the Fund to sell, the full amount
indicated. Nevertheless, the Statement of Intention should be read carefully
before it is signed.
TAX SHELTERED RETIREMENT PLANS
IRAS AND TAX QUALIFIED RETIREMENT PLANS. Individual taxpayers can defer taxes on
current income by investing in certain tax qualified retirement plans
established by their employers or Individual Retirement Accounts (IRAs) for
retirement. lRAs may be opened by anyone who has earned compensation for
services rendered. Certain reductions in sales charges set forth under "How to
Buy Fund Shares" in the Prospectus are available to any organized group of
individuals desiring to establish IRAs for the benefit of its members. If you
are interested in one of these accounts, contact Investors for copies of our
plans. You should check with your tax adviser before investing.
62
<PAGE>
TRADITIONAL IRA. Under current Federal tax law, IRA depositors generally may
contribute 100% of their earned income up to a maximum of $2,000 (including
sales charge). Contributions up to $2,000 (including sales charge) can be made
to IRA accounts for both an individual and a nonemployed spouse. All
shareholders who, along with their spouse, are not active participants in an
employer sponsored retirement plan or who have adjusted gross income below a
specified level can deduct such contributions (there is a partial deduction for
higher income levels up to a specified amount) from taxable income so that taxes
are put off until retirement, when reduced overall income and added deductions
may result in a lower tax rate. There are penalty taxes for withdrawing this
retirement money before reaching age 59 1/2 (unless the investor dies, is
disabled, or withdraws equal installments over a lifetime). In addition, there
are penalties on insufficient payouts after age 70 1/2, excess contributions,
and excess distributions.
ROTH IRA. For tax years beginning January 1, 1998, a new type of IRA, called the
Roth IRA will be available. Roth IRAs are different from traditional IRAs in
that contributions are never tax deductible and earnings on amounts held in the
account can be withdrawn tax-free if the funds remain in the IRA for at least 5
years and the IRA holder is at least 59 1/2 at the time of the withdrawal. The
ability to make a contribution to a Roth IRA is phased out for individuals whose
incomes exceed specific limits.
EDUCATION IRA. For tax years beginning January 1, 1998, individuals can also
establish an IRA to be used for the education expenses of a child. Contributions
are limited to $500 per child per year and are not deductible when made.
Earnings on amounts held in the account can be withdrawn tax-free provided they
are used for undergraduate or graduate education.
TAX SAVINGS AND YOUR IRA--A FULLY TAXABLE INVESTMENT COMPARED TO AN INVESTMENT
THROUGH AN IRA
The following table shows the yield on an investment of $2,000 made at the
beginning of each year for a period of 10 years and a period of 20 years. For
illustrative purposes only, the table assumes an annual rate of return of 8%.
<TABLE>
<CAPTION>
FULLY FULLY PARTIALLY NON-
TAXABLE DEDUCTIBLE DEDUCTIBLE DEDUCTIBLE
INVESTMENT IRA* IRA** IRA***
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
10 years - 15% Federal tax $24,799 $31,291 $28,944 $26,597
bracket
10 years - 28% Federal tax $19,785 $31,291 $26,910 $22,530
bracket
10 years - 31% Federal tax $18,702 $31,291 $26,441 $21,591
bracket
<CAPTION>
FULLY FULLY PARTIALLY NON-
TAXABLE DEDUCTIBLE DEDUCTIBLE DEDUCTIBLE
INVESTMENT IRA* IRA** IRA*
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
10 years - 36% Federal tax $16,957 $31,291 $25,659 $20,026
bracket
10 years - 39.6% Federal tax $15,744 $31,291 $25,095 $18,900
bracket
20 years - 15% Federal tax $72,515 $98,846 $91,432 $84,019
bracket
20 years - 28% Federal tax $54,236 $98,846 $85,007 $71,169
bracket
20 years - 31% Federal tax $50,526 $98,846 $83,525 $68,204
bracket
20 years - 36% Federal tax $44,722 $98,846 $81,054 $63,261
bracket
20 years - 39.6% Federal tax $40,820 $98,846 $79,274 $59,703
bracket
</TABLE>
- ------------------------
* It is assumed that tax on income earned on the IRA is deferred.
** It is assumed that half of the annual contribution is tax deductible and tax
on income earned in the IRA is deferred.
The 15% Federal income tax rate applies to taxable income up to and including
$42,350 for married couples filing jointly and $25,350 for unmarried
individuals. The 28% Federal income tax rate applies to taxable income from
$42,350 to $102,300 for married couples filing jointly and to taxable income
from $25,350 to $61,400 for unmarried individuals. The 31% Federal income tax
rate applies to taxable income from $102,300 to $155,950 for married couples
filing jointly and to taxable income from $61,400 to $128,100 for unmarried
individuals. The 36% Federal income tax rate applies to taxable income from
$155,950 to $278,450 for married couples filing jointly and to taxable income
from $128,100 to $278,450 for unmarried individuals. The 39.6% Federal income
tax rate applies to taxable income above $278,450 for both. (Although the above
table reflects the nominal Federal tax rates, the effective Federal tax rates
exceed those rates for certain taxpayers because of the phase-out of personal
exemptions and the partial disallowance of itemized deductions for taxpayers
above certain income levels.)
The table reflects only Federal income tax rates for 1998, and not any state or
local income taxes.
- ----------------------------------------------------
If you change your mind about opening your IRA, you generally have seven days
after receipt of notification within which to cancel your account. To do this,
you must send a written cancellation to Investors (at its mailing address listed
on the cover page) within that seven day period. If you cancel within seven
days, any amounts invested in a Fund will be returned to you, together with any
sales charge. If your investment has declined, Investors will make up the
difference so that you receive the full amount invested.
63
<PAGE>
PENSION; PROFIT-SHARING; IRA; 403(B). Tax qualified retirement plans also are
available, including pension and profit-sharing plans, IRA's, and Section 403(b)
salary reduction arrangements. The Section 403(b) salary reduction arrangement
is principally for employees of state and municipal school systems and employees
of many types of tax-exempt or nonprofit organizations. Persons desiring
information about such Plans, including their availability, should contact
Investors. All the Retirement Plans summarized above involve a long-term
commitment of assets and are subject to various legal requirements and
restrictions. The legal and tax implications may vary according to the
circumstances of the individual investor. Therefore, the investor is urged to
consult with an attorney or tax adviser prior to establishing such a plan.
TAX-QUALIFIED PLAN CUSTODIANS AND TRUSTEES. Current fees: IRA and 403(b)--$10
annually; Keogh or small group corporate plan--$15 initial fee plus $30 annually
(plus $5 annually per participant account and a per participant account
termination fee of $25). First Trust National Association is the Custodian under
the IRA and 403(b) plans. If a shareholder pays custodial fees by separate
check, they will not be deducted from his or her account and will not constitute
excess contributions. First Trust National Association also acts as Trustee
under the Keogh and small group corporate plans. The bank reserves the right to
change its fees on 30 days' prior written notice.
WITHHOLDING. Generally, distributions from accounts for tax qualified plans are
subject to either mandatory 20% federal tax withholding or optional federal
income tax withholding. Mandatory income tax withholding will not apply if the
payee elects to directly roll his or her distribution to either an IRA or
another qualified retirement plan. Any payee entitled to optional federal income
tax withholding electing to have no withholding must do so in writing and must
do so at or before the time that payment is made. A payee is not permitted to
elect no withholding if he or she is subject to mandatory backup withholding
under Federal law for failure to provide his or her tax identification number or
for failure to report all dividend or interest payments. Payees from 403(b) and
tax qualified plans also are not permitted to elect out of withholding except as
regards systematic partial withdrawals extending over 10 or more years.
For IRAs, the withholding amount is 10% of the amount withdrawn.
Withholding for non-resident aliens is subject to special rules. When payment is
made to a plan trustee, Advisers assumes no responsibility for withholding.
Subsequent payment by the trustee to other payees may require withholding. Such
withholding is the responsibility of the plan trustee or of the plan
administrator.
Any amounts withheld may be applied as a credit against Federal tax subsequently
due.
GIFTS OR TRANSFERS TO MINOR CHILDREN
This gift or transfer is registered in the name of the custodian for a minor
under the Uniform Transfers to Minors Act (in some states the Uniform Gifts to
Minors Act). Dividends or capital gains distributions are taxed to the child,
whose tax bracket is usually lower than the adult's. However, if the child is
under 14 years old and his or her unearned income is more than $1,300 per year,
then that portion of the child's income which exceeds $1,300 per year will be
taxed to the child's income which exceeds $1,300 per year will be taxed to the
child at the parents' top rate. Control of the Fund shares passes to the child
upon reaching a specified adult age (either 18 or 21 years in most states).
SYSTEMATIC INVESTMENT PLAN
Each Fund provides a convenient, voluntary method of purchasing shares in the
Fund through its "Systematic Investment Plan."
The principal purposes of the Plan are to encourage thrift by enabling you to
make regular purchases in amounts less than normally required, and to employ the
principle of dollar cost averaging, described below.
By acquiring Fund shares on a regular basis pursuant to a Systematic Investment
Plan, or investing regularly on any other systematic plan, the investor takes
advantage of the principle of dollar cost averaging. Under dollar cost
averaging, if a constant amount is invested at regular intervals at varying
price levels, the average cost of all the shares will be lower than the average
of the price levels. This is because the same fixed number of dollars buys more
shares when price levels are low and fewer shares when price levels are high. It
is essential that the investor consider his or her financial ability to continue
this investment program during times of market decline as well as market rise.
The principle of dollar cost averaging will not protect against loss in a
declining market, as a loss will result if the plan is discontinued when the
market value is less than cost.
An investor has no obligation to invest regularly or to continue the Plan, which
may be terminated by the investor at any time without penalty. Under the Plan,
any distributions of income and realized capital gains will be reinvested in
additional shares at net asset value unless a shareholder instructs Investors in
writing to pay them in cash. Investors reserves the right to increase or
decrease the amount required to open and continue a Plan, and to terminate any
Plan after one year if the value of the amount invested is less than the amount
indicated.
EXCHANGE PRIVILEGE
The amount to be exchanged must meet the minimum purchase amount of the Fund
being purchased. Shareholders should consider the investment objectives and
policies of a Fund prior to making such exchange.
64
<PAGE>
For Federal tax purposes, an exchange between funds is a taxable event that may
result in a capital gain or loss. Furthermore, if a shareholder carries out the
exchange within 90 days of purchasing the shares in a Fund, the sales charge
incurred on that purchase cannot be taken into account for determining the
shareholder's gain or loss on the sale of those shares to the extent that the
sales charge that would have been applicable to the purchase of the
later-acquired shares in the other fund is reduced because of the exchange
privilege. However, the amount of the sales charge that may not be taken into
account in determining the shareholder's gain or loss on the sale of the
first-acquired shares may be taken into account in determining gain or loss on
the eventual sale or exchange of the later-acquired shares.
REINVESTED DIVIDEND/CAPITAL GAINS DISTRIBUTIONS
BETWEEN FORTIS FUNDS
This privilege is based upon the fact that such orders are generally unsolicited
and the resulting lack of sales effort and expense.
PURCHASES BY FORTIS, INC. (OR ITS SUBSIDIARIES) OR ASSOCIATED PERSONS
This privilege is based upon the relationship of such persons to the Funds and
the resulting economies of sales effort and expense.
PURCHASES BY FUND DIRECTORS OR OFFICERS
This privilege is based upon their familiarity with the Fund and the resulting
lack of sales effort and expense.
PURCHASES BY REPRESENTATIVES OR EMPLOYEES OF
BROKER-DEALERS
This privilege is based upon the presumed knowledge such persons have about the
Funds as a result of their working for a company selling the Funds' shares and
resulting economies of sales effort and expense.
PURCHASES BY CERTAIN RETIREMENT PLANS
This privilege is based upon the familiarity of such investors with the Fund and
the resulting lack of sales effort and expense.
PURCHASES BY REGISTERED INVESTMENT COMPANIES
This privilege is based upon the generally unsolicited nature of such purchases
and the resulting lack of sales effort and expense.
PURCHASES WITH PROCEEDS FROM REDEMPTION OF UNRELATED MUTUAL FUND SHARES OR
SURRENDER OF CERTAIN FIXED ANNUITY CONTRACTS
SHAREHOLDERS OF UNRELATED MUTUAL FUNDS WITH SALES LOADS--This privilege is based
upon the existing relationship of such persons with their broker-dealer or
registered representative and/or the familiarity of such shareholders with
mutual funds as an investment concept, with resulting economies of sales effort
and expense.
OWNERS OF A FIXED ANNUITY CONTRACT NOT DEEMED A SECURITY UNDER THE SECURITIES
LAWS--This privilege is based upon the existing relationship of such persons
with their broker-dealer or registered representative and/or the lower
acquisition costs associated with such sale, with resulting economies of sales
effort and expense.
PURCHASES BY EMPLOYEES OF CERTAIN BANKS AND OTHER FINANCIAL SERVICES FIRMS
This privilege is based upon the familiarity of such investors with the Funds
and the resulting lack of sales effort and expense.
PURCHASES BY COMMERCIAL BANKS OFFERING SELF DIRECTED 401(k) Programs Containing
both Pooled and Individual Investment Options
This privilege is based upon the existing relationship of such persons with
their broker-dealer or registered representative and/or the lower acquisition
costs associated with such sale, with resulting economies of sales effort and
expense.
PURCHASES BY INVESTMENT ADVISERS, TRUST COMPANIES, AND BANK TRUST DEPARTMENTS
EXERCISING DISCRETIONARY INVESTMENT AUTHORITY OR USING A MONEY MANAGEMENT MUTUAL
FUND "WRAP" PROGRAM
This privilege is based upon the familiarity of such investors with the Funds
and the resulting lack of sales effort and expense.
REDEMPTION
The obligation of each Fund to redeem its shares when called upon to do so by
the shareholder is mandatory with certain exceptions. The Fund will pay in cash
all redemption requests by any shareholder of record, limited in amount during
any 90-day period to the lesser of $250,000 or 1% of the net asset value of the
Fund at the beginning of such period. When redemption requests exceed such
amount, however, the Fund reserves the right to make part or all of the payment
in the form of readily marketable securities or other assets of the Fund. An
example of when this might be done is in case of emergency, such as in those
situations enumerated in the following paragraph, or at any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. Any securities being so distributed would be valued in
the same manner as the portfolio of the Fund is valued. If the recipient sold
such securities, he or she probably would incur brokerage charges.
Redemption of shares, or payment, may be suspended at times (a) when the
Exchange is closed for other than customary weekend or holiday closings, (b)
when trading on said Exchange is restricted,
65
<PAGE>
(c) when an emergency exists, as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable, or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange Commission, by order,
so permits; provided that applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions prescribed in (b)
or (c) exist.
There is no charge for redemption, nor do the Funds contemplate establishing a
charge, although they have the right to do so. In the event a charge were
established, it would apply only to persons who became shareholders after such
charge was implemented, and it would not, in any event, exceed 1% of the net
asset value of the shares redeemed. Should further public sales ever be
discontinued, the Fund may deduct a proportionate share of the cost of
liquidating assets from the asset value of the shares being redeemed, in order
to protect the equity of the other shareholders.
SYSTEMATIC WITHDRAWAL PLAN
An investor may open a "Systematic Withdrawal Plan" providing for withdrawals of
$50 or more per quarter, semiannually, or annually.
These payments may constitute return of capital, and it should be understood
that they do not represent a yield or return on investment and that they may
deplete or eliminate the investment. The shareholder cannot be assured of
receiving payment for any specific period because payments will terminate when
all shares have been redeemed. The number of such payments will depend on the
amount of each payment, the frequency of each payment, and the value of the
remaining shares.
Under this Plan, any distributions of income and realized capital gains are
reinvested at net asset value. If a shareholder wishes to purchase additional
shares of the Fund under this Plan, other than by reinvestment of distributions,
it should be understood that he or she would be paying a sales commission on
such purchases, while liquidations effected under the Plan would be at net asset
value. Purchases of additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax liabilities.
Additions to a shareholder account in which an election has been made to receive
systematic withdrawals will be accepted only if each such addition is equal to
at least one year's scheduled withdrawals or $1,200, whichever is greater. A
shareholder may not have a "Systematic Withdrawal Plan" and a "Systematic
Investment Plan" in effect simultaneously.
The Plan is voluntary, flexible, and under the shareholder's control and
direction at all times, and does not limit or alter his or her right to redeem
shares. The Plan may be terminated in writing at any time by either the
shareholder or a Fund. The cost of operating the Plan is borne by Advisers. The
redemption of Fund shares pursuant to the Plan is a taxable event to the
shareholder.
REINVESTMENT PRIVILEGE
In order to allow investors who have redeemed a Fund's shares an opportunity to
reinvest, without additional cost, a one-time privilege is offered whereby an
investor may reinvest in the Fund, or in any other fund underwritten by
Investors and available to the public, without a sales charge. The reinvestment
privilege must be exercised within 60 days of redemption in an amount not
exceeding the proceeds of redemption and may be exercised only once with respect
to a Fund.
The purchase price for Fund shares will be based upon net asset value at the
time of reinvestment, and may be more or less than the redemption value. Should
an investor utilize the reinvestment privilege within 30 days following a
redemption which resulted in a loss, all or a portion of that loss may not be
currently deductible for Federal income tax purposes. Exercising the
reinvestment privilege would not alter any capital gains taxes payable on a
realized gain.
TAXATION
Each Fund has qualified, and intends to continue to qualify, as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). If a Fund so qualifies, it is not taxed on the income it distributes to
its shareholders.
Gain or loss realized upon the sale of shares in a Fund will be treated as
capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. For individuals, estates, and trusts, long-term
capital gains, which are realized on the sale or exchange of capital assets held
for more than 18 months, are subject to a maximum federal income tax rate of
20%, while ordinary income is subject to a maximum rate of 39.6%. Mid-term
capital gains, which are realized on the sale or exchange of capital assets held
more than one year but not more than 18 months, are subject to a maximum federal
income tax rate of 28%.
Under the Code, each Fund is subject to a nondeductible excise tax for each
calendar year equal to 4 percent of the excess, if any, of the amount required
to be distributed over the amount distributed. However, the excise tax does not
apply to any income on which the Fund pays income tax. In order to avoid the
imposition of the excise tax, the Fund generally must declare dividends by the
end of a calendar year representing at least 98 percent of the Fund's ordinary
income for the calendar year and 98 percent of its capital gain net income (both
long-term and short-term capital gains) for the 12-month period ending October
31 of the calendar year.
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<PAGE>
Asset Allocation Portfolio may invest in zero coupon obligations. If it invests
in such obligations upon their issuance, the obligations will have original
issue discount in the hands of the Fund. Generally, the original issue discount
equals the difference between the "stated redemption price at maturity" of the
obligation and its "issue price" as those terms are defined in the Code. If the
Fund acquires an already issued zero coupon bond from another holder, the bond
will have original issue discount in the Fund's hands, equal to the difference
between the "adjusted issue price" of the bond at the time the Fund acquires it
(that is, the original issue price of the bond plus the amount of original issue
discount accrued to date) and its stated redemption price at maturity. In each
case, the Fund is required to accrue as ordinary interest income a portion of
such original issue discount even though it receives no cash currently as
interest payment on the obligation. Similarly, if Asset Allocation Portfolio
invests in PIKs, it is required to recognize interest income in the amount of
the fair market value of the securities received as interest payments on the
PIKs, even though it receives no cash.
Because each Fund is required to distribute substantially all of its net
investment income (including accrued original issue discount and interest income
attributable to PIKs) in order to be taxed as a regulated investment company,
Asset Allocation Portfolio may be required to distribute an amount greater than
the total cash income the Fund actually receives. Accordingly, in order to make
the required distribution, the Fund may be required to borrow or to liquidate
securities.
If any Fund (other than Growth Fund) invests in options and futures, it may be
obliged to recognize gains and losses on certain options and futures it holds at
the end of the fiscal year. Under the marked-to-market rules, 60% of any net
capital gain or loss recognized is treated as long-term and 40% as short-term.
In addition, the straddle rules of the Code would require deferral of certain
losses realized on positions of a straddle to the extent that a Fund has
unrealized gains in offsetting positions at year end.
Pursuant to a special provision in the Code, if Fund shares with respect to
which a long-term capital gain distribution has been made are held for six
months or less, any loss on the sale or other disposition of such shares will be
a long-term capital loss to the extent of such long-term capital gain
distribution, unless such sale or other disposition is pursuant to a Systematic
Withdrawal Plan.
Under the Code, each Fund is required to withhold and remit to the U.S. Treasury
31% of dividend and capital gain income on the accounts of certain shareholders
who fail to provide a correct tax identification number, fail to certify that
they are not subject to backup withholding, or are subject to backup withholding
for some other reason.
The foregoing is a general discussion of the Federal income tax consequences of
an investment in the Funds as of the date of this Statement of Additional
Information. Distributions may also be subject to state and local taxes.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, state, or local taxes.
UNDERWRITER
Pursuant to an Underwriting Agreement with each Fund, Investors has agreed to
act as the principal underwriter in the sale and distribution of Fund shares to
the public. Underwriting Agreements may be terminated by a Fund or Investors at
any time by the giving of 60 days' written notice, and terminates automatically
in the event of its assignment. Unless sooner terminated, the Underwriting
Agreement shall continue in effect for more than two years after its execution
only so long as such continuance is also approved by the vote of a majority of
the directors who are not parties to such Underwriting Agreement, or interested
persons of such parties, cast in person at a meeting called for the purpose of
voting on such approval.
Each Underwriting Agreement requires Investors or Advisers to pay all
promotional expenses in connection with the distribution of the Fund's shares,
including paying for printing and distributing prospectuses and shareholder
reports to new shareholders, and the costs of sales literature. See "Plan of
Distribution," below, regarding fees paid to Investors to be used to compensate
those who sell Fund shares and to pay certain other expenses of selling Fund
shares.
In each Underwriting Agreement, Investors undertakes to indemnify the Fund
against all costs of litigation and other legal proceedings, and against any
liability incurred by or imposed upon the Fund in any way arising out of or in
connection with the sale or distribution of the Fund's shares, except to the
extent that such liability is the result of information which was obtainable by
Investors only from persons affiliated with the Fund but not with Investors.
PLAN OF DISTRIBUTION
The Funds have adopted a plan pursuant to Rule 12b-1 under the 1940 Act. Rule
12b-1(b) provides that any payments made by the Fund in connection with
financing the distribution of its shares may only be made pursuant to a written
plan describing all aspects of the proposed financing of distribution, and also
requires that all agreements with any person relating to the implementation of
the plan must be in writing. In addition, Rule 12b-1(b)(1) requires that such
plan be approved by a majority of the Fund's outstanding shares, and Rule
12b-1(b)(1) requires that such plan, together with any related agreements, be
approved by a vote of the Board of Directors who are not interested persons of
the Fund and have no direct or indirect
67
<PAGE>
interest in the operation of the plan or in the agreements related to the plan,
cast in person at a meeting called for the purpose of voting on such plan or
agreement.
Rule 12b-1(b)(3) requires that the plan or agreement provide in substance:
(i) That it shall continue in effect for a period of more than one year from
the date of its execution or adoption only so long as such continuance is
specifically approved at least annually in the manner described in paragraph
(b)(2) of Rule 12b-1;
(ii) That any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the plan or any related agreement shall provide
to the Board of Directors, and the directors shall review, at least quarterly, a
written report of the amounts so expended and the purpose for which such
expenditures were made; and
(iii) In the case of a plan, that it may be terminated at any time by vote of
a majority of the members of the Board of Directors who are not interested
persons of the Fund and have no direct or indirect financial interest in the
operation of the plan, or in any agreements related to the plan or by vote of a
majority of the outstanding voting securities of the Fund.
Rule 12b-1(b)(4) requires that such plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the Fund may rely on Rule 12b-1(b) only if the
selection and nomination of the disinterested directors of the Fund are
committed to the discretion of such disinterested directors. Rule 12b-1(e)
provides that the Fund may implement or continue a plan pursuant to Rule
12b-1(b) only if the directors who vote to approve such implementation or
continuation conclude, in the exercise of reasonable business judgment and in
light of their fiduciary duties under state law, and under Section 36(a) and (b)
of the 1940 Act, that there is a reasonable likelihood that the plan will
benefit the Fund and its shareholders. The Board of Directors has made such
conclusion.
68
<PAGE>
PERFORMANCE
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO (CLASS A)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
YEAR ENDED $1,000 GAINS TOTAL % TOTAL % TOTAL %
SEPTEMBER INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
88* 981 0 0 981 (1.9)% 1,133 13.3% 1,121 12.1%
89 1,152 0 53 1,205 22.8% 1,505 32.8% 1,490 32.9%
90 1,028 0 103 1,131 (6.1)% 1,365 (9.3)% 1,405 (5.7)%
91 1,254 0 157 1,411 24.8% 1,792 31.3% 1,795 27.8%
92 1,337 0 262 1,599 13.3% 1,989 11.0% 2,005 11.7%
93 1,449 0 347 1,796 12.3% 2,247 13.0% 2,245 12.0%
94 1,354 84 364 1,802 0.3% 2,330 3.7% 2,492 11.0%
95 1,581 111 499 2,191 21.6% 3,021 29.7% 3,198 28.3%
96 1,644 162 584 2,390 9.1% 3,620 19.8% 4,048 26.6%
97 1,855 336 726 2,917 22.1% 5,086 40.5% 5,562 37.4%
CUMULATIVE TOTAL RETURN Last 5 Yrs. 73.7% 155.7% 177.4%
------ ------
Life of
Class 191.7% 408.6% 456.2%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
MOST RECENT: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS 9 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advantage Asset Allocation Class A 16.24% 12.61% 15.54% 11.52% 11.68% 11.95% 13.70% 11.01% 12.26%
S&P 500 40.50% 29.74% 29.72% 22.65% 20.66% 18.99% 20.67% 16.44% 18.16%
DJIA 37.41% 31.89% 30.68% 25.46% 22.63% 20.74% 21.72% 17.90% 19.47%
<CAPTION>
LIFE OF
MOST RECENT: CLASS
<S> <C>
Advantage Asset Allocation Class A 11.62%
S&P 500 18.18%
DJIA 19.27%
</TABLE>
* January 4, 1988 through September 30, 1988.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $199 for capital gains distributions and $417 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,855.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO (CLASS B)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,158 7 38 1,203 20.3% 1,268 26.8% 1,259 25.9%
96 1,203 33 69 1,305 8.5% 1,519 19.8% 1,593 26.5%
97 1,357 122 104 1,583 21.3% 2,134 40.5% 2,190 37.5%
Life of
CUMULATIVE TOTAL RETURN Class 58.3% 113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advantage Asset Allocation
Class B (without CDSC) 21.34% 14.73% 17.30%
Advantage Asset Allocation
Class B (with CDSC)** 17.73% 13.15% 16.60%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $96 for capital gains distributions and $82 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,357.
69
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO (CLASS H)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,158 7 37 1,202 20.2% 1,268 26.8% 1,259 25.9%
96 1,203 33 68 1,304 8.5% 1,519 19.8% 1,593 26.5%
97 1,357 122 104 1,583 21.4% 2,134 40.5% 2,190 37.5%
Life of
CUMULATIVE TOTAL RETURN Class 58.3% 113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Allocation Portfolio
Class H (without CDSC) 21.36% 14.74% 17.29%
Asset Allocation Portfolio
Class H (with CDSC)** 17.76% 13.16% 16.59%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $96 for capital gains distributions and $82 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,357.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
ASSET ALLOCATION PORTFOLIO (CLASS C)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,155 8 36 1,199 19.9% 1,268 26.8% 1,259 25.9%
96 1,200 33 68 1,301 8.5% 1,519 19.8% 1,593 26.5%
97 1,353 122 104 1,579 21.4% 2,134 40.5% 2,190 37.5%
Life of
CUMULATIVE TOTAL RETURN Class 57.9% 113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advantage Asset Allocation
Class C (without CDSC) 21.34% 14.74% 17.19%
Advantage Asset Allocation
Class C (with CDSC)** 20.35% 14.74% 17.19%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $96 for capital gains distributions and $82 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,353.
70
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
VALUE FUND (CLASS A)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
96* 1,074 0 0 1,074 7.4% 1,130 13.0% 1,178 17.8%
97 1,348 25 7 1,380 28.5% 1,588 40.5% 1,618 37.4%
Life of
CUMULATIVE TOTAL RETURN Class 38.0% 58.8% 61.8%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value Fund Class A 22.32% 20.22%
S&P 500 40.50% 30.39%
DJIA 37.41% 31.81%
</TABLE>
* This reflects the cumulative total return from January 2, 1996 through
September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $20 for capital gains distributions and $6 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,348.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
VALUE FUND (CLASS B)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
96* 1,122 0 0 1,122 12.2% 1,130 13.0% 1,178 17.8%
97 1,401 26 3 1,430 27.5% 1,588 40.5% 1,618 37.4%
Life of
CUMULATIVE TOTAL RETURN Class 43.0% 58.8% 61.8%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value Fund Class B
(without CDSC) 27.47% 22.72%
Value Fund Class B (with
CDSC)** 23.87% 20.94%
S&P 500 40.50% 30.39%
DJIA 37.41% 31.81%
</TABLE>
* This reflects the cumulative total return from January 2, 1996 through
September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $21 for capital gains distributions and $3 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,401.
71
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
VALUE FUND (CLASS H)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
96* 1,123 0 0 1,123 12.3% 1,130 13.0% 1,178 17.8%
97 1,401 26 3 1,430 27.3% 1,588 40.5% 1,618 37.4%
Life of
CUMULATIVE TOTAL RETURN Class 43.0% 58.8% 61.8%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value Fund Class H
(without CDSC) 27.36% 22.72%
Value Fund Class H (with
CDSC)** 23.76% 20.94%
S&P 500 40.50% 30.39%
DJIA 37.41% 31.81%
</TABLE>
* This reflects the cumulative total return from January 2, 1996 through
September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $21 for capital gains distributions and $3 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,401.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
VALUE FUND (CLASS C)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
96* 1,122 0 0 1,122 12.2% 1,130 13.0% 1,178 17.8%
97 1,401 26 3 1,430 27.5% 1,588 40.5% 1,618 37.4%
Life of
CUMULATIVE TOTAL RETURN Class 43.0% 58.8% 61.8%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Value Fund Class C
(without CDSC) 27.47% 22.72%
Value Fund Class C (with
CDSC)** 26.47% 22.72%
S&P 500 40.50% 30.39%
DJIA 37.41% 31.81%
</TABLE>
* This reflects the cumulative total return from January 2, 1996 through
September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $21 for capital gains distributions and $3 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,401.
72
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
GROWTH & INCOME FUND (CLASS A)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
96* 1,015 0 9 1,024 2.4% 1,130 13.0% 1,178 17.8%
97 1,303 12 31 1,346 31.4% 1,588 40.5% 1,618 37.4%
Life of
CUMULATIVE TOTAL RETURN Class 34.6% 58.8% 61.8%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth & Income Fund Class
A 25.15% 18.51%
S&P 500 40.50% 30.39%
DJIA 37.41% 31.81%
</TABLE>
* This reflects the cumulative total return from January 2, 1996 through
September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $10 for capital gains distributions and $26 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,303.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
GROWTH & INCOME FUND (CLASS B)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
96* 1,064 0 5 1,069 6.9% 1,130 13.0% 1,178 17.8%
97 1,366 12 17 1,395 30.5% 1,588 40.5% 1,618 37.4%
Life of
CUMULATIVE TOTAL RETURN Class 39.5% 58.8% 61.8%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth & Income Fund Class
B (without CDSC) 30.46% 20.97%
Growth & Income Fund Class
B (with CDSC)** 26.86% 19.21%
S&P 500 40.50% 30.39%
DJIA 37.41% 31.81%
</TABLE>
* This reflects the cumulative total return from January 2, 1996 through
September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $10 for capital gains distributions and $14 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,366.
73
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
GROWTH & INCOME FUND (CLASS H)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
96* 1,064 0 5 1,069 6.9% 1,130 13.0% 1,178 17.8%
97 1,367 12 17 1,396 30.6% 1,588 40.5% 1,618 37.4%
Life of
CUMULATIVE TOTAL RETURN Class 39.6% 58.8% 61.8%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth & Income Fund Class
H (without CDSC) 30.55% 21.02%
Growth & Income Fund Class
H (with CDSC)** 26.95% 19.26%
S&P 500 40.50% 30.39%
DJIA 37.41% 31.81%
</TABLE>
* This reflects the cumulative total return from January 2, 1996 through
September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $10 for capital gains distributions and $14 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,367.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
GROWTH & INCOME FUND (CLASS C)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL % TOTAL % TOTAL %
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE YEARLY CUMULATIVE YEARLY CUMULATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
96* 1,064 0 5 1,069 6.9% 1,130 13.0% 1,178 17.8%
97 1,367 12 17 1,396 30.6% 1,588 40.5% 1,618 37.4%
Life of
CUMULATIVE TOTAL RETURN Class 39.6% 58.8% 61.8%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth & Income Fund Class
C (without CDSC) 30.55% 21.02%
Growth & Income Fund Class
C (with CDSC)** 29.55% 21.02%
S&P 500 40.50% 30.39%
DJIA 37.41% 31.81%
</TABLE>
* This reflects the cumulative total return from January 2, 1996 through
September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $10 for capital gains distributions and $14 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,367.
74
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CAPITAL FUND (CLASS A)
VALUE OF REINVESTED
INITIAL CAPITAL
$1,000 GAINS TOTAL
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE % YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
88 696 108 11 815 (18.5)%
89 958 149 35 1,142 40.1%
90 778 171 44 993 (13.0)%
91 955 309 74 1,338 34.7%
92 1,077 374 92 1,543 15.3%
93 1,091 469 105 1,665 7.9%
94 1,056 589 108 1,753 5.3%
95 1,239 787 136 2,162 23.3%
96 1,378 875 155 2,408 11.4%
97 1,596 1,368 181 3,145 30.6%
CUMULATIVE TOTAL RETURN Last 5 Yrs. 94.1%
Last 10 Yrs. 214.5%
<CAPTION>
S&P 500 DJIA
TOTAL TOTAL
YEAR ENDED CUMULATIVE % YEARLY CUMULATIVE % YEARLY
SEPTEMBER 30, VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C>
88 877 (12.3)% 845 (15.5)%
89 1,164 32.7% 1,123 32.9%
90 1,056 (9.3)% 1,059 (5.7)%
91 1,386 31.3% 1,353 27.8%
92 1,539 11.0% 1,511 11.7%
93 1,739 13.0% 1,692 12.0%
94 1,803 3.7% 1,878 11.0%
95 2,337 29.6% 2,410 28.3%
96 2,801 19.9% 3,050 26.6%
97 3,935 40.5% 4,192 37.4%
155.7% 177.4%
------ ------
293.5% 319.2%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
MOST RECENT: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS 9 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Fund (Class A) 24.39% 17.69% 19.56% 15.81% 14.19% 14.38% 17.09% 12.81% 15.56% 12.14%
S&P 500 40.50% 29.74% 29.72% 22.65% 20.66% 18.99% 20.67% 16.44% 18.16% 14.68%
DJIA 37.41% 31.89% 30.68% 25.46% 22.63% 20.74% 21.72% 17.90% 19.47% 15.41%
</TABLE>
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $570 for capital gains distributions and $74 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,596.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CAPITAL FUND (CLASS B)
VALUE OF REINVESTED
INITIAL CAPITAL
$1,000 GAINS TOTAL
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE % YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,153 54 2 1,209 20.9%
96 1,274 59 3 1,336 10.5%
97 1,463 265 3 1,731 29.6%
Life of
CUMULATIVE TOTAL RETURN Class 73.1%
<CAPTION>
S&P 500 DJIA
TOTAL TOTAL
YEAR ENDED CUMULATIVE % YEARLY CUMULATIVE % YEARLY
SEPTEMBER 30, VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C>
95* 1,268 26.8% 1,259 25.9%
96 1,519 19.8% 1,593 26.5%
97 2,134 40.5% 2,190 37.5%
113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEARS 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Fund (Class B)
(without CDSC) 29.59% 19.66% 20.98%
Capital Fund (Class B)
(with CDSC)** 25.99% 18.15% 20.32%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $190 for capital gains distributions and $1 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,463.
75
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CAPITAL FUND (CLASS H)
VALUE OF REINVESTED
INITIAL CAPITAL
$1,000 GAINS TOTAL
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE % YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,153 53 2 1,208 20.8%
96 1,274 59 3 1,336 10.6%
97 1,464 265 3 1,732 29.6%
Life of
CUMULATIVE TOTAL RETURN Class 73.2%
<CAPTION>
S&P 500 DJIA
TOTAL TOTAL
YEAR ENDED CUMULATIVE % YEARLY CUMULATIVE % YEARLY
SEPTEMBER 30, VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C>
95* 1,268 26.8% 1,259 25.9%
96 1,519 19.8% 1,593 26.5%
97 2,134 40.5% 2,190 37.5%
113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEARS 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Fund (Class H)
(without CDSC) 29.64% 19.71% 21.00%
Capital Fund (Class H)
(with CDSC)** 26.04% 18.20% 20.34%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $190 for capital gains distributions and $1 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,464.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CAPITAL FUND (CLASS C)
VALUE OF REINVESTED
INITIAL CAPITAL
$1,000 GAINS TOTAL
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE % YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,152 54 2 1,208 20.8%
96 1,274 59 2 1,335 10.5%
97 1,463 266 2 1,731 29.7%
Life of
CUMULATIVE TOTAL RETURN Class 73.1%
<CAPTION>
S&P 500 DJIA
TOTAL TOTAL
YEAR ENDED CUMULATIVE % YEARLY CUMULATIVE % YEARLY
SEPTEMBER 30, VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C>
95* 1,268 26.8% 1,259 25.9%
96 1,519 19.8% 1,593 26.5%
97 2,134 40.5% 2,190 37.5%
113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEARS 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Fund (Class C)
(without CDSC) 29.66% 19.72% 20.98%
Capital Fund (Class C)
(with CDSC)** 28.66% 19.72% 20.98%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
<CAPTION>
MOST RECENT:
<S> <C>
Capital Fund (Class C)
(without CDSC)
Capital Fund (Class C)
(with CDSC)**
S&P 500
DJIA
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $190 for capital gains distributions and $1 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,463.
76
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
FIDUCIARY FUND (CLASS A)
VALUE OF REINVESTED
INITIAL $1,000 CAPITAL GAINS TOTAL
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE % YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
88 772 30 2 804 (19.6)%
89 1,069 42 10 1,121 39.4%
90 895 54 15 964 (14.0)%
91 1,086 190 32 1,309 35.8%
92 1,214 245 43 1,502 14.7%
93 1,274 347 45 1,666 10.9%
94 1,218 485 43 1,746 4.8%
95 1,457 671 52 2,180 24.9%
96 1,627 767 58 2,452 12.5%
97 1,977 1,158 70 3,205 30.7%
CUMULATIVE TOTAL RETURN Last 5 Yrs. 103.3%
Last 10 Yrs. 220.5%
<CAPTION>
S&P 500 DJIA
TOTAL TOTAL
YEAR ENDED CUMULATIVE % YEARLY CUMULATIVE % YEARLY
SEPTEMBER 30, VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C>
88 877 (12.3)% 845 (15.5)%
89 1,164 32.7% 1,123 32.9%
90 1,056 (9.3)% 1,059 (5.7)%
91 1,386 31.3% 1,353 27.8%
92 1,539 11.0% 1,511 11.7%
93 1,739 13.0% 1,692 12.0%
94 1,803 3.7% 1,878 11.0%
95 2,337 29.6% 2,410 28.3%
96 2,801 19.9% 3,050 26.6%
97 3,935 40.5% 4,192 37.4%
155.7% 177.4%
------ ------
293.5% 319.2%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
MOST RECENT: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS 9 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiduciary Fund (Class A) 24.49% 18.33% 20.47% 16.34% 15.24% 15.16% 17.91% 13.34% 15.98% 12.35%
S&P 500 40.50% 29.74% 29.72% 22.65% 20.66% 18.99% 20.67% 16.44% 18.16% 14.68%
DJIA 37.41% 31.89% 30.68% 25.46% 22.63% 20.74% 21.72% 17.90% 19.47% 15.41%
</TABLE>
In the first two tables, had dividends and capital gains distributions been
taken in cash, with no shares being acquired through reinvestment, the cash
payments for the period would have been $516 for capital gains distributions and
$29 for income dividends, and the value of the shares as of September 30, 1997,
would have been $1,977.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
FIDUCIARY FUND (CLASS B)
VALUE OF REINVESTED
INITIAL $1,000 CAPITAL GAINS TOTAL
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE % YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,175 51 0 1,226 22.6%
96 1,301 68 0 1,369 11.7%
97 1,568 208 0 1,776 29.7%
Life of
CUMULATIVE TOTAL RETURN Class 77.6%
<CAPTION>
S&P 500 DJIA
TOTAL TOTAL
YEAR ENDED CUMULATIVE % YEARLY CUMULATIVE % YEARLY
SEPTEMBER 30, VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C>
95* 1,268 26.8% 1,259 25.9%
96 1,519 19.8% 1,593 26.5%
97 2,134 40.5% 2,190 37.5%
113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiduciary Fund (Class B)
(without CDSC) 29.79% 20.34% 22.09%
Fiduciary Fund (Class B)
(with CDSC)** 26.19% 18.84% 21.44%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $144 for capital gains distributions and $0 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,568.
77
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
FIDUCIARY FUND (CLASS H)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500
$1,000 GAINS TOTAL TOTAL
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE % YEARLY CUMULATIVE % YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,175 52 0 1,227 22.7% 1,268 26.8%
96 1,302 67 0 1,369 11.6% 1,519 19.8%
97 1,568 208 0 1,776 29.7% 2,134 40.5%
Life of
CUMULATIVE TOTAL RETURN Class 77.6% 113.4%
------
<CAPTION>
DJIA
TOTAL
YEAR ENDED CUMULATIVE % YEARLY
SEPTEMBER 30, VALUE($) CHANGE
<S> <C> <C>
95* 1,259 25.9%
96 1,593 26.5%
97 2,190 37.5%
119.0%
------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiduciary Fund (Class H)
(without CDSC) 29.75% 20.32% 22.09%
Fiduciary Fund (Class H)
(with CDSC)** 26.15% 18.82% 21.44%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $144 for capital gains distributions and $0 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,568.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
FIDUCIARY FUND (CLASS C)
VALUE OF REINVESTED
INITIAL CAPITAL S&P 500
$1,000 GAINS TOTAL TOTAL
YEAR ENDED INVEST- DISTRI- REINVESTED CUMULATIVE % YEARLY CUMULATIVE % YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,177 52 0 1,229 22.9% 1,268 26.8%
96 1,304 67 0 1,371 11.6% 1,519 19.8%
97 1,569 207 0 1,776 29.5% 2,134 40.5%
Life of
CUMULATIVE TOTAL RETURN Class 77.6% 113.4%
------
<CAPTION>
DJIA
TOTAL
YEAR ENDED CUMULATIVE % YEARLY
SEPTEMBER 30, VALUE($) CHANGE
<S> <C> <C>
95* 1,259 25.9%
96 1,593 26.5%
97 2,190 37.5%
119.0%
------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiduciary Fund (Class C)
(without CDSC) 29.57% 20.25% 22.09%
Fiduciary Fund (Class C)
(with CDSC)** 28.57% 20.25% 22.09%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $144 for capital gains distributions and $0 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,569.
78
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
GROWTH FUND (CLASS A)
REINVESTED
CAPITAL S&P 500 DJIA
YEAR ENDED VALUE OF INITIAL GAINS TOTAL CUMU- % TOTAL CUMU- % TOTAL CUMU- %
SEPTEMBER $1,000 DISTRIBU- REINVESTED LATIVE YEARLY LATIVE YEARLY LATIVE YEARLY
30, INVESTMENT($) + TIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
88 697 70 4 770 (23.0)% 877 (12.3)% 845 (15.5)%
89 1,024 102 13 1,140 48.1% 1,164 32.7% 1,123 32.9%
90 811 133 12 956 (16.1)% 1,056 (9.3)% 1,059 (5.7)%
91 1,126 280 36 1,442 50.8% 1,386 31.3% 1,353 27.8%
92 1,153 361 38 1,552 7.6% 1,539 11.0% 1,511 11.7%
93 1,415 489 49 1,953 25.8% 1,739 13.0% 1,692 12.0%
94 1,233 539 42 1,814 (7.1)% 1,803 3.7% 1,878 11.0%
95 1,573 735 54 2,362 30.2% 2,337 29.6% 2,410 28.3%
96 1,637 906 56 2,600 10.0% 2,801 19.9% 3,050 26.6%
97 1,834 1,289 63 3,186 22.5% 3,935 40.5% 4,192 37.4%
CUMULATIVE TOTAL RETURN Last 5 Yrs. 95.6% 155.7% 177.4%
------ ------
Last 10
Yrs. 218.6% 293.5% 319.2%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
MOST RECENT: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS 9 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Fund (Class A) 16.71% 13.35% 18.71% 11.64% 14.36% 13.21% 17.93% 13.02% 16.45% 12.29%
S&P 500 40.50% 29.74% 29.72% 22.65% 20.66% 18.99% 20.67% 16.44% 18.16% 14.68%
DJIA 37.41% 31.89% 30.68% 25.46% 22.63% 20.74% 21.72% 17.90% 19.47% 15.41%
</TABLE>
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $599 for capital gains distributions and $24 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,834.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
VALUE GROWTH FUND (CLASS B)
OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
YEAR ENDED $1,000 GAINS TOTAL CUMU- % TOTAL CUMU- % TOTAL CUMU- %
SEPTEMBER INVEST- DISTRI- REINVESTED LATIVE YEARLY LATIVE YEARLY LATIVE YEARLY
30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,296 26 0 1,322 32.2% 1,268 26.8% 1,259 25.9%
96 1,340 106 0 1,446 9.4% 1,519 19.8% 1,593 26.5%
97 1,487 271 0 1,758 21.6% 2,134 40.5% 2,190 37.5%
Life of
CUMULATIVE TOTAL RETURN Class 75.8% 113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Fund Class B
(without CDSC) 21.58% 15.33% 21.65%
Growth Fund Class B (with
CDSC)** 17.98% 13.75% 21.00%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $204 for capital gains distributions and $0 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,487.
79
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
GROWTH FUND (CLASS H)
REINVESTED
VALUE OF CAPITAL S&P 500 DJIA
YEAR ENDED INITIAL GAINS TOTAL CUMU- % TOTAL CUMU- % TOTAL CUMU- %
SEPTEMBER $1,000 DISTRIBU- REINVESTED LATIVE YEARLY LATIVE YEARLY LATIVE YEARLY
30, INVESTMENT($) + TIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,296 26 0 1,322 32.2% 1,268 26.8% 1,259 25.9%
96 1,340 106 0 1,446 9.4% 1,519 19.8% 1,593 26.5%
97 1,488 271 0 1,759 21.6% 2,134 40.5% 2,190 37.5%
Life of
CUMULATIVE TOTAL RETURN Class 75.9% 113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Fund Class H
(without CDSC) 21.64% 15.34% 21.67%
Growth Fund Class H (with
CDSC)** 18.04% 13.77% 21.02%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $204 for capital gains distributions and $0 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,488.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
GROWTH FUND (CLASS C)
REINVESTED
VALUE OF CAPITAL S&P 500 DJIA
YEAR ENDED INITIAL GAINS TOTAL CUMU- % TOTAL CUMU- % TOTAL CUMU- %
SEPTEMBER $1,000 DISTRIBU- REINVESTED LATIVE YEARLY LATIVE YEARLY LATIVE YEARLY
30, INVESTMENT($) + TIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,296 26 0 1,322 32.2% 1,268 26.8% 1,259 25.9%
96 1,340 106 0 1,446 9.4% 1,519 19.8% 1,593 26.5%
97 1,487 271 0 1,758 21.6% 2,134 40.5% 2,190 37.5%
Life of
CUMULATIVE TOTAL RETURN Class 75.8% 113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Fund Class C
(without CDSC) 21.55% 15.30% 21.64%
Growth Fund Class C (with
CDSC)** 20.55% 15.30% 21.64%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $204 for capital gains distributions and $0 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,487.
80
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
GROWTH FUND (CLASS Z)
REINVESTED S&P 500 DJIA
YEAR ENDED VALUE OF CAPITAL GAINS TOTAL CUMU- % TOTAL CUMU- % TOTAL CUMU- %
SEPTEMBER INITIAL $1,000 DISTRIBU- REINVESTED LATIVE YEARLY LATIVE YEARLY LATIVE YEARLY
30, INVESTMENT($) + TIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
*96 1,111 0 0 1,111 11.1% 1,082 8.2% 1,099 9.9%
97 1,249 116 0 1,365 22.4% 1,521 40.6% 1,510 37.4%
Life of
CUMULATIVE TOTAL RETURN Class 36.5% 52.1% 51.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Fund Class Z 22.87% 21.74%
S&P 500 40.50% 30.32%
DJIA 37.41% 29.72%
</TABLE>
* March 1, 1996 to September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $97 for capital gains distributions and $0 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,249.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
VALUE ADVANTAGE CAPITAL APPR. (CLASS A)
OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
YEAR ENDED $1,000 GAINS TOTAL CUMU- TOTAL CUMU- TOTAL CUMU-
SEPTEMBER INVEST- DISTRI- REINVESTED LATIVE % YEARLY LATIVE % YEARLY LATIVE % YEARLY
30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
88* 1,053 0 0 1,053 5.3% 1,133 13.3% 1,121 12.1%
89 1,525 0 15 1,540 46.2% 1,505 32.8% 1,490 32.9%
90 1,185 59 13 1,257 (18.4)% 1,365 (9.3)% 1,405 (5.7)%
91 1,739 87 19 1,845 46.8% 1,792 31.3% 1,795 27.8%
92 1,809 90 20 1,919 4.0% 1,989 11.0% 2,005 11.7%
93 2,579 128 29 2,736 42.6% 2,247 13.0% 2,245 12.0%
94 2,140 275 24 2,439 (10.9)% 2,330 3.7% 2,492 11.0%
95 3,078 395 34 3,507 43.8% 3,021 29.7% 3,198 28.3%
96 3,538 485 39 4,062 15.8% 3,620 19.8% 4,048 26.6%
97 3,110 592 34 3,736 (8.0)% 5,086 40.5% 5,562 37.4%
CUMULATIVE TOTAL RETURN Last 5 Yrs. 85.4% 155.7% 177.4%
------ ------
Last 10
Yrs. 273.6% 408.6% 456.2%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
1 2 3 4 5 6 7 8 9 LIFE OF
MOST RECENT: YEAR YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advantage Capital Appr.
Class A (12.39)% 0.73 % 13.42 % 6.79 % 13.15 % 11.57 % 16.03 % 11.04 % 14.50 % 14.49 %
S&P 500 40.50% 29.74 % 29.72 % 22.65 % 20.66 % 18.99 % 20.67 % 16.44 % 18.16 % 18.18 %
DJIA 37.41% 31.89 % 30.68 % 25.46 % 22.63 % 20.74 % 21.72 % 17.90 % 19.47 % 19.27 %
</TABLE>
* January 4, 1988 through September 30, 1988.
Had dividends and capital gains distributions been
taken in cash, with no shares being acquired through
reinvestment, the cash payments for the period would
have been $395 for capital gains distributions and
$12 for income dividends, and the value of the shares
as of September 30, 1997, would have been $3,110.
81
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
VALUE ADVANTAGE CAPITAL APPR. (CLASS B)
OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
YEAR ENDED $1,000 GAINS TOTAL CUMU- TOTAL CUMU- TOTAL CUMU-
SEPTEMBER INVEST- DISTRI- REINVESTED LATIVE % YEARLY LATIVE % YEARLY LATIVE % YEARLY
30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,433 0 0 1,433 43.3% 1,268 26.8% 1,259 25.9%
96 1,640 12 0 1,652 15.3% 1,519 19.8% 1,593 26.5%
97 1,433 78 0 1,511 (8.5)% 2,134 40.5% 2,190 37.5%
Life of
CUMULATIVE TOTAL RETURN Class 51.1% 113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advantage Capital Appr.
Class B (without CDSC) (8.54)% 2.67% 15.42%
Advantage Capital Appr.
Class B (with CDSC)** (12.14)% 0.91% 14.70%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $75 for capital gains distributions and $0 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,433.
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
VALUE ADVANTAGE CAPITAL APPR. (CLASS H)
OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
YEAR ENDED $1,000 GAINS TOTAL CUMU- TOTAL CUMU- TOTAL CUMU-
SEPTEMBER INVEST- DISTRI- REINVESTED LATIVE % YEARLY LATIVE % YEARLY LATIVE % YEARLY
30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,434 0 0 1,434 43.4% 1,268 26.8% 1,259 25.9%
96 1,641 12 0 1,653 15.3% 1,519 19.8% 1,593 26.5%
97 1,433 79 0 1,512 (8.5)% 2,134 40.5% 2,190 37.5%
Life of
CUMULATIVE TOTAL RETURN Class 51.2% 113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advantage Capital Appr.
Class H (without CDSC) (8.54)% 2.67% 15.44%
Advantage Capital Appr.
Class H (with CDSC)** (12.14)% 0.91% 14.72%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $75 for capital gains distributions and $0 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,433.
82
<PAGE>
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
VALUE CAPITAL APPRECIATION PORTFOLIO (CLASS C)
OF REINVESTED
INITIAL CAPITAL S&P 500 DJIA
$1,000 GAINS TOTAL CUMU- % TOTAL CUMU- % TOTAL CUMU- %
YEAR ENDED INVEST- DISTRI- REINVESTED LATIVE YEARLY LATIVE YEARLY LATIVE YEARLY
SEPTEMBER 30, MENT($) + BUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE VALUE($) CHANGE VALUE($) CHANGE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
95* 1,434 0 0 1,434 43.4% 1,268 26.8% 1,259 25.9%
96 1,641 12 0 1,653 15.3% 1,519 19.8% 1,593 26.5%
97 1,433 79 0 1,512 (8.5)% 2,134 40.5% 2,190 37.5%
Life of
CUMULATIVE TOTAL RETURN Class 51.2% 113.4% 119.0%
------ ------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
LIFE OF
MOST RECENT: 1 YEAR 2 YEARS CLASS*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advantage Capital Appr.
Class C (without CDSC) (8.54)% 2.69% 15.44%
Advantage Capital Appr.
Class C (with CDSC)** (9.54)% 2.69% 15.44%
S&P 500 40.50% 29.74% 30.15%
DJIA 37.41% 31.89% 31.32%
</TABLE>
* November 14, 1994 to September 30, 1997.
** Assumes full redemption on September 30, 1997.
Had dividends and capital gains distributions been taken in cash, with no shares
being acquired through reinvestment, the cash payments for the period would have
been $75 for capital gains distributions and $0 for income dividends, and the
value of the shares as of September 30, 1997, would have been $1,433.
83
<PAGE>
Cumulative total return is computed by finding the cumulative compounded rate of
return over the period indicated in the advertisement that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
ERV-P
CTR = ( ----- ) 100
P
Where: CTR = Cumulative total return
ERV = ending redeemable value
at the end of the period
of a hypothetical $1,000
payment made at the
beginning of such
period; and
P = initial payment of
$1,000
This calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
Average annual total return figures are computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial
payment of $1,000
T = average annual total
return;
n = number of years; and
ERV = ending redeemable value
at the end of the period
of a hypothetical $1,000
payment made at the
beginning of such
period.
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
The systematic investment plan average annual total return (for hypothetical
investments of $2,000 at the beginning of each year) is computed by finding the
average annual compounded rate of return over the periods indicated in the
advertisement that would equate the periodic payment amount invested to the
ending redeemable value according to the following formula:
(1+T)n - 1
ERV = PMT (1+T) ( ----------)
T
Where: ERV = ending redeemable value at the
end of the period of
hypothetical investments of
$2,000 made at the beginning
of each year;
PMT = Periodic payment ($2,000);
T = Average annual total return;
and
n = number of years.
This calculation deducts the applicable sales charge from each hypothetical
$2,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
Following is a list of ratings services which may be referred to, along with the
category in which the applicable Fund is included. Some of these services do not
take into account sales charges.
<TABLE>
<CAPTION>
ASSET ALLOCATION CAPITAL FUND FIDUCIARY FUND GROWTH FUND CAPITAL APPRECIATION
RATINGS SERVICE PORTFOLIO CATEGORY CATEGORY CATEGORY CATEGORY PORTFOLIO CATEGORY
- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Lipper Analytical flexible portfolio growth and income growth capital appreciation small company growth
Services, Inc.
Wiesenberger flexible portfolio growth and current long term growth/ long term growth/ small company growth
Investment income income secondary income secondary
Companies Services
Morningstar asset allocation growth growth growth small company growth
Publications, Inc.
Johnson's Charts total return growth and income long term growth long term growth long term growth
CDA Technologies, balanced growth growth growth growth
Inc.
</TABLE>
84
<PAGE>
Following is a list of the publications whose articles may be referred to:
AMERICAN BANKER (The)
AP-DOW Jones News Service
ASSOCIATED PRESS (The)
BARRON'S
BETTER INVESTING
BOARDROOM REPORTS
BOND BUYER & CREDIT MARKETS (The)
BOND BUYER (The)
BONDWEEK
BUSINESS MONTH
BUSINESS WEEK
CABLE NEWS NETWORK
CASHFLOW MAGAZINE
CFO
CHICAGO TRIBUNE (The)
CHRISTIAN SCIENCE MONITOR
CITY BUSINESS/CORPORATE REPORT
CITYBUSINESS PUBLICATIONS
COMMERCIAL & FINANCIAL CHRONICLE
CONSUMER GUIDE
CORPORATE FINANCE
DALLAS MORNING NEWS
DOLLARS & SENSE
DOW-JONES NEWS SERVICE
ECONOMIST (The)
EQUITY INTERNATIONAL
EUROMONEY
FINANCIAL EXECUTIVE
FINANCIAL PLANNING
FINANCIAL SERVICES WEEK
FINANCIAL TIMES
FINANCIAL WORLD
FORBES
FORTUNE
FUTURES
GLOBAL FINANCE
GLOBAL INVESTOR
INDUSTRY WEEK
INSTITUTIONAL INVESTOR
INTERNATIONAL HERALD TRIBUNE
INVESTMENT DEALER'S DIGEST
INVESTOR'S BUSINESS DAILY
KIPLINGER PERSONAL FINANCE
KIPLINGER CALIF. LETTER (The)
KIPLINGER FLORIDA LETTER
KIPLINGER TEXAS LETTER
KIPLINGER WASHINGTON LETTER (The)
KNIGHT/RIDDER FINANCIAL
LA TIMES
LIPPER ANALYTICAL SERVICES
MARKET CHRONICLE
MINNEAPOLIS STAR TRIBUNE
MONEY
MONEY MANAGEMENT LETTER
MOODY'S INVESTORS SERVICE, INC.
NATIONAL THRIFT NEWS
NATIONAL UNDERWRITER
NELSON'S RESEARCH MONTHLY
NEW YORK DAILY NEWS
NEW YORK NEWSDAY
NEW YORK TIMES (The)
NEWSWEEK
NIGHTLY BUSINESS REPORT (The)
PENSION WORLD
PENSIONS & INVESTMENT AGE
PERSONAL INVESTOR
PORTFOLIO LETTER
REGISTERED REPRESENTATIVE
RUETERS
SECURITIES PRODUCT NEWS
SECURITIES WEEK
SECURITY TRADERS HANDBOOK
SAINT PAUL PIONEER PRESS
STANDARD & POOR'S CORPORATION
STANGER'S INVESTMENT ADVISOR
STANGER'S SELLING MUTUAL FUNDS
STOCK MARKET MAGAZINE (The)
TIME
TRUSTS & ESTATES
U.S. NEWS & WORLD REPORT
UNITED PRESS INTERNATIONAL
USA TODAY
WALL STREET JOURNAL (The)
WASHINGTON POST (The)
FORTIS BENEFITS INSURANCE COMPANY
WOODBURY BULLETIN
WIESENBERGER INVESTMENT COMPANIES
SERVICES
85
<PAGE>
FINANCIAL STATEMENTS
The financial statements included as part of the Funds' 1997 Annual Report to
Shareholders, filed with the Securities and Exchange Commission, are
incorporated herein by reference.
CUSTODIAN; COUNSEL; ACCOUNTANTS
Norwest Bank Minnesota N.A., Norwest Center, Sixth and Marquette, Minneapolis,
MN 55479 acts as custodian of the Funds' assets and portfolio securities; Dorsey
& Whitney LLP, 220 South Sixth Street, Minneapolis, MN 55402, is the independent
General Counsel for the Funds; and KPMG Peat Marwick LLP, 4200 Norwest Center,
Minneapolis, MN 55402, acts as the Funds' independent auditors.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director of each Fund owes certain fiduciary duties to
it and to its shareholders. Minnesota law provides that a director "shall
discharge the duties of the position of director in good faith, in a manner the
director reasonably believes to be in the best interest of the corporation, and
with the care an ordinarily prudent person in a like position would exercise
under similar circumstances." Fiduciary duties of a director of a Minnesota
corporation include, therefore, both a duty of "loyalty" (to act in good faith
and act in a manner reasonably believed to be in the best interests of the
corporation) and a duty of "care" (to act with the care an ordinarily prudent
person in a like position would exercise under similar circumstances). Minnesota
law authorizes corporations to eliminate or limit the personal liability of a
director to the corporation or its shareholders for monetary damages for breach
of the fiduciary duty of "care." Minnesota law does not, however, permit a
corporation to eliminate or limit the liability of a director (i) for any breach
of the director's duty of "loyalty" to the corporation or its shareholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) for authorizing a dividend, stock
repurchase or redemption or other distribution in violation of Minnesota law or
for violation of certain provisions of Minnesota securities laws, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Articles of Incorporation of each Fund limit the liability of directors to
the fullest extent permitted by Minnesota statutes, except to the extent that
such a liability cannot be limited as provided in the 1940 Act (which act
prohibits any provisions which purport to limit the liability of directors
arising from such directors' willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their role as
directors).
Minnesota law does not eliminate the duty of "care" imposed upon a director. It
only authorizes a corporation to eliminate monetary liability for violations of
that duty. Minnesota law, further, does not permit elimination or limitation of
liability of "officers" to the corporation for breach of their duties as
officers (including the liability of directors who serve as officers for breach
of their duties as officers). Minnesota law does not permit elimination or
limitation of the availability of equitable relief, such as injunctive or
rescissionary relief. Further, Minnesota law does not permit elimination or
limitation of a director's liability under the Securities Act of 1933 or the
Securities Exchange Act of 1934, and it is uncertain whether and to what extent
the elimination of monetary liability would extend to violations of duties
imposed on directors by the 1940 Act and the rules and regulations adopted under
such act.
ADDITIONAL INFORMATION
The Funds have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the common stock offered hereby. The Prospectus and
this Statement of Additional Information do not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with Rules and Regulations of the Commission. The Registration
Statement may be inspected at the principal office of the Commission at 450
Fifth Street, N.W., Washington, D.C., and copies thereof may be obtained from
the Commission at prescribed rates.
86
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
OPTIONS ON SECURITIES
An option on a security provides the purchaser, or "holder," with the right, but
not the obligation, to purchase, in the case of a "call" option, or sell, in the
case of a "put" option, the security or securities underlying the option, for a
fixed exercise price up to a stated expiration date or, in the case of certain
options, on such date. The holder pays a non-refundable purchase price for the
option, known as the "premium." The maximum amount of risk the purchaser of the
option assumes is equal to the premium plus related transaction costs, although
this entire amount may be lost. The risk of the seller, or "writer," however, is
potentially unlimited, unless the option is "covered." A call option written by
a Fund is "covered" if the Fund owns the underlying security covered by the call
or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if a Fund holds
a call on the same security and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less than the
exercise price of the call written or (b) is greater than the exercise price of
the call written if the difference is maintained by the Fund in cash and high
grade government securities in a segregated account with its custodian. A put
option written by a Fund is "covered" if the Fund maintains cash and high grade
government securities with a value equal to the exercise price in a segregated
account with its custodian, or else holds a put on the same security and in the
same principal amount as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put written. If the
writer's obligation is not so covered, it is subject to the risk of the full
change in value of the underlying security from the time the option is written
until exercise.
Upon exercise of the option, the holder is required to pay the purchase price of
the underlying security, in the case of a call option, or to deliver the
security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities and options on indexes of securities, discussed below, are
traded on national securities exchanges, such as the Chicago Board Options
Exchange and the New York Stock Exchange, which are regulated by the SEC. The
Options Clearing Corporation guarantees the performance of each party to an
exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on securities and options on indexes of securities only through a registered
broker-dealer which is a member of the exchange on which the option is traded.
In addition, options on securities and options on indexes of securities may be
traded on exchanges located outside the United States and over-the-counter
through financial institutions dealing in such options as well as the underlying
instruments. The particular risks of transactions on foreign exchanges and
over-the-counter transactions are set forth more fully in the Statement of
Additional Information.
OPTIONS ON STOCK INDEXES
In contrast to an option on a security, an option on a stock index provides the
holder with the right to make or receive a cash settlement upon exercise of the
option, rather than the right to purchase or sell a security. The amount of this
settlement is equal to (i) the amount, if any, by which the fixed exercise price
of the option exceeds (in the case of a call) or is below (in the case of a put)
the closing value of the underlying index on the date of exercise, multiplied by
(ii) a fixed "index multiplier." The purchaser of the option receives this cash
settlement amount if the closing level of the stock index on the day of exercise
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount if the option is
exercised. As in the case of options on securities, the writer or holder may
liquidate positions in stock index options prior to exercise or expiration by
entering into closing transactions on the exchange on which such positions were
established, subject to the availability of a liquid secondary market.
A Fund will cover all options on stock indexes by owning securities whose price
changes, in the opinion of Advisers, are expected to be similar to those of the
index, or in such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and regulations.
Nevertheless, where a Fund covers a call option on a stock index through
ownership of securities, such securities may not match the composition of the
index. In that event, the Fund will not be fully covered and could be subject to
risk of loss in the event of adverse changes in the value of the index. A Fund
will secure put options on stock indexes by segregating assets equal to the
option's exercise price, or in such other manner as may be in accordance with
the rules of the exchange on which the option is traded and applicable laws and
regulations.
The index underlying a stock index option may be a "broad-based" index, such as
the Standard & Poor's 500 Index or the New York Stock Exchange Composite index,
the changes in value of which ordinarily will reflect movements in the stock
market in general. In contrast, certain options may be based on narrower market
indexes, such as the Standard & Poor's 100 Index, or on indexes of securities of
87
<PAGE>
particular industry groups, such as those of oil and gas or technology
companies. A stock index assigns relative values to the stocks included in the
index and the index fluctuates with changes in the market values of the stocks
so included.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES, STOCK INDEXES AND FOREIGN
CURRENCIES
A Futures Contract is a bilateral agreement providing for the purchase and sale
of a specified type and amount of a financial instrument or foreign currency, or
for the making and acceptance of a cash settlement, at a stated time in the
future for a fixed price. By its terms, a Futures Contract provides for a
specified settlement date on which, in the case of the majority of interest rate
and foreign currency futures contracts, the fixed income securities or currency
underlying the contract are delivered by the seller and paid for by the
purchaser, or on which, in the case of stock index futures contracts and certain
interest rate and foreign currency futures contracts, the difference between the
price at which the contract was entered into and the contract's closing value is
settled between the purchaser and the seller in cash. Futures Contracts differ
from options in that they are bilateral agreements, with both the purchaser and
the seller equally obligated to complete the transaction. Futures Contracts call
for settlement only on the expiration date, and cannot be "exercised" at any
other time during their term.
The purchase or sale of a Futures Contract differs from the purchase or sale of
a security or the purchase of an option in that no purchase price is paid or
received. Instead, an amount of cash or cash equivalents, which varies but may
be as low as 5% or less of the value of the contract, must be deposited with the
broker as "initial margin." Subsequent payments to and from the broker, referred
to as "variation margin," are made on a daily basis as the value of the index or
instrument underlying the Futures Contract fluctuates, making positions in the
Futures Contracts more or less valuable, a process known as "marking to the
market."
U.S. Futures Contracts may be purchased or sold only on an exchange, known as a
"contract market," designated by the CFTC for the trading of such contract, and
only through a registered futures commission merchant which is a member of such
contract market. A commission must be paid on each completed purchase and sale
transaction. The contract market clearing house guarantees the performance of
each party to a Futures Contract, by in effect taking the opposite side of such
contract. At any time prior to the expiration of a Futures Contract, a trader
may elect to close out its position by taking an opposite position on the
contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the initial
position. At that time, a final determination of variation margin is made and
any loss experienced by the trader is required to be paid to the contract market
clearing house while any profit due to the trader must be delivered to it.
Futures Contracts may also be traded on foreign exchanges.
Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities and U.S. Treasury Bills. In addition, interest rate futures contracts
include contracts on indexes of municipal securities. Foreign currency futures
contracts currently are traded on the British pound, Canadian dollar, Japanese
yen, Swiss franc, West German mark and on Eurodollar deposits.
A stock index or Eurodollar futures contract provides for the making and
acceptance of a cash settlement in much the same manner as the settlement of an
option on a stock index. The types of indexes underlying stock index futures
contracts are essentially the same as those underlying stock index options, as
described above. The index underlying a municipal bond index futures contract is
a broad based index of municipal securities designed to reflect movements in the
municipal securities market as a whole. The index assigns weighted values to the
securities included in the index and its composition is changed periodically.
OPTIONS ON FUTURES CONTRACTS
An Option on a Futures Contract provides the holder with the right to enter into
a "long" position in the underlying Futures Contract, in the case of a call
option, or a "short" position in the underlying Futures Contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of Futures Contracts, such as payment of variation margin
deposits. In addition, the writer of an Option on a Futures Contract, unlike the
holder, is subject to initial and variation margin requirements on the option
position.
A position in an Option on a Futures Contract may be terminated by the purchaser
or seller prior to expiration by affecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
Options on Futures Contracts that are written or purchased by a Fund on United
States exchanges are traded on the same contract market as the underlying
Futures Contract, and, like Futures Contracts, are subject to regulation by the
CFTC and the performance guarantee of the exchange clearing house. In addition,
Options on Futures Contracts may be traded on foreign exchanges.
88
<PAGE>
An option, whether based on a Futures Contract, a stock index or security,
becomes worthless to the holder when it expires. Upon exercise of an option, the
exchange or contract market clearing house assigns exercise notices on a random
basis to those of its members which have written options of the same series and
with the same expiration date. A brokerage firm receiving such notices then
assigns them on a random basis to those of its customers which have written
options of the same series and expiration date. A writer therefore has no
control over whether an option will be exercised against it, nor over the timing
of such exercise.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A Currency Contract is a contractual obligation to purchase or sell a specific
quantity of a given foreign currency for a fixed exchange rate at a future date.
Currency Contracts are individually negotiated and are traded through the
"interbank currency market," an informal network of banks and brokerage firms
which operates around the clock and throughout the world. Transactions in the
interbank market may be executed only through financial institutions acting as
market-makers in the interbank market, or through brokers executing purchases
and sales through such institutions. Market-makers in the interbank market
generally act as principals in taking the opposite side of their customers'
positions in Currency Contracts, and ordinarily charge a mark-up commission
which may be included in the cost of the Contract. In addition, market-makers
may require their customers to deposit collateral upon entering into a Currency
Contract, as security for the customer's obligation to make or receive delivery
of currency, and to deposit additional collateral if exchange rates move
adversely to the customer's position. Such deposits may function in a manner
similar to the margining of Futures Contracts, described above.
Prior to the stated maturity date of a Currency Contract, it may be possible to
liquidate the transaction by entering into an offsetting contract. In order to
do so, however, a customer may be required to maintain both contracts as open
positions until maturity and to make or receive a settlement of the difference
owed to or from the market-maker or broker at that time.
OPTIONS ON FOREIGN CURRENCIES
Options on foreign currencies are traded in a manner substantially similar to
options on securities. In particular, an option on foreign currency provides the
holder with the right to purchase, in the case of a call option, or to sell, in
the case of a put option, a stated quantity of a particular currency for a fixed
price up to a stated expiration date or, in the case of certain options, on such
date. The writer of the option undertakes the obligation to deliver, in the case
of a call option, or to purchase in the case of a put option, the quantity of
the currency called for in the option, upon exercise of the option by the
holder.
As in the case of other types of options, the holder of an option on foreign
currency is required to pay a one-time, non-refundable premium, which represents
the cost of purchasing the option. The holder can lose the entire amount of this
premium, as well as related transaction costs, but not more than this amount.
The writer of the option, in contrast, generally is required to make initial and
variation margin payments, similar to margin deposits required in the trading of
Futures Contracts and the writing of other types of options. The writer is
therefore subject to risk of loss beyond the amount originally invested and
above the value of the option at the time it is entered into.
Certain options on foreign currencies, like Currency Contracts, are traded
over-the-counter through financial institutions acting as market-makers in such
options and the underlying currencies. Such transactions therefore involve risks
not generally associated with exchange-traded instruments, which are discussed
below. Options on foreign currencies may also be traded on national securities
exchanges regulated by the SEC and on exchanges located in foreign countries.
Over-the-counter transactions can only be entered into with a financial
institution willing to take the opposite side, as principal, of a Fund's
position unless the institution acts as broker and is able to find another
counterparty willing to enter into the transaction with the Fund. Where no such
counterparty is available, it will not be possible to enter into a desired
transaction. There also may be no liquid secondary market in the trading of
over-the-counter contracts, and a Fund could be required to retain options
purchased or written until exercise, expiration or maturity. This in turn could
limit the Fund's ability to profit from open positions or to reduce losses
experienced, and could result in greater losses.
Further, over-the-counter transactions are not subject to the guarantee of an
exchange clearing house, and a Fund will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterparty. One or more of such institutions also may decide to discontinue
their role as market-makers in a particular currency or security, thereby
restricting the Fund's ability to enter into desired hedging transactions. A
Fund will enter into an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by Advisers.
89
<PAGE>
APPENDIX B
CORPORATE BOND, PREFERRED STOCK
AND COMMERCIAL PAPER RATINGS
COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS SERVICES. Commercial paper ratings are graded into
four categories, ranging from "A" for the highest quality obligations to "D" for
the lowest. Issues assigned the A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
designation 1, 2, and 3 to indicate the relative degree of safety. The "A-1"
designation indicates that the degree of safety regarding timely payment is very
strong.
MOODY'S INVESTORS SERVICE, INC. Moody's commercial paper ratings are opinions of
the ability of the issuers to repay punctually promissory obligations not having
an original maturity in excess of nine months. Moody's makes no representation
that such obligations are exempt from registration under the Securities Act of
1933, nor does it represent that any specific note is a valid obligation of a
rated issuer or issued in conformity with any applicable law. Moody's employs
the following three designations, all judged to be investment grade, to indicate
the relative repayment capacity of rated issuers:
Prime-1 Superior capacity for repayment of short-term promissory obligations.
Prime-2 Strong capacity for repayment of short-term promissory obligations.
Prime-3 Acceptable capacity for repayment of short-term promissory obligations.
CORPORATE BOND RATINGS
STANDARD & POOR'S RATINGS SERVICES. Its ratings for corporate bonds have the
following definitions:
Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
Debt rated "AA" has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in a small degree.
Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Debt rated "BBB" is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated "BB," "B," "CCC," "CC," and "C" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
Debt rated "CCC" has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
The rating "CC" is typically applied to debt subordinated to senior debt that is
assigned an actual or implied "CCC" rating.
The rating "C" is typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
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The rating "C1" is reserved for income bonds on which no interest is being paid.
"NR" indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
BOND INVESTMENT QUALITY STANDARDS. Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings) are
generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states impose certain rating or other standards for
obligations eligible for investment by savings banks, trust companies, insurance
companies and fiduciaries generally.
MOODY'S INVESTORS SERVICE, INC. Its ratings for corporate bonds include the
following:
Bonds which are rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
Bonds which are rated "A" possess many favorable attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Bonds which are rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated "Caa" are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bond which rated "C" are the lowest rated class of bonds and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
PREFERRED STOCK RATING
STANDARD & POOR'S RATINGS SERVICES. Its ratings for preferred stock have the
following definitions:
An issue rated "AAA" has the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA."
An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the "A" category.
Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation.
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While such issues will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
The rating "CC" is reserved for a preferred stock issue in arrears on dividends
or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
"NR" indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MOODY'S INVESTORS SERVICE, INC. Its ratings for preferred stock include the
following:
An issue which is rated "Aaa" is considered to be a top-quality preferred stock.
This rating indicates good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
An issue which is rated "Aa" is considered a high-grade preferred stock. This
rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue which is rated "A" is considered to be an upper-medium grade preferred
stock. While risks are judged to be somewhat greater than in the "aaa" and "aa"
classifications, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue which is rated "Baa" is considered to be medium grade, neither highly
protected nor poorly secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of time.
An issue which is rated "Ba" is considered to have speculative elements and its
future cannot be considered will assured. Earnings and asset protection may be
very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
Bonds which are rated "B" generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated "Caa" is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments. An issue which is rated "Ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
An issue rated "C" is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
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95324 (Rev. 1/98)
<PAGE>
PART C
Fortis Equity Portfolios, Inc.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements are incorporated by reference to the Registrant's
Annual Report previously filed with the Commission.
(b) Exhibits:
1. Articles of Incorporation (5) and (6)
2. Bylaws (7)
3. Not applicable
4. Not applicable
5. Investment Advisory and Management Agreement (2) and (6)
6. Underwriting Agreement (5) and (6)
7. Not applicable
8. Custody Agreement (3)
9. Not applicable
10. Not applicable
11. Consent of KPMG Peat Marwick LLP (9)
12. Not applicable
13. Not applicable
14. Model plan establishing retirement plan (4) and (8)
15. Rule 12b-1 Plan (prior one)
16. Computation of Performance Quotations (1)
17. Not applicable
18. Plan pursuant to Rule 18f-3 (6)
- ----------------
(1) Incorporated by reference to Post-Effective Amendment No. 67 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in April 1989.
(2) Incorporated by reference to Post-Effective Amendment No. 70 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in February 1992.
(3) Incorporated by reference to Post-Effective Amendment No. 71 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in November 1992.
(4) Incorporated by reference to Post-Effective Amendment No. 72 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in November 1993.
(5) Incorporated by reference to Post-Effective Amendment No. 74 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in November 1994.
<PAGE>
(6) Incorporated by reference to Post-Effective Amendment No. 76 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in October 1995.
(7) Incorporated by reference to Post-Effective Amendment No. 77 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in December 1995.
(8) Incorporated by reference to Post-Effective Amendment No. 51 to the
Registration Statement of AMEV Growth Fund, Inc. (File No. 2-14784) on Form
N-1A filed with the Commission in December 1991.
(9) Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is directly or indirectly controlled by or under common control
with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of November 30, 1997, there were the following number of record holders
of each class of Common Shares of each Fund:
Capital Fund Value Fund Growth & Income Fund
------------ ---------- --------------------
Class A 22,458 Class A 3,527 Class A 2,942
Class B 1,439 Class B 1,071 Class B 1,055
Class C 342 Class C 343 Class C 355
Class H 2,392 Class H 1,285 Class H 977
ITEM 27. INDEMNIFICATION
Refer to Post-Effective Amendment No. 66 to the Registrant's Registration
Statement filed with the Commission in Janary 1988, which is incorporated herein
by reference.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information on the business of the Adviser is described in the Statement of
Additional Information. In addition to those listed in the Statement of
Additional Information:
Other Business/Employment
Name Position with Adviser During Past Two Years
- ---- --------------------- -------------------------
Michael D. O'Connor Qualified Plan Officer Qualified Plan Officer of Fortis
Benefits Insurance Company
David C. Greenzang Money Market Portfolio Debt securities manager with
Officer Fortis, Inc.
2
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Fortis Advantage Portfolios, Inc.
Fortis Equity Portfolios, Inc.
Fortis Fiduciary Fund, Inc.
Fortis Income Portfolios, Inc.
Fortis Money Portfolios, Inc.
Fortis Securities, Inc.
Fortis Series Fund, Inc.
Fortis Worldwide Portfolios, Inc.
Variable Account C of Fortis Benefits Insurance Company
Variable Account D of Fortis Benefits Insurance Company
(b) In addition to those listed in the Statement of Additional Information:
Positions and Offices Positions and Offices
Name/Address with Underwriter with Registrant
- ------------ --------------------- ---------------------
Carol M. Houghtby 2nd Vice President and Accounting Officer
500 Bielenberg Drive Treasurer
Woodbury, MN
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The physical possession of the accounts, books, and other documents
required to be maintained by Section 31(a) of the Investment Company Act of 1940
and Rules 3la-1 to 3la-3 promulgated thereunder is maintained by the Registrant
at Fortis Advisers, Inc., 500 Bielenberg Drive, Woodbury, MN 55125.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Each recipient of a prospectus of any series of the Registrant may request
the latest Annual Report of such series, and such Annual Report will be
furnished by the Registrant without charge.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement on Form N-1A
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Woodbury and State of Minnesota on the
29th day of December 1997.
FORTIS EQUITY PORTFOLIOS, INC.
(Registrant)
By /s/ Dean C. Kopperud
---------------------------
Dean C. Kopperud, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/ Dean C. Kopperud President (principal December 29, 1997
- ------------------------- executive officer)
Dean C. Kopperud
/s/ Tamara L. Fagely Treasurer (principal December 29, 1997
- ------------------------- financial and
Tamara L. Fagely accounting officer)
Richard D. Cutting* Director
Allan R. Freedman* Director
Robert M. Gavin* Director
Benjamin S. Jaffray* Director
Jean L. King* Director
Richard M. Mahoney* Director
Robb L. Prince* Director
Leonard J. Santow* Director
Noel S. Shadko Director
Joseph M. Wikler* Director
*By /s/ Dean C. Kopperud December 29, 1997
-------------------------
Dean C. Kopperud, Attorney-in-Fact
(Pursuant to a Power of Attorney dated March 21, 1996)
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Fortis Advantage Portfolios, Inc.
Fortis Growth Fund, Inc.
Fortis Fiduciary Fund, Inc.
Fortis Equity Portfolios, Inc.:
We consent to the use of our report incorporated herein by reference and the
references to our Firm under the headings "Financial Highlights" in Part A and
"Custodian; Counsel; Accountants" in Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 29, 1997
