<PAGE>
File No. 2-78148
FISCAL YEAR END - SEPTEMBER 30
Registrant proposes that
this amendment will become
effective:
60 days after filing
---
As of the filing date
---
As of February 1, 1996 X
----------------- ---
Pursuant to Rule 485:
paragraph (a)
---
paragraph (b) X
---
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 X
---
Post-Effective Amendment Number 18
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
---
FORTIS TAX-FREE PORTFOLIOS, INC.
(Exact Name of Registrant as Specified in Charter)
500 Bielenberg Drive, Woodbury, Minnesota 55125
(Address of Principal Executive Offices)
Registrant's Telephone Number: (612) 738-4000
Scott R. Plummer, Esq., Asst. Secretary (Same address as above)
(Name and Address of Agent for Service)
Copy to:
Michael J. Radmer, Esq.
Dorsey & Whitney P.L.L.P.
220 Sixth Street South
Minneapolis, MN 55402
Pursuant to Section 270.24f-2 of the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933. The Rule 24f-2 Notice for the Registrant's most recent
fiscal year was filed on November 24, 1995.
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Registration Statement on Form N-1A
- -------------------------------------------------------------------------------
CROSS REFERENCE SHEET
Pursuant to Rule 495(a) and Instruction F1 of Form N-1A
- -------------------------------------------------------------------------------
N-1A
ITEM NO.
PART A (PROSPECTUS) PROSPECTUS HEADING
1. Cover Page...............................Cover Page (no caption)
2. Synopsis (optional)......................(not included)
3. Condensed Financial Information..........FINANCIAL HIGHLIGHTS
4. General Description of Registrant........ORGANIZATION AND CLASSIFICATION
5. Management of the Fund...................MANAGEMENT
6. Capital Stock and Other Securities.......CAPITAL STOCK; SHAREHOLDER
INQUIRIES; DIVIDENDS AND CAPITAL
GAINS DISTRIBUTIONS; TAXATION
7. Purchase of Securities Being Offered.....HOW TO BUY FUND SHARES
8. Redemption or Repurchase.................REDEMPTION
9. Pending Legal Proceedings................None
PART B (STATEMENT OF ADDITIONAL INFORMATION) STATEMENT OF ADDITIONAL INFORMATION
HEADING
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....................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 Date........PERFORMANCE
23. Financial Statements....................FINANCIAL STATEMENTS
<PAGE>
PART A
PROSPECTUS
<PAGE>
DATED FEBRUARY 1, 1996
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
- -------------------------------------------------------
FORTIS TAX-FREE
PORTFOLIOS, INC.
PROSPECTUS
(An income fund with three separate
investment portfolios investing primarily in
securities generating tax-exempt interest)
- ------------------------------------------
National Portfolio
- ----------------------------------
Minnesota Portfolio
- ----------------------------------
New York Portfolio
- ----------------------------------
THIS PROSPECTUS CONCISELY SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR
SHOULD KNOW ABOUT THE FUND BEFORE INVESTING. INVESTORS SHOULD RETAIN THIS
PROSPECTUS FOR FUTURE REFERENCE. THE FUND HAS FILED A STATEMENT OF ADDITIONAL
INFORMATION (ALSO DATED FEBRUARY 1, 1996) WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE FREE OF CHARGE
FROM FORTIS INVESTORS, INC. ("INVESTORS") AT THE ABOVE MAILING ADDRESS OF THE
FUND, AND IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS IN ACCORDANCE WITH
THE COMMISSION'S RULES.
SHARES IN THE FUND 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.
FORTIS-REGISTERED TRADEMARK- and
Fortis-Registered Trademark- are
registered FORTIS
servicemarks of Fortis AMEV and Fortis SOLID ANSWERS FOR A CHANGING
AG. WORLD-REGISTERED TRADEMARK-
<PAGE>
RISK FACTORS
An investment in any of the Portfolios involves certain risks. These include the
following:
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest rates.
Because the Portfolios invest in fixed-rate debt securities, they are subject to
interest rate risk. In general, when interest rates rise, the value of a
fixed-rate debt security declines. Conversely, when interest rates decline, the
value of a fixed-rate debt security generally increases. Thus, shareholders in
the Portfolios bear the risk that increases in market interest rates will cause
the value of their Portfolio's investments to decline.
In general, the value of fixed-rate debt securities with longer maturities is
more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Portfolio
which invests in securities with longer weighted average maturities should be
expected to have greater volatility in periods of changing market interest rates
than that of a Portfolio which invests in securities with shorter weighted
average maturities.
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Portfolios invest in
debt securities, they are subject to credit risk.
The ratings and certain other requirements which apply to the Portfolios'
permitted investments, as described elsewhere in this Prospectus, are intended
to limit the amount of credit risk undertaken by the Portfolios. Nevertheless,
shareholders in the Portfolios bear the risk that payment defaults could cause
the value of their Portfolio's investments to decline.
CALL RISK. Many municipal bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In general,
it is advantageous for an issuer to call its bonds if they can be refinanced
through the issuance of new bonds which bear a lower interest rate than that of
the called bonds. Call risk is the risk that bonds will be called during a
period of declining market interest rates so that such refinancings may take
place.
If a bond held by a Portfolio is called during a period of declining interest
rates, the Portfolio probably will have to reinvest the proceeds received by it
at a lower interest rate than that borne by the called bond, thus resulting in a
decrease in the Portfolio's income. To the extent that the Portfolios invest in
callable bonds, Portfolio shareholders bear the risk that reductions in income
will result from the call of bonds.
STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of municipal
obligations owned by the Funds may be adversely affected by local political and
economic conditions and developments. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect on
the financial condition of local issuers. Other factors that could affect
tax-exempt obligations include a change in the local, state or national economy,
demographic factors, ecological or environmental concerns, statutory limitations
on the issuer's ability to increase taxes and other developments generally
affecting the revenues of issuers (for example, legislation or court decisions
reducing state aid to local governments or mandating additional services).
OTHER. Investors also should review "Investment Objectives and Policies" for
information concerning risks associated with certain investment techniques which
may be utilized by the Funds. In addition, investors in the Minnesota Portfolio
should note that the 1995 Minnesota Legislature enacted a statement of intent
specifying certain circumstances under which interest on the Minnesota municipal
obligations held by the Fund might become taxable for Minnesota state income tax
purposes. See "Taxation--Minnesota Income Taxation."
SUMMARY OF INVESTMENT OBJECTIVES
Fortis Tax-Free Portfolios, Inc. (the "Fund") is a mutual fund comprised of
three separate investment portfolios (the "Portfolios"), each of which invests
primarily in securities yielding interest that is exempt from Federal income
taxes, and each of which is, for investment purposes, in effect a separate fund
with its own investment policies. A separate series of capital stock is issued
for each Portfolio.
The "National Portfolio" will invest primarily in debt obligations which
generate interest income that is exempt from Federal income tax. These debt
obligations will include securities of states, territories, and possessions of
the United States and the District of Columbia, and their political
subdivisions, agencies, and instrumentalities.
The "Minnesota Portfolio" will invest primarily in debt obligations which
generate interest income that is exempt from both Federal income tax and State
of Minnesota income tax and which are issued by the State of Minnesota, its
agencies, instrumentalities, and political subdivisions.
The "New York Portfolio" will invest primarily in debt obligations which
generate interest income that is exempt from Federal income tax, State of New
York income tax, and City of New York income tax. These debt obligations include
securities issued by the State of New York, its agencies, instrumentalities, and
political subdivisions.
The Fund's shares are of five classes (A, B, H, C, and E), each with different
sales arrangements and expenses.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Risk Factors.............................................................. 2
Summary of Investment Objectives.......................................... 2
Class Shares.............................................................. 3
Summary of Fund Expenses.................................................. 4
Financial Highlights...................................................... 5
Organization and Classification........................................... 8
Investment Objectives and Policies........................................ 8
- Tax Exempt Bonds.................................................... 9
- Miscellaneous Investment Practices.................................. 10
Management................................................................ 11
- Board of Directors.................................................. 11
- The Investment Adviser/Transfer Agent/ Dividend Agent............... 11
- The Underwriter and Distribution Expenses........................... 11
- Fund Expenses....................................................... 12
- Brokerage Allocation................................................ 12
Valuation of Securities................................................... 12
Capital Stock............................................................. 13
Dividends and Capital Gains Distributions................................. 13
Taxation.................................................................. 13
- Federal Income Taxation............................................. 13
- Minnesota Income Taxation........................................... 14
- New York Income Taxation............................................ 14
How To Buy Fund Shares.................................................... 14
- General Purchase Information........................................ 14
- Alternative Purchase Arrangements................................... 15
- Class A and E Shares--Initial Sales Charge Alternative.............. 15
- Class B and H Shares--Contingent Deferred Sales Charge
Alternatives...................................................... 17
- Class C Shares--Level Sales Charge Alternative...................... 17
Redemption................................................................ 18
- Contingent Deferred Sales Charge.................................... 19
Shareholder Inquiries..................................................... 20
Appendix.................................................................. 20
Account Application....................................................... 23
ACH Authorization Agreement............................................... 26
</TABLE>
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 Fund 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.
CLASS SHARES
The Fund offers investors the choice of five classes of shares 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 AND E SHARES. Generally, an investor who purchases Class A and E shares
pays a sales charge at the time of purchase. As a result, Class A and E 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 also subject to an annual Rule 12b-1 fee
of .25% of average daily net assets attributable to Class A shares. This fee is
lower than the other classes having Rule 12b-1 fees (all but Class E) and
therefore Class A shares have lower expenses and pay higher dividends. See "How
to Buy Fund Shares--Class A Shares." Class E shares are not subject to a Rule
12b-1 fee and therefore have the lowest expenses and pay the highest dividends,
but are only available to investors who were shareholders on November 13, 1994.
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 or E
shares--1.00% of the 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 and E shares
due to the higher Rule 12b-1 fee and other class specific expenses. See "How to
Buy Fund Shares--Class B and H Shares."
CLASS C SHARES. As with Class B and H shares, Class C shares: 1) are sold
without an initial sales charge, but are subject to a contingent deferred sales
charge of 1% if redeemed within one year of purchase; 2) are subject to the
higher annual Rule 12b-1 fee of 1.00% of the 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 or E shares due to the higher Rule
12b-1 fee and other class specific expenses. While Class C shares, unlike
Classes B and H, do not convert to Class A shares, they are subject to a lower
contingent deferred sales charge than Class B or H shares and do not have to be
held for as long a time to avoid paying the contingent deferred sales charge.
See "How to Buy Fund Shares-- Class C Shares."
IN SELECTING A PURCHASE ALTERNATIVE, 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--if you are exempt from the sales
charge, you must invest in Class A 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 eight years after purchase.
3
<PAGE>
SUMMARY OF FUND EXPENSES
The Portfolios' 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>
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES NATIONAL MINNESOTA NEW YORK
(AS A PERCENTAGE OF OFFERING PRICE) PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------- ------------- -------------- --------------
<S> <C> <C> <C>
Class A Shares.............................. 4.5%* 4.5%* 4.5%*
Class B and H Shares........................ 0.00%** 0.00%** 0.00%**
Class C Shares.............................. 0.00%** 0.00%** 0.00%**
Class E Shares.............................. 4.5% 4.5% 4.5%
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM DEFERRED SALES CHARGE (AS A
PERCENTAGE OF ORIGINAL PURCHASE PRICE OR NATIONAL MINNESOTA NEW YORK
REDEMPTION PROCEEDS, AS APPLICABLE) PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
Class A Shares.............................. *** *** ***
Class B and H Shares........................ 4.0% 4.0% 4.0%
Class C Shares.............................. 1.0% 1.0% 1.0%
Class E Shares.............................. *** *** ***
</TABLE>
*SINCE THE PORTFOLIOS 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 AND E SHARES THAT WERE PURCHASED WITHOUT AN INITIAL SALES CHARGE
AS PART OF AN INVESTMENT OF $1 MILLION OR MORE. SEE "HOW TO BUY PORTFOLIO
SHARES--CLASS A AND E SHARES."
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
------------------------------------------------------
CLASS A CLASS B AND CLASS C CLASS E
SHARES H SHARES SHARES SHARES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management Fees............................ .77% .77% .77% .77%
12b-1 Fees................................. .25% 1.00% 1.00% --
Other Expenses............................. .26% .26% .26% .26%
--- --- --- ---
TOTAL PORTFOLIO OPERATING EXPENSES....... 1.28% 2.03% 2.03% 1.03%
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
------------------------------------------------------
CLASS A CLASS B AND CLASS C CLASS E
SHARES H SHARES SHARES SHARES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management Fees............................ .72% .72% .72% .72%
12b-1 Fees................................. .25% 1.00% 1.00% --
Other Expenses............................. .26% .26% .26% .26%
--- --- --- ---
TOTAL PORTFOLIO OPERATING EXPENSES....... 1.23% 1.98% 1.98% .98%
</TABLE>
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
------------------------------------------------------
CLASS A CLASS B AND CLASS C CLASS E
SHARES H SHARES SHARES SHARES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management Fees............................ .80% .80% .80% .80%
12b-1 Fees................................. .25% 1.00% 1.00% --
Other Expenses............................. .29% .29% .29% .29%
--- --- --- ---
TOTAL PORTFOLIO OPERATING EXPENSES AFTER
EXPENSE REIMBURSEMENT*.................. 1.34% 2.09% 2.09% 1.09%
</TABLE>
*SEE "MANAGEMENT -- FUND EXPENSES" FOR A DISCUSSION OF VOLUNTARY LIMITATIONS
UPON TOTAL OPERATING EXPENSES FOR THE NEW YORK PORTFOLIO. IF THE VOLUNTARY
EXPENSE LIMITATION OF 1.09% OF AVERAGE NET ASSETS HAD NOT BEEN IN PLACE FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1995, THE PORTFOLIO'S EXPENSES FOR CLASS A, B,
H, C AND E SHARES WOULD HAVE BEEN 1.85%, 2.60%, 2.60%, 2.60% AND 1.60% OF
AVERAGE NET ASSETS RESPECTIVELY.
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that an investor in the Portfolio will bear, whether
directly or indirectly. For a more complete description of the various costs and
expenses, see "Management" and "How to Buy Portfolio Shares."
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>
NATIONAL PORTFOLIO
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares............................. $ 57 $ 84 $ 112 $ 193
Class B and H Shares....................... $ 57 $ 91 $ 127 $ 217
Class C Shares............................. $ 31 $ 64 $ 109 $ 236
Class E Shares............................. $ 55 $ 76 $ 99 $ 165
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares............................. $ 57 $ 82 $ 110 $ 187
Class B and H Shares....................... $ 56 $ 89 $ 125 $ 211
Class C Shares............................. $ 30 $ 62 $ 107 $ 231
Class E Shares............................. $ 55 $ 75 $ 97 $ 160
</TABLE>
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares............................. $ 58 $ 86 $ 115 $ 199
Class B and H Shares....................... $ 57 $ 92 $ 130 $ 223
Class C Shares............................. $ 31 $ 65 $ 112 $ 242
Class E Shares............................. $ 56 $ 78 $ 102 $ 172
</TABLE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
NATIONAL PORTFOLIO
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares....................... $ 21 $ 64 $ 109 $ 217
Class C Shares............................. $ 21 $ 64 $ 109 $ 236
</TABLE>
<TABLE>
<CAPTION>
MINNESOTA PORTFOLIO
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares....................... $ 20 $ 62 $ 107 $ 211
Class C Shares............................. $ 20 $ 62 $ 107 $ 231
</TABLE>
<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B and H Shares....................... $ 21 $ 65 $ 112 $ 223
Class C Shares............................. $ 21 $ 65 $ 112 $ 242
</TABLE>
The above example should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
4
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The information below has been derived from audited financial statements (except
for the period from January 1, 1986 to March 16, 1986), and should be read in
conjunction with the financial statements of the Fund and independent auditors'
report of KPMG Peat Marwick LLP found in the Fund's 1995 Annual Report to
Shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NATIONAL PORTFOLIO -- CLASS E SHARES
- ------------------------------------------------------- SIX-MONTH
YEAR ENDED THREE-MONTH YEAR ENDED PERIOD ENDED
SEPTEMBER 30, PERIOD ENDED JUNE 30, JUNE 30,
------------- SEPTEMBER 30, ------------------------------ ------------
1995 1994*** 1994 1993 1992 1991***
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $10.38 $10.46 $11.13 $10.54 $9.99 $9.82
- -----------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net.............. .58 .15 .60 .63 .66 .32
Net realized and unrealized gains
(losses) on investments.............. .36 (.09) (.64) .59 .55 .17
- -----------------------------------------------------------------------------------------------------------------------
Total from operations............... .94 .06 (.04) 1.22 1.21 0.49
- -----------------------------------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net......... (.59) (.14) (.59) (.62) (.66) (.32)
From realized gains................... (.01) -- (.04) -- -- --
Excess distribution of net investment
income............................... -- -- -- (.01) -- --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders..... (.60) (.14) (.63) (.63) (.66) (.32)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.......... $10.72 $10.38 $10.46 $11.13 $10.54 $9.99
- -----------------------------------------------------------------------------------------------------------------------
Total Return**.......................... 9.30% .59% (0.49%) 11.99% 12.46% 5.09%
Net assets at end of period (000's
omitted)............................... $70,531 $74,877 $76,746 70,754 54,189 43,707
Ratio of expenses to average daily net
assets................................. 1.03% .87%* .87% .94% .92% .95%*
Ratio of net investment income to
average daily net assets............... 5.54% 5.74%* 5.38% 5.80% 6.40% 6.58%*
Portfolio turnover rate................. 35% 17% 25% 29% 38% 25%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------
NATIONAL PORTFOLIO -- CLASS E SHARES FOR PERIOD FOR PERIOD
- ---------------------------------------- FROM FROM
YEAR ENDED MARCH 17, JANUARY 1,
DECEMBER 31, 1986 TO 1986 TO
---------------------------------------------- DECEMBER 31, MARCH 16,
1990 1989 1988 1987 1986+ 1986
- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $9.98 $9.85 $9.64 $10.31 $10.00 $1.00
- ----------------------------------------
Operations:
Investment income -- net.............. .66 .72 .72 .69 .46 .03
Net realized and unrealized gains
(losses) on investments.............. (.15) .13 .21 (.58) .27 --
- ----------------------------------------
Total from operations............... 0.51 0.85 0.93 .11 .73 .03
- ----------------------------------------
Distribution to shareholders:
From investment income -- net......... (.67) (.72) (.72) (.74) (.42) (.03)
From realized gains................... -- -- -- (.04) -- --
Excess distribution of net investment
income............................... -- -- -- -- -- --
- ----------------------------------------
Total distributions to shareholders..... (.67) (.72) (.72) (.78) (.42) (.03)
- ----------------------------------------
Net asset value, end of period.......... $9.82 $9.98 $9.85 $9.64 $10.31 $1.00
- ----------------------------------------
Total Return**.......................... 5.33% 8.94% 9.98% 1.20% 9.43%* 5.83%*
Net assets at end of period (000's
omitted)............................... 41,041 36,874 28,985 18,895 8,018 156
Ratio of expenses to average daily net
assets................................. .95% .94% 1.09% 1.16% 1.00%* 1.39%*
Ratio of net investment income to
average daily net assets............... 6.71% 6.99% 7.17% 7.29% 7.01%* 5.67%*
Portfolio turnover rate................. 90% 86% 120% 98% 87% N/A
- ----------------------------------------
- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TEN AND ONE-HALF MONTH PERIOD FROM
NOVEMBER 14, 1994 THROUGH SEPTEMBER 30, 1995
NATIONAL PORTFOLIO ---------------------------------------------------------
- -----------------------------------------------------------------------
CLASS A CLASS B CLASS H CLASS C
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period........................ $ 9.79 $ 9.79 $ 9.79 $ 9.79
- -----------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net.................................. .49 .42 .43 .43
Net realized and unrealized gains (losses) on
investments.............................................. .94 .93 .93 .92
- -----------------------------------------------------------------------------------------------------------------------
Total from operations....................................... 1.43 1.35 1.36 1.35
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income -- net............................. (.50) (.43) (.43) (.43)
From net realized gains................................... (.01) (.01) (.01) (.01)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.51) (.44) (.44) (.44)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.............................. $ 10.71 $ 10.70 $ 10.71 $ 10.70
- -----------------------------------------------------------------------------------------------------------------------
Total Return**.............................................. 14.80% 13.96% 14.06% 13.95%
Net assets at end of period (000's omitted)................. $1,807 $668 $1,757 $106
Ratio of expenses to average daily net assets............... 1.28%* 2.03%* 2.03%* 2.03%*
Ratio of net investment income to average daily net
assets..................................................... 5.03%* 4.04%* 4.24%* 4.14%*
Portfolio turnover rate..................................... 35%**** 35%**** 35%**** 35%****
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** These are the Portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
*** Effective September 30, 1994, the Portfolio changed its fiscal accounting
year end to September 30. Previously, the fiscal year end was June 30 and
prior to June, 1991, it was December 31.
+ Prior to March 17, 1986, the Portfolio was a money market fund, and because
the money market fund was changed into a two-portfolio series on that date,
both the then-existing National and Minnesota Portfolios reflect the money
market fund's historical results and should not be aggregated.
****For the period ended September 30, 1995. Portfolio turnover computed at the
fund level.
5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MINNESOTA PORTFOLIO -- CLASS E SHARES
- ----------------------------------------------------------------------- SIX-MONTH
YEAR ENDED THREE-MONTH YEAR ENDED PERIOD ENDED
SEPTEMBER 30, PERIOD ENDED JUNE 30, JUNE 30,
------------- SEPTEMBER 30, ------------------------------ -------------
1995 1994*** 1994 1993 1992 1991***
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.... $10.08 $10.15 $10.65 $10.16 $9.78 $9.68
- ------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net.............. .57 .15 .59 .61 .64 .31
Net realized and unrealized gains
(losses) on investments.............. .24 (.08) (.51) .49 .38 .11
- ------------------------------------------------------------------------------------------------------------------------
Total from operations............... .81 .07 .08 1.10 1.02 .42
- ------------------------------------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net......... (.57) (.14) (.58) (.61) (.64) (.32)
From realized gains................... -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders..... (.57) (.14) (.58) (.61) (.64) (.32)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.......... $10.32 $10.08 $10.15 $10.65 $10.16 $9.78
- ------------------------------------------------------------------------------------------------------------------------
Total Return**.......................... 8.35% .72% .64% 11.17% 10.71% 4.36%
Net assets end of period (000s
omitted)............................... $52,603 $54,560 $54,854 52,271 38,586 29,449
Ratio of expenses to average daily net
assets................................. .98% .85%* .85% .89% .90% .97%*
Ratio of net investment income to
average daily net assets............... 5.60% 5.69%* 5.51% 5.82% 6.37% 6.47%*
Portfolio turnover rate................. 27% 8% 11% 17% 10% 8%
<CAPTION>
- ----------------------------------------
MINNESOTA PORTFOLIO -- CLASS E SHARES FROM FROM
- ---------------------------------------- MARCH 17, JANUARY 1,
YEAR ENDED 1986 1986
DECEMBER 31, TO TO
----------------------------------------- DECEMBER 31, MARCH 16,
1990 1989 1988 1987 1986+ 1986
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------
Net asset value, beginning of period.... $9.73 $9.65 $9.46 $10.23 $10.00 $1.00
- ----------------------------------------
Operations:
Investment income -- net.............. .63 .68 .68 .66 .47 .03
Net realized and unrealized gains
(losses) on investments.............. (.05) .08 .20 (.73) .18 --
- ----------------------------------------
Total from operations............... .58 .76 .88 (.07) .65 .03
- ----------------------------------------
Distribution to shareholders:
From investment income -- net......... (.63) (.68) (.69) (.70) (.42) (.03)
From realized gains................... -- -- -- -- -- --
- ----------------------------------------
Total distributions to shareholders..... (.63) (.68) (.69) (.70) (.42) (.03)
- ----------------------------------------
Net asset value, end of period.......... $9.68 $9.73 $9.65 $9.46 $10.23 $1.00
- ----------------------------------------
Total Return**.......................... 6.20% 8.19% 9.60% (.57)% 8.38%* 5.83%*
Net assets end of period (000s
omitted)............................... 26,481 24,720 15,909 9,007 3,405 157
Ratio of expenses to average daily net
assets................................. .98% .98% 1.00% 1.00% 1.00%* 1.39%*
Ratio of net investment income to
average daily net assets............... 6.56% 6.70% 6.63% 7.13% 6.83%* 5.67%*
Portfolio turnover rate................. 63% 36% 61% 78% 47% N/A
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
TEN AND ONE-HALF MONTH PERIOD FROM
NOVEMBER 14, 1994 THROUGH SEPTEMBER 30, 1995
MINNESOTA PORTFOLIO ---------------------------------------------------------
- -----------------------------------------------------------------------
CLASS A CLASS B CLASS H CLASS C
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period........................ $9.55 $9.55 $9.55 $9.55
- -----------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net.................................. .48 .41 .41 .42
Net realized and unrealized gains (losses) on
investments.............................................. .76 .73 .76 .75
- -----------------------------------------------------------------------------------------------------------------------
Total from operations....................................... 1.24 1.14 1.17 1.17
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income -- net............................. (.49) (.42) (.42) (.42)
From net realized gains................................... -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders......................... (.49) (.42) (.42) (.42)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.............................. $10.30 $10.27 $10.30 $10.30
- -----------------------------------------------------------------------------------------------------------------------
Total Return**.............................................. 13.15% 12.10% 12.42% 12.31%
Net assets at end of period (000's omitted)................. $884 $180 $638 $143
Ratio of expenses to average daily net assets............... 1.23%* 1.98%* 1.98%* 1.98%*
Ratio of net investment income to average daily net
assets..................................................... 5.10%* 4.37%* 4.29%* 4.28%*
Portfolio turnover rate..................................... 27%**** 27%**** 27%**** 27%****
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** These are the Portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charge.
*** Effective September 30, 1994, the Portfolio changed its fiscal accounting
year end to September 30. Previously, the fiscal year end was June 30 and
prior to June, 1991, it was December 31.
+ Prior to March 17, 1986, the Portfolio was a money market fund, and because
the money market fund was changed into a two-portfolio series on that date,
both the then-existing National and Minnesota Portfolios reflect the money
market fund's historical results and should not be aggregated.
****For the period ended September 30, 1995. Portfolio turnover computed at the
fund level.
6
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED THREE-MONTH YEAR ENDED
SEPTEMBER 30, PERIOD ENDED JUNE 30,
------------- SEPTEMBER 30, ------------------------------
NEW YORK PORTFOLIO--CLASS E SHARES 1995 1994*** 1994 1993 1992
- -----------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............................. $10.74 $10.81 $11.51 $11.03 $10.57
- ---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net....................................... .61 .15 .62 .65 .66
Net realized and unrealized gains (losses) on investments...... .15 (.06) (.54) .65 .62
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations........................................ .76 .09 .08 1.30 1.28
- ---------------------------------------------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net.................................. (.61) (.16) (.62) (.65) (.66)
Excess distribution of net investment income................... -- -- -- (.01) --
From realized gains............................................ (.02) -- (.16) (.16) (.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders.............................. (.63) (.16) (.78) (.82) (.82)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period................................... $10.87 $10.74 $10.81 $11.51 $11.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return @................................................... 7.31% .79% .63% 12.19% 12.53%
Net assets end of period (000s omitted).......................... $11,882 $12,797 $12,851 13,915 14,943
Ratio of expenses to average daily net assets (a)................ 1.09% 1.09%** .99% .99% 1.00%
Ratio of net investment income to average daily net assets (a)... 5.69% 5.74%** 5.55% 5.74% 6.15%
Portfolio turnover rate.......................................... 10% 0% 4% 17% 19%
<CAPTION>
- -----------------------------------------------------------------
NINE-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
------------- ------------------------------
NEW YORK PORTFOLIO--CLASS E SHARES 1991 1989 1988*
- -----------------------------------------------------------------
1990
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............................. $10.27 $10.50 $10.30 $10.00
- -----------------------------------------------------------------
Operations:
Investment income -- net....................................... .48 .67 .72 .64
Net realized and unrealized gains (losses) on investments...... .30 (.22) .20 .30
- -----------------------------------------------------------------
Total from operations........................................ .78 .45 .92 .94
- -----------------------------------------------------------------
Distribution to shareholders:
From investment income -- net.................................. (.48) (.67) (.72) (.64)
Excess distribution of net investment income................... -- -- -- --
From realized gains............................................ -- (.01) -- --
- -----------------------------------------------------------------
Total distributions to shareholders.............................. (.48) (.68) (.72) (.64)
- -----------------------------------------------------------------
Net asset value, end of period................................... $10.57 $10.27 $10.50 $10.30
- -----------------------------------------------------------------
Total Return @................................................... 5.49% 4.44% 9.21% 10.09%**
Net assets end of period (000s omitted).......................... 15,952 27,065 23,069 9,260
Ratio of expenses to average daily net assets (a)................ 1.23%** 1.09% .60% .45%**
Ratio of net investment income to average daily net assets (a)... 6.08%** 6.35% 6.75% 6.87%**
Portfolio turnover rate.......................................... 18% 31% 11% 18%
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS H CLASS C
NEW YORK PORTFOLIO SHARES+ SHARES+ SHARES+++ SHARES++
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.34 $10.34 $10.89 $10.79
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Investment income -- net.................................. .50 .43 .16 .21
Net realized and unrealized gains (losses) on
investments.............................................. .57 .54 (.05) .06
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total from operations....................................... 1.07 .97 .11 .27
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions to shareholders:
From investment income -- net............................. (.52) (.45) (.17) (.21)
From net realized gains................................... (.02) (.02) -- --
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total distributions to shareholders......................... (.54) (.47) (.17) (.21)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, end of period.............................. $ 10.87 $ 10.84 $ 10.83 $ 10.85
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return@............................................... 10.51% 9.46% 1.00% 2.54%
Net assets at end of period (000's omitted)................. $49 $194 $72 $51
Ratio of expenses to average daily net assets (a)........... 1.34%** 2.09%** 2.09%** 2.09%**
Ratio of net investment income to average daily net assets
(a)........................................................ 5.41%** 4.68%** 4.36%** 4.44%**
Portfolio turnover rate..................................... 10%**** 10%**** 10%**** 10%****
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Fortis Advisers, Inc., the Fund's investment adviser, has voluntarily
undertaken to limit annual expenses for New York Portfolio (exclusive of
interest, taxes, brokerage commissions, 12b-1 fees and non-recurring
extraordinary charges and expenses) to 1.09% of average net assets. From
June 1, 1993 to June 30, 1994, Advisers agreed to limit expenses to .99%
of average net assets. Prior to June 1, 1993, Advisers agreed to limit
expenses to 1.00% of average net assets. Prior to June 1, 1991 Empire of
American Advisory Services, Inc., the previous advisor of the Portfolio,
and Empire National Securities, Incorporated, the previous distributor of
the Portfolio, each agreed to waive a portion of its fees or reimburse the
Portfolio for certain operating expenses. For each of the periods
presented, had the waivers and reimbursement of expenses not been in
effect, the ratios of expenses and net investment income to average daily
net assets would have been 1.60% and 5.18% for class E, 1.85% and 4.90%
for class A, 2.60% and 4.17% for class B, 2.60% and 3.93% for class C,
2.60% and 3.85% for class H, for the year ending September 30, 1995; 1.09%
and 5.45% for the year ended June 30, 1994; 1.05% and 5.68% for the year
ended June 30, 1993; 1.26% and 5.89% for the year ended June 30, 1992; and
1.48% and 5.83% for the nine-month period ended June 30, 1991; 1.49% and
5.95% for the year ended September 30, 1990; 1.70% and 5.65% for the year
ended September 30, 1989; and 2.04% and 5.28%, for the period from
November 6, 1987 (Commencement of Operations) to September 30, 1988.
* For the period November 6, 1987 (commencement of operations) to September
30, 1988.
** Annualized.
*** Effective September 30, 1994, the Portfolio changed its fiscal accounting
year end to September 30. Previously, the fiscal year end was June 30 and
prior to June, 1991, it was September 30.
@ These are the Portfolio's total returns during the period, including
reinvestment of all dividend and capital gains distributions, without
adjustment for sales charges.
**** For the period ended September 30, 1995. Portfolio turnover computed at
the fund level.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
++ For the period from April 26, 1995 (date of first investment) to September
30, 1995.
+++ For the period from May 31, 1995 (date of first investment) to September
30, 1995.
7
<PAGE>
The Portfolios may advertise their "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. The
Portfolios may advertise their "yield." When they advertise yield, they will
also advertise "average annual total return" for the most recent one, five, and
ten year periods, along with other performance data. The Portfolios also may
advertise their "tax equivalent yield" where yield and total return are
advertised. The Portfolios may advertise 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 Securities
and Exchange Commission is found in the Fund's Annual Report to Shareholders and
will be made available without charge upon request.
ORGANIZATION AND CLASSIFICATION
The Fund was incorporated under Minnesota law in 1982, and is registered with
the Securities and Exchange Commission under the Investment Company Act of 1940
(the "1940 Act") as an "open-end management investment company".
The Fund is comprised of three separate investment portfolios (the
"Portfolios")--the National Portfolio, the Minnesota Portfolio, and the New York
Portfolio. While the Minnesota and National Portfolios are classified as
diversified investment companies under the 1940 Act, the New York Portfolio is
classified as a non-diversified investment company. Each Portfolio is, for
investment purposes, in effect a separate investment fund. A separate series of
capital stock is issued for each Portfolio. Each share of capital stock 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 the Fund. In other respects, however, the Fund is treated
as one entity.
Effective with the close of business on May 31, 1991, the New York Portfolio,
acquired the assets and assumed all identified liabilities of the Pathfinder
Heritage New York Tax-Free Income Fund (Pathfinder) in a tax-free exchange by
issuing new shares. Since New York Portfolio had no assets or liabilities prior
to the acquisition, the Portfolio has retained the financial history of
Pathfinder for financial reporting and income tax purposes.
INVESTMENT OBJECTIVES AND POLICIES
The Fund currently is comprised of three separate investment portfolios, each
with its own investment goals, policies, and investment restrictions. The
investment objective of the National Portfolio is to seek as high a level of
current income exempt from federal income tax as is believed to be consistent
with the preservation of capital. The National Portfolio will invest primarily
in securities of states, territories, and possessions of the United States and
the District of Columbia, and their political subdivisions, agencies, and
instrumentalities. The investment objective of the Minnesota Portfolio is to
seek as high a level of current income exempt from both federal and Minnesota
income tax as is believed to be consistent with the preservation of capital. The
Minnesota Portfolio will invest primarily in securities which are issued by the
State of Minnesota, its agencies, instrumentalities, and political subdivisions.
The investment objective of the New York Portfolio is to seek as high a level of
current income exempt from federal, New York State, and New York City income tax
as is believed to be consistent with the preservation of capital. The New York
Portfolio will invest primarily in securities which are issued by the State of
New York, its agencies, instrumentalities, and political subdivisions. There is
no assurance that the investment objectives of any Portfolio will be achieved.
The investment objectives of the Portfolios and, except as otherwise noted,
their investment policies, could be changed without shareholder approval. Any
change in a Portfolio's investment objective may result in the Portfolio having
an investment objective which is different from that which an investor deemed
appropriate to his or her objectives at the time of investment.
The Portfolios will seek to achieve their investment objectives by investing
primarily in Tax Exempt Bonds. For purposes of the National Portfolio, "Tax
Exempt Bonds" means any debt obligation generating interest income that is
exempt, in the opinion of bond counsel, from federal income tax. For purposes of
the Minnesota Portfolio, "Tax Exempt Bonds" means any debt obligation generating
interest income that, in the opinion of bond counsel, is not includable in gross
income for Federal income tax purposes or in taxable net income of individuals,
estates, and trusts for Minnesota income tax purposes. For purposes of the New
York Portfolio, "Tax Exempt Bonds" means any debt obligation generating interest
income that, in the opinion of bond counsel, is not includable in gross income
for Federal income tax purposes or in taxable net income of individuals,
estates, and trusts for New York income tax purposes.
As policies which may not be changed without shareholder approval, except for
defensive purposes: the National Portfolio will invest at least 80% of its net
assets in securities that generate interest that is not includable in gross
income for federal income tax purposes and is not an item of tax preference for
purposes of the federal alternative minimum tax; the Minnesota Portfolio will
invest at least 80% of its net assets in securities that generate interest that
is not includable in federal gross income or in taxable net income of
individuals, estates, and trusts for Minnesota Income Tax purposes and is not an
item of tax preference for purposes of the Federal or State of Minnesota
alternative minimum tax. (Ninety-five percent or more of the exempt-interest
dividends paid by the Minnesota Portfolio will be derived from interest income
on obligations of the State of Minnesota or its political or governmental
subdivisions, municipalities, governmental agencies or instrumentalities.); the
New York Portfolio will invest at least 80% of its net assets in securities that
generate interest that is not includable in federal gross income or State of New
York or City of New York taxable net income (except for State of New York and
City of New York franchise tax on corporations and financial institutions, which
is measured by income) and is not an item of tax preference for purposes of the
federal, State of New York, or City of New York alternative minimum tax.
A policy which may not be changed without shareholder approval is that at least
90% of the Tax Exempt Bonds purchased by each Portfolio will be of "investment
grade" quality. This means that they will be rated, at the time of purchase,
within the four highest grades assigned by either Moody's Investors Service,
Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Corporation (AAA, AA, A or BBB) or
will be
8
<PAGE>
unrated securities which at the time of purchase are judged by Fortis Advisers,
Inc. ("Advisers") to be of comparable quality to securities rated within such
four highest grades. Securities rated Baa or BBB are medium grade, involve some
speculative elements and are the lowest investment grade available. Securities
rated BBB may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
securities. Securities rated below BBB (non-investment grade securities) are
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
Participation in lower-rated 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
market. For a more detailed discussion of the risks connected with such
investments, see "Investment Objectives and Policies-- Risks of Transactions in
High-Yielding Securities" in the Statement of Additional Information. The
Portfolios may retain a portfolio security whose rating has changed if the
security otherwise meets the Portfolios' respective investment objectives and
investment criteria.
A description of the ratings of tax exempt securities of Moody's and of Standard
& Poor's is set forth in the Appendix.
Rated, as well as unrated, Tax Exempt Bonds will be analyzed by Advisers on the
basis of available information as to creditworthiness and with a view to various
qualitative factors and trends affecting Tax Exempt Bonds generally. It should
be noted, however, that the amount of information about the financial condition
of an issuer of Tax Exempt Bonds may not be as extensive as that which is made
available by many corporations whose securities are more actively traded. While
the Portfolios are free to invest in securities of any maturity, it is expected
that the average maturity of the Portfolios will generally range from seven to
20 years.
The Portfolios may invest without limitation in taxable obligations on a
temporary, defensive basis due to market conditions. Such taxable obligations,
whether purchased for temporary or liquidity purposes or on a defensive basis,
may include: obligations of the U.S. government, its agencies or
instrumentalities; other debt securities rated within the four highest grades by
either Moody's or Standard & Poor's; commercial paper rated in the highest grade
by either of such rating services (Prime-1 or A-1, respectively); certificates
of deposit and bankers' acceptances of domestic banks which have assets of over
$1 billion; variable amount master demand notes; and repurchase agreements with
respect to any of the foregoing investments. The Portfolios may also hold their
respective assets in cash.
TAX EXEMPT BONDS
Tax Exempt Bonds include primarily debt obligations of the states, their
agencies, universities, boards, authorities and political subdivisions (for
example, cities, towns, counties, school districts, authorities and commissions)
issued to obtain funds for various public purposes, including the construction
or improvement of a wide range of public facilities such as airports, bridges,
highways, hospitals, housing, jails, mass transportation, nursing homes, parks,
public buildings, recreational facilities, school facilities, streets and water
and sewer works. Other public purposes for which Tax Exempt Bonds may be issued
include the refunding of outstanding obligations, the anticipation of taxes or
state aids, the payment of judgments, the funding of student loans, community
redevelopment, district heating, the purchase of street maintenance and
firefighting equipment, or any authorized corporate purpose of the issuer except
for the payment of current expenses. In addition, certain types of industrial
development bonds may be issued by or on behalf of public corporations to
finance privately operated housing facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Such obligations are included within the term
Tax Exempt Bonds if the interest payable thereon is, in the opinion of bond
counsel, exempt from federal income taxation and, for the Minnesota Portfolio
and the New York Portfolio, State of Minnesota income taxation and State of New
York and City of New York income taxation, respectively (excluding excise taxes
imposed on corporations and banks and measured by income). Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial,
commercial or office facilities constitute Tax Exempt Bonds, although current
federal income tax laws place substantial limitations on the size of such
issues.
The two principal classifications of Tax Exempt Bonds are general obligation
bonds and limited obligation (or revenue) bonds. General obligation bonds are
obligations involving credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues and not from any
particular fund or revenue source. The characteristics and methods of
enforcement of general obligation bonds vary according to the law applicable to
the particular issuer. Limited obligation bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a specific revenue source, such as the user of the
facility. Industrial development bonds are in most cases limited obligation
bonds payable solely from specific revenues of the project to be financed,
pledged to their payment. The credit quality of industrial development bonds is
usually directly related to the credit standing of the user of the facilities
(or the credit standing of a third-party guarantor or other credit enhancement
participant, if any). There are, of course, variations in the quality of Tax
Exempt Bonds, both within a particular classification and between
classifications, depending on various factors. (See Appendix). The Fund does not
currently intend to invest in so-called "moral obligation" bonds, where
repayment is backed by a moral commitment of an entity other than the issuer,
unless the credit of the issuer itself, without regard to the "moral
obligation," meets the investment criteria established for investments by the
Fund.
The yields on Tax Exempt Bonds are dependent on a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the Tax Exempt Bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of Moody's
and Standard & Poor's represent their opinions as to the quality of the Tax
Exempt Bonds which they undertake to rate. It should be emphasized, however,
that ratings are general, not absolute, standards of quality. Consequently, Tax
Exempt Bonds of the same maturity, interest rate and rating may have different
yields, while Tax Exempt Bonds of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to their purchase by the
Portfolios, particular Tax Exempt Bonds or other investments may cease to be
rated or their ratings may be reduced below the minimum rating required for
purchase by the Portfolios. Neither event will require the elimination
9
<PAGE>
of an investment from the Portfolio, but Advisers will consider such an event in
its determination of whether the Portfolio should continue to hold such an
investment.
As a fundamental policy, each Portfolio will not invest more than 25% of its
total assets in limited obligation bonds payable only from revenues derived from
facilities or projects within a single industry. As to utility companies, gas,
electric, water and telephone companies will be considered as separate
industries. For this purpose, municipal bonds refunded with U.S. Government
securities will be treated as investments in U.S. Government securities, and are
not subject to this requirement or the 5% diversification requirement under the
1940 Act.
Securities in which the Fund may invest, including Tax Exempt Bonds, are subject
to the provisions of bankruptcy, insolvency, reorganization and other laws
affecting the rights and remedies of creditors, such as the federal Bankruptcy
Code and laws, if any, which may be enacted by Congress or the Minnesota or New
York legislature extending the time for payment of principal or interest, or
both, or imposing other constraints upon enforcement of such obligations. There
is also the possibility that, as a result of litigation or other conditions the
power or ability of issuers to meet their obligations for the payment of
interest on and principal of their Tax Exempt Bonds may be materially affected.
Current economic conditions in each respective state affect both the total
amount of taxes each state collects and the personal income growth within each
state. Budgetary shortfalls may result in reductions in credit ratings for
securities issued by the states. This may cause an increase in the yield and a
decrease in the price of a security issued by a particular state. Furthermore,
because local finances are dependent upon the fiscal integrity of the state and
upon the same financial factors that influence state government, the credit
ratings of state agencies, authorities and municipalities may be similarly
affected. See the Statement of Additional Information for more information
concerning each state.
MISCELLANEOUS INVESTMENT PRACTICES
FORWARD COMMITMENTS. New issues of Tax Exempt Bonds and other securities are
often purchased on a "when issued" or delayed delivery basis, with delivery and
payment for the securities normally taking place 15 to 45 days after the date of
the transaction. Such an agreement to purchase securities is termed a "forward
commitment." The payment obligation and the interest rate that will be received
on the securities are each fixed at the time the buyer enters into the
commitment. The Portfolios may enter into such forward commitments if the
Portfolios hold, and maintain until the settlement date in a segregated account,
cash or high-grade, liquid debt obligations in an amount sufficient to meet the
purchase price. There is no percentage limitation on the Portfolios' total
assets which may be invested in forward commitments. The purchase of securities
on a when-issued, delayed delivery or forward commitment basis exposes a
Portfolio 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 a
Portfolio's net asset value to the extent that such Portfolio 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 Portfolio may incur a loss or will have lost the
opportunity to invest the amount set aside for such transaction in the
segregated asset account. Although the Portfolios will generally enter into
forward commitments with the intention of acquiring Tax Exempt Bonds or other
securities, the Fund may dispose of a commitment prior to settlement if Advisers
deems it appropriate to do so. The Portfolios may realize short-term profits or
losses upon the sale of forward commitments.
PORTFOLIO TURNOVER. Portfolio transactions will be undertaken principally to
accomplish the Portfolios' objectives in relation to anticipated movements in
the general level of interest rates. Securities may be sold in anticipation of a
market decline (a rise in interest rates) or purchased in anticipation of a
market rise (a decline in interest rates) and later sold. In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what Advisers believes to be a temporary disparity in the
normal yield relationship between the two securities. Yield disparities may
occur for reasons not directly related to the investment quality of particular
issues or the general movement of interest rates, due to such factors as changes
in the overall demand for or supply of various types of Tax Exempt Bonds or
changes in the investment objectives of investors.
The Fund's investment policies may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest rates. A change in
securities held by the Portfolios is known as "portfolio turnover" and may
involve the payment by the Portfolios of dealer mark-ups or underwriting
commissions, and other transaction costs, on the sale of securities as well as
on the reinvestment of the proceeds in other securities. The portfolio turnover
rate for a fiscal year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of portfolio
securities--excluding securities whose maturities at acquisition were one year
or less.
FLOATING AND VARIABLE RATE SECURITIES. The Fund also may purchase floating and
variable rate Tax Exempt Bonds. These notes normally have a stated maturity in
excess of one year, but permit the holder to demand payment of principal plus
accrued interest upon a specified number of days' notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. Use of letters of credit or other credit support
arrangements will generally not adversely affect the tax exempt status of these
obligations. Advisers will rely upon the opinion of the issuer's bond counsel to
determine whether such notes are exempt from federal income taxes and, for the
Minnesota Portfolio and the New York Portfolio, Minnesota income tax and New
York State and New York City income tax. The issuer of floating and variable
rate demand notes normally has a corresponding right, after a given period, to
prepay at its discretion the outstanding principal amount of the note plus
accrued interest upon a specified number of days' notice to the noteholders. The
interest rate on a floating rate demand note is based on a known lending rate,
such as a bank's prime rate, and is adjusted automatically each time such rate
is adjusted. The interest rate on a variable rate demand note is adjusted at
specified intervals, based on a known lending rate, generally the rate on 90-day
U.S. Treasury bills. Advisers will monitor the creditworthiness of the issuers
of floating and variable rate demand notes. Such obligations are not as liquid
as many other types of Tax Exempt Bonds.
10
<PAGE>
Although the New York Portfolio is classified as a "nondiversified" investment
company under the 1940 Act, it is still required to meet certain diversification
requirements in order to qualify as a "regulated investment company" for Federal
income tax purposes under the Internal Revenue Code of 1986 as amended (the
"Code"). To so qualify, the New York Portfolio must diversify its holdings so
that, at the close of each quarter of its taxable year, (a) at least 50% of the
value of its total assets is represented by cash, cash items, securities issued
by the U.S. Government, its agencies and instrumentalities, the securities of
other regulated investment companies, and other securities limited generally
with respect to any one issuer to an amount not more than 5% of the total assets
of the Portfolio and not more than 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the value of its total assets is
invested in the securities of any issuer (other than securities issued by the
U.S. Government, its agencies or instrumentalities or the securities of other
regulated investment companies), or in two or more issuers that the Portfolio
controls and that are engaged in the same or similar trades or businesses.
For the purpose of diversification under the 1940 Act, the identification of the
issuer of Tax Exempt Bonds depends on the terms and conditions of the security.
If a state or a political subdivision of such state pledges its full faith and
credit to payment of a security, the state or the political subdivision,
respectively, will be deemed the sole issuer of the security. If the assets and
revenues of an agency, authority or instrumentality of the state or a political
subdivision are separate from those of the state or political subdivision and
the security is backed only by the assets and revenues of the agency, authority
or instrumentality, such agency, authority or instrumentality will be deemed to
be the sole issuer. Moreover, if the security is backed only by revenues of an
enterprise or specific projects of the state, a political subdivision or agency,
authority or instrumentality, such as utility revenue bonds, and the full faith
and credit of the governmental unit is not pledged to the payment thereof, such
enterprise or projects will be deemed the sole issuer. Similarly, in the case of
an industrial development bond, if that bond is backed only by certain revenues
to be received from the non-governmental user of the project financed by the
bond, then such non-governmental user will be deemed to be the sole issuer. If,
however, in any of the above cases, the state, the political subdivision or some
other entity guarantees a security, and the value of all securities issued or
guaranteed by the guarantor and owned by a Portfolio exceeds 10% of the value of
the Portfolio's total assets, the guarantee will be considered a separate
security and will be treated as an issue of the guarantor.
BORROWING. Each Portfolio 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 Portfolio's total assets and no additional
investment securities may be purchased by a Portfolio while outstanding bank
borrowings exceed 5% of the value of such Portfolio's total assets. Interest
paid on borrowings will not be available for investment.
ILLIQUID SECURITIES. Each Portfolio may invest up to 15% of the value of its net
assets in illiquid securities. 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. Securities that have been determined to be liquid by the Board of
Directors of the Fund, 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.
MANAGEMENT
BOARD OF DIRECTORS
Under Minnesota law, the Board of Directors of the Fund (the "Board of
Directors") has overall responsibility for managing the Fund in good faith, in a
manner reasonably believed to be in the best interests of the 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 the 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 Fund. 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 the Fund's business
affairs, subject to the overall authority of the Board of Directors. Howard G.
Hudson (Executive Vice President), Robert C. Lindberg (Vice President), Maroun
M. Hayek (Vice President) and David C. Greenzang (Money Market Portfolio
Officer) manage the Portfolios. Mr. Lindberg has managed the Portfolios since
1993. Prior to 1993, Mr. Lindberg managed bank portfolios for COMERICA, Inc.,
Detroit, Michigan. The other individuals have been managing the Portfolios since
August of 1995. Messrs. Hudson and Hayek have managed debt securities for
Fortis, Inc. since 1991 and 1987, respectively. Mr. Greenzang has been involved
in management of debt securities for Fortis, Inc. since 1992. Prior to 1992, Mr.
Greenzang was an Associate with Dean Witter Reynolds, Inc. in New York, NY.
Messrs. Hudson, Lindberg, Hayek and Greenzang are located at One Chase Manhattan
Plaza, New York, NY.
THE UNDERWRITER AND DISTRIBUTION EXPENSES
Fortis Investors, Inc. ("Investors"), a subsidiary of Advisers, is the Fund's
underwriter. Investors' address is that of the Fund. Investors reserves the
right to reject any purchase order. The following persons are affiliated with
both Investors and the Fund: Dean C. Kopperud is a director and officer of both;
Stephen M. Poling and Jon H. Nicholson are directors of Investors and officers
of both; and Dennis M. Ott, James S. Byrd, Robert C. Lindberg, Keith R. Thomson,
Larry A.
11
<PAGE>
Medin, Anthony J. Rotondi, Rhonda J. Schwartz, Robert W. Beltz, Jr., Thomas D.
Gualdoni, Richard P. Roche, Tamara L. Fagely, John E. Hite, Carol M. Houghtby
and Scott R. Plummer are officers of both.
Pursuant to a Plan of Distribution adopted by the Fund under Rule 12b-1 under
the 1940 Act, the Fund is obligated to pay Investors an annual fee of .25% of
average net assets attributable to the Fund's Class A shares and 1.00% of
average net assets attributable to Class B, H, and C shares. 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 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 the
Fund attributable to the 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 Fund 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 Fund 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.)
FUND EXPENSES
For the most recent fiscal year, the ratio of the Funds' total operating
expenses (including the distribution fees and shareholding servicing fees
referred to under "Distribution Expenses"), and their advisory fees (which are
included in operating expenses) both as a percentage of average daily net assets
were as follows:
<TABLE>
<CAPTION>
TOTAL OPERATING EXPENSES
--------------------------------------------------------
CLASSES B, ADVISORY
CLASS A H, & C CLASS E FEE
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
National Portfolio............. 1.28% 2.03% 1.03% .77%
Minnesota Portfolio............ 1.23% 1.99% .98% .72%
New York Portfolio............. 1.34% 2.09% 1.09% .80%
</TABLE>
Advisers has undertaken to limit annual expenses for the New York Portfolio
(exclusive of Rule 12b-1 fees, interest, taxes, brokerage commissions and
non-recurring or extraordinary charges and expenses) until September 30, 1996,
to not more than 1.09% of average net assets. Such expense limit is maintained
by Advisers by reimbursement to the New York Portfolio for expenses in excess of
such percentage, but not in amounts in excess of the investment advisory fees
received by Advisers from the New York Portfolio. If the expense limitation had
not been in place for the fiscal year ended September 30, 1995, the Portfolio's
expenses would have been 1.60% of average net assets.
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.
VALUATION OF SECURITIES
The Portfolios' net asset values per share are determined by dividing the value
of the securities owned by each Portfolio, plus any cash or other assets, less
all liabilities, by the number of the Portfolio shares outstanding. The
portfolio securities in which the Portfolio invests fluctuate in value, and
hence the net asset values per share of the Portfolios also fluctuate. The net
asset value of the Portfolios' shares is determined as of the primary closing
time for business on the Exchange on each day on which the Exchange is open. If
shares are purchased through another broker-dealer who receives the order
12
<PAGE>
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. Securities for which
over-the-counter market quotations are readily available are valued on the basis
of the last current bid price. When market quotations are not readily available,
or when restricted 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 Board of Directors. However, debt securities
may be valued on the basis of valuations furnished by a pricing service which
utilizes electronic data processing techniques to determine valuations for
normal institutional-size trading units of debt securities when such valuations
are believed to more accurately reflect the fair market value of such
securities. 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 the Fund after
2:00 P.M. Central Time normally are not recorded until the following day.
CAPITAL STOCK
Each Portfolio's shares constitute separate series of common shares. Each
Portfolio currently offers its shares in five classes, each with different sales
arrangements and bearing differing expenses. Class A, B, H, C, and E shares each
represent interests in the assets of the respective Portfolios 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. Each Portfolio may offer additional
classes of shares.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Portfolio currently declares dividends from net investment income on each
day the New York Stock Exchange (the "Exchange") is open (to shareholders of
record as of 3:00 p.m., Central Time, the preceding business day) and pays
dividends monthly. A shareholder will not be credited with a dividend until
payment is received for the shares. Distributions of net realized capital gains
are made annually. Distributions paid by a Portfolio 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 per share dividends on
Class B, H, and C shares will be lower than those on Class A shares (which have
lower Rule 12b-1 fees) and Class E shares (which do not have Rule 12b-1 fees and
will therefore have the highest dividends).
Such dividends and capital gains distributions will be made in the form of
additional shares of the same class of the same Portfolio (at net asset value)
unless the shareholder sends the 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 Portfolio or Fortis fund.
Dividends will be reinvested monthly, on the last business day of each month, at
the net asset value on that date. If they are to be reinvested in other Fortis
funds, processing normally takes up to three business days.
TAXATION
FEDERAL INCOME TAXATION
Each Portfolio intends to pay at least 90% of its dividends as "exempt-interest
dividends." Distributions by a mutual fund meeting applicable Code requirements
are subject to the following Federal tax treatment:
Distributions of net interest income from tax-exempt obligations that are
designated by the Fund as exempt-interest dividends are excludable from
shareholders' gross income. The Fund's present policy is to designate
exempt-interest dividends annually. Shareholders are required for information
purposes to report exempt-interest dividends and other tax-exempt interest on
their tax returns.
Distributions of net long-term capital gains, designated in the shareholder's
Annual Account Summary as long-term capital gain distributions, are taxable to
shareholders as long-term capital gains, regardless of the length of time a
shareholder has held his or her shares or whether such gains were realized by
the Fund before the shareholder acquired such shares and were reflected in the
price paid for the shares.
Since none of the Fund's income will consist of corporate dividends, the 70%
dividends received deduction for corporations will not be applicable to taxable
distributions by the Fund.
Exempt-interest dividends attributable to interest income on certain tax-exempt
obligations issued after August 7, 1986, to finance certain private activities
will be treated as an item of tax preference that is included in alternative
minimum taxable income for purposes of computing the Federal alternative minimum
tax for all taxpayers and the Federal environmental tax on corporations. No
Portfolio will invest more than 20% of its net assets in obligations the
interest on which is treated as an item of tax preference. However, all other
tax-exempt interest received by a corporation will be included in earnings and
profits and adjusted current earnings for purposes of determining the Federal
corporate alternative minimum tax and the environmental tax imposed on
corporations by Section 59A of the Code.
Tax-exempt interest, including exempt-interest dividends paid by the Fund, is
taken into account in computing the "modified adjusted gross income" of
individuals for purposes of determining the portion of social security and
railroad retirement benefits that are subject to Federal income tax. In certain
limited circumstances, the portion of such benefits that may be subject to tax
is 85%.
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<PAGE>
Any loss on the sale or exchange of shares held for 6 months or less (although
regulations may reduce this time to 31 days) will be disallowed for Federal
income tax purposes to the extent of the amount of any exempt-interest dividend
received with respect to such shares.
The Tax Reform Act of 1986 imposed new requirements on certain Tax Exempt Bonds
which, if not satisfied, could result in loss of tax exemption for interest on
such bonds, even retroactively to the date of issuance of the bonds. Proposals
may be introduced before Congress in the future, the purpose of which will be to
further restrict or eliminate the Federal income tax exemption for Tax Exempt
Bonds. The Fund cannot predict what additional legislation may be enacted that
may affect shareholders. The Fund will avoid investment in bonds which, in the
opinion of Advisers, pose a material risk of the loss of tax exemption. Further,
if a bond in one of the Portfolios lost its exempt status, Advisers would make
every effort to dispose of it on terms that are not detrimental to the
Portfolio.
MINNESOTA INCOME TAXATION
The portion of exempt-interest dividends that is derived from interest income on
Minnesota Tax Exempt Bonds by the Minnesota Portfolio is excluded from the
Minnesota gross income of individuals, estates, and trusts, provided that the
portion of the exempt-interest dividends from such Minnesota sources paid to all
shareholders represents 95 percent or more of the exempt-interest dividends paid
by such Portfolio. All remaining dividends (except for dividends, if any,
derived from interest on obligations of the United States or certain of its
territories or possessions), including capital gain dividends, are included in
the Minnesota gross income of individuals, estates, and trusts. Exempt-interest
dividends are not excluded from the Minnesota gross income of corporations and
financial institutions. Dividends paid from long-term capital gains (and
designated as such) are to be treated by shareholders as long-term capital gains
under Minnesota law. However, Minnesota currently taxes long-term capital gains
at the same rates as ordinary income, while retaining restrictions on the
deductibility of capital losses.
Exempt-interest dividends attributable to interest on certain private activity
bonds issued after August 7, 1986, will be included in Minnesota alternative
minimum taxable income of individuals, estates, and trusts for purposes of
computing Minnesota's alternative minimum tax. Dividends generally will not
qualify for the dividends-received deduction for corporations and financial
institutions.
The 1995 Minnesota Legislature enacted a statement of intent that interest on
obligations of Minnesota governmental units and Indian tribes be included in net
income of individuals, estates and trusts for Minnesota income tax purposes if a
court determines that Minnesota's exemption of such interest unlawfully
discriminates against interstate commerce because interest on obligations of
governmental issuers located in other states is so included. This provision
applies to taxable years that begin during or after the calendar year in which
any such court decision becomes final, irrespective of the date on which the
obligations were issued. The Fund is not aware of any decision in which a court
has held that a state's exemption of interest on its own bonds or those of its
political subdivisions or Indian tribes, but not of interest on the bonds of
other states or their political subdivisions or Indian tribes, unlawfully
discriminates against interstate commerce or otherwise contravenes the United
States Constitution. Nevertheless, the Fund cannot predict the likelihood that
interest on the Minnesota bonds held by the Fund would become taxable under this
Minnesota statutory provision.
NEW YORK INCOME TAXATION
The portion of exempt-interest dividends that is derived from interest income on
New York Tax Exempt Bonds is excluded from the New York State and New York City
gross income of individuals, estates and trusts. The remaining portion of such
dividends, and dividends that are not exempt-interest dividends, are included in
the New York State and New York City gross income of individuals, estates and
trusts. Exempt-interest dividends are not excluded from the New York State and
New York City gross income of corporations and banks, and dividends from the
Fund will not qualify for the New York State or New York City dividends-received
deduction for corporations and banks.
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 E 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 "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.
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<PAGE>
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:
First 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
The Portfolios each offer investors the choice between five 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. The inside front
cover 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 financial assistance not to exceed .5% of estimated sales for a
particular period to dealers in connection with seminars for the public,
advertising, sales campaigns and/or shareholder services and programs regarding
one or more of the Fortis Funds, and other dealer-sponsored programs or events.
Non-cash compensation will be provided to dealers and includes payment or
reimbursement for conferences, sales or training programs for their employees,
and travel expenses incurred in connection with trips taken by registered
representatives to locations within or outside of the United States for meetings
or seminars of a business nature. None of the aforementioned additional
compensation is paid for by the Fund or its shareholders.
CLASS A AND E SHARES--INITIAL SALES CHARGE ALTERNATIVE
(Note: Class E shares are only available to investors who were shareholders on
November 13, 1994.)
The public offering price of Class A and E Portfolio 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 AS
PERCENTAGE PERCENTAGE
OF THE OF THE NET BROKER-
OFFERING AMOUNT DEALER
AMOUNT OF SALE PRICE INVESTED CONCESSION
<S> <C> <C> <C>
Less than $100,000...................... 4.500% 4.712% 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>
- ------------------------
* The Fund imposes a contingent deferred sales charge in connection with certain
purchases of Class A and E shares of $1,000,000 or more. See
"Redemption--Contingent Deferred Sales Charge."
The above scale applies to purchases of Class A and E 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 which has been in existence for more than six
months, provided that it is not organized for the purpose of buying
redeemable securities of a registered investment company, and 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 administration,
through a single broker-dealer, or by other means. An organized group does
not include a group of individuals whose sole organizational connection is
participation as credit cardholders of a company, policyholders of an
insurance company, customers of either a bank or broker-dealer, or clients
of an investment adviser.
SPECIAL PURCHASE PLANS FOR CLASS A AND E SHARES
For information on any of the following special purchase or exchange plans
applicable to Class A and E 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
15
<PAGE>
of the following special purchase or exchange plans. Any plan involving
systematic purchases may, at Advisers' option, result in transactions under such
plan being confirmed to the investor quarterly, rather than as a separate notice
following the transaction.
RIGHT OF ACCUMULATION The preceding table's sales charge discount applies to the
current purchase plus the cost of shares already owned (excluding shares
purchased by reinvesting dividends or capital gains distributions) 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 Portfolio or fund may reinvest their dividend and/or
capital gains distributions in any of such Portfolios or funds at net asset
value.
CONVERSION FROM CLASS B OR H SHARES Class B and H shares will automatically be
converted to Class A shares (at net asset value) at the end of the month in
which the ninth anniversary of their purchase occurs.
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;
- 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 Portfolio shares is funded by the proceeds from the redemption of
shares of any such unrelated mutual fund (within 60 days of the
purchase of Portfolio 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 Portfolio, to the extent
that the purchase price of such Portfolio shares is funded by the
proceeds from the surrender of the contract (within 60 days of the
purchase of Portfolio 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
Portfolios 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 Portfolio shares
shall qualify.
- 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 Portfolio, 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.
PURCHASES BY CERTAIN FORMER PATHFINDER FUND ACCOUNTS Additionally, no sales
charge will be incurred on purchases of shares of the New York Portfolio for
accounts which were in existence and entitled to purchase shares of Pathfinder
without a sales charge at the time of the effectiveness of the 1991 acquisition
of its assets by the New York Portfolio.
RULE 12B-1 FEES (FOR CLASS A SHARES ONLY)
Class A shares are subject to a Rule 12b-1 fee payable at an annual rate of .25%
of the average daily net assets of the Portfolio attributable to such shares.
The Rule 12b-1 fee will cause Class A shares to have a higher expense ratio and
to pay lower dividends than Class E 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 and E shares of $1,000,000 or more, Investors pays broker-dealers out of
its own assets, a fee of 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."
16
<PAGE>
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 the
Portfolio's shares. Such shares are sold without an initial sales charge so that
the 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:
<TABLE>
<S> <C> <C>
3 years -- 3%
4 years -- 3%
5 years -- 2%
6 years -- 1%
</TABLE>
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 Fund in connection
with the sale of Class B and H shares, such as the payment of compensation to
selected broker-dealers, and 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 Portfolio 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 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 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 and E
shares. 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 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 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 sales commission 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 Portfolio
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 and E
shares. For additional information about this fee, see "Management--The
Underwriter and Distribution Expenses."
SPECIAL PURCHASE PLANS FOR ALL CLASSES
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 ACH 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 Class E shares, Portfolio shares may be exchanged
among other Portfolios or 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 their shares for Portfolio shares of the same
class (at net asset value if the shares to be exchanged have already incurred a
sales charge). Also, holders of Class E shares of other Fortis funds that have a
front-end sales charge may exchange their shares for Class A Portfolio shares
and holders of Fortis Money Fund Class A shares may exchange their shares for
any class of Portfolio shares (at net asset value and only into Class A, if the
shares have already incurred a sales charge). Finally, holders of Portfolio
Class E shares who exchange such shares for Class A shares of another Portfolio
or other Fortis fund may re-exchange such Class A shares for Portfolio Class E
shares. A shareholder initiates an exchange by writing to or telephoning his or
her broker-dealer, sales representative, or the Fund regarding the shares to be
exchanged. Telephone exchanges will be permitted only if the shareholder
completes and returns the
17
<PAGE>
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".)
Advisers reserves the right to restrict the frequency of--or otherwise modify,
condition, terminate, or impose charges upon--the exchange and/or telephone
transfer privileges, all with 30 days notice to shareholders.
REDEMPTION
Registered holders of Fund shares may redeem their shares without any charge
(except any applicable contingent deferred sales charge) 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 worth of their shares, provided that the account
is not a tax-qualified plan, the check will be sent to the address of record,
and the address of record has not changed for at least 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 Fund by
telephone. Consequently, a telephone redemption may be difficult to implement at
those times. If a shareholder is unable to reach the 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 Fund 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 Fund 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 Fund's procedures are to verify address and social security
number, tape record the telephone call, and provide written confirmation of the
transaction.
Payment will be made as soon as possible, but not later than three 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 your redemption check may be delayed by fifteen
days. A shareholder wishing to avoid these delays should consider the wire
purchase method described under "How to Buy Fund Shares."
The 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. Any redemption in an account
established with the minimum initial investment of $500 may trigger this
redemption procedure.
The Fund has a "Systematic Withdrawal Plan," which provides for voluntary
automatic withdrawals of at least $50 per quarter, semiannually, or annually or
$50 per month. 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.
18
<PAGE>
CONTINGENT DEFERRED SALES CHARGE
CLASS A AND E SHARES
The Fund imposes a contingent deferred sales charge ("CDSC") on Class A and E
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 ("FESC"), 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 FESC). However, if such shares are redeemed within
two years after their purchase date (the "CDSC Period"), the redemption proceeds
will be reduced by the 1.00% 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.
The Fund will waive the CDSC in the event of the shareholder's death or
disability, as defined in Section 72(m)(7) of 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) and each class of transaction that qualifies
for exemption from the Fund FESC (see "How to Buy Fund Shares--Special Purchase
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 the Fund. Any reinvestment within 60 days of a redemption on which the
CDSC was paid will be made without the imposition of a FESC. Such reinvestment
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.
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, 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 the
Fund's receipt from the plan's administrator or trustee of a signature guarantee
and 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.
19
<PAGE>
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 Class
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 Fund 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.
APPENDIX
TAX-EXEMPT BOND RATINGS
STANDARD & POOR'S CORPORATION. Its ratings for municipal debt 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" and "CC" 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.
The rating "CI" is reserved for income bonds on which no interest is being paid.
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 Standard & Poor's 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.
The ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major categories.
"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.
20
<PAGE>
MOODY'S INVESTORS SERVICE, INC. Its ratings for municipal 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.
Bonds which are 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.
MUNICIPAL NOTES AND OTHER SHORT-TERM LOANS
STANDARD & POOR'S CORPORATION. A Standard & Poor's note rating reflects the
liquidity concerns and market access risks unique to notes. Notes due in three
years or less will likely receive a note rating. Notes maturing beyond three
years will most likely receive a long-term debt rating.
Note rating symbols are as follows:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
MOODY'S INVESTORS SERVICES. Moody's ratings for state and municipal notes and
other short-term loans are designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower and
short-term cyclical elements are critical in short-term ratings, while other
factors of major importance in bond risk may be less important over the short
run. In the case of variable rate demand obligations, two ratings are assigned;
one representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an evaluation of the
degree of risk associated with the demand feature. The short-term rating
assigned to the demand feature of variable rate demand obligations is designated
as VMIG. Moody's ratings for short-term loans have the following definitions:
MIG_1/VMIG_1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG_2/VMIG_2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG_3/VMIG_3. This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG_4/VMIG_4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
TAX-EXEMPT DEMAND BONDS
Standard & Poor's assigns "dual" ratings to all long-term debt issues that have
as part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity and the
commercial paper rating symbols are used to denote the put option (for example,
"AAA/ A-1+"). For the newer "demand notes," Standard & Poor's note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+").
21
<PAGE>
[Page 22 Left Blank Intentionally]
22
<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 at 1-800-800-2638,
FORTIS MUTUAL FUNDS 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
/ /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 (12/95)
________________________________________________________________________________
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).
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 SEND THE PAYMENT TO:
/ / My bank. (Please complete Bank Information in Section D next page.)
/ / My address of record.
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 Payment Date____________________________ ____________________________
Month Day
<TABLE>
<S> <C> <C> <C>
FREQUENCY: / / Monthly DATE: / / Semi-Annually
/ / Quarterly / / Annually
</TABLE>
PLEASE SEND THE PAYMENT TO:
/ / My bank. (Please complete Bank Information in Section D next page.)
/ / My address of record. (If bank option is not chosen, check will be processed
on the 15th of every month.)
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 SEND THE PAYMENT TO:
/ / My bank. (Please complete Bank Information in Section D next page.)
/ / My address of record.
<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. START DATE:__________________________
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 TAX BRACKET
/ / 15% / / 28% / / 31% / / 33% / / 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>
FORTIS-Registered Trademark-
FORTIS MUTUAL FUND Mail to:
AUTOMATED CLEARING HOUSE (ACH) FORTIS MUTUAL FUNDS
AUTHORIZATION AGREEMENT P.O. Box 64284
St. Paul, MN 55164
Please complete each section below to establish ACH capability to your Fortis
Mutual Fund Account. For personal service, please call your investment
professional or Fortis at (800) 800-2638, Ext. 3012.
________________________________________________________________________________
1 FORTIS ACCOUNT INFORMATION
________________________________________________________________________________
Account Registration:
________________________________________________________________________________
Owner (Individual, 1st Joint Tenant, Custodian, Trustee)
________________________________________________________________________________
Owner (2nd Joint Tenant, Minor, Trust Name)
________________________________________________________________________________
Additional Information, if needed
________________________________________________________________________________
Street address
________________________________________________________________________________
City State Zip
________________________________________________________________________________
Social Security number (Taxpayer I.D.)
Account # ______________________________________________________________________
Fund: Class:
1)
Fund Name / / A / / B / / C / / H
2)
Fund Name / / A / / B / / C / / H
3)
Fund Name / / A / / B / / C / / H
4)
Fund Name / / A / / B / / C / / H
5)
Fund Name / / A / / B / / C / / H
________________________________________________________________________________
2 BANK/FINANCIAL INSTITUTION INFORMATION
________________________________________________________________________________
PLAN TYPE: / / New Plan / / Bank Change
ACCOUNT TYPE: / /Checking / /Savings
(must attach a (must attach a
voided check) deposit slip)
________________________________________________________________________________
Transit Number
________________________________________________________________________________
Bank Account Number
________________________________________________________________________________
Account Owner (if other than name of Depositor)
________________________________________________________________________________
Depositor's Daytime Phone Number
CLEARLY PRINT THE BANK/FINANCIAL INSTITUTION'S NAME AND ADDRESS BELOW:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature of Depositor Date
________________________________________________________________________________
Signature of Joint-Depositor Date
<PAGE>
________________________________________________________________________________
3 SELECT OPTION
________________________________________________________________________________
I. INVESTMENT OPTION(S)
A. / / Invest via FORTIS INFORMATION LINE by
phone (minimum $25, maximum $10,000)
Please allow up to four business days for deposit
into Fortis Funds. Transactions after 3:00 p.m.
(CST) will be processed the following business
day.
*Not available on tax qualified accounts such as
IRA, SEP, SARSEP and Key plans.
B. / / Systematic Investment Plan
/ / New Plan
/ / Change Plan
I request Fortis Financial Group (FFG) to obtain payment of
sums becoming due the company by charging my account in the
form of electronic debit entries. I request and authorize the
financial institution named to accept, honor and charge those
entries to my account. Please allow 30 days for collected
funds to be available in your Fortis account.
Draft Date (1-26 only): ----------------------------
Amount per Fund (Min. $25): ----------------------
Beginning Draft Month: ----------------------------
II. WITHDRAWAL OPTION(S)
(Please consult your financial or tax adviser before electing
a systematic withdrawal plan. For tax qualified accounts,
additional forms are required for distribution.)
A. / / Cash Dividends
B. / / Redeem via FORTIS INFORMATION LINE by
phone (minimum $100, maximum $25,000)
Please allow up to four business days for
withdrawal to credit your bank account.
Transactions after 3:00 p.m. (CST) will be
processed the following business day.
*Not available on tax qualified accounts such as
IRA, SEP, SARSEP and Key plans.
C. / / Systematic Withdrawal Plan
/ / New Plan
/ / Change Plan
I request Fortis Financial Group (FFG) to pay sums due me by
crediting my bank account in the form of electronic entries.
I request and authorize the financial institution to accept,
honor and credit those entries to my account.
Withdrawal Date (1-26 only): -----------------------
Amount per Fund (Min. $25): ----------------------
Beginning Withdrawal Month: ----------------------
________________________________________________________________________________
4 SIGNATURES
________________________________________________________________________________
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.
This authorization will remain in effect until I notify FFG. I hereby terminate
any prior Authorization of FFG to initiate charges to this account. I understand
that any returned item or redemption of the entire account may result in
termination of my Automated Clearing House agreement. This authorization will
become effective upon acceptance by FFG at its home office.
Authorized Signature(s)
X ______________________________________________________________________________
Owner, Custodian, Trustee Date
X ______________________________________________________________________________
Joint Owner, Trustee Date
FORTIS-Registered Trademark-
FORTIS FINANCIAL GROUP
Fortis Advisers, Inc. (fund management since 1949)
Fortis Investors, Inc. (principal underwriter; (member SIPC)
P.O. Box 64284
St. Paul, MN 55164
(800) 800-2638
Attach additional information if more space is needed.
98049 (7/95)
<PAGE>
PROSPECTUS
FEBRUARY 1, 1996
FORTIS TAX-FREE PORTFOLIOS, INC.
TAX-FREE CURRENT INCOME
95418 (REV. 2/96)
FORTIS
FORTIS FINANCIAL GROUP
P.O. BOX 64284
ST. PAUL, MN 55164
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 3794
MINNEAPOLIS, MN
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 1996
This Statement of Additional Information is NOT a prospectus, but should be
read in conjunction with the Fortis Tax-Free Portfolios, Inc. (the "Fund")
(prior to January 31, 1992, known as AMEV Tax-Free Fund, Inc.) Prospectus dated
February 1, 1996. 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.
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.
28
<PAGE>
TABLE OF CONTENTS
PAGE
ORGANIZATION AND CLASSIFICATION. . . . . . . . . . . . . . . . . . . . . . . .30
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . .30
- Investment Objectives. . . . . . . . . . . . . . . . . . . . . . . .30
- Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . .30
- Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . .32
- Variable Amount Master Demand Notes. . . . . . . . . . . . . . . . .32
- Illiquid Securities . . . . . . . . . . . . . . . . . . . . . .32
- Risks of Transactions in High-Yielding Securities . . . . . . .33
- Special Considerations Relating to Minnesota Tax
Exempt Bonds. . . . . . . . . . . . . . . . . . . . . . . . . .34
- Special Considerations Relating to New York Tax
Exempt Bonds. . . . . . . . . . . . . . . . . . . . . . . . . .35
DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . .44
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . . . .48
- General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
- Control and Management of Advisers and Investors. . . . . . . .49
- Investment Advisory and Management Agreement. . . . . . . . . .50
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE . . . . . . . . . . . . . .52
CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
COMPUTATION OF NET ASSET VALUE AND PRICING . . . . . . . . . . . . . . . . . .55
SPECIAL PURCHASE PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
- Statement of Intention . . . . . . . . . . . . . . . . . . . . . .57
- Gifts or Transfers to Minor Children . . . . . . . . . . . . . . .57
- Systematic Investment Plan . . . . . . . . . . . . . . . . . . . .57
- Exchange Privilege . . . . . . . . . . . . . . . . . . . . . . . .58
- Reinvested Dividend/Capital Gains Distributions
between Fortis Funds. . . . . . . . . . . . . . . . . . . . . .58
- Purchases by Fortis, Inc. (or its Subsidiaries)
or Associated Persons . . . . . . . . . . . . . . . . . . . . .58
- Purchases by Fund Directors or Officers . . . . . . . . . . . .58
- Purchases by Representatives or Employees of
Broker-Dealers. . . . . . . . . . . . . . . . . . . . . . . . .59
- Purchases by Registered Investment Companies. . . . . . . . . .59
- Purchases with Proceeds from Redemption of
Unrelated Mutual Fund Shares or Surrender of
Certain Fixed Annuity Contracts . . . . . . . . . . . . . . . .59
- Purchases by Employees of Certain Banks and
Other Financial Services Firms. . . . . . . . . . . . . . . . .59
- Purchases by Investment Advisers, Trust Companies,
and Bank Trust Departments Exercising Discretionary
Investment Authority or Using a Money Management
Mutual Fund "Wrap" Program. . . . . . . . . . . . . . . . . . .59
- Purchases by Certain Pathfinder Fund Accounts . . . . . . . . .59
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
- Systematic Withdrawal Plan . . . . . . . . . . . . . . . . . . . .60
- Reinvestment Privilege . . . . . . . . . . . . . . . . . . . . . .60
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
TAX-EXEMPT VERSUS TAXABLE INCOME . . . . . . . . . . . . . . . . . . . . . . .67
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
CUSTODIAN; COUNSEL; ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . .72
LIMITATION OF DIRECTOR LIABILITY . . . . . . . . . . . . . . . . . . . . . . .72
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
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ORGANIZATION AND CLASSIFICATION
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. The Fund
operates as an "open-end" investment company because it generally must redeem an
investor's shares upon request. The National and Minnesota Portfolios operate as
"diversified" investment companies because they offer investors an opportunity
to minimize the risk inherent in all investments in securities by spreading
their investment over a number of issuers. However, diversification cannot
eliminate such risks. The New York Portfolio operates as a "nondiversified"
investment company.
INVESTMENT OBJECTIVES AND POLICIES
The National and Minnesota Portfolios will operate as "diversified"
investment companies as defined under the Investment Company Act of 1940 (the
"1940 Act"), which means that they each 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 Portfolio and to not more than 10% of the outstanding
voting securities of such issuer.
INVESTMENT OBJECTIVES
The Fund currently is comprised of three separate investment portfolios,
each with its own investment goals, policies, and investment restrictions. The
investment objective of the National Portfolio is to seek as high a level of
current income exempt from federal income tax as is believed to be consistent
with the preservation of capital. The National Portfolio will invest primarily
in securities of states, territories, and possessions of the United States and
the District of Columbia, and their political subdivisions, agencies, and
instrumentalities. The investment objective of the Minnesota Portfolio is to
seek as high a level of current income exempt from both federal and Minnesota
income tax as is believed to be consistent with the preservation of capital.
The Minnesota Portfolio will invest primarily in securities which are issued by
the State of Minnesota, its agencies, instrumentalities, and political
subdivisions. The investment objective of the New York Portfolio is to seek as
high a level of current income exempt from federal, New York State, and New York
City income tax as is believed to be consistent with the preservation of
capital. The New York Portfolio will invest primarily in securities which are
issued by the State of New York, its agencies, instrumentalities, and political
subdivisions.
INVESTMENT RESTRICTIONS
The following investment restrictions are deemed fundamental policies. They
may be changed only by the vote of a "majority" of the outstanding voting
securities of each Portfolio, which as used in this Statement of Additional
Information means the lesser of: (i) 67% or more of the shares present at a
shareholders' meeting if more than 50% of the Portfolio's outstanding shares are
represented at the meeting in person or by proxy or (ii) more than 50% of the
outstanding shares of the Portfolio.
None of the Portfolios may:
(1) Buy or hold any commodity or commodity future contracts, or any oil,
gas or mineral exploration or development program.
(2) Invest directly in real estate or interests in real estate; however,
the Portfolios may invest in interests in debt securities secured by real estate
or interests therein, or debt securities issued by companies which invest in
real estate or interests therein.
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(3) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, the
Portfolio may be deemed an underwriter under applicable laws.
(4) Purchase securities on margin or otherwise borrow money or issue
senior securities, except that the Portfolio, in accordance with its investment
objectives and policies, may purchase securities on a when-issued, delayed
delivery, or forward commitment basis (including the entering into of "roll"
transactions). The Portfolio 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) in an amount that does not exceed 10% of the value of the
Portfolio's total assets. Investment securities will not be purchased while
outstanding bank borrowings (including "roll" transactions) exceed 5% of the
value of the Portfolio's total assets.
(5) 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 its 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 a Portfolio includes the
amount lent as well as the collateral securing such loans.)
The following investment restriction may be changed by the Board of
Directors of the Fund (the "Board of Directors") without shareholder approval.
The Portfolios will not:
(1) Invest more than 5% of its net assets in securities of other
investment companies, except in connection with a merger, consolidation,
acquisition or reorganization. (Although the Portfolio indirectly absorbs its
pro rata share of the other investment companies' expenses through the yield
received on these securities, management believes the yield and liquidity
features of these securities to, at times, be more beneficial to the Portfolio
than other types of short-term securities and that the indirect absorption of
these expenses has a de minimus effect on the Portfolio's return.)
(2) Write, purchase, or sell put or call options.
(3) 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.
(4) Make short sales, except for sales "against the box."
(5) Mortgage, pledge, or hypothecate its assets, except to the extent
necessary to secure permitted borrowings.
(6) Invest in real estate investment trusts.
(7) 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.
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(8) Invest in real estate limited partnerships or in oil, gas, and other
mineral leases.
(9) Buy securities of any issuer for the purpose of exercising control or
management.
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 results therefrom.
PORTFOLIO TURNOVER
Portfolio turnover, as described in the Prospectus, is the ratio of the
lesser of annual purchases or sales of portfolio securities to average monthly
portfolio value, not including short-term securities. A 100% portfolio turnover
rate would occur, for example, if all of the Fund's portfolio securities were
replaced within one year.
The Portfolios' portfolio turnover rates for the fiscal year ended
September 30, 1995 and the three-month fiscal period ended September 30, 1994,
respectively, were as follows: National Portfolio--35% and 17%; Minnesota
Portfolio--27% and 8%; and New York Portfolio--10% and 0%.
VARIABLE AMOUNT MASTER DEMAND NOTES
The Fund may invest in variable amount master demand notes. These
instruments 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, as lender, and the 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
Each of the Portfolios 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 Securities and Exchange
Commission (the "Commission" or the "SEC") 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, no Portfolio will
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 SEC 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 the Fund has adopted procedures to determine
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
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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 Portfolio.
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 Portfolio
may also be restricted in its ability to sell such securities at a time when it
is advisable to do so. Restricted securities often sell at a price lower than
similar securities that are not subject to restrictions on resale.
RISKS OF TRANSACTIONS IN HIGH-YIELDING SECURITIES
While at least 90% of each Portfolio will be of "investment grade" quality,
up to 10% may be invested in non-investment grade securities (securities rated
below BBB). Participation in lower rated 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.
The high yielding, high risk securities market is still relatively new and
its recent growth paralleled a long period of economic expansion and an increase
in merger, acquisition, and leveraged buyout activity. Such securities are
especially subject to adverse changes in general economic conditions, to changes
in the financial condition of their issuers, and to price fluctuation in
response to changes in interest rates. During periods of economic downturn or
rising interest rates, issuers of such securities may experience financial
stress that could adversely affect their ability to make payments of principal
and interest and increase the possibility of default. While the Portfolios do
not generally directly invest in corporate obligations, the credit quality of
certain types of industrial development bonds is at least in part a function of
the credit quality of the underlying corporate obligation.
Yields on high yield, high risk securities will fluctuate over time. The
prices of such 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
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a security
held by a Portfolio defaulted, such 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 such securities
and such Portfolio's asset value. Furthermore, in the case of such securities
structured as zero coupon securities, 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, high risk securities present risks based on payment
expectations. For example, such securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Portfolios would have to replace the security with a lower-yielding
security, resulting in a decreased return for investors. Conversely, a
high-yielding, high risk security's value will decrease in a rising interest
rate market, as will the value of such Portfolio's assets. If the Portfolios
experience unexpected net redemptions, this may force them to sell such
securities, without regard to their investment merits, thereby decreasing the
asset base upon which the Portfolios' expenses can be spread and possibly
reducing the rate of return.
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To the extent that there is no established secondary market, there may be
thin trading of high-yielding, high risk securities. This may adversely affect
the ability of the Fund's Board of Directors to accurately value such securities
and the Portfolio's assets, and the Portfolios' 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 such securities,
especially in a thinly traded market. Illiquid or restricted high-yielding, high
risk securities purchased by the Portfolios may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.
Certain risks are associated with applying credit ratings as a method for
evaluating high-yielding, high risk securities. For example, credit ratings
evaluate the safety of principal and interest payments, not market value risk of
such securities. Since credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events, Advisers continuously monitors the
issuers of such securities held by the Portfolios 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 the Portfolios can
meet redemption requests. The achievement of the investment objective of the
Portfolios may be more dependent upon Advisers' own credit analysis than is the
case for higher quality bonds. Also, the Portfolios may retain a portfolio
security whose rating has been changed if the security otherwise meets the
Portfolio's investment objective and investment criteria.
SPECIAL CONSIDERATIONS RELATING TO MINNESOTA TAX EXEMPT BONDS
Minnesota's constitutionally prescribed fiscal period is a biennium, and
the state operates on a biennial budget basis. Legislative appropriations for
each biennium are prepared and adopted during the final legislative session of
the immediately preceding biennium. Prior to each fiscal year of a biennium, the
state's Department of Finance allots a portion of the applicable biennial
appropriation to each agency or other entity for which an appropriation has been
made. An agency or other entity may not expend monies in excess of its
allotment. If revenues are insufficient to balance total available resources and
expenditures, the state's Commissioner of Finance, with the approval of the
Governor, is required to reduce allotments to the extent necessary to balance
expenditures and forecast available resources for the then current biennium. The
Governor may prefer legislative action when a large reduction in expenditures
appears necessary, and if the state's legislature is not in session the Governor
is empowered to convene a special session.
Frequently in recent years, legislation has been required to eliminate
projected budget deficits by raising additional revenue, reducing expenditures,
including aids to political subdivisions and higher education, reducing the
State's budget reserve, imposing a sales tax on purchases by local governmental
units, and making other budgetary adjustments. The Minnesota Department of
Finance November 1995 Forecast has projected that, under current laws, the State
will complete its current biennium June 30, 1997 with a $15 million surplus,
plus a $350 million cash flow account balance, plus a $220 million budget
reserve. Total General Fund expenditures and transfers for the biennium are
projected to be $18.7 billion. State expenditures for education finance (K-12),
post-secondary education, and human services in the biennium ending June 30,
1997 are not anticipated to be sufficient to maintain program levels of the
previous biennium. Although it is not possible to anticipate economic
performance four years into the future, planning estimates (extrapolations) for
the biennium ending June 30, 1999 show a General Fund deficit of $28 million,
after funding a $350 million cash flow account plus a $220 million budget
reserve, if current law is not changed. Accordingly, there may be additional
revenue increases or spending cuts relative to current law. The State is party
to a variety of civil actions that could adversely affect the State's General
Fund. In addition, substantial portions of State and local revenues are derived
from federal expenditures, and reductions in federal aid to the State and its
political subdivisions and other federal spending cuts may have substantial
adverse effects on the economic and fiscal condition of the State and its local
governmental units. The November 1995 Forecast states that pending federal
legislation could reduce federal aid to Minnesota's state and local governments
by a total of $3.2 billion over seven years. Risks are inherent in making
revenue and expenditure forecasts. Economic or fiscal conditions less favorable
than those reflected in State budget forecasts and planning estimates may create
additional budgetary pressures.
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State grants and aids represent a large percentage of the total revenues of
cities, towns, counties and school districts in Minnesota, but generally the
State has no obligation to make payments on local obligations in the event of a
default. Even with respect to revenue obligations, no assurance can be given
that economic or other fiscal difficulties and the resultant impact on State and
local government finances will not adversely affect the ability of the
respective obligors to make timely payment of the principal and interest on
Minnesota municipal obligations that are held by the Fund or the value or
marketability of such obligations.
Minnesota relies heavily on a progressive individual income tax and a
retail sales tax for revenue, which results in a fiscal system unusually
sensitive to economic conditions. In 1993, the structure of the State's economy
closely paralleled the structure of the United States economy as a whole. State
employment in ten major sectors was distributed in approximately the same
proportions as national employment.
During the period from 1980 to 1990, overall employment growth in Minnesota
lagged behind national growth; total employment increased 17.9% in Minnesota
while increasing 20.1% nationally. Most of Minnesota's relatively slower growth
during this period is associated with declining agricultural employment and with
the two recessions in the United States economy occurring in the early 1980s,
which were more severe in Minnesota than nationwide. Minnesota non-farm
employment growth generally kept pace with that of the nation after the end of
the 1981-82 recession. Employment data through 1994 indicate that the recession
that began in July 1990 was less severe in Minnesota than in the national
economy. During 1993, 1994, and the first five months of 1995, the State's
unemployment rate was generally less than the national unemployment rate,
averaging 5.1% in 1993 as compared to the national average of 7.4%, 4.0% in 1994
as compared to the national average of 6.1%, and 3.9% for the first five months
of 1995 as compared to the national average of 5.8%.
Since 1980, Minnesota per capita personal income has been within three
percentage points of national per capita personal income. Minnesota per capita
income has generally remained above the national average during this period in
spite of the early 1980s recessions and some difficult years in agriculture. In
1994, Minnesota per capita income was 103.0% of the national average. During
1993-4, personal income in Minnesota grew more rapidly than the United States
average, with a growth of 8.04% in Minnesota as compared to a United States
average of 5.89%. Between 1990 and 1994, Minnesota non-agricultural employment
increased 8.5%, compared to a national average of 4.2%.
Between 1983 and 1994, increases in retail sales in Minnesota averaged 6.4%
per year, compounded.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK TAX EXEMPT BONDS
As described above, except during temporary defensive periods, the New York
Portfolio will invest at least 80% of its net assets in New York Tax Exempt
Bonds. The New York Portfolio is therefore susceptible to political, economic
or regulatory factors affecting New York State and governmental bodies within
New York State. Some of the more significant events and conditions relating to
the financial situation in New York are summarized below. The following
information provides only a brief summary of the complex factors affecting the
financial situation in New York, is derived from sources that are generally
available to investors and is believed to be accurate. It is based on
information drawn from the Annual Information Statement of the State of New York
dated June 23, 1995 and updates thereto issued on July 28, 1995 and October 26,
1995, and from other official statements and prospectuses issued by, and other
information reported by, the State of New York (the "State"), by its various
public bodies (the "Agencies"), and other entities located within the State,
including the City of New York (the "City"), in connection with the issuance of
their respective securities.
(1) THE STATE: New York is the third most populous state in the nation and has
a relatively high level of personal wealth. The State's economy is diverse,
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. Travel and tourism constitute an
important part of New York's economy. Relative to the nation, the State has a
smaller share of manufacturing and construction and a larger share of service-
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related industries. The State is likely to be less affected than the nation as
a whole during an economic recession that is concentrated in manufacturing and
construction, but likely to be more affected during a recession that is
concentrated more in the service-producing sector.
The State historically has been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
The City has also had to face greater competition as other major cities have
developed financial and business capabilities which make them less dependent on
the specialized services traditionally available almost exclusively in the City.
During the calendar years 1984 through 1991, the State's rate of economic
expansion was somewhat slower than that of the nation. In the 1990-91
recession, the economy of the State, and that of the rest of the Northeast, was
more heavily damaged than that of the nation as a whole and has been slower to
recover. The total employment growth rate in the State has been below the
national average since 1984. The unemployment rate in the State dipped below
the national rate in the second half of 1981 and remained lower until 1991;
since then, it has been higher.
The State has the second highest combined state and local tax burden in the
United States. The burden of state and local taxation, in combination with the
many other causes of regional economic dislocation, has contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State. The State's 1995-96 budget reflects significant actions to
reduce the burden of State taxation, including adoption of a 3-year, 20 percent
reduction in the State's personal income tax.
The State Financial Plan is based on a projection by State's Division of
the Budget ("DOB") of national and State economic activity. The national
economy began the current expansion in 1991 and has added over 7 million jobs
since early 1992. However, the recession lasted longer in the State and the
State's economic recovery has lagged behind the nation's. Although the State
has added approximately 185,000 jobs since November 1992, employment growth in
the State has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, defense, and banking industries.
New York's economic forecast calls for employment growth to slow significantly
in 1996 as the pace of national economic growth slackens, entire industries
experience consolidations, and governmental employment continues to shrink.
Personal income is expected to increase more moderately in 1996 than in 1995.
1995-96 FISCAL YEAR. The State's current fiscal year commenced on April 1,
1995, and ends on March 31, 1996 (the "1995-96 fiscal year"). The State's
budget for the 1995-96 fiscal year was enacted by the Legislature on June 7,
1995, more than two months after the start of the fiscal year. Prior to
adoption of the budget, the Legislature enacted appropriations for disbursements
considered to be necessary for State operations and other purposes, including
all necessary appropriations for debt service. The State Financial Plan for the
1995-96 fiscal year was formulated on June 20, 1995 and is based on the State's
budget as enacted by the legislature and signed into law by the Governor.
In his Executive Budget, the Governor indicated that in the 1995-96 fiscal
year, the State Financial Plan, based on then-current law governing spending and
revenues, would be out of balance by almost $4.7 billion. The Governor proposed
additional tax cuts, which were larger than those ultimately adopted, and which
added $240 million to the then projected imbalance or budget gap, bringing the
total to approximately $5 billion. This gap is projected to be closed in the
1995-96 State Financial Plan based on the enacted budget, through a series of
actions, mainly spending reductions and cost containment measures and certain
reestimates that are expected to be recurring, but also through the use of one-
time solutions.
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The General Fund is projected to be balanced on a cash basis for the 1995-
96 fiscal year. Total receipts and transfers from other funds are projected to
be $33.110 billion, a decrease of $48 million from total receipts in the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected to be $33.055 billion, a decrease of $344 million from the total
amount disbursed in the prior fiscal year.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors, have created
structural gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. As noted, the 1995-96 enacted budget combines
significant tax and program reductions which will, in the current and future
years, lower both the recurring receipts base (before the effect of any economic
stimulus from such tax reductions) and the historical annual growth in State
program spending. Notwithstanding these changes, the State can expect to
continue to confront structural deficits in future years.
The 1995-96 State Financial Plan includes actions that will have an effect
on the budget outlook for State fiscal year 1996-97 and beyond. The DOB
estimates that the 1995-96 State Financial Plan contains actions that provide
nonrecurring resources or savings totalling approximately $900 million. The
Comptroller believes that the amount of nonrecurring resources or savings
exceeds $1.0 billion. The DOB also estimates that the 1995-96 State Financial
Plan contains nonrecurring expenditures totalling nearly $250 million. The net
amount of nonrecurring resources used in the 1995-96 State Financial Plan,
accordingly, is estimated by the DOB at over $600 million.
In addition to this use of nonrecurring resources, the 1995-96 State
Financial Plan reflects actions that will directly affect the State's 1996-97
fiscal year baseline receipts and disbursements. The three-year plan to reduce
State personal income taxes will decrease State tax receipts by an estimated
$1.7 billion in State fiscal year 1996-97, in addition to the amount of
reduction in State fiscal year 1995-96. Further significant reductions in the
personal income tax are scheduled for the 1997-98 State fiscal year. Other tax
reductions enacted in 1994 and 1995 are estimated to cause an additional
reduction in receipts of over $500 million in 1996-97, as compared to the level
of receipts in 1995-96. Similarly, many actions taken to reduce disbursements
in the State's 1995-96 fiscal year are expected to provide greater reductions in
State fiscal year 1996-97.
The net impact of these and other factors is expected to produce a
potential imbalance in receipts and disbursements in State fiscal year 1996-97.
The Governor has indicated that in the 1996-97 Executive Budget he will propose
to close this potential imbalance primarily through General Fund expenditure
reductions and without increases in taxes or deferrals of scheduled tax
reductions. On October 2, 1995, the State Comptroller released a report
entitled "Comptroller's Report on the Financial Conditions of New York State
1995" in which he identified several risks to the State Financial Plan and
reaffirmed his estimate that the State faces a potential imbalance in receipts
and disbursements of at least $2.7 billion for the State's 1996-97 fiscal year
and at least $3.9 billion for the State's 1997-98 fiscal year.
To address a potential imbalance in any given fiscal year, the State would
be required to take actions to increase receipts and/or reduce disbursements as
it enacts the budget for that year, and under the State Constitution, the
Governor is required to propose a balanced budget each year. To correct
recurring budgetary imbalances, the State would need to take significant actions
to align recurring receipts and disbursement in future fiscal years. There can
be no assurance, however that the Legislature will enact the Governor's
proposals or that the State's actions will be sufficient to preserve budgetary
balance in a given fiscal year or to align recurring receipts and disbursements
in future fiscal years.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the state. For example, a significant risk to the
1995-96 State Financial Plan arises from tax legislation pending in Congress.
Changes to Federal
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tax treatment of capital gains are likely to flow through automatically to the
State personal income tax. Such changes, depending upon their precise character
and timing, and upon taxpayer response, could produce either revenue gains or
losses during the balance of the State's fiscal year. Uncertainties with respect
to both the economy and potential decisions at the Federal level add further
pressure on future budget balance in New York State. Specific budget proposals
being discussed at the Federal level but not included in the State's current
economic forecast would (if enacted) have a disproportionately negative impact
on the longer-term outlook for the State's economy as compared to other states.
Because of the uncertainty and unpredictability of these potential changes,
their impact is not included in the assumptions underlying the State's
projections.
The 1995-96 State Financial Plan is based upon forecasts by the DOB of
national and State economic activity. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, Federal fiscal and monetary policies,
the level of interest rates, and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurances that the State
economy will not experience results in the current fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based
on the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations. Factors
that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the Federal government, and changes in the demand for and use of State
services. There can be no assurance that the State's projections for tax and
other receipts for the 1995-96 fiscal year are not overstated and will not be
revised downward, or that disbursements will not be in excess of the amounts
projected. Such variances could adversely affect the State's cash flow during
the 1995-96 fiscal year or subsequent fiscal years, as well as the State's
ability to achieve a balanced budget on a cash basis for such fiscal year or
subsequent fiscal years.
The DOB believes that its projections of receipts and disbursements
relating to the current State Financial Plan, and the assumptions on which they
are based, are reasonable. Projections and estimates of receipts from taxes
have been subject to variance in recent fiscal years. The personal income tax,
the sales tax, and the corporation franchise tax have been particularly subject
to overestimation as a result of several factors, most recently the significant
slowdown in the national and regional economies and uncertainties in taxpayer
behavior as a result of actual and proposed changes in Federal tax laws. As a
result of the foregoing uncertainties and other factors, actual results could
differ materially and adversely from the projections discussed herein, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address cash flow needs and State Financial Plan shortfall,
and DOB believes it could take similar action should variances from its
projections occur in the current and/or subsequent fiscal years. Those
variances could, however, affect the State's ability to achieve a balanced
budget on a cash basis for the current and/or subsequent fiscal years.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions to
align recurring receipts and disbursements in future fiscal years. There can be
no assurance, however, that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future years, nor can there be any assurance that budgetary
difficulties will not lead to further adverse consequences for the State and its
obligations.
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As a result of changing economic conditions and information, public
statements or reports may be released by the Governor, members of the State
Legislature, and their respective staffs, as well as others involved in the
budget process from time to time. Those statements or reports may contain
predictions, projections or other items of information relating to the State's
financial condition, as reflected in the 1995-96 State Financial Plan, that may
vary materially and adversely from the information provided herein.
INDEBTEDNESS. As of March 31, 1995, the total amount of long-term State
general obligation debt authorized but unissued stood at $1.789 billion. As of
the same date, the State had approximately $5.181 billion in general obligation
debt, including $149.3 million in bond anticipation notes outstanding.
As of March 31, 1995, $17.980 billion of bonds, issued in connection with
lease-purchase and contractual-obligation financings of State capital programs,
were outstanding. The total amount of outstanding State-supported debt as of
March 31, 1995 was $27.913 billion. As of March 31, 1995, total State-related
debt (which includes the State-supported debt, moral obligation and certain
other financings and State-guaranteed debt) was $36.1 billion.
The State anticipates that its capital programs will be financed, in part,
through borrowings by the State and public authorities in the 1995-96 fiscal
year. The State expects to issue $248 million in general obligation bonds
(including $70 million for purposes of redeeming outstanding BANs) and $186
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in certificates of participation
during the State's 1995-96 fiscal year for equipment purchases and $14 million
for capital purposes. The projection of the State regarding its borrowings for
the 1995-96 fiscal year may change if circumstances require.
In June 1990, legislation was enacted creating the New York Local
Government Assistance Corporation ("LGAC"), a public benefit corporation
empowered to issue long-term obligations to fund certain payments to local
governments traditionally funded through the State's annual seasonal borrowing.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of $4.7
billion, and has been authorized to issue its bonds to provide net proceeds of
up to $529 million during the State's 1995-96 fiscal year to redeem notes sold
in June 1995.
RATINGS. As of September 1995, Moody's Investor Service, Inc.'s
("Moody's") rating of the State's general obligation bonds stood at A, and
Standard & Poor's Ratings Group's ("S&P's") rating stood at A--. Moody's
lowered its rating to A on June 6, 1990, its rating having been A1 since May 27,
1986. S&P lowered its rating from A to A-- on January 13, 1992. S&P's previous
ratings were A from March 1990 to January 1992, AA-- from August 1987 to March
1990 and A+ from November 1982 to August 1987.
(2) THE CITY AND THE MUNICIPAL ASSISTANCE CORPORATION ("MAC"): The City
accounts for approximately 41% of the State's population and personal income,
and the City's financial health affects the State in numerous ways.
In February 1975, the New York State Urban Development Corporation ("UDC"),
which had approximately $1 billion of outstanding debt, defaulted on certain of
its short-term notes. Shortly after the UDC default, the City entered a period
of financial crisis. Both the State Legislature and the United States Congress
enacted legislation in response to this crisis. During 1975, the State
Legislature (i) created MAC to assist with long-term financing for the City's
short-term debt and other cash requirements and (ii) created the State Financial
Control Board (the "Control Board") to review and approve the City's budgets and
four-year financial plans (the financial plans also apply to certain City-
related public agencies).
The national economic downturn which began in July 1990 adversely affected
the City economy, which had been declining since late 1989. As a result, the
City experienced job losses in 1990 and 1991 and the City's economy declined in
those two years. Beginning in 1992, the improvement in the national economy
helped stabilize conditions in the City. Employment losses moderated and the
City's economy improved,
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boosted by strong wage gains. However, after noticeable improvements in the
City's economy during calendar year 1994, the City's current four-year financial
plan assumes that economic growth will slow in calendar year 1996, with local
employment increasing modestly. During the 1995 fiscal year, the City
experienced substantial shortfalls in payments of non-property tax revenues from
those forecasted.
For each of the 1981 through 1993 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City was required to close substantial budget gaps in
its recent fiscal years in order to maintain balanced operating results. There
can be no assurance that the City will continue to maintain a balanced budget,
or that it can maintain a balanced budget without additional tax or other
revenue increases or reductions in City services, which could adversely affect
the City economic base.
Pursuant to State law the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the City's
capital, revenue and expense projections and outlines proposed gap-closing
programs for years with projected budget gaps. The current financial plan
extends through the 1999 fiscal year. The City is required to submit its
financial plans to review bodies, including the Control Board. If the City were
to experience certain adverse financial circumstances, including the occurrence
or the substantial likelihood of the occurrence of an annual operating deficit
of more than $100 million or the loss of access to the public credit markets to
satisfy the City's capital and seasonal financial requirements, the Control
Board would be required by State law to exercise certain powers, including prior
approval of City financial plans, proposed borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. The State's 1995-96
Financial Plan projects a balanced General Fund. If the State experiences
revenue shortfalls or spending increases during its 1995-96 fiscal year or
subsequent years, such developments could result in reductions in projected
State aid to the City. In addition, there can be no assurance that State
budgets in future fiscal years will be adopted by the April 1 statutory deadline
and that there will not be adverse effects on the City's cash flow and
additional City expenditures as a result of such delays.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1996 through 1999 fiscal
years. The City projections set forth in its financial plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City employees
consistent with those assumed in such financial plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability to complete revenue generating transactions,
provision of State and Federal aid and mandate relief, State legislative
approval of future State budgets, levels of education expenditures as may be
required by State law, adoption of future City budgets by the New York City
Council, approval by the Governor or the State Legislature and the cooperation
of MAC with respect to various other actions proposed in such financial plan,
and the impact on City revenues of proposals for Federal and State welfare
reform.
Implementation of its financial plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1996 through 1999 contemplates the
issuance of $9.7 billion of general obligation bonds primarily to reconstruct
and rehabilitate the City's infrastructure and physical assets and to make
capital investments. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The terms and
success of projected public sales of City general obligation bonds and notes
will be subject to prevailing market conditions, and no assurance can be given
that such sales will be completed. If the City were unable to sell its general
obligation bonds and notes, it would be prevented from meeting its planned
capital and operating expenditures. Future developments concerning the City and
public discussion of such developments, the City's
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future financial needs and other issues may affect the market for outstanding
City general obligation bonds or notes.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues may be less and future expenditures may be greater than those
forecast in the financial plan. In addition, the Control Board staff and others
have questioned whether the City has the capacity to generate sufficient
revenues in the future to provide the level of services included in the
financial plan. It is reasonable to expect that such reports and statements
will continue to be issued and to engender public comment.
1995 FISCAL YEAR. On July 21, 1995, the City submitted to the Control
Board a fourth quarter modification to the financial plan for the 1995 fiscal
year. The City projects a balanced budget in accordance with GAAP for the 1995
fiscal year after taking into account a transfer of $75 million.
1996-99 FINANCIAL PLAN. On July 11, 1995, the City submitted to the
Control Board the 1996-99 Financial Plan, which relates to the City, the Board
of Education and the City University of New York. The 1996-99 Financial Plan is
based on the City's expense and capital budgets for the City's 1996 fiscal year,
which were adopted on June 14, 1995, and sets forth proposed actions by the City
for the 1996 fiscal year to close substantial projected budget gaps resulting
from lower than projected tax receipts and other revenues and greater than
projected expenditures. In addition to substantial proposed agency expenditure
reductions and productivity, efficiency and labor initiatives negotiated with
the City's labor unions, the 1996-99 Financial Plan reflects a strategy to
substantially reduce spending for entitlements for the 1996 and subsequent
fiscal years.
The 1996-99 Financial Plan also sets forth projections for the 1997 through
1999 fiscal years and outlines a proposed gap-closing program to close projected
budget gaps of $888 million, $1.5 billion and $1.4 billion for the 1997, 1998
and 1999 fiscal years, respectively, after successful implementation of the $3.1
billion gap-closing program for the 1996 fiscal year. The proposed gap-closing
actions, a substantial number of which are not specified in detail, include
various actions which may be subject to State or Federal approval.
On July 24, 1995, the City Comptroller issued a report on the 1996-99
Financial Plan. The report concluded that the 1996-99 Financial Plan includes
total risks of $749 million to $1.034 billion for the 1996 fiscal year. With
respect to the 1997-99 fiscal years, the report noted that the gap-closing
program in the 1996-99 Financial Plan does not include information about how the
City will implement the various gap-closing programs, and that the entitlement
cost containment and revenue initiatives will require approval of the State
legislature. The report estimated that the 1996-99 Financial Plan includes
total risks of $2.0 billion to $2.5 billion in the 1997 fiscal year, $2.8
billion to $3.3 billion in the 1998 fiscal year, and $2.9 billion to $3.4
billion in the 1999 fiscal year.
In early December 1994, the City Comptroller issued a report which noted
that the City is currently seeking to develop and implement plans which will
satisfy the Federal Environmental Protection Agency that the water supplied by
the City watershed areas does not need to be filtered. The City Comptroller
noted that, if the City is ordered to build filtration plants, they could cost
as much as $4.75 billion to construct, with annual debt service and operating
costs of more than $500 million, leading to a water rate increase of 45%.
On December 16, 1994, the City Comptroller issued a report noting that the
capacity of the City to issue general obligation debt could be greatly reduced
in future years due to the decline in value of taxable real property. The
report concluded that the debt incurring power of the City would likely be
curtailed substantially in the 1997 and 1998 fiscal years.
On July 21, 1995, the staff of the Control Board issued a report on the
1996-99 Financial Plan which identified risks of $873 million, $2.1 billion,
$2.8 billion and $2.8 billion for the 1996 through 1999 fiscal years,
respectively.
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On June 14, 1995, the staff of the Office of the State Deputy Comptroller
for the City of New York ("OSDC") issued a report on the financial plan with
respect to the 1995 fiscal year. The report noted that, during the 1995 fiscal
year, the City faced adverse financial developments totaling over $2 billion
resulting from the inability to initiate approximately 35% of the City's gap-
closing program, as well as newly-identified spending needs and revenue
shortfalls. The report noted that the City relied heavily on one-time actions
to offset adverse developments, using $2 billion in one-time resources in the
1995 fiscal year, or nearly double the 1994 amount.
On July 24, 1995, the staff of the OSDC issued a report on the 1996-99
Financial Plan. The report concluded that there remains a budget gap for the
1996 fiscal year of $392 million, largely because the City and its unions have
yet to reach an agreement on how to achieve $160 million in unspecified labor
savings and the remaining $100 million in recurring health insurance savings
from last year's agreement. The report further noted that growth in City
revenues is being constrained by the weak economy in the City, which is likely
to be compounded by the slowing national economy, and that there is a likelihood
of a national recession during the course of the 1996-99 Financial Plan.
Moreover, the report noted that State and Federal budgets are undergoing
tumultuous changes, and that the potential for far-reaching reductions in
intergovernmental assistance is clearly on the horizon, with greater uncertainty
about the impact on City finances and services.
LITIGATION. The City is a defendant in a significant number of lawsuits.
Such litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
torts, breaches of contracts, and other violations of law and condemnation
proceedings. While the ultimate outcome and fiscal impact, if any, of the
proceedings and claims are not currently predictable, adverse determinations in
certain such proceedings and claims might have a material adverse effect upon
the City's ability to carry out its financial plan. As of June 30, 1994, the
City estimated its potential future liability in respect of outstanding claims
to be approximately $2.6 billion. The 1996-99 Financial Plan includes
provisions for judgments and claims of $279 million, $236 million, $251 million
and $264 million for the 1996 through 1999 fiscal years, respectively.
RATINGS. On July 10, 1995, S&P revised downward its rating on City general
obligation bonds from A-- to BBB+ and removed City bonds from CreditWatch. S&P
stated that "structural budgetary balance remains elusive because of persistent
softness in the City's economy, highlighted by weak job growth and a growing
dependence on the historically volatile financial services sector." Other
factors identified by S&P in lowering its rating on City bonds included a trend
of using one-time measures, including debt refinancings, to close projected
budget gaps, dependence on unratified labor savings to help balance financial
plans, optimistic projections of additional Federal and State aid or mandate
relief, a history of cash flow difficulties caused by State budget delays and
continued high debt levels. Fitch Investors Service, Inc. continues to rate the
City general obligations bonds A--. Moody's rating for City general obligation
bonds is Baa1.
On February 11, 1991, Moody's had lowered its rating from A. Previously,
Moody's had raised its rating to A in May 1988, to Baa1 in December 1986, to Baa
in November 1983 and to Ba1 in November 1981. S&P had raised its rating to A--
in November 1987, to BBB+ in July 1985 and to BBB in March 1981.
INDEBTEDNESS. As of June 30, 1995, the City and MAC had, respectively,
$23.258 billion and $4.033 billion of outstanding net long-term indebtedness.
(3) THE STATE AGENCIES: Certain Agencies of the State, including the State
Housing Finance Agency ("HFA") and the UDC, have faced substantial financial
difficulties which could adversely affect the ability of such Agencies to make
payments of interest on, and principal amounts of, their respective bonds. The
difficulties have in certain instances caused the State (under so-called "moral
obligation" provisions, which are non-binding statutory provisions for State
appropriations to maintain various debt service reserve funds) to appropriate
funds on behalf of the Agencies. Moreover, it is expected that the problems
faced by these Agencies will continue and will require increasing amounts of
State assistance in future years. Failure of the State to appropriate necessary
amounts or to take other action to permit those Agencies having financial
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difficulties to meet their obligations (including HFA and UDC) could result in a
default by one or more of the Agencies. Such default, if it were to occur,
would be likely to have a significant adverse effect on investor confidence in,
and therefore the market price of, obligations of the defaulting Agencies. In
addition, any default in payment on any general obligation of any Agency whose
bonds contain a moral obligation provision could constitute a failure of certain
conditions that must be satisfied in connection with Federal guarantees of City
and MAC obligations and could thus jeopardize the City's long-term financing
plans.
(4) STATE LITIGATION: The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal laws.
Included in the State's outstanding litigation are a number of cases challenging
the constitutionality or the adequacy and effectiveness of a variety of
significant social welfare programs primarily involving the State's mental
hygiene programs. Adverse judgments in these matters generally could result in
injunctive relief coupled with prospective changes in patient care which could
require substantial increased financing of the litigated programs in the future.
The State is also engaged in a variety of contract and tort claims wherein
significant monetary damages are sought. Actions commenced by several Indian
nations claim that significant amounts of land were unconstitutionally taken
from the Indians in violation of various treaties and agreements during the
eighteenth and nineteenth centuries. The claimants seek recovery of
approximately six million acres of land as well as compensatory and punitive
damages.
Adverse developments in the foregoing proceedings or new proceedings could
adversely affect the financial condition of the State in the 1995-96 fiscal year
or thereafter.
(5) OTHER MUNICIPALITIES: Certain localities in addition to New York City
could have financial problems leading to requests for additional State
assistance and the need to reduce their spending or increase their revenues.
The potential impact on the State of such actions by localities is not included
in projections of State revenues and expenditures in the State's 1995-96 fiscal
year
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the Fiscal affairs of Yonkers. Future actions taken by the
Governor or the State Legislature to assist Yonkers could result in allocation
of State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1993, the total indebtedness of all localities in
the State other than New York City was approximately $17.7 billion. State law
requires the Comptroller to review and make recommendations concerning the
budgets of those local government units other than New York City authorized by
State law to issue debt to finance deficits during the period that such deficit
financing is outstanding. Fifteen localities had outstanding indebtedness for
deficit financing at the close of their fiscal year ending in 1993.
From time to time, Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities.
If the State, New York City or any of the Agencies were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State, including notes or bonds in the Fund, could be adversely affected.
Localities also face anticipated and potential problems resulting from certain
pending litigation, judicial decisions, and long-range economic trends.
Long-range potential problems of declining urban population, increasing
expenditures, and other economic trends could adversely affect localities and
require increasing State assistance in the future.
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For more information on the Portfolio's investment objectives and policies
see the Fund Prospectus, "Investment Objectives and Policies."
- --------------------------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses, principal occupations, and other affiliations of directors
and executive officers of Fortis Money are given below:
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION AND AFFILIATIONS WITH
NAME & ADDRESS THE FUND "AFFILIATED PERSONS" OR INVESTORS (PAST 5 YEARS)
-------------- ------------- ------------------------------------------------
<S> <C> <C>
Richard W. Cutting Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York
Allen R. Freedman* Director Chairman, President and Chief Executive Officer of Fortis, Inc.;
One Chase Manhattan Plaza a Managing Director of Fortis International, N. V.
New York, New York
Dr. Robert M. Gavin Director President, Macalester College.
1600 Grand Avenue
St. Paul, Minnesota
Benjamin S. Jaffray Director Chairman of the Sheffield Group, Ltd., a financial
4040 IDS Center consulting group.
Minneapolis, Minnesota
Jean L. King Director President, Communi-King, a communications consulting firm.
12 Evergreen Lane
St. Paul, Minnesota
Dean C. Kopperud* President and Chief Executive Officer and a Director of Advisers,
500 Bielenberg Drive Director President and a Director of Investors, and Senior Vice
Woodbury, Minnesota President and a Director of Fortis Benefits Insurance
Company and Time Insurance Company.
Edward M. Mahoney Director Retired; prior to December, 1994, Chairman and Chief
2760 Pheasant Road Executive Officer and a Director of Advisers and Investors,
Excelsior, Minnesota Senior Vice President and a Director of Fortis Benefits
Insurance Company, and Senior Vice President of Time Insurance
Company.
Robb L. Prince Director Retired; prior to June, 1995, Vice President and Treasurer,
5108 Duggan Plaza Jostens, Inc., a producer of products and services for the
Edina, Minnesota youth, education, sports award, and recognition markets.
Leonard J. Santow Director Principal, Griggs & Santow, lncorporated, economic and
75 Wall Street financial consultants.
21st Floor
New York, New York
44
<PAGE>
Joseph M. Wikler Director Investment consultant and private investor; prior to
12520 Davan Drive January, 1994, Director of Research, Chief Investment
Silver Spring, Maryland Officer, Principal, and a Director, The Rothschild Co.,
Baltimore, Maryland. The Rothschild Co. is an investment
advisory firm.
Gary N. Yalen Vice President President and Chief Investment Officer of Advisers (since
One Chase Manhattan Plaza August, 1995) and Fortis Asset Management, a division of
New York, New York Fortis, Inc., New York, NY, and Senior Vice Presdient,
Investments, Fortis, Inc.
Howard G. Hudson Vice President Executive Vice President of Advisers (since August, 1995)
One Chase Manhattan Plaza and Senior Vice President, Fixed Income, Fortis Asset
New York, New York Management; prior to February, 1991, Senior Vice
President, Fairfield Research, New Canaan, CT.
James S. Byrd Vice President Executive Vice President of Advisers and Investors; prior
5500 Wayzata Boulevard to March, 1991, Senior Vice President, Templeton
Golden Valley, Minnesota Investment Counsel, Inc., Fort Lauderdale, Florida.
Stephen M. Poling Vice President Executive Vice President and Director of Advisers
5500 Wayzata Boulevard and Investors.
Golden Valley, Minnesota
Fred Obser Vice President Senior Vice President of Advisers (since August, 1995)
One Chase Manhattan Plaza and Senior Vice President, Equities, Fortis Asset Management
New York, New York
Dennis M. Ott Vice President Senior Vice President of Advisers and Investors.
5500 Wayzata Boulevard
Golden Valley, Minnesota
Nicholas L.M. dePeyster Vice President Vice President of Advisers (since August, 1995) and Vice
One Chase Manhattan Plaza President, Equities, Fortis Asset Management; prior to
New York, New York July, 1991, Research Associate, Smith Barney, Inc., New York, NY
Charles J. Dudley Vice President Vice President of Advisers and Fortis Asset Management;
One Chase Manhattan Plaza prior to August 1995, Senior Vice President, Sun America
New York, New York Asset Management, Los Angeles, CA.
Maroun M. Hayek Vice President Vice Presdient of Advisers (since August, 1995) and
One Chase Manhattan Plaza Vice President, Fixed Income, Fortis Asset Management.
New York, New York
45
<PAGE>
Robert C. Lindberg Vice President Vice President of Advisers and Investors; prior to
One Chase Manhattan Plaza July, 1993, Vice President, Portfolio Manager, and Chief
New York, New York Securities Trader, COMERICA, Inc., Detroit, Michigan.
COMERICA, Inc. is a bank.
Kevin J. Michels Vice President Vice President of Advisers (since August, 1995) and
One Chase Manhattan Plaza Vice President, Administration, Fortis Asset Management.
New York, New York
Stephen M. Rickert Vice President Vice President of Advisers (since August 1995) and
One Chase Manhattan Plaza Corporate Bond Analyst, Fortis Asset Management; from
New York, New York August, 1993 to April, 1994, Corporate Bond Analyst,
Dillon, Read & Co., Inc., New York, NY; prior to June,
1992, Corporate Bond Analyst, Western Asset
Management, Los Angeles, CA.
Keith R. Thomson Vice President Vice President of Advisers and Investors.
5500 Wayzata Boulevard
Golden Valley, Minnesota
Christopher J. Woods Vice President Vice President of Advisers (since August 1995) and
One Chase Manhattan Plaza Vice President, Fixed Income, Fortis Asset Management; prior
New York, New York to November, 1992, Head of Fixed Income, The Police and
Firemen's Disability and Pension Fund of Ohio, Columbus, OH.
Robert W. Beltz, Jr. Vice President Vice President-Securities Operations of Advisers
500 Bielenberg Drive and Investors; Vice President of Fortis Benefits
Woodbury, Minnesota Insurance Company.
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<PAGE>
Thomas D. Gualdoni Vice President Vice President of Advisers, Investors, and Fortis Benefits
500 Bielenberg Drive Insurance Company.
Woodbury, Minnesota
Larry A. Medin Vice President Senior Vice President--Sales of Advisers and Investors;
500 Bielenberg Drive from August 1992 to November 1994, Senior Vice President,
Woodbury, Minnesota Western Divisional Officer of Colonial Investment Services, Inc.,
Boston, Massachusetts; from June 1991 to August 1992, Regional
Vice President, Western Divisional Officer of Alliance Capital
Management, New York, New York; prior to June 1991, Senior
Vice Presdient, National Sales Director, Met Life State
Street Investment Services, Inc.
Jon H. Nicholson Vice President Senior Vice President--Marketing and Product Development
500 Bielenberg Drive of Fortis Benefits Insurance Company; Senior Vice
Woodbury, Minnesota President of Advisers and Investors; Director of Investors.
David A. Peterson Vice President Vice President and Assistant General Counsel, Fortis
500 Bielenberg Drive Benefits Insurance Company.
Woodbury, Minnesota
Richard P. Roche Vice President Vice President of Advisers and Investors; prior to
500 Bielenberg Drive August, 1995, President of Prospecting By Seminars, Inc.
Woodbury, Minnesota Guttenberg, NJ.
Anthony J. Rotondi Vice President Senior Vice President of Advisers; from January, 1993 to
500 Bielenberg Drive August, 1995, Senior Vice President, Operations, Fortis
Woodbury, Minnesota Benefits Insurance Company; prior to January, 1993,
Senior Vice President, Information Technology, Fortis, Inc.
Rhonda J. Schwartz Vice President Senior Vice President, General Counsel, and Secretary
500 Bielenberg Drive of Advisers and Investors; Senior Vice President and
Woodbury, Minnesota General Counsel, Life and Investment Products, Fortis
Benefits Insurance Company and Vice President and General
Counsel, Life and Investment Products, Time Insurance
Company; prior to January, 1996, Vice President, General
Counsel, Fortis, Inc. (1993-1995); prior to 1993, Attorney,
Norris, McLaughlin & Marcus, Washington, DC.
Michael J. Radmer Secretary Partner, Dorsey & Whitney P.L.L.P., the Fund's General Counsel.
220 South Sixth Street
Minneapolis, Minnesota
Tamara L. Fagely Treasurer Second Vice President of Advisers and Investors.
500 Bielenberg Drive
Woodbury, Minnesota
</TABLE>
___________________
* Mr. Kopperud is an "interested person" (as defined under the 1940 Act) of
Fortis Money, Advisers, and Investors primarily because he is an officer of
each. Mr. Freedman is an "interested person" of Fortis
47
<PAGE>
Money, 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.
All of the above officers and directors also are officers and/or directors
of other investment companies of which Advisers is the investment adviser. No
compensation is paid by the Fund to any of its officers or directors except for
a fee of $100 per month, $100 per meeting attended, and $100 per applicable
committee meeting attended (and reimbursement of travel expenses to attend
meetings) to each director not affiliated with Advisers. For the fiscal period
ended September 30, 1995, the National Portfolio, Minnesota Portfolio, and New
York Portfolio, paid $8,909, $7,000, and $1,777 respectively, in directors' fees
to directors who were not affiliated with Advisers or Investors and reimbursed
two such directors a total of $383, $397, and $120, respectively, for travel
expenses incurred in attending directors' meetings. During the same period, the
National Portfolio, Minnesota Portfolio, and New York Portfolio paid legal fees
and expenses of $23,277, $17,105, and $3,479, respectively, to a law firm of
which the Fund's Secretary is a partner. As of September 30, 1995, the directors
and executive officers as a group beneficially owned LESS THAN 1% of the
outstanding shares of each Portfolio. Directors Gavin, Jaffray, Kopperud,
Mahoney and Prince are members of the Executive Committee of the 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 act only infrequently.
The following table sets forth the aggregate compensation received by each
director during the fiscal year ended September 30, 1995, as well as the total
compensation received by each director from the Fund and all other open-end
investment companies managed by Advisers during the fiscal year ended September
30, 1995. 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 and they are not included in the table. No
executive officer of the Fund received compensation from the Fund during the
fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
Aggregate Pension or Total
Compensation Retirement Benefits Estimated Compensation from
from the Accrued as Part of Annual Benefits Fund Complex
Director Company Company Expenses Upon Retirement Paid to Director(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard W. Cutting $1,900 0 0 $32,300
Dr. Robert M. Gavin 1,700 0 0 30,100
Benjamin S. Jaffray 1,900 0 0 32,300
Jean L. King 2,000 0 0 33,400
Edward M. Mahoney 1,400 0 0 23,950
Thomas R. Pellet(2) 1,900 0 0 32,300
Robb L. Prince 1,800 0 0 31,200
Leonard J. Santow 1,790 0 0 31,100
Joseph M. Wikler 1,900 0 0 32,300
</TABLE>
(1) Includes aggregate compensation paid by the Fund and all 10 Other Fortis
Funds paid to the Director.
(2) Mr. Pellett resigned as a director of the Fortis Funds effective December
7, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL
Fortis Advisers, Inc. ("Advisers") has been the investment adviser and
manager of the Fund since the Fund began business in 1982. Investors acts as the
Fund's underwriter. Both act as such pursuant to written agreements periodically
approved by the directors or shareholders of the Fund. The address of both is
that of the Fund.
As of September 30, 1995, Advisers managed twenty-eight investment
company portfolios with combined net assets of approximately $4,068,451,000
and one private account with net assets of approximately
48
<PAGE>
$17,770,000. Fortis Financial Group also has approximately $2.0 billion in
insurance reserves. As of the same date, the investment company portfolios had
an aggregate of 222,175 shareholders, including 4,962 shareholders of the Fund.
During the fiscal year ended September 30, 1995, the three-month fiscal
period ended September 30, 1994, and the fiscal year ended June 30, 1994, the
National Portfolio and the Minnesota Portfolio paid advisory and management fees
as follows: National Portfolio--$557,889, $147,364, and $598,148, Minnesota
Portfolio--$387,530, $99,924, and $402,022. During the same periods, Investors
received $151,195, $54,730, and $579,654, respectively, for underwriting the
National Portfolio's shares, and $95,293, $34,819, and $267,998, respectively,
for underwriting the Minnesota Portfolio's shares. Of the amounts received,
Investors paid $122,346, $43,947, and $473,014, respectively to broker-dealers
and registered representatives for selling shares of the National Portfolio and
$80,081, $29,921, and $227,529, for selling shares of the Minnesota Portfolio.
During the fiscal periods ended September 30, 1995, 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 the Fund's
shares:
<TABLE>
<CAPTION>
NATIONAL MINNESOTA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO
FISCAL PERIOD ENDED: SEPTEMBER 30, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
- -------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Amount Received $ 9,454 $ 5,282 $1,894
-------- ------- ------
Amount Paid 102,714 37,206 5,750
-------- ------- ------
Additional Expenses 57,176 26,105 3,539
Paid -------- ------- ------
</TABLE>
The New York Portfolio commenced operations on June 1, 1991, as a result of
the transfer of substantially all of the assets of the Pathfinder Fund, a series
of The Pathfinder Heritage Funds, to that Portfolio. The Pathfinder Fund
operated on a September 30 fiscal year end. Empire of American Advisory
Services, Inc. ("EAASI") and Empire National Securities, Incorporated ("ENSI")
acted as investment adviser and manager and as distributor, respectively, for
the Pathfinder Fund since commencement of operations of the Pathfinder Fund in
1987 through May 31, 1991. During the fiscal year-ended September 30, 1995, the
three-month fiscal period ended September 30, 1994, and the fiscal year ended
June 30, 1994, the New York Portfolio paid advisory and management fees of
$99,309 (less $63,096 reimbursed), $26,011, and $111,126 (less $14,541
reimbursed).
During the fiscal year-ended September 30, 1995, the three-month fiscal
period ended September 30, 1994, and the fiscal year ended June 30, 1994,
Investors received $11,694, $3,485, and $36,746, respectively, for underwriting
the New York Portfolio's shares. Of the amount received, Investors paid $10,124,
$2,905, and $31,425, respectively, to broker-dealers and registered
representatives for selling shares of the Portfolio.
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 a wholly owned subsidiary of AMEV/VSB 1990 N.V.
("AMEV/VSB 1990").
49
<PAGE>
AMEV/VSB 1990 is a corporation organized under the laws of The Netherlands
to serve as the holding company for all U.S. operations and is owned 50% by
Fortis AMEV and 50% by Fortis 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 and Stephen M. Poling are Executive Vice Presidents of Advisers
and Investors; Howard G. Hudson is Executive Vice President of Advisers; Debra
L. Foss, Larry A. Medin, Jon H. Nicholson, Dennis M. Ott and Anthony J. Rotondi
are Senior Vice Presidents of Advisers and Investors; Rhonda J. Schwartz is
Senior Vice President, General Counsel, and Secretary of Advisers and Investors;
Fred Obser is Senior Vice President of Advisers; Robert W. Beltz, Jr., Thomas D.
Gualdoni, Robert C. Lindberg, Richard P. Roche, and Keith R. Thomson are Vice
Presidents of Advisers and Investors; Nicholas L. M. dePeyster, Charles J.
Dudley, Maroun M. Hayek, Kevin J. Michels, Stephen M. Rickert, and Christopher
J. Woods are Vice Presidents of Advisers; John E. Hite is 2nd Vice President and
Assistant Secretary of Advisers and Investors; Carol M. Houghtby is 2nd Vice
President and Treasurer of Advisers and Investors; Tamara L. Fagely, Barbara W.
Kirby, and Deborah K. Kramer are 2nd Vice Presidents of Advisers and Investors;
David C. Greenzang is Money Market Portfolio Officer of Advisers, Michael D.
O'Connor is Qualified Plan Officer of Advisers and Investors; Barbara J. Wolf is
Trading Officer of Advisers; Scott R. Plummer is Assistant Secretary of Advisers
and Investors; Joanne M. Herron is Assistant Treasurer of Advisers and Investors
and Sharon R. Jibben is Assistant Secretary of Advisers.
Messrs. Kopperud, Yalen, and Poling are the Directors of Advisers.
All of the above persons reside or have offices in the Minneapolis/St. Paul
area, except Messrs. Yalen, Hudson, dePeyster, Dudley, Hayek, Lindberg, Michels,
Obser, Rickert, Woods and Greenzang, who are all located in New York City.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Advisers acts as investment adviser and manager of each Portfolio under
separate Investment Advisory and Management Agreements (the "Agreements") dated
January 31, 1992 (for National Portfolio), December 12, 1990 (for Minnesota
Portfolio), and May 29, 1991 (for New York Portfolio), all of which became
effective on their respective dates. Shareholders approved these Agreements on
January 28, 1992, November 8, 1990, and May 29, 1991, respectively. The
Agreements were last approved by the Board of Directors on December 7, 1995. The
approval by the Board of Directors included approval by a majority of the
directors who are not parties to the contracts, or interested persons of such
parties. The Agreements will terminate automatically in the event of their
assignment. In addition, the Agreements are terminable at any time, without
penalty, by the Board of Directors or, with respect to any particular portfolio,
by vote of a majority of the Fund's 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 Fund. Unless sooner terminated, the
Agreements continue in effect for more than two years after their execution only
so long as such continuance is specifically approved at least annually by either
the Board of Directors or, with respect to any particular portfolio, by a 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
the majority of the directors who are not parties to such Agreements, or
interested persons of such parties, cast in person at a meeting called for the
purpose of voting on such approval.
50
<PAGE>
The Agreements provide for investment advisory and management fees
calculated as described in the following table. As you can see from the table,
this fee decreases (as a percentage of Fund net assets) as the Fund grows. The
fee percentages for the National and New York Portfolios are based upon the
average net assets of the applicable Portfolio alone, while Minnesota
Portfolio's fee is based upon its prorata portion of the fee based on the
combined assets of the Minnesota and National Portfolios. As of December 31,
1995, the National Portfolio, Minnesota Portfolio, and New York Portfolio had
net assets of approximately $77,579,000, $56,249,000, and $12,182,000,
respectively.
<TABLE>
<CAPTION>
ANNUAL
INVESTMENT ADVISORY
AVERAGE NET ASSETS AND MANAGEMENT FEE
------------------ -------------------
<S> <C> <C>
NATIONAL FOR THE FIRST $50,000,000 .8%
PORTFOLIO FOR ASSETS OVER $50,000,000 .7%
MINNESOTA FOR THE FIRST $50,000,000 .8%
PORTFOLIO FOR THE NEXT $50,000,000 .7%
FOR ASSETS OVER $100,000,000 .625%
NEW YORK FOR THE FIRST $50,000,000 .8%
PORTFOLIO FOR THE NEXT $50,000,000 .7%
FOR ASSETS OVER $100,000,000 .625%
</TABLE>
The Agreement requires the 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 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 the Fund's transfer agent, registrar,
and dividend agent. Advisers or Investors also shall bear all promotional
expenses in connection with the distribution of Fund shares, including paying
for prospectuses and shareholder reports for new shareholders, and the costs of
sales literature.
For a description of Advisers' voluntary expense limitation on the New York
Portfolio see the Fund Prospectus, "Fund Expenses."
Pursuant to an undertaking given to the State of California, Advisers has
agreed to reimburse the Fund monthly for any amount by which the Fund's
aggregate annual expenses, exclusive of taxes, brokerage commissions, and
interest on borrowing exceeds 2 1/2% on the first $30,000,000 of average net
assets, 2% on the next $70,000,000, and 1 1/2% on the balance. Pursuant to an
additional undertaking given to the State of California, Advisers has agreed to
limit aggregate annual expenses charged to the Fund to 1.5% of the first
$30,000,000 of its average net assets and 1% of its remaining average net assets
with respect to any period that the Fund invests in other open-end investment
companies. Advisers reserves the right to agree to lesser expense limitations
from time to time. In the three-month fiscal period ended September 30, 1994,
Advisers was not required to make any reimbursement to the Fund pursuant to
these limitations.
Expenses that relate exclusively to a particular Portfolio, such as
custodian charges and registration fees for shares, are charged to that
Portfolio. Other expenses of the Fund are allocated pro rata among the
Portfolios in an equitable manner as determined by officers of the Fund under
the supervision of the Board of Directors, usually on the basis of net assets or
number of shares.
51
<PAGE>
Under the Agreements, 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 the 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 the Fund and other funds or accounts may have a
detrimental effect on the Fund, as this may affect the price paid or received by
the Fund or the size of the position obtainable by the Fund.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
As the Fund's portfolio is exclusively composed of debt, rather than equity
securities, most of the Fund's portfolio transactions are effected with dealers
without the payment of brokerage commissions, but at net prices which usually
include a spread or markup. In effecting such portfolio transactions on behalf
of the Fund, Advisers seeks the most favorable net price consistent with the
best execution. However, frequently Advisers selects a dealer to effect a
particular transaction without contacting all dealers who might be able to
effect such transaction, because of the volatility of the bond market and the
desire of Advisers to accept a particular price for a security because the price
offered by the dealer meets its guidelines for profit, yield, or both.
Decisions with respect to placement of the Fund's portfolio transactions
are made by its investment adviser. The primary consideration in making these
decisions is efficiency in the execution of orders and obtaining the most
favorable net prices for the Fund. 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
firms prior to making investment decisions for the Fund. To the extent portfolio
transactions are effected with 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
transactions.
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 the
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 Fund pays
higher commissions than the lowest rates available.
52
<PAGE>
During the fiscal period ended September 30, 1995, fixed income securities
transactions having an aggregate dollar value of approximately $52,302,000,
$29,987,108, and $3,033,311, for the National, Minnesota, and New York
Portfolios, respectively (excluding short-term securities), were traded at net
prices including a spread or markup; during the same period, the Portfolios paid
no brokerage commissions to brokers involved in the purchase and sale of
securities for the Portfolios.
The Portfolios will not effect any brokerage transactions in their
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 Portfolios. No commissions were paid to
any affiliate of Advisers during the fiscal period ended September 30, 1995, the
three-month fiscal period ended September 30, 1994 or the fiscal year ended June
30, 1994.
During the fiscal period ended September 30, 1995, the Portfolios did not
acquire the securities of any of its regular brokers or dealers or the parent of
those brokers or dealers that derive more than fifteen percent of their gross
revenue from securities-related activities.
CAPITAL STOCK
The 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.
The Fund currently has three Portfolios, each issuing its own series of
common shares. Each Portfolio currently offers its shares in five classes, each
with different sales arrangements and bearing different expenses. Under the
Fund's Articles of Incorporation, the Board of Directors is authorized to create
new portfolios or classes without the approval of the shareholders of the Fund.
Each share of stock will have a pro-rata interest in the assets of the Portfolio
to which the stock of that series relates 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.
On some issues, such as the election of directors, all shares of the Fund
vote together as one series. Each share of a Portfolio has one vote (with
proportionate voting for fractional shares) irrespective of the relative net
asset value of the Portfolios' shares.
On issues affecting particular Portfolios of the Fund, the series of shares
of the affected Portfolio vote as a separate series. An example of such an issue
would be a fundamental investment restriction pertaining to only one Portfolio.
Shareholders of a Portfolio are not entitled to vote on any issue which does not
affect that Portfolio but which requires a separate vote of another Portfolio.
In voting on the Agreement, approval of the Agreement by the shareholders of a
particular Portfolio would make the Agreement effective as to that Portfolio
whether or not it had been approved by the shareholders of the other Portfolios.
On December 31, 1995, the National Portfolio, Minnesota Portfolio, and
New York Portfolio had 6,996,135, 5,317,048, and 1,105,735 shares outstanding,
respectively. On that date, no person owned of record or, to the Fund's
knowledge, beneficially as much as 5% of the outstanding shares of any
Portfolio, except as follows:
NATIONAL PORTFOLIO: Class B--21% John W. and Carol J. Heim, 6923 South
Owens Street, Littleton, CO 80127-2814; 13% John M. Larson, 804 Fieldale Lane,
Grayslake, IL 60030-3201; 8% Lisa J. Mol, 8974 South Greenmeadows Drive,
Highlands Ranch, CO 80126-2815; 7% Jean and Joseph O'Brien, 407 Glenridge Road,
Stratford, CT 06497-4338; 5% First Trust National Association, Custodian For
Robert N. McDill IRA, 2731 State Road 25 North, Lafayette, IN 47905-3969; 5%
Debra K. and Alan S. Kube, 8241 West Nichols Avenue,
53
<PAGE>
Littleton, CO 80123-5559; Class H--12% Mark Caban, 120 Arden Drive, Glenshaw, PA
15116-1602; 11% Sylvia W. Jacobs, 73 High Street, Montclair, NJ 07042-4278; 8%
Hunan Restaurant, Inc., 2100 South Columbia Road, Grand Forks, ND 58201-5895; 5%
First Trust National Association, Custodian For K. L. Manternach IRA, P. O. Box
267, Summerfield, NC 27358-0267; 5% Hilary and Ernest Lisakowski, R.R. 1 Box 43,
Manvel, ND 58256-9763; Class C--27% Jerry J. and Susan L. Cummins, 5340 Wolf
Road, Western Springs, IL 60558-1858; 15% Gilbert W. and Barbara R. Grace, 159
Curtis Drive, Beaver Falls, PA 15010-1056; 12% Cheryl Ramos, 2005 North 50th
Avenue, Omaha, NE 68104-4331; 11% Byron V. Nair, 612 Arizona Street, Glidden, IA
51443-1001; 8% Stanley G. and Ethel Zafran, 1136 Gilham Street, Philadelphia, PA
19111--5419; 8% Tina M. Yost, R.R. 1 Box 181, Worthington, WV 26591-9732.
MINNESOTA PORTFOLIO: Class A--15% Mary C. and Paul G. Smaagaard, Mariner
East Condominiums, 6211 Thomas Drive, Unit 406, Panama City Beach, FL 32408; 10%
First Trust National Association, Custodian for T. S. Forsythe IRA, 10555 Joliet
Avenue North, Stillwater, MN 55082-9435; 10% Garret W. and Leslie M. Johnson,
1085 Villa Lane, Detroit Lakes, MN 56501-4326; 6% Harlan J. Nickel Trust, 490
Pelham Blvd., St. Paul, MN 55104--4938; Robert E. Golden Trust, 2231 East 58th
Street, Minneapolis, MN 55417-2712; Class B--18% Robert R. and Sandra R.
Schreurs, 2829 Norwood Avenue, Slayton, MN 56172-1426; 13% Gary D. Floss, 1444
18th Street NW, New Brighton, MN 55112-5407; 10% Joseph J. Glatzmaier, 333 8th
Street SE, Apt. 313, Minneapolis, MN 55414-1255; 8% Wilbur R. L. Trimpe, 507
Jenkran Street, Apt. 2, Morrison, IL 61270-3012; 8% Elwood C. and Mary E. Black,
814 W 43rd Street, Indianapolis, IN 46208-3311; 6% Gloria A. Jungkans, R.R. 2
Box 180, New Ulm, MN 56073-9569; 6% Erwin L. Nolte, 204 East 12th Street, Blue
Earth, MN 56013-2106; 5% David L. and Eileen Cederberg, 3457 Orchard Avenue
North, Crystal, MN 55422-2867; Class H--18% Donna Milam, 1735 Donegal Drive,
Woodbury, MN 55125-3352; 15% Mary C. Jackson, 4300 West River Pkwy., Apt 215,
Minneapolis, MN 55406-3677; 15% Keith B. Magnuson, 737 Memorial Drive,
Crookston, MN 56716-1131; 7% Michael L. Scott Profit Sharing Plan, 770 Torchwood
Drive, New Brighton, MN 55112-2560; 6% Betty D. Eullrich, 8407 Kell Avenue,
Bloomington, MN 55437-1501; 6% Gwen A. Turman, 23315 County Road 7, Hutchinson,
MN 55350-5513; 5% Myron A. Trebesch, R.R. 3 Box 167, Sleepy Eye, MN 56085-9306;
Class C--33% Rice Family Limited Partnership, P. O. Box 128, Sauk Rapids, MN
56379-0128; 25% Lois M. Elias, R. R. 1 Box 185, Kasson, MN 55944-9728; 12%
Dennis E. and Pamela M. Jones, P. O. Box 186, Lowry, MN 56349-0186; 12% Brandie
L. Pierson UTMA, R.R. 1 Box 87, Donnely, MN 56235-9742; 10% Catherine A. Estrem,
1594 Lakewood Drive, Maplewood, MN 55119-7167.
NEW YORK PORTFOLIO: Class A--49% Margherita Petitta, 204 Babbit Road, Box
163, Bedford Hills, NY 10507-0163; 49% Maria Vittoria Petitta, 204 Babbit Road,
Box 163, Bedford Hills, NY 10507-0163; Class B--76% Terrance P. Vertucci, 382
Truax Road, Amsterdam, NY 12010-7151; 13% Claudia Schellenberg, 32-43 90th
Street, Apt. 202, Flushing, NY 11369-2312; Class H--22% Tracy Dinsky UGMA, 4
Deepwood Court, Old Westbury, NY 11568-1006; 22% Brett Dinsky UGMA, 4 Deepwood
Court, Old Westbury, NY 11568-1006; 22% Courtney Dinsky UGMA, 4 Deepwood Court,
Old Westbury, NY 11568-1006; 11% John and Madeleine Mitchell, 155 South Fordham
Road, Hicksville, NY 11801-1639; 10% Wayne F. and Joyce M. Smith, 839 Nez Perce
Street, Moscow, ID 83843-3837; Dennis E. Fleming, 93 Pine Road, Mastic Beach, NY
11951-2521; Class C--99% Donaldson Lufkin Jenrette Securities Corporation, Inc.,
P. O. Box 2052, Jersey City, NJ 07303-2052.
The Fund is not 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 of the Fund may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or the chief financial officer of the Fund. 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 and for all
investment advisory contracts and amendments thereto.
54
<PAGE>
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.
COMPUTATION OF NET ASSET VALUE AND PRICING
On September 30, 1995, the Portfolios' net asset values per share were
calculated as follows:
NATIONAL PORTFOLIO
Class E
Net Assets ($70,530,792)
-----------------------
Shares Outstanding (6,581,433) = Net Asset Value Per Share ($10.72)
Class A
Net Assets ($1,807,181)
----------------------
Shares Outstanding (168,770) = Net Asset Value Per Share ($10.71)
Class B
Net Assets ($668,200)
--------------------
Shares Outstanding (62,463) = Net Asset Value Per Share ($10.70)
Class H
Net Assets ($1,756,529)
----------------------
Shares Outstanding (164,006) = Net Asset Value Per Share ($10.71)
Class C
Net Assets ($105,922)
--------------------
Shares Outstanding (9,896) = Net Asset Value Per Share ($10.70)
MINNESOTA PORTFOLIO
Class E
Net Assets ($52,603,103)
-----------------------
Shares Outstanding (5,097,390) = Net Asset Value Per Share ($10.32)
Class A
Net Assets ($883,555)
--------------------
Shares Outstanding (85,773) = Net Asset Value Per Share ($10.30)
Class B
Net Assets ($179,976)
--------------------
Shares Outstanding (17,521) = Net Asset Value Per Share ($10.27)
Class H
Net Assets ($638,141)
--------------------
Shares Outstanding (61,971) = Net Asset Value Per Share ($10.30)
Class C
Net Assets ($143,053)
--------------------
Shares Outstanding (13,895) = Net Asset Value Per Share ($10.30)
NEW YORK PORTFOLIO
Class E
Net Assets ($11,882,000)
-----------------------
Shares Outstanding (1,092,955) = Net Asset Value Per Share ($10.87)
55
<PAGE>
Class A
Net Assets ($48,802)
-------------------
Shares Outstanding (4,490) = Net Asset Value Per Share ($10.87)
Class B
Net Assets ($193,682)
--------------------
Shares Outstanding (17,863) = Net Asset Value Per Share ($10.84)
Class H
Net Assets ($72,372)
-------------------
Shares Outstanding (6,684) = Net Asset Value Per Share ($10.83)
Class C
Net Assets ($50,901)
-------------------
Shares Outstanding (4,691) = Net Asset Value Per Share ($10.85)
To obtain the public offering price per share, the 4.5% sales charge must
be added to the net asset value obtained above:
NATIONAL PORTFOLIO
Class E
$10.72
------
.955 = Public Offering Price Per Share ($11.23)
Class A
$10.71
------
.955 = Public Offering Price Per Share ($11.21)
MINNESOTA PORTFOLIO
Class E
$10.32
------
.955 = Public Offering Price Per Share ($10.81)
Class A
$10.30
------
.955 = Public Offering Price Per Share ($10.79)
NEW YORK PORTFOLIO
Class E
$10.87
------
.955 = Public Offering Price Per Share ($11.38)
Class A
$10.87
------
.955 = Public Offering Price Per Share ($11.38)
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 Fund 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.
56
<PAGE>
Generally, the net asset value of the 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, 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
The Fund offers several special purchase plans, described in the
Prospectus, which allow reduction or elimination of the sales charge for Class A
and E 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.
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 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
The 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.
57
<PAGE>
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 differing investment objectives and
policies of these other funds prior to making such exchange.
For Federal tax purposes, except where the transferring shareholder is a
tax qualified plan, a transfer between funds is a taxable event that probably
will give rise to a capital gain or loss. Furthermore, if a shareholder carries
out the exchange within 90 days of purchasing the shares in the 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 Fund
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.
58
<PAGE>
PURCHASES BY REPRESENTATIVES OR EMPLOYEES OF
BROKER-DEALERS
This privilege is based upon the presumed knowledge such persons have about
the Fund as a result of their working for a company selling the Fund's shares
and resulting economies 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
Fund and the resulting lack 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
Fund and the resulting lack of sales effort and expense.
PURCHASES BY CERTAIN PATHFINDER FUND ACCOUNTS
This privilege is based upon their familiarity with the Fund stemming from
the Fund's acquisition of Pathfinder Fund and resulting economies of sales
effort and expense.
REDEMPTION
The obligation of the 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.
59
<PAGE>
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, (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. 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), on which the Fund will not redeem
shares: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
There is no charge for redemption, nor does the Fund contemplate
establishing a charge, although it has 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 if he or she
has made a minimum investment in Fund shares of $4,000 ($50 or more per month if
at least $10,000 has been invested), or has acquired and deposited shares having
either an original cost, or current value computed on the basis of the offering
price, equal to the appropriate amount. The minimum amount which may be
withdrawn of $50 per month is a minimum only, and should not be considered a
recommendation.
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 increase (or
decrease) in 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, as it is not, as explained above,
advantageous to do so.
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 the 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 Fund 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
60
<PAGE>
must be exercised in an amount not exceeding the proceeds of redemption; must be
exercised within 60 days of redemption; and only may be exercised once with
respect to the 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. Furthermore, if a shareholder redeems within 90 days of
purchasing the shares in the 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.
TAXATION
The Portfolios qualified in the tax year ended September 30, 1995, and
intend to continue to qualify, as regulated investment companies under the
Internal Revenue Code of 1986, as amended (the "Code"). As long as they so
qualify, the Portfolios are not taxed on the income distributed to shareholders.
For individuals in taxable year 1995, long-term capital gains are subject
to a maximum tax rate of 28% while ordinary income is subject to a maximum rate
of 39.6% (for taxable income in excess of $250,000). (The maximum effective tax
rate may be in excess of 39.6%, resulting from a combination of the nominal tax
rate and a phase-out of personal exemptions and a partial disallowance of
itemized deductions for individuals with taxable incomes above certain levels.)
Gain or loss realized upon the sale of shares in the Fund will be treated
as capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term capital gain
or loss if the shares were held for more than one year.
Under the Code, the 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.
Under the Code, interest on indebtedness incurred or continued to purchase
or carry shares of an investment company paying exempt-interest dividends, such
as the Fund, will not be deductible by the investor in proportion to the
percentage of each Portfolio's distributions from investment income and
short-term capital gains that is exempt from federal income tax. Minnesota and
New York law will also restrict the deductibility of interest on indebtedness
incurred or continued to purchase or carry shares of the Fund. Indebtedness may
be allocated to shares of the Fund even though not directly traceable to the
purchase of such shares.
Any loss on the sale or exchange of shares held for six months or less
(although regulations may reduce this time period to 31 days) will be disallowed
for Federal income tax purposes to the extent of the amount of any
exempt-interest dividend received with respect to such shares. Except to the
extent disallowed pursuant to the preceding sentence, any loss on the sale or
exchange of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of any dividend received from long-term
capital gains with respect to such shares. Similar rules apply in the case of
individuals, estates, and trusts under Minnesota and New York law.
Certain deductions otherwise allowable to financial institutions and
property and casualty insurance companies will be eliminated or reduced by
reason of the receipt of certain exempt-interest dividends.
For Federal income tax purposes the National and Minnesota Portfolios had
the following capital loss carryovers at September 30, 1995, which, if not
offset by subsequent capital gains, will expire in 2003.
61
<PAGE>
It is unlikely the Board of Directors will authorize a distribution of any net
realized gains until the available capital loss carryovers have been offset or
expired.
National Portfolio $1,125,424
Minnesota Portfolio $ 335,029
The New York Portfolio had no capital loss carryover at September 30, 1995.
Under a special provision of the Revenue Reconciliation Act of 1993, if any
of the Portfolios dispose of a Municipal Obligation that it acquired after
April 30, 1993 at a market discount, it must recognize any gain it realizes on
the disposition as ordinary income (and not as capital gain) to the extent of
the accrued market discount.
If the Portfolios invest in zero coupon obligations upon their issuance,
such obligations will have original issue discount in the hands of the
Portfolios. Generally, 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. The Portfolios are required to accrue as
ordinary interest income a portion of such original issue discount even though
the Portfolios receive no cash currently as interest payments, on the
obligation. Because the Portfolios are each required to distribute substantially
all of their net investment income (including accrued original issue discount)
in order to qualify as regulated investment companies, the Portfolios may be
required to distribute an amount greater than the total cash income the
Portfolios actually receive. Accordingly, in order to make the required
distribution, the Portfolios may be required to borrow or to liquidate
securities. The extent to which the Portfolios may liquidate securities at a
gain may be limited by the requirement that generally less than 30% of the
Portfolios' gross income (on an annual basis) must consist of gains from the
sale of securities held for less than three months.
The foregoing is a general discussion of the Federal income tax
consequences of an investment in the Fund as of the date of this Statement of
Additional Information. Distributions from net investment income and from net
realized capital gains may also be subject to state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, or local taxes.
UNDERWRITER
On December 7, 1995, the Board of Directors (including a majority of the
directors who are not parties to the contract, or interested persons of any such
party) reapproved the existing Underwriting Agreement with Investors dated
November 14, 1994, which will become effective November 14, 1994. This
Underwriting Agreement may be terminated by the 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.
The 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.
In the 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.
62
<PAGE>
PLAN OF DISTRIBUTION
The policy of having the Fund compensate those who sell Fund shares has
been adopted 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 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 a paragraph
(b)(3) 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(c)
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 88(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 last approved the plan on December 7, 1995.
PERFORMANCE
Until June 1, 1991, the New York Portfolio was managed by a different
organization. Therefore, prior data may not provide a basis for evaluating the
current operations of the Portfolio. The National, Minnesota, and New York
Portfolios' yields for the 30-day period ended September 30, 1995, respectively,
were:
<TABLE>
<CAPTION>
Tax-Exempt Yields
Class A Class B Class C Class H Class E
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
National Portfolio 4.43% 4.10% 4.10% 4.10% 4.65%
Minnesota Portfolio 4.64% 4.04% 4.04% 4.04% 4.81%
New York Portfolio 5.10% 4.63% 4.63% 4.63% 5.33%
</TABLE>
The National, Minnesota, and New York Portfolios' annualized tax-exempt
yields for the same period, assuming a Federal tax rate of 39.6%, combined
Minnesota/Federal tax rate of 44.7%, combined New York/Federal tax rate of
44.36%, and investors subject
63
<PAGE>
to the New York City personal income tax, assuming a 46.41% combined Federal,
New York, and local rate, the tax equivalent yields respectively were:
<TABLE>
<CAPTION>
Tax-Equivalent Yields
Class A Class B Class C Class H Class E
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
National Portfolio 7.33% 6.79% 6.79% 6.79% 7.69%
Minnesota Portfolio 8.39% 7.31% 7.31% 7.31% 8.69%
New York Portfolio 9.16% 8.31% 8.31% 8.31% 9.57%
New York Portfolio also 9.51% 8.63% 8.63% 8.63% 9.94%
subject to New York City tax
</TABLE>
TAX-FREE NATIONAL PORTFOLIO
$1,000 SINGLE INVESTMENT CLASS E
<TABLE>
<CAPTION>
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
**86 979 0 8 987 -1.3%
87 903 4 74 981 -0.6%
88 942 4 157 1,103 12.4%
89 948 4 242 1,194 8.3%
90 923 4 319 1,246 4.4%
91 986 4 430 1,420 14.0%
92 1,018 4 540 1,562 10.0%
93 1,093 4 677 1,774 13.6%
94 999 10 709 1,718 -3.2%
95 1,032 11 836 1,879 9.4%
-----------------------------------
CUMULATIVE TOTAL RETURN Last 5 Years 44.0%
Life of Portfolio 87.9%
</TABLE>
<TABLE>
<CAPTION>
CLASS A
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($)+ Distributions + dividends = Value($) Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,045 1 51 1,097 9.7%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,093 1 46 1,140 14.0%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,093 1 46 1,140 14.0%
</TABLE>
<TABLE>
<CAPTION>
CLASS H
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,094 1 46 1,141 14.1%
</TABLE>
64
<PAGE>
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 Life of
Portfolio
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 4.38% 0.55% 4.74% 6.02% 7.57% 7.03% 7.21% 7.84% 6.87% 6.99%
- ---------------------------------------------------------------------------------------------------------------------------
Class A --- --- --- --- --- --- --- --- --- *9.63%
- ---------------------------------------------------------------------------------------------------------------------------
Class B --- --- --- --- --- --- --- --- --- *13.96%
- ---------------------------------------------------------------------------------------------------------------------------
Class C --- --- --- --- --- --- --- --- --- *13.95%
- ---------------------------------------------------------------------------------------------------------------------------
Class H --- --- --- --- --- --- --- --- --- *14.06%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This reflects the cumulative total return from November 14, 1994 to
September 30, 1995
** June 2, 1986 to September 30, 1986
Had dividends and capital gains distributions been taken in cash, with no
shares being acquired through reinvestment, the cash payments for Classes E, A,
B, C, and H for the period would have been $8, $1, $1, $1, and $1, respectively,
for capital gains distributions and $580, $49, $44, $44, and $44, respectively
for income dividends, and the value of the shares as of September 30, 1995,
would have been $1,032, $1,045, $1,093, $1,093 and $1,094, respectively. All
figures are based upon historical earnings and are not intended to indicate
future performance. Investment return and share value fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. No adjustment has been made for a shareholder's income tax liability on
dividends or capital gains.
TAX-FREE MINNESOTA PORTFOLIO
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CLASS E
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
**86 979 0 7 986 -1.4%
87 897 0 73 970 -1.6%
88 931 0 151 1,082 11.5%
89 930 0 231 1,161 7.3%
90 916 0 305 1,221 5.2%
91 962 0 407 1,369 12.1%
92 987 0 508 1,495 9.2%
93 1,047 0 632 1,679 12.3%
94 976 0 678 1,654 -1.5%
95 1,000 0 793 1,793 8.4%
----------------------------------------
CUMULATIVE TOTAL RETURN Last 5 Years 40.1%
Life of Portfolio 79.3%
</TABLE>
<TABLE>
<CAPTION>
CLASS A
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,030 0 50 1,080 8.0%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,075 0 46 1,121 12.1%
</TABLE>
<TABLE>
<CAPTION>
CLASS C
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,077 0 46 1,123 12.3%
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
CLASS H
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,079 0 45 1,124 12.4%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
- ----------------------------------------------------------------------------------------------------------------------------
Most recent: 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 years 8 Years 9 Years Life of
Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 3.47% 0.97% 4.61% 5.76% 6.98% 6.69% 6.77% 7.37% 6.31% 6.45%
- ----------------------------------------------------------------------------------------------------------------------------
Class A --- --- --- --- --- --- --- --- --- *8.06%
- ----------------------------------------------------------------------------------------------------------------------------
Class B --- --- --- --- --- --- --- --- --- *12.10%
- ----------------------------------------------------------------------------------------------------------------------------
Class C --- --- --- --- --- --- --- --- --- *12.31%
- ----------------------------------------------------------------------------------------------------------------------------
Class H --- --- --- --- --- --- --- --- --- *12.42%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This reflects the cumulative total return from November 14, 1994 to
September 30, 1995
** June 2, 1986 to September 30, 1986
Had dividends and capital gains distributions been taken in cash, with no
shares being acquired through reinvestment, the cash payments for Classes E, A,
B, C, and H for the period would have been $0, $0, $0, and $0, respectively, for
capital gains distributions and $562, $49, $44, $44, and $44, respectively, for
income dividends, and the value of the shares as of September 30, 1995, would
have been $1,000, $1,030, $1,075, $1,077 and $1,079, respectively. All figures
are based upon historical earnings and are not intended to indicate future
performance. Investment return and share value fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. No
adjustment has been made for a shareholder's income tax liability on dividends
or capital gains.
TAX-FREE NEW YORK PORTFOLIO
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CLASS E
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
**88 984 0 58 1,042 4.2%
89 1,003 0 135 1,138 9.2%
90 981 1 206 1,188 4.4%
91 1,035 1 302 1,338 12.6%
92 1,069 22 399 1,490 11.4%
93 1,114 45 507 1,666 11.8%
94 1,026 63 557 1,646 -1.2%
95 1,038 67 661 1,766 7.3%
------------------------------------------------
CUMULATIVE TOTAL RETURN Last 5 Years 42.0%
Life of Portfolio 76.6%
</TABLE>
<TABLE>
<CAPTION>
CLASS A
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,004 2 49 1,055 5.5%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,048 2 45 1,095 9.5%
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
CLASS C
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,049 2 45 1,096 9.6%
</TABLE>
<TABLE>
<CAPTION>
CLASS H
Value of Reinvested
Period Initial Capital Total
Ended $1,000 Gains Reinvested Cumulative % Yearly
September 30, Investment($) + Distributions + dividends = Value($) Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
*95 1,047 2 45 1,094 9.4%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
- --------------------------------------------------------------------------------------------------------------
Most recent: 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 years Life of
Portfolio
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 2.48% 0.61% 4.23% 5.95% 7.27% 6.79% 7.13% 7.46%
- --------------------------------------------------------------------------------------------------------------
Class A --- --- --- --- --- --- --- *5.54%
- --------------------------------------------------------------------------------------------------------------
Class B --- --- --- --- --- --- --- *9.46%
- --------------------------------------------------------------------------------------------------------------
Class C --- --- --- --- --- --- --- *9.56%
- --------------------------------------------------------------------------------------------------------------
Class H --- --- --- --- --- --- --- *9.36%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* This reflects the cumulative total return from November 14, 1994 to September
30, 1995
** November 6, 1987 to September 30, 1988
Had dividends and capital gains distributions been taken in cash, with no
shares being acquired through reinvestment, the cash payments for Classes E, A,
B, C, and H for the period would have been $48, $2, $2, $2, and $2,
respectively, for capital gains distributions and $498, $48, $43, $43, and $43,
respectively, for income dividends, and the value of the shares as of September
30, 1995, would have been $1,038, $1,004, $1,048, $1,049, and $1,047,
respectively. All figures are based upon historical earnings and are not
intended to indicate future performance. Investment return and share value
fluctuate so that an investors's shares, when redeemed, may be worth more or
less than their original cost. No adjustment has been made for a shareholder's
income tax liability on dividends or capital gains.
Cumulative total return is the increase in value of a hypothetical $1,000
investment made at the beginning of the advertised period. It may be expressed
in terms of dollars or percentage. Average annual total return is the annual
compounded rate of return based upon the same hypothetical investment. The above
tables each include reduction due to the maximum 4.5% sales charge and assume
reinvestment of all Fund dividend and capital gains distributions.
TAX-EXEMPT VERSUS TAXABLE INCOME
The following tables show the yield that taxable investments would have to
earn to equal tax-exempt income earned by an investment in the National
Portfolio, the Minnesota Portfolio, or the New York Portfolio, respectively.
The tax-exempt yields shown are for illustrative purposes only and are not
indicative of the Funds' yields.
<TABLE>
<CAPTION>
National Portfolio
Tax-Exempt Yields
---------------------------------------
Federal Taxable 4.00% 5.00% 6.00% 7.00% 8.00%
Income Bracket
Joint Returns Single Returns Federal Tax Rate Taxable Equivalent Yields
- ------------------ --------------------- ------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-$40,100 $0-24,000 15% 4.71% 5.88% 7.06% 8.24% 9.41%
$40,100-$96,900 $24,000-$58,150 28% 5.56% 6.94% 8.33% 9.72% 11.11%
$96,900-$147,700 $58,150-$121,300 31% 5.80% 7.25% 8.70% 10.14% 11.59%
$147,700-$263,750 $121,300-$263,750 36% 6.25% 7.81% 9.38% 10.94% 12.50%
Over $263,750 Over $263,750 39.6% 6.62% 8.28% 9.93% 11.59% 13.25%
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
Minnesota Portfolio
Tax-Exempt Yields
-------------------------------------------
Federal Taxable Approximate 4.00% 5.00% 6.00% 7.00% 8.00%
Income Bracket Combined State and
Joint Returns Single Returns Federal Tax Rate Taxable Equivalent Yields
- ---------------- ------------------ --------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-$22,080 $0-$15,110 20.1% 5.01% 6.26% 7.51% 8.76% 10.01%
$22,080-$40,100 $15,110-$24,000 21.8% 5.12% 6.39% 7.67% 8.95% 10.23%
$40,100-$86,340 $24,000-$48,890 33.8% 6.04% 7.55% 9.06% 10.57% 12.08%
$86,340-$96,900 $48,890-$58,150 34.1% 6.07% 7.59% 9.10% 10.62% 12.14%
$96,900-$147,700 $58,150-$121,300 36.9% 6.44% 7.92% 9.50% 11.09% 12.68%
$147,700-$263,750 $121,300-$263,750 41.4% 6.83% 8.53% 10.24% 11.95% 13.65%
Over $263,750 Over $263,750 44.7% 7.23% 9.04% 10.85% 12.66% 14.47%
</TABLE>
<TABLE>
<CAPTION>
New York Portfolio
State of New York
Tax-Exempt Yields
----------------------------------------
Federal Taxable Approximate 4.00% 5.00% 6.00% 7.00% 8.00%
Income Bracket Combined Federal
Joint Returns Single Returns and State Tax Rate Taxable Equivalent Yields
- ----------------- ------------------- ------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-$38,000 $0-$22,750 19.25% 4.95% 6.19% 7.43% 8.67% 9.91%
$38,000-$91,850 $22,750-$55,100 33.13% 5.98% 7.48% 8.97% 10.47% 11.96%
$91,850-$140,000 $55,100-$115,000 35.92% 6.24% 7.80% 9.36% 10.92% 12.48%
$140,000-$250,000 $115,000-$250,000 40.56% 6.73% 8.41% 10.09% 11.78% 13.46%
Over $250,000 Over $250,000 43.90% 7.13% 8.91% 10.70% 12.48% 14.26%
</TABLE>
<TABLE>
<CAPTION>
New York Portfolio
City of New York
Tax-Exempt Yields
-----------------------------------------
Federal Taxable Approximate 4.00% 5.00% 6.00% 7.00% 8.00%
Income Bracket Combined Federal,
Joint Returns Single Returns State and Local Tax Rate Taxable Equivalent Yields
- ------------------ ----------------- ------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0-$40,100 0-$24,000 21.72% 5.11% 6.39% 7.66% 8.94% 10.22%
$40,100-$96,900 $24,000-$58,150 35.36% 6.19% 7.74% 9.28% 10.83% 12.38%
$96,900-$147,700 $58,150-$121,300 38.26% 6.48% 8.10% 9.72% 11.34% 12.96%
$147,700-$263,750 $121,300-$263,750 42.74% 6.99% 8.73% 10.48% 12.22% 13.97%
Over $263,750 Over $263,750 45.96% 7.40% 9.25% 11.10% 12.95% 14.80%
</TABLE>
The tax rates shown above are based on federal, Minnesota and New York tax rates
in effect in 1996. (In the case of New York State and New York City rates,
certain brackets with different tax rates have been combined, and the tax rates
applicable to those brackets have been averaged, in order to simplify the
tables.) In the tables for Minnesota Portfolio and New York Portfolio, the
combined tax rates assume that state and local income taxes paid are deducted in
calculating federal taxable income. The tables do not reflect the federal and
state rules for the phase-out of personal exemptions and deductions. For years
after 1996, the federal and New York tax bracket amounts will be adjusted for
inflation. If these scheduled changes take effect, they will result in slightly
different taxable equivalent yields for 1997 and later years than those shown in
the tables.
68
<PAGE>
"Tax equivalent yield" is computed by dividing the portion of the
Portfolio's yield which is tax-exempt by one minus a stated income tax rate and
then adding the result to the non tax-exempt portion of the Portfolio's yield.
While yield may be compared to that of "CDs" (insured, fixed rate
certificates of deposit issued by financial institutions), the Portfolios' yield
is not fixed and an investment in the Portfolios is not insured.
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:
CTR=[(ERV+P)/P]100
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:
n
P(1+T) =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.
Yield is computed by dividing the net investment income per share (as
defined under Securities and Exchange Commission rules and regulations) earned
during the computation period by the maximum offering price per share on the
last day of the period, according to the following formula:
6
Yield=2[{([a-b]/cd)+1} -1]
69
<PAGE>
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
As noted in the Prospectus, the Fund may advertise its relative performance
as compiled by outside organizations or refer to publications which have
mentioned its performance.
Following is a list of ratings services which may be referred to, along
with the category in which the Fund is included. Because some of these services
do not take into account sales charges, their ratings may sometimes be different
than had they done so:
RATINGS SERVICE CATEGORY
--------------- --------
Lipper Analytical Services, Inc. general municipal bond
Wiesenberger Investment Companies
Services U.S. Government Securities
Morningstar Publications, Inc. municipal bond -- general
Johnson's Charts municipal bond
CDA Technologies, Inc. municipal bond
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
70
<PAGE>
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
71
<PAGE>
FINANCIAL STATEMENTS
The financial statements included as part of the Fund's 1995 Annual
Report to Shareholders, filed with the Securities and Exchange Commission in
December, 1995, are incorporated herein by reference. The Annual Report
accompanies this Statement of Additional Information.
CUSTODIAN; COUNSEL; ACCOUNTANTS
First Bank National Association, First Bank Place, Minneapolis, MN
55480 acts as custodian of the Fund's assets and portfolio securities; Dorsey &
Whitney P.L.L.P., 220 South Sixth Street, Minneapolis, MN 55402, is the
independent General Counsel for the Fund; and KPMG Peat Marwick LLP,
4200 Norwest Center, Minneapolis, MN 55402, acts as the Fund's independent
auditors.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director of Fortis Income 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 Fortis Income 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 Fund has 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
72
<PAGE>
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.
2/1/96
73
<PAGE>
PART C - OTHER INFORMATION
ITEM 24.(a) FINANCIAL STATEMENTS:
The following financial statements are included in the registration
statement:
Financial Statements included in Part A:
Financial Highlights
Financial Statements included in Part B:
All financial statements required by Part B were incorporated therein by
reference to Registrant's 1994 Annual Report to Shareholders.
ITEM 24.(b) EXHIBITS:
(1) Copy of the charter as now in effect;
***
(2) Copies of the existing by-laws or instruments corresponding thereto;
*
(3) Copies of any voting trust agreement with respect to more than 5 percent
of any class of equity securities of the Registrant;
Inapplicable
(4) Copies of all instruments defining the rights of holders of the
securities being registered including, where applicable, a relevant
portion of the articles of incorporation or by-laws of the Registrant;
See Item 24(b)(1)
(5) Copies of all investment advisory contracts relating to the management
of the assets of the Registrant;
*
(6) Copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of all
agreements between principal underwriters and dealers;
***
(7) Copies of all bonus, profit sharing, pension or other similar contracts
or arrangements wholly or partly for the benefit of directors or
officers of the Registrant in their capacity as such; if any such plan
is not set forth in a formal document, furnish a reasonably detailed
description thereof;
Inapplicable
<PAGE>
(8) Copies of all custodian agreements, and depository contracts under
Section 17(f) of the 1940 Act, with respect to securities and similar
investments of the Registrant, including the schedule of remuneration;
*
(9) Copies of all other material contracts not made in the ordinary course
of business which are to be performed in whole or in part at or after
the date of filing the Registration Statement;
Inapplicable
(10) An opinion and consent of counsel as to the legality of the securities
being registered, indicating whether they will when sold be legally
issued, fully paid and non-assessable;
Inapplicable
(11) Copies of any other opinions, appraisals or rulings and consents to the
use thereof relied on in the preparation of this Registration Statement
and required by Section 7 of the 1933 Act;
(a) Accountants' Consent attached
(12) All financial statements omitted from Item 23;
Inapplicable
(13) Copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their purchases
were made for investment purposes without any present intention of
redeeming or reselling;
Inapplicable
(14) Copies of the model plan used in the establishment of any retirement
plan in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model plan.
Such form(s) should disclose the costs and fees charged in connection
therewith;
Inapplicable
(15) Copies of any plan entered into by Registrant pursuant to rule 12b-1 of
the 1940 Act, which describes all material aspects of the financing of
distribution of Registrant's shares, and any agreement with any person
relating to implementation of such plan.
Attached
(16) Schedule for computation of each performance quotation provided in the
Registration Statement in response to Item 22 (which need not be
audited).
**
(17) A Financial Data Schedule meeting the requirements of Rule 483 under the
Securities Act of 1933.
<PAGE>
Attached
(18) Copies of any plan entered into by Registrant pursuant to Rule 18f-3
under the 1940 Act, any agreement with any person relating to the
implementation of a plan, any amendment to a plan or agreement, and a
copy of the portion of the minutes of a meeting of the Registrant's
directors describing any action taken to revoke a plan.
Attached
-------------------------------
*Incorporated by reference to Post-Effective Amendment Number 13 to
Registrant's registration statement, filed with the Securities and Exchange
Commission in November, 1992.
**Incorporated by reference to Post-Effective Amendment Number 12 to
Registrant's registration statement, filed with the Securities and Exchange
Commission in November, 1991.
***Incorporated by reference to Post-Effective Amendment Number 16 to
Registrant's registration statement, filed with the Securities and Exchange
Commission in November, 1994.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Furnish a list or diagram of all persons directly or indirectly controlled by
or under common control with the Registrant and as to each person indicate
(1) if a company, the state or other sovereign power under the laws of which
it is organized, and (2) the percentage of voting securities owned or other
basis of control by the person, if any, immediately controlling it.
Inapplicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
State in substantially the tabular form indicated, as of a specified date
within 90 days prior to the date of filing, the number of record holders of
each class of securities of the Registrant:
Title of Class Number of Record Holders
-------------- ------------------------
National Portfolio Common Class E: 2,343
Class A: 158
Class B: 44
Class C: 26
Class H: 64
(12/31/95)
Minnesota Portfolio Common Class E: 1,572
Class A: 74
Class B: 20
Class C: 12
Class H: 21
(12/31/95)
New York Portfolio Common Class E: 590
Class A: 7
Class B: 10
Class C: 5
<PAGE>
Class H: 12
(12/31/95)
ITEM 27. INDEMNIFICATION
State the general effect of any contract, arrangement or statute under which
any director, officer, underwriter or affiliated person of the Registrant is
insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Incorporated by reference to Post Effective Amendment Number 8 to
Registrant's Registration Statement, filed with the Securities and Exchange
Commission in February, 1988.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Describe any other business, profession, vocation, or employment of a
substantial nature in which each investment adviser of the Registrant, and
each director, officer, or partner of any such investment adviser, is or has
been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner, or
trustee.
See Statement of Additional Information constituting part B hereof. In
addition, the following is furnished.
<TABLE>
<CAPTION>
<S> <C> <C>
Other business,
professions, vocations, or
Current Position employments of a substantial nature
Name With Advisers during past two years
------------- ---------------------
Michael D. Qualified Plan Officer Qualified Plan Officer of
O'Connor Fortis Benefits Insurance
Company and Qualified Plan
Officer for Investors.
</TABLE>
Item 29. Principal Underwriters
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal underwriter, depositor, or
investment adviser.
Fortis Advantage Portfolios, Inc.
Fortis Equity Portfolios, Inc.
Fortis Fiduciary Fund, Inc.
Fortis Growth Fund, Inc.
Fortis Money Portfolios, Inc.
Fortis Securities, Inc.
Fortis Series Fund, Inc.
Fortis Income Portfolios, Inc.
Fortis Worldwide Portfolios, Inc.
Special Portfolios, Inc.
Variable Account C of Fortis Benefits Insurance Company
Variable Account D of Fortis Benefits Insurance Company
<PAGE>
In addition to those listed under "Directors and Executive Officers" in the
Statement of Additional Information:
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ --------------------- ---------------------
Carol M. Houghtby* 2nd Vice President and Accounting Officer
Treasurer
John E. Hite* 2nd Vice President and Assistant Secretary
Assistant Secretary
Scott R. Plummer* Corporate Counsel and Assistant Secretary
Assistant Secretary
__________________________________________________
*The business address of these persons is 500 Bielenberg Drive, Woodbury, MN
55125
(c) Furnish the information required by the following table with respect to all
commissions and other compensation received by each principal underwriter who is
not an affiliated person of the Registrant or an affiliated person of such an
affiliated person, directly or indirectly, from the Registrant during the
Registrant's last fiscal year.
Inapplicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
With respect to each account, book or other document required to be maintained
by Section 31(a) of the 1940 Act and the Rules (17 CFR 270, 31a-1 to 31a-3)
promulgated thereunder, furnish the name and address of each person maintaining
physical possession of each such account, book or other document.
Fortis Advisers, Inc., 500 Bielenberg Drive, Woodbury, Minnesota 55125
ITEM 31. MANAGEMENT SERVICES
Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part I of this Form (because the contract was
not believed to be material to a purchaser of securities of the Registrant)
under which services are provided to the Registrant, indicating the parties to
the contract, the total dollars paid and by whom, for the last three fiscal
years.
Inapplicable
ITEM 32. UNDERTAKINGS
Furnish the following undertakings in substantially the following form in all
initial Registration Statements filed under the 1993 Act:
(a) An undertaking to file an amendment to the Registration Statement with
certified financial statements showing the initial capital received before
accepting subscriptions from any person in excess of 25 if Registrant proposes
to raise its initial capital pursuant to Section 14(a)(3) of the 1940 Act;
Inapplicable
<PAGE>
(b) An undertaking to file a post-effective amendment, using financial
statement which need not be certified, within four to six months from the
effective date of Registrant's 1933 act Registration Statement.
Inapplicable
(c) If the information called for by Item 5A is contained in the latest
annual report to shareholders, an undertaking to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
We undertake to furnish each person to whom a prospectus is delivered with
a copy of the Registrant's latest annual report to shareholders, upon request
and without charge.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Woodbury, State of
Minnesota, on January 29, 1996.
Fortis Tax-Free Portfolios, Inc.
By: /s/
-------------------------------------
Dean C. Kopperud, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to Registration Statement has been signed below by the
following persons in the capacities and on the dates shown.
Signature and Title
- ---------------------
/s/ Dated January 29, 1996
- ---------------------------------------------
Dean C. Kopperud, President
(principal executive officer)
/s/ Dated January 29, 1996
- ---------------------------------------------
Tamara L. Fagely, Treasurer
(principal financial and accounting officer)
Richard W. Cutting*
Director
Allan R. Freedman*
Director
Robert M. Gavin*
Director
Benjamin S. Jaffray*
Director
Jean L. King*
Director
Edward M. Mahoney*
Director
Thomas R. Pellett*
Director
/s/
----------------------------------
Robb L. Prince* Dean C. Kopperud, Director
Director Pro Se and Attorney-in-Fact
Leonard J. Santow*
Director Dated: January 29, 1996
Joseph M. Wikler*
Director
*Registrant's directors executing Power of Attorney dated March 30, 1995.
<PAGE>
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Telephone 612 305 5000
Telefax 612 305 5039
Independent Auditors' Consent
The Board of Directors
Fortis Tax-Free 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.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 1
<NAME> NATIONAL PORTFOLIO (CLASS E)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 69,485,386
<INVESTMENTS-AT-VALUE> 73,766,974
<RECEIVABLES> 1,248,614
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,519
<TOTAL-ASSETS> 75,036,107
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 167,483
<TOTAL-LIABILITIES> 167,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,756,984
<SHARES-COMMON-STOCK> 6,581,433
<SHARES-COMMON-PRIOR> 7,211,690
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (38,630)
<ACCUMULATED-NET-GAINS> (1,131,318)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,281,588
<NET-ASSETS> 74,868,624
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,763,639
<OTHER-INCOME> 0
<EXPENSES-NET> (759,275)
<NET-INVESTMENT-INCOME> 4,004,364
<REALIZED-GAINS-CURRENT> (592,450)
<APPREC-INCREASE-CURRENT> 2,893,045
<NET-CHANGE-FROM-OPS> 6,304,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,004,117)
<DISTRIBUTIONS-OF-GAINS> (35,901)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 554,163
<NUMBER-OF-SHARES-REDEEMED> (1,440,336)
<SHARES-REINVESTED> 255,916
<NET-CHANGE-IN-ASSETS> (8,026)
<ACCUMULATED-NII-PRIOR> 35,887
<ACCUMULATED-GAINS-PRIOR> (502,659)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 557,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 759,275
<AVERAGE-NET-ASSETS> 72,608,000
<PER-SHARE-NAV-BEGIN> 10.38
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> (.59)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.72
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 2
<NAME> NATIONAL PORTFOLIO (CLASS A)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 69,485,386
<INVESTMENTS-AT-VALUE> 73,766,974
<RECEIVABLES> 1,248,614
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,519
<TOTAL-ASSETS> 75,036,107
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 167,483
<TOTAL-LIABILITIES> 167,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,756,984
<SHARES-COMMON-STOCK> 168,770
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (38,630)
<ACCUMULATED-NET-GAINS> (1,131,318)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,281,588
<NET-ASSETS> 74,868,624
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,763,639
<OTHER-INCOME> 0
<EXPENSES-NET> (759,275)
<NET-INVESTMENT-INCOME> 4,004,364
<REALIZED-GAINS-CURRENT> (592,450)
<APPREC-INCREASE-CURRENT> 2,893,045
<NET-CHANGE-FROM-OPS> 6,304,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (40,810)
<DISTRIBUTIONS-OF-GAINS> (158)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 174,678
<NUMBER-OF-SHARES-REDEEMED> (8,101)
<SHARES-REINVESTED> 2,193
<NET-CHANGE-IN-ASSETS> (8,026)
<ACCUMULATED-NII-PRIOR> 35,887
<ACCUMULATED-GAINS-PRIOR> (502,659)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 557,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 759,275
<AVERAGE-NET-ASSETS> 72,608,000
<PER-SHARE-NAV-BEGIN> 9.79
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .94
<PER-SHARE-DIVIDEND> (.50)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.71
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 3
<NAME> NATIONAL PORTFOLIO (CLASS B)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 69,485,386
<INVESTMENTS-AT-VALUE> 73,766,974
<RECEIVABLES> 1,248,614
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,519
<TOTAL-ASSETS> 75,036,107
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 167,483
<TOTAL-LIABILITIES> 167,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,756,984
<SHARES-COMMON-STOCK> 62,463
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (38,630)
<ACCUMULATED-NET-GAINS> (1,131,318)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,281,588
<NET-ASSETS> 74,868,624
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,763,639
<OTHER-INCOME> 0
<EXPENSES-NET> (759,275)
<NET-INVESTMENT-INCOME> 4,004,364
<REALIZED-GAINS-CURRENT> (592,450)
<APPREC-INCREASE-CURRENT> 2,893,045
<NET-CHANGE-FROM-OPS> 6,304,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,802)
<DISTRIBUTIONS-OF-GAINS> (39)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 61,707
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 756
<NET-CHANGE-IN-ASSETS> (8,026)
<ACCUMULATED-NII-PRIOR> 35,887
<ACCUMULATED-GAINS-PRIOR> (502,659)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 557,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 759,275
<AVERAGE-NET-ASSETS> 72,608,000
<PER-SHARE-NAV-BEGIN> 9.79
<PER-SHARE-NII> .42
<PER-SHARE-GAIN-APPREC> .93
<PER-SHARE-DIVIDEND> (.43)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.70
<EXPENSE-RATIO> 2.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 4
<NAME> NATIONAL PORTFOLIO (CLASS C)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 69,485,386
<INVESTMENTS-AT-VALUE> 73,766,974
<RECEIVABLES> 1,248,614
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,519
<TOTAL-ASSETS> 75,036,107
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 167,483
<TOTAL-LIABILITIES> 167,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,756,984
<SHARES-COMMON-STOCK> 9,896
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (38,630)
<ACCUMULATED-NET-GAINS> (1,131,318)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,281,588
<NET-ASSETS> 74,868,624
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,763,639
<OTHER-INCOME> 0
<EXPENSES-NET> (759,275)
<NET-INVESTMENT-INCOME> 4,004,364
<REALIZED-GAINS-CURRENT> (592,450)
<APPREC-INCREASE-CURRENT> 2,893,045
<NET-CHANGE-FROM-OPS> 6,304,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,397)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,282
<NUMBER-OF-SHARES-REDEEMED> (490)
<SHARES-REINVESTED> 104
<NET-CHANGE-IN-ASSETS> (8,026)
<ACCUMULATED-NII-PRIOR> 35,887
<ACCUMULATED-GAINS-PRIOR> (502,659)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 557,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 759,275
<AVERAGE-NET-ASSETS> 72,608,000
<PER-SHARE-NAV-BEGIN> 9.79
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .92
<PER-SHARE-DIVIDEND> (.43)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.70
<EXPENSE-RATIO> 2.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 5
<NAME> NATIONAL PORTFOLIO (CLASS H)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 69,485,386
<INVESTMENTS-AT-VALUE> 73,766,974
<RECEIVABLES> 1,248,614
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,519
<TOTAL-ASSETS> 75,036,107
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 167,483
<TOTAL-LIABILITIES> 167,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,756,984
<SHARES-COMMON-STOCK> 164,006
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (38,630)
<ACCUMULATED-NET-GAINS> (1,131,318)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,281,588
<NET-ASSETS> 74,868,624
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,763,639
<OTHER-INCOME> 0
<EXPENSES-NET> (759,275)
<NET-INVESTMENT-INCOME> 4,004,364
<REALIZED-GAINS-CURRENT> (592,450)
<APPREC-INCREASE-CURRENT> 2,893,045
<NET-CHANGE-FROM-OPS> 6,304,959
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (23,755)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
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<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
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<NUMBER> 8
<NAME> MINNESOTA PORTFOLIO (CLASS B)
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<PERIOD-TYPE> YEAR
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<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 9
<NAME> MINNESOTA PORTFOLIO (CLASS C)
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 10
<NAME> MINNESOTA PORTFOLIO (CLASS H)
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<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 11
<NAME> NEW YORK PORTFOLIO (CLASS E)
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<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 12
<NAME> NEW YORK PORTFOLIO (CLASS A)
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 13
<NAME> NEW YORK PORTFOLIO (CLASS B)
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 11,059,595
<INVESTMENTS-AT-VALUE> 12,015,045
<RECEIVABLES> 226,234
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,500
<TOTAL-ASSETS> 12,270,779
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,022
<TOTAL-LIABILITIES> 23,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,285,224
<SHARES-COMMON-STOCK> 17,863
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,619)
<ACCUMULATED-NET-GAINS> 8,702
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 955,450
<NET-ASSETS> 12,247,757
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 839,939
<OTHER-INCOME> 0
<EXPENSES-NET> (135,405)
<NET-INVESTMENT-INCOME> 704,534
<REALIZED-GAINS-CURRENT> 18,022
<APPREC-INCREASE-CURRENT> 158,431
<NET-CHANGE-FROM-OPS> 880,987
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,056)
<DISTRIBUTIONS-OF-GAINS> (287)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,184
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 679
<NET-CHANGE-IN-ASSETS> (549,061)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12,817
<OVERDISTRIB-NII-PRIOR> (2,122)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99,309
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 198,501
<AVERAGE-NET-ASSETS> 12,412,000
<PER-SHARE-NAV-BEGIN> 10.34
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .54
<PER-SHARE-DIVIDEND> (.45)
<PER-SHARE-DISTRIBUTIONS> (.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.84
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 14
<NAME> NEW YORK PORTFOLIO (CLASS C)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 11,059,595
<INVESTMENTS-AT-VALUE> 12,015,045
<RECEIVABLES> 226,234
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,500
<TOTAL-ASSETS> 12,270,779
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,022
<TOTAL-LIABILITIES> 23,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,285,224
<SHARES-COMMON-STOCK> 4,691
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,619)
<ACCUMULATED-NET-GAINS> 8,702
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 955,450
<NET-ASSETS> 12,247,757
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 839,939
<OTHER-INCOME> 0
<EXPENSES-NET> (135,405)
<NET-INVESTMENT-INCOME> 704,534
<REALIZED-GAINS-CURRENT> 18,022
<APPREC-INCREASE-CURRENT> 158,431
<NET-CHANGE-FROM-OPS> 880,987
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (568)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,640
<NUMBER-OF-SHARES-REDEEMED> (2)
<SHARES-REINVESTED> 53
<NET-CHANGE-IN-ASSETS> (549,061)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12,817
<OVERDISTRIB-NII-PRIOR> (2,122)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99,309
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 198,501
<AVERAGE-NET-ASSETS> 12,412,000
<PER-SHARE-NAV-BEGIN> 10.79
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> (.21)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.85
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT OF
CHANGES IN NET ASSETS FOUND ON PAGES 12 - 21 OF THE ANNUAL SHAREHOLDER REPORT.
</LEGEND>
<CIK> 0000703708
<NAME> FORTIS TAX-FREE PORTFOLIOS INC.
<SERIES>
<NUMBER> 15
<NAME> NEW YORK PORTFOLIO (CLASS H)
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 11,059,595
<INVESTMENTS-AT-VALUE> 12,015,045
<RECEIVABLES> 226,234
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,500
<TOTAL-ASSETS> 12,270,779
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,022
<TOTAL-LIABILITIES> 23,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,285,224
<SHARES-COMMON-STOCK> 6,684
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,619)
<ACCUMULATED-NET-GAINS> 8,702
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 955,450
<NET-ASSETS> 12,247,757
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 839,939
<OTHER-INCOME> 0
<EXPENSES-NET> (135,405)
<NET-INVESTMENT-INCOME> 704,534
<REALIZED-GAINS-CURRENT> 18,022
<APPREC-INCREASE-CURRENT> 158,431
<NET-CHANGE-FROM-OPS> 880,987
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,034)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,604
<NUMBER-OF-SHARES-REDEEMED> (2)
<SHARES-REINVESTED> 82
<NET-CHANGE-IN-ASSETS> (549,061)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12,817
<OVERDISTRIB-NII-PRIOR> (2,122)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99,309
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 198,501
<AVERAGE-NET-ASSETS> 12,412,000
<PER-SHARE-NAV-BEGIN> 10.89
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> .05
<PER-SHARE-DIVIDEND> (.17)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.83
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
FORTIS MUTUAL FUNDS
PLAN OF DISTRIBUTION
This Plan of Distribution (the "Plan") is adopted pursuant to Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940 (as amended, the "1940 Act") by
Fortis Advantage Portfolios, Inc., Fortis Equity Portfolios, Inc., Fortis
Fiduciary Fund, Inc., Fortis Growth Fund, Inc., Fortis Income Portfolios, Inc.,
Fortis Money Portfolios, Inc., Fortis Tax-Free Portfolios, Inc. and Fortis
Worldwide Portfolios, Inc. (hereinafter collectively referred to as the
"Funds"), for and on behalf of each class (each class is referred to hereinafter
as a "Class") of each Fund, and each series for those Funds that are "series"
Funds. The classes of each Fund and series that currently have adopted this
Plan, and the effective dates of such adoptions are as follows:
FORTIS ADVANTAGE PORTFOLIOS, INC.
Asset Allocation Portfolio, Class A* January 31, 1992
Asset Allocation Portfolio, Class B November 14, 1994
Asset Allocation Portfolio, Class C November 14, 1994
Asset Allocation Portfolio, Class H November 14, 1994
Capital Appreciation Portfolio, Class A* January 31, 1992
Capital Appreciation Portfolio, Class B November 14, 1994
Capital Appreciation Portfolio, Class C November 14, 1994
Capital Appreciation Portfolio, Class H November 14, 1994
High Yield Portfolio, Class A* January 31, 1992
High Yield Portfolio, Class B November 14, 1994
High Yield Portfolio, Class C November 14, 1994
High Yield Portfolio, Class H November 14, 1994
Government Total Return Portfolio, Class A* January 31, 1992
Government Total Return Portfolio, Class B November 14, 1994
Government Total Return Portfolio, Class C November 14, 1994
Government Total Return Portfolio, Class H November 14, 1994
<PAGE>
FORTIS EQUITY PORTFOLIOS, INC.
Fortis Capital Fund, Class A* January 31, 1992
Fortis Capital Fund, Class B November 14, 1994
Fortis Capital Fund, Class C November 14, 1994
Fortis Capital Fund, Class H November 14, 1994
Fortis Value Fund, Class A January 1, 1996
Fortis Value Fund, Class B January 1, 1996
Fortis Value Fund, Class C January 1, 1996
Fortis Value Fund, Class H January 1, 1996
Fortis Growth & Income Fund, Class A January 1, 1996
Fortis Growth & Income Fund, Class B January 1, 1996
Fortis Growth & Income Fund, Class C January 1, 1996
Fortis Growth & Income Fund, Class H January 1, 1996
FORTIS FIDUCIARY FUND, INC.
Fortis Fiduciary Fund, Inc., Class A* January 31, 1992
Fortis Fiduciary Fund, Inc., Class B November 14, 1994
Fortis Fiduciary Fund, Inc., Class C November 14, 1994
Fortis Fiduciary Fund, Inc., Class H November 14, 1994
FORTIS GROWTH FUND, INC.
Fortis Growth Fund, Inc., Class A* January 31, 1992
Fortis Growth Fund, Inc., Class B November 14, 1994
Fortis Growth Fund, Inc., Class C November 14, 1994
Fortis Growth Fund, Inc., Class H November 14, 1994
FORTIS INCOME PORTFOLIOS, INC.
Fortis U.S. Government Securities Fund, Class A November 14, 1994
Fortis U.S. Government Securities Fund, Class B November 14, 1994
2
<PAGE>
Fortis U.S. Government Securities Fund, Class C November 14, 1994
Fortis U.S. Government Securities Fund, Class H November 14, 1994
FORTIS MONEY PORTFOLIOS, INC.
Fortis Money Fund, Class A* January 31, 1992
Fortis Money Fund, Class B November 14, 1994
Fortis Money Fund, Class C November 14, 1994
Fortis Money Fund, Class H November 14, 1994
FORTIS TAX-FREE PORTFOLIOS, INC.
National Portfolio, Class A November 14, 1994
National Portfolio, Class B November 14, 1994
National Portfolio, Class C November 14, 1994
National Portfolio, Class H November 14, 1994
Minnesota Portfolio, Class A November 14, 1994
Minnesota Portfolio, Class B November 14, 1994
Minnesota Portfolio, Class C November 14, 1994
Minnesota Portfolio, Class H November 14, 1994
New York Portfolio, Class A November 14, 1994
New York Portfolio, Class B November 14, 1994
New York Portfolio, Class C November 14, 1994
New York Portfolio, Class H November 14, 1994
3
<PAGE>
FORTIS WORLDWIDE PORTFOLIOS, INC.
Fortis Global Growth Portfolio, Class A* January 31, 1992
Fortis Global Growth Portfolio, Class B November 14, 1994
Fortis Global Growth Portfolio, Class C November 14, 1994
Fortis Global Growth Portfolio, Class H November 14, 1994
*For the Class A shares identified above, with the exception of the Class A
shares of Fortis Income Portfolios, Inc. and Fortis Tax-Free Portfolios, Inc.,
this Plan constitutes an amended and restated plan of distribution.
- -------------------------------------------------------------------------------
1. Compensation
CLASS A
Class A of each Fund is obligated to pay the principal underwriter of the
Fund's shares, Fortis Investors, Inc. ("Investors"), a total fee in connection
with the distribution-related services provided in respect of said Class A and
in connection with the servicing of shareholder accounts of said Class A. This
fee shall be calculated and payable monthly and, with the exception of Fortis
Advantage Portfolios, Inc., and Fortis Money Portfolios, Inc., at an annual rate
of .25% of said Class A's average daily net assets. With regard to Fortis
Advantage Portfolios, Inc., the annual rate shall be .45% on the Asset
Allocation and Capital Appreciation Portfolios and .35% on the High Yield and
Government Total Return Portfolios. With regard to Fortis Money Fund, as
discussed in greater detail below, the annual rate shall be .20% of average
daily net assets. All or any portion of such total fee may be payable as a
Distribution Fee, and all or any portion of such total fee may be payable as a
Shareholder Servicing Fee, as determined from time to time by the Funds' Board
of Directors. Until further action by the Board of Directors, all of such fee
shall be designated and payable as a Distribution Fee.
4
<PAGE>
CLASS B, CLASS C AND CLASS H
Each of Class B, Class C and Class H of each Fund is obligated to pay
Investors a total fee in connection with the servicing of shareholder accounts
of said Class B, Class C or Class H (as applicable) and in connection with
distribution-related services provided in respect of said Class B, Class C or
Class H (as applicable), calculated and payable monthly, at the annual rate of
1.00% of the value of said Class B's, Class C's or Class H's (as applicable)
average daily net assets. All or any portion of such total fee may be payable
as a Shareholder Servicing Fee, and all or any portion of such total fee may be
payable as a Distribution Fee, as determined from time to time by the Funds'
Board of Directors. Until further action by the Board of Directors, .25% per
annum of each Class B's, Class C's, and Class H's average net assets shall be
designated and payable as a Shareholder Servicing Fee and the remainder of such
fee shall be designated as a Distribution Fee.
2. Expenses Covered by the Plan
(a) Except as qualified herein, the Distribution Fee may be used by
Investors for the purpose of financing any activity which is primarily intended
to result in the sale of Class shares. For example, such Distribution Fee may
be used by Investors: (i) to compensate broker-dealers, including Investors and
its registered representatives, for their sale of Portfolio shares, including
the implementation of various incentive programs with respect to broker-dealers,
banks, and other financial institutions, and (ii) to pay other advertising and
promotional expenses in connection with the distribution of Class 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 any affiliate
thereof; 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.
(i) With regard to Class A shares of Money Fund, it is contemplated that
Fortis Advisers, Inc. ("Advisers"), pursuant to an Investment Advisory and
Management Agreement dated January 31, 1992, will receive a monthly fee for
services provided for Fortis Money Fund equivalent on an annual basis to .60% of
the average daily net assets for the first $500 million of assets under
management and .55% of assets under management in excess of $500 million. Under
the Plan, Advisers will then pay to Investors on a monthly basis a fee equal to
.20% of 1% of such average daily net assets as full compensation to Investors
for its services as distributor of Fortis Money
5
<PAGE>
Fund shares pursuant to this Plan; provided, however, that Advisers may directly
pay expenses otherwise payable by Investors and deduct such amounts from the .20
of 1% otherwise payable to Investors.
(b) The Shareholder Servicing Fee may be used by Investors to provide
compensation for ongoing servicing and/or maintenance of shareholder accounts
with each applicable Class of the Fund. Compensation may be paid by Investors
to persons, including employees of Investors, and institutions who respond to
inquiries of shareholders of each applicable Class regarding their ownership of
shares of their accounts with the Fund or who provide other administrative or
accounting services not otherwise required to be provided by the Fund's
investment adviser, transfer agent or other agent of the Fund.
(c) Payments under the Plan are not tied exclusively to the expenses for
shareholder servicing and distribution related activities actually incurred by
Investors, so that such payments may exceed expenses actually incurred by
Investors. The Funds' Board of Directors will evaluate the appropriateness of
the Plan and its payment terms on a continuing basis and in doing so will
consider all relevant factors, including expenses borne by Investors and amounts
it receives under the Plan.
3. Additional Payment by Advisers and Investors
The Funds' investment adviser, Fortis Advisers, Inc. ("Advisers"), and
Investors may, at their option and in their sole discretion, make payments from
their own resources to cover the costs of additional distribution and
shareholder servicing activities.
4. Approval by Shareholders
The Plan will not take effect with respect to any Class, and no fee will be
payable in accordance with Section 1 of the Plan, until the Plan has been
approved by a vote of at least a majority of the outstanding voting securities
of such Class.
5. Approval by Directors
Neither the Plan nor any related agreement will take effect until approved
by a majority vote of both (a) the full Board of Directors of the Funds and (b)
those Directors who are not interested persons of the Funds and who have no
direct or indirect financial interest in the
6
<PAGE>
operation of the Plan or in any agreements related to the Plan (the "Independent
Directors"), cast in person at a meeting called for the purpose of voting on the
Plan and the related agreements.
6. Continuance of the Plan
The Plan will continue in effect from year to year so long as its
continuance is specifically approved annually by vote of the Funds' Board of
Directors in the manner described in Section 5 above.
7. Termination
The Plan may be terminated any time with respect to any Class, without
penalty, by vote of a majority of the Independent Directors or by vote of a
majority of the outstanding voting securities of such Class.
8. Amendments
The Plan may not be amended with respect to any Class to increase
materially the amount of the fees payable pursuant to the Plan, as described in
Section 1 above, unless the amendment is approved by a vote of at least a
majority of the outstanding voting securities of that Class (and, if applicable,
of any other affected Class or Classes), and all material amendments to the Plan
must also be approved by the Fund's Board of Directors in the manner described
in Section 5 above.
9. Selection of Certain Directors
While the Plan is in effect, the selection and nomination of the Funds'
Directors who are not interested persons of the Funds will be committed to the
discretion of the Directors then in office who are not interested persons of the
Funds.
10. Written Reports
In each year during which the Plan remains in effect, Investors and any
person authorized to direct the disposition of monies paid or payable by the
Funds pursuant to the Plan or any related agreement will prepare and furnish
to the Funds' Board of Directors, and the Board will review at least
quarterly, written reports, complying with the requirements of the Rule,
which set out the amounts expended under the Plan and the purposes for which
those expenditures were made.
11. Preservation of Materials
The Funds will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 10 above, for a period of not less
than six years (the first two
7
<PAGE>
years in an easily accessible place) from the date of the Plan, agreement or
report.
12. Meaning of Certain Terms
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Funds under the 1940
Act by the Securities and Exchange Commission.
13. Maximum Aggregate Sales Charge Calculations
In calculating the "remaining amount" under Section 26(d) of the National
Association of Securities Dealers, Inc.'s ("NASD") Rules of Fair Practice for
purposes of determining the maximum aggregate sales charge for each Class of
each Fund, the Funds are authorized to transfer a portion of the "remaining
amount" of a Class in the event of an exchange between that Class and another
Class of the same Fund or the other Funds. However, such a transfer of the
"remaining amount" must be conducted in accordance with Section 26(d), and any
subsequent amendments to such Section, as well as any interpretations of such
Section by the NASD.(1)
- --------------------------
(1) Paragraph 13 was added to the Plan pursuant to an amendment adopted by the
Funds' Boards of Directors on December 7, 1995.
8
<PAGE>
FORTIS ADVISERS, INC.
AND
FORTIS INVESTORS, INC.'S
MULTIPLE CLASS SHARES PLAN FOR :
FORTIS ADVANTAGE PORTFOLIOS, INC.
FORTIS EQUITY PORTFOLIOS, INC.
FORTIS FIDUCIARY PORTFOLIOS, INC.
FORTIS GROWTH FUND, INC.
FORTIS INCOME PORTFOLIOS, INC.
FORTIS MONEY PORTFOLIOS, INC.
FORTIS TAX-FREE PORTFOLIOS, INC.
FORTIS WORLDWIDE PORTFOLIOS, INC
DECEMBER 7, 1995
<PAGE>
MULTIPLE CLASS SHARES PLAN FOR FORTIS FUNDS
I. INTRODUCTION
This Multiple Class Shares Plan (the "Plan") for the Fortis Funds(1) (the
"Funds") has been prepared to provide the Funds' Boards of Directors with an
overview of the multiple class structure that Fortis Advisers, Inc. and Fortis
Investors, Inc. implemented for the Funds on November 14, 1994. In addition,
this document fulfills the requirements of SEC Rule 18f-3(d), promulgated under
the Investment Company Act of 1940, that provides for the creation and
maintenance of a multiple class shares structure without the necessity of an SEC
Exemptive Order.
Pursuant to Rule 18f-3(d), this document sets forth the separate arrangements,
characteristics, and expense allocations for each class and all related
conversion features and exchange privileges, thus providing the framework for
the Funds' multiple class structure. In addition, the Boards' responsibilities
with respect to the multiple class shares program are set forth. Any material
amendments to the Plan will be presented to the Boards for their approval.
II. BACKGROUND
The Funds' multiple class program became effective on November 14, 1994 pursuant
to: (i) Board approval of the program received on June 28, 1994; (ii) an SEC
Exemptive Order dated June 21, 1994; and (iii) an IRS Private Letter Ruling
dated May 10, 1994(2). With the effectiveness of Rule 18f-3 in early 1995, fund
groups operating with a multiple class share structure pursuant to an SEC
Exemptive Order are given the option to continue to operate under the Exemptive
Order or elect to comply with the provisions of Rule 18f-3. At the Boards'
June 27, 1995 meeting the Directors approved the Funds' election to operate
under Rule 18f-3 effective on such date as Fund management selected. Fund
management selected July 31, 1995.
In light of the fact that, as of July 31, 1995, the Funds' multiple class
program has not been materially modified since its approval on June 28, 1994 and
amendment on December 8, 1994, all that was
- ------------------------
(1) The Fortis mutual funds that, as of January 1, 1996 will have a multiple
class shares structure are the four portfolios of Fortis Advantage Portfolios,
Inc. (Asset Allocation Portfolio, Capital Appreciation Portfolio, High Yield
Portfolio and Government Total Return Portfolio), the three portfolios of Fortis
Equity Portfolios, Inc. (Capital Fund, Value Fund and Growth & Income Fund),
Fortis Fiduciary Fund, Fortis Growth Fund, the sole portfolio of Fortis Income
Portfolios, Inc. (U.S. Government Securities Fund--"USG"), the sole portfolio of
Fortis Money Portfolios, Inc. (Money Fund), the three portfolios of Fortis Tax-
Free Portfolios, Inc. (National Portfolio, Minnesota Portfolio, and New York
Portfolio) and the sole portfolio of Fortis Worldwide Portfolios, Inc. (Global
Growth Portfolio).
(2) The Funds also received an opinion letter from KPMG Peat Marwick LLP,
dated September 7, 1994, that concludes that Class H shares, which were not
included in the request for the Private Letter Ruling, are consistent with the
holdings and requirements of the Ruling.
1
<PAGE>
necessary to effectuate the transition to Rule 18f-3 was the creation of this
Plan and filing it with the SEC as an exhibit to the Funds' registration
statement. No additional Board approvals were necessary and the Plan was filed
and became effective July 31, 1995.
The Plan is now being amended, effective January 1, 1996, primarily due to the
creation of two additional portfolios of Fortis Equity Portfolios, Inc. (namely
Fortis Value Fund and Fortis Growth & Income Fund) that will have a multiple
class share structure and become available on January 1, 1996. In addition,
effective March 1, 1996 Class Z shares will become available for Fortis Growth
Fund.
III. MULTIPLE CLASS SHARES STRUCTURE
The Funds' multiple class shares program allows an investor to select not only
the Fund that has an investment objective that best suits his or her investment
needs, but also the most appropriate distribution method. Specifically, the
investor is able to choose a method of purchasing shares that the investor
believes is most beneficial given the amount of the investment, length of time
the investor expects to hold his or her shares and other relevant circumstances.
The investor's choice of a class also determines how the investor's sales
representative will be compensated on that sale of shares.
Rule 18f-3 authorizes the Board to create additional classes of shares that are
tailored to particular customers, distribution channels and shareholder
servicing arrangements. This flexibility will allow the Funds to quickly adapt
to future changes in the marketplace.
A. CLASS SPECIFICATIONS
The multiple class shares program consists primarily of five classes of shares.
Generally, the characteristics of each of these five classes are laid out in the
following chart:
2
<PAGE>
FORTIS FUNDS
MULTIPLE CLASS STRUCTURE
(Summary of Information Contained in Exhibit A)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLASS A*/** B/H*** C E**/****
Front End
Sales Charge 4.5%-4.75% None None 4.5%
(None on Money Fund)
Dealer Concession 4.0% 4.0% 1.0% 4.0%
5.25% on H
CDSC None 4%, 4%, 3% 1%/ None
3%, 2%, 1% 1 Year
(6 Years)*****
Conversion to A N/A Year 9 None N/A
Total 12b-1 .20%-.45% 1.0% 1.0% None
Trail Commission .20%-.45% .25% 1.0% None
No Trail Year 2+
On H
</TABLE>
- ---------------------------------------------------------------------------
* Includes a class of shares for new purchasers of USG and/or Tax-Free
that has a .25% 12b-1 fee.
** The Million Dollar NAV Program, which predates the multiple class
shares program, remains intact. However, it only applies to purchases of Class A
and Class E shares.
*** Class B is identical to Class H in all respects EXCEPT Class H has a
5.25% dealer concession with no trail commission compared to a 4% dealer
concession and a .25% trail commission on Class B shares. From time to time, at
Investors' sole discretion, the concession on Class H may be uniformly increased
to 5.50%.
**** Class E is available for USG and Tax-Free only. This class has no 12b-
1 fee and is designed for additional purchases and reinvestment of
dividends/capital gains by USG and Tax-Free shareholders of record on November
13, 1994.
***** With respect to Class B and H shares only, the CDSC does not apply to
an amount that represents, on an annual (non-cumulative) basis, up to 10% of the
amount (at the time of the investment) of a shareholder's purchases. On all
classes the CDSC does not apply to amounts representing an increase in share
value due to capital appreciation and shares acquired through the reinvestment
of dividends or capital gains distributions. In addition, the CDSC is waived in
the event of a shareholder's death or disability.
3
<PAGE>
The specifics as to how each Fund has implemented the multiple class structure
and the characteristics of each Fund's classes are set forth in Exhibit A.
Class Z shares, which are not depicted in the preceding chart and which will not
become available until March 1, 1996, are limited to Growth Fund and are only
available for continued and future investment to particular individuals.
Specifically, Class Z shares will be available to all shareholders of record of
the Special Stock Portfolio of Special Portfolios, Inc. on March 1, 1996, the
date this portfolio is merged into Class Z of Growth Fund. In addition, Class Z
shares will be available to personnel of Fortis, Inc. and its affiliates,
officers and directors of Growth Fund and pension, profit sharing and other
retirement plans created for the benefit of such persons. Class Z shares are
pure "no load" shares, they are not subject to any sales charge or 12b-1 fees
and no dealer concession is paid on their purchase.
As referenced in the preceding chart and discussion, as well as in Exhibit A,
the multiple class structure for USG, the Tax-Free Portfolios and Growth Fund is
somewhat different than for the other Funds. The other Funds each have four
classes of shares: Class A, Class B, Class H, and Class C. USG and the Tax-
Free Portfolios have an additional class of shares (Class E) due to the fact
that at the time the multiple class shares program was implemented they were the
only Funds whose shareholders were not assessed a Rule 12b-1 fee. In light of
this fact, and recognizing that in order to remain viable and competitive,
future sales of these Funds' shares must provide an ongoing trail commission to
the sales force funded by a Rule 12b-1 fee, it was determined that in the
interest of fairness and as a reward for their loyalty to these Funds, the USG
and Tax-Free shareholders of record on November 13, 1994 should not be asked to
incur a Rule 12b-1 fee. Class E was developed for these shareholders and it
will not be subject to any Rule 12b-1 fee (unless a Rule 12b-1 plan is
subsequently adopted by the Class E shareholders). Class E shareholders are
allowed to obtain additional Class E shares of their Funds through reinvestment
of dividends and capital gains and/or additional purchases. Other individuals
seeking to purchase shares of these Funds with a front end sales charge have to
purchase Class A shares that are subject to a .25% 12b-1 fee that funds a .25%
trail commission.
Growth Fund has five classes of shares: Class A, Class B, Class H, Class C and
Class Z.
B. EXCHANGES
With respect to exchanges of shares, the general rule under the multiple class
shares program is that Fund shares of one class can only be exchanged for shares
of the same class of another Fund. For example, the holder of Class A shares of
Growth Fund is allowed to exchange those shares for Class A shares of the
Fiduciary Fund or any other Fund. However, that shareholder is not allowed to
exchange his or her Class A Growth Fund shares for Class B, Class H, or Class C
shares of Fiduciary Fund, Growth Fund or any other Fund.
There are two exceptions to the general rule concerning exchanges. First, Class
E and Class Z shareholders may only exchange their shares for Class A shares of
another Fund. However, they will be allowed to move back into Class E or Class
Z of their original Fund through an exchange.
4
<PAGE>
The second exception relates to Money Fund. New purchases of Money Fund are only
allowed into Class A. However, Class A Money Fund shareholders are allowed to
exchange their shares (using the systematic investment/dollar cost averaging
mechanism or otherwise) for Class A shares of any of the other Funds (in which
case a front end sales charge is imposed) or for shares of the other available
classes (not subject to a front end sales charge, but subject to a CDSC). Once
Class A Money Fund shares have been exchanged into Class B, Class H or Class C
shares of another fund, they cannot be exchanged back for Class A Money Fund
shares. However, each class of shares has a corresponding Money Fund class
(i.e., Class A, Class B, Class H and Class C) that allows shareholders of that
class to exchange their shares back and forth into Money Fund. For example,
Class B shareholders of Growth Fund could exchange their shares for Class B
shares of Money Fund and then exchange back for Class B shares of Growth Fund or
Class B shares of any other Fund.
C. CONVERSIONS
As the multiple class shares structure is presently structured, the only
conversion that takes place is the conversion of Class B and Class H shares
(except those purchased by reinvestment of dividends and other distributions
paid on those shares) to Class A shares on the ninth anniversary of the purchase
of those shares. Shares of these classes purchased through the reinvestment of
dividends and other distributions paid on such shares are, for purposes of
conversion, considered to be held in a separate sub-account. Each time any
Class B or Class H shares convert to Class A, a proportionate number of the
shares of the same class in the sub-account converts to Class A.
D. COMPLIANCE GUIDELINES
Investors has adopted compliance standards for the sale of Fortis Funds and
requires that all persons selling Fortis Funds agree to abide by these
standards. Generally, these standards are based on the following principles:
1. If the investor intends his or her investment to be a long-term
investment, he or she should invest in Class A shares.
2. A long-term investor should not invest in Class C.
3. Any investor who is eligible for an exemption from the sales charge
(i.e., they may purchase Fund shares at net asset value) should invest
in Class A shares, or, where applicable, Class Z shares.
4. While Class A 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 are treated as orders for Class A
shares.
IV. ALLOCATION OF EXPENSES
Under the multiple class shares program, Fund-Level expenses are allocated to
the various classes based upon the relative net assets held by each class. For
Class-Level expenses, each Class is allocated the amount of that expense
actually incurred by the Class. Specifically, expenses are
5
<PAGE>
allocated as follows:
- ------------------------------------------------------------
Type of Expense Allocation
- --------------- ----------
Direct Shareholder Expenses:
Investment Advisory & Management Fees Fund-Level
12b-1 Fees Class-Level
Operating Expenses:
Director Fees & Expenses Fund-Level
Directors' Travel & Expenses Fund-Level
Legal Fees & Expenses Fund-Level
Audit Fees Fund-Level
Custodian Fees Fund-Level
Insurance, Errors & Omissions Fund-Level
Dues Fund-Level
Expense Limitation Fund-Level
Registration & Filing Fees Fund-Level
SEC Fund-Level
Blue Sky (State) Fund-Level
Mailing & Postage-Reports, Prospectuses Fund-Level
Printing-Reports Fund-Level
Mailing & Postage-Proxy Fund-Level
Printing-Proxy Fund-Level
Money Fund-specific Class-Level
transfer agent expenses
(e.g. check writing and
postage for confirmations)
- ------------------------------------------------------------
The foregoing methodology for the allocation of expenses has been reviewed and
approved by the Board of each Fund. Any subsequent changes to the allocation
methodology must similarly be reviewed and approved by the Board of each Fund.
However, under Rule 18f-3, the Boards' approval of the Plan constitutes an
approval of the included allocation of expenses.
The Board of each Fund receives and reviews, at least quarterly, a written
report of the Fund's expenses. In its review of these reports the Directors
should continue to keep in mind that the IRS issued a Private Letter Ruling
relating to the Fund's multiple class structure at least partially on the basis
of a representation by the Funds that the allocation of class expenses,
excluding 12b-1 fees, will not cause a differential of 50 basis points or more
among the per share distribution of a Fund's classes.
On a related basis, the Boards also receive quarterly and annual statements
concerning, as applicable, distribution and shareholders' servicing expenditures
under the Funds' Rule 12b-1 plans. These statements, including the allocations
upon which they are based, are presented for approval by the Directors in the
exercise of their fiduciary duties.
6
<PAGE>
V. BOARD RESPONSIBILITIES
The responsibilities of the Board of Directors under the multiple class shares
program and Rule 18f-3 are as follows:
A. BOARD APPROVALS:
As discussed earlier, the Board of each Fund must approve all material
amendments to the Plan. Specifically, this approval requires the vote of a
majority of each Fund's Directors and a majority of each Fund's non-interested
Directors. In order to approve the amended Plan, the Board of each Fund must
find that the amended Plan, including the expense allocation, is in the best
interest of each class individually and the Fund as a whole. Before any vote on
the Plan, the Directors are obligated to request and evaluate, and any agreement
relating to a class arrangement shall require the parties thereto to furnish,
such information as may be reasonably necessary to evaluate the Plan.
B. MONITORING FOR CONFLICTS OF INTEREST:
On an ongoing basis, and pursuant to their fiduciary responsibility under
the 1940 Act, the Directors monitor the Funds for the existence of any material
conflicts between the interests of the shareholders of different classes. If
such a conflict arises, the Boards, including a majority of the independent
directors, will take such action as is reasonably necessary to eliminate the
conflict. Fortis Advisers, Inc. ("Advisers") and Fortis Investors, Inc.
("Investors") have agreed that they will be responsible for reporting any
potential or existing conflicts to the directors. If a conflict among classes
arises, Advisers and Investors will remedy such conflict at their own expense,
up to and including establishing a new registered management investment company.
C. APPROVAL OF RULE 12B-1 PLANS:
The implementation of the multiple class shares program has not altered the
requirement under Rule 12b-1 that the Board annually approve each Fund's 12b-1
Plans and their related agreements.
D. DIVIDEND RATE APPROVAL:
The dividend setting committee of the Board of Directors will be
responsible for approving the daily and other periodic dividend rates.
VI. CONCLUSION
The foregoing information provides an overview of the Fortis Funds' multiple
class structure. In addition, this document provides the Directors with an
outline of their duties in monitoring the class shares program. Therefore, it
is suggested that each Director retain this document for use in connection with
their future responsibilities with regard to the multiple class shares program.
7
<PAGE>
EXHIBIT A
FUND BY FUND SPECIFICATIONS OF THE
FORTIS MULTIPLE CLASS SHARES STRUCTURE
<PAGE>
FORTIS ADVANTAGE PORTFOLIOS, INC.
Asset Allocation Portfolio
Capital Appreciation Portfolio
High Yield Portfolio
Government Total Return Portfolio
SUMMARY: Each Advantage Portfolio will have four classes of shares: Class
A, Class B, Class H, and Class C.
SPECIFICS: The Multiple Class Shares Structure for the four portfolios of
this Fund is, except to the extent indicated below, identical.
CLASS A SHARES
Front End Sales Charge ("FESC"): 4.5% on High Yield and Government Total Return
and 4.75% on Asset Allocation and Capital Appreciation (With breakpoints on
sales of $100,000 or more.)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or more)
Contingent Deferred Sales Charge: None (Except for sales of $1,000,000 or more
("CDSC"): which are subject to a CDSC, but not a FESC - the "Million Dollar NAV
Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: Asset Allocation Portfolio .45%
Capital Appreciation Portfolio .45%
High Yield Portfolio .35%
Government Total Return Portfolio .35%
Trail Commission: Asset Allocation Portfolio .25% (.45%*)
Capital Appreciation Portfolio .25% (.45%*)
High Yield Portfolio .25% (.35%*)
Government Total Return Portfolio .25% (.35%*)
* The higher Trail Commission amount is paid when the aggregate current value of
the portfolio accounts for the Dealer's customers exceeds $1,000,000.
A-1
<PAGE>
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
A-2
<PAGE>
FORTIS EQUITY PORTFOLIOS, INC.
Fortis Capital Fund
Fortis Value Fund
Fortis Growth & Income Fund
SUMMARY: Fortis Capital Fund, Fortis Value Fund and Fortis Growth & Income
Fund will have four classes of shares: Class A, Class B, Class H
and Class C.
SPECIFICS:
CLASS A SHARES
FESC: 4.75% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-3
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
A-4
<PAGE>
FORTIS FIDUCIARY FUND, INC.
SUMMARY: Fortis Fiduciary Fund will have four classes of shares: Class A,
Class B, Class H and Class C.
SPECIFICS:
CLASS A SHARES
FESC: 4.75% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-5
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
A-6
<PAGE>
FORTIS GROWTH FUND, INC.
SUMMARY: Fortis Growth Fund will have five classes of shares: Class A,
Class B, Class H, Class C and Class Z. Class Z will become
available March 1, 1996.
SPECIFICS:
CLASS A SHARES
FESC: 4.75% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-7
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
CLASS Z SHARES
FESC: None
Dealer Concession: None
CDSC: None
Conversion to A: None
Total 12b-1 Fees: None
Trail Commission: None
A-8
<PAGE>
FORTIS INCOME PORTFOLIOS, INC.
Fortis U.S. Government Securities Fund
SUMMARY: Fortis U.S. Government Securities Fund will have 5 classes of
shares: Class A, Class B, Class H, Class C and Class E.
SPECIFICS:
CLASS A SHARES
FESC: 4.5% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-9
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
CLASS E SHARES
FESC: 4.5% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC, but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: None
Trail Commission: None
A-10
<PAGE>
FORTIS MONEY PORTFOLIOS, INC.
Fortis Money Fund
SUMMARY: Fortis Money Fund will have four classes of shares: Class A,
Class B, Class H and Class C.
SPECIFICS:
CLASS A SHARES
FESC: None
Dealer Concession: None
CDSC: None
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .20%
Trail Commission: .20%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-11
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
A-12
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Minnesota Portfolio
National Portfolio
New York Portfolio
SUMMARY: The Fortis Tax-Free Portfolios will have five classes of shares:
Class A, Class B, Class H, Class C, and Class E.
SPECIFICS:
CLASS A SHARES
FESC: 4.5% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-13
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
CLASS E SHARES
FESC: 4.5% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $100,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC, but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: None
Trail Commission: None
A-14
<PAGE>
FORTIS WORLDWIDE PORTFOLIOS, INC.
Fortis Global Growth Portfolio
SUMMARY: Fortis Global Growth Portfolio will have four classes of shares:
Class A, Class B, Class H and Class C.
SPECIFICS:
CLASS A SHARES
FESC: 4.75% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (no Trail Commission on Class H shares)
A-15
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
A-16
