<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S)
240.14a-12
Fortis Tax-Free Portfolios, Inc.
------------------------------------------------
(Name of Registrant as Specified in its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[Preliminary Copy]
FORTIS TAX-FREE PORTFOLIOS, INC.
500 Bielenberg Drive, Woodbury, Minnesota 55125
Mailing Address: P.O. Box 64284, St. Paul, Minnesota 55164
NOTICE OF SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON JANUARY 26, 1998
TO THE SHAREHOLDERS OF FORTIS TAX-FREE PORTFOLIOS, INC.
A special meeting of the shareholders of National Portfolio and Minnesota
Portfolio (each a "Portfolio" and together the "Portfolios"), each a series of
Fortis Tax-Free Portfolios, Inc. (the "Fund") will be held at the offices of the
Fund, 500 Bielenberg Drive, Woodbury, Minnesota, on Monday, January 26, 1998 at
10:00 a.m. for the following purposes:
1. To elect a Board of Directors.
2. To approve or disapprove an amendment to the respective Portfolios'
fundamental investment restriction concerning investing in commodities
to make it clear that the Portfolios may not purchase or sell physical
commodities (such as agricultural products), but the Portfolios may
invest in forms of financial contracts and instruments, such as futures
contracts, which may be deemed, for regulatory purposes, to be
"commodities."
3. To approve or disapprove an amended Investment Advisory and Management
Agreement between the Fund and Fortis Advisers, Inc. for the Minnesota
Portfolio. Under the proposed amended Agreement, the investment advisory
fee (as a percentage of average net assets) payable by the Minnesota
Portfolio will decrease if average net assets are $100,000,000 or less;
however, the investment advisory fee (as a percentage of average net
assets) payable by the Minnesota Portfolio will no longer be based on
the combined average net assets of the National Portfolio and the
Minnesota Portfolio but will be based on the average net assets of the
Minnesota Portfolio and the size of the fee (as a percentage of average
net assets) paid by the Minnesota Portfolio will no longer be reduced on
average net assets over $100,000,000. At the Minnesota Portfolio's level
of average net assets of $50,032,792 as of September 30, 1997, the
amount of the investment advisory and management fee payable by the
Minnesota Portfolio would be approximately the same under either the
proposed amended Agreement or the current Agreement.
4. To transact such other business as may properly come before the meeting.
Shareholders of record on December 15, 1997, are the only persons entitled
to notice of and to vote at the meeting.
The costs of solicitation, including the costs of preparing and mailing
this Notice of Special Shareholders' Meeting and Proxy Statement, will be paid
by the Fund.
Your attention is directed to the attached Proxy Statement. WHETHER OR NOT
YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN, SIGN, DATE, AND MAIL
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO SAVE ANY FURTHER
SOLICITATION EXPENSE. A return envelope is enclosed for your convenience.
Shareholders who own shares in more than one Portfolio will receive a
separate proxy card for each Portfolio. These are not duplicates; you should
sign and return each proxy card in order for your votes to be counted.
Michael J. Radmer
Secretary
Dated: December 29, 1997
<PAGE>
[Preliminary Copy]
PROXY STATEMENT
FORTIS TAX-FREE PORTFOLIOS, INC.
500 Bielenberg Drive, Woodbury, Minnesota 55125
Mailing Address: P.O. Box 64284, St. Paul, Minnesota 55164
SPECIAL MEETING OF SHAREHOLDERS--JANUARY 26, 1998
The enclosed proxy is solicited by the Board of Directors of Fortis
Tax-Free Portfolios, Inc. (the "Fund") in connection with a special meeting of
shareholders of National Portfolio and Minnesota Portfolio (each a "Portfolio"
and together the "Portfolios"), each a series of the Fund, to be held January
26, 1998, and at any adjournment thereof. The cost of solicitation, including
the cost of preparing and mailing the Notice of Special Shareholders' Meeting
and this Proxy Statement, will be paid by the Fund, and such mailing will take
place on approximately December 29, 1997. Representatives of Fortis Advisers,
Inc. ("Advisers"), the investment adviser and manager of the Portfolios, or its
affiliates, may, without cost to the Fund, solicit proxies for the management of
the Fund by means of mail, telephone, or personal calls. The address of Advisers
is that of the Fund as provided above. Also, Advisers has retained
__________________________, a proxy solicitation firm, to solicit proxies from
shareholders personally or by telephone, letter, telegram, or other means. The
anticipated costs of the services of _____________ on behalf of the Fund are
approximately $____________, which costs will be borne by the Fund.
A proxy may be revoked before the meeting by giving written notice, in
person or by mail, of revocation to the Secretary of the Fund or at the meeting
prior to voting in person. Unless revoked, properly executed proxies in which
choices are not specified by the shareholders will be voted "for" each item for
which no choice is specified, in accordance with the recommendation of the Board
of Directors. In instances where choices are specified by the shareholders in
the proxy, those proxies will be voted as the shareholder has instructed.
An "abstention" on any proposal will be counted as present for
purposes of determining whether a quorum of shares is present at the meeting
with respect to the proposal on which the abstention is noted, but will be
counted as a vote "against" such proposal. Under the rules of the New York Stock
Exchange, Proposal 1 is considered a "discretionary" proposal, which means that
brokers who hold shares of a Portfolio in street name for customers are
authorized to vote on such proposal on behalf of their customers with or without
specific voting instructions from such customers. However, Proposals 2 and 3 are
considered "nondiscretionary" proposals, which means that such brokers are not
authorized to vote on such proposal without specific voting instructions as to
such proposal. Therefore, "broker nonvotes" on Proposal 2 and 3 will not be
counted as present for purposes of determining whether a quorum of shares is
present at the meeting.
Only shareholders of record on December 15, 1997, may vote at the
meeting or any adjournment thereof. As of that date there were issued and
outstanding ____________ common shares, $.01 par value, in National Portfolio
and _________ common shares, $.01 par value, in Minnesota Portfolio. Each
shareholder is entitled to one vote for each share held. None of the matters to
be presented at the meeting will entitle any shareholder of the Fund to
appraisal rights.
With respect to the election of directors (Proposal 1), all shares of
the Fund vote together as one series and one class. With respect to voting on
the proposal to approve or disapprove the amendment to the Portfolios'
fundamental investment restriction concerning investment in commodities
(Proposal 2), each Portfolio votes as a separate series. With respect to voting
on the proposal to approve or disapprove the amended Investment Advisory and
Management Agreement between the Fund and Fortis Advisers, Inc. with respect to
the Minnesota Portfolio, only the Minnesota Portfolio votes and all shares of
the Portfolio vote together as one class. Shareholders who own shares in more
than one Portfolio will receive a separate proxy card for each Portfolio. These
are not duplicates; you should sign and return each proxy card in order for your
votes to be counted.
<PAGE>
If a quorum is not present at a meeting, or if a quorum is present but
sufficient votes to approve any of the proposals are not received, the persons
named as proxies may propose one or more adjournments of the meeting of the
shareholders of National Portfolio or Minnesota Portfolio or both of the
Portfolios, to permit further solicitation of proxies. In determining whether to
adjourn the meeting, the following factors may be considered: the nature of the
proposals that are the subject of the meeting, the percentage of votes actually
cast, the percentage of negative votes actually cast, the nature of any further
solicitation, and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any adjournment will require the affirmative
vote of a majority of those shares represented at the meeting in person or by
proxy.
The following table illustrates which Proposals are to be voted upon
by shareholders of the Fund:
<TABLE>
<CAPTION>
Proposal Number
--------------------------------------------------------------
1 2 3
Approve Amendment
to Restriction on Approve Amendment of
Elect Board of Investing in Investment Advisory
Portfolio Directors Commodities Agreement
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
National Portfolio X X
Minnesota Portfolio X X X
</TABLE>
ANNUAL REPORT OF THE FUND
The Annual Report for the fiscal year ended September 30, 1997, of the
Fund containing financial statements of both of the Portfolios was mailed to
Fund shareholders on approximately November 24, 1997. If you did not receive a
copy of the Annual Report or would like to receive an additional copy of the
Annual Report, please call the Fund at 1-800-800-2638, extension 4579, and a
copy will be sent to you by first class mail within 48 hours.
SHARE OWNERSHIP
The following table sets forth, as of November 30,1997, shares of each
Portfolio of the Fund owned beneficially by, and certain other share ownership
information with respect to, directors of the Fund and all officers and
directors as a group. As of November 30,1997, each director who beneficially
owned shares of the Fund or Other Fortis Funds (as defined below) and all
directors and officers as a group owned less than 1% of the outstanding shares
of the Fund or such Other Fortis Funds. No person as of November 30, 1997, to
the knowledge of management, owned beneficially more than 5% of the outstanding
shares of either Portfolio.
<TABLE>
<CAPTION>
Number of National Number of Minnesota Number of Other Fortis
Beneficial Owner Portfolio Shares Owned Portfolio Shares Owned Fund Shares Owned (1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard W. Cutting
Allen R. Freedman
Dr. Robert M. Gavin
Benjamin S. Jaffray
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Number of National Number of Minnesota Number of Other Fortis
Beneficial Owner Portfolio Shares Owned Portfolio Shares Owned Fund Shares Owned (1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jean L. King
Dean C. Kopperud
Edward M. Mahoney
Robb L. Prince
Leonard J. Santow
Noel S. Shadko
Joseph M. Wikler
All officers and
directors as a group
</TABLE>
- ------------------------------
(1) "Other Fortis Funds" currently consists of eight other open-end investment
companies and one closed-end investment company managed by Advisers. The
Other Fortis Funds are 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
Securities, Inc.; Fortis Series Fund, Inc.; and Fortis Worldwide
Portfolios, Inc.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Bylaws of the Fund provide that the shareholders of the Fund have
the power to fix the number of directors. The Fund's management recommends that
the number of directors to be elected at the meeting be set at eleven. Unless
otherwise instructed, the proxies will vote in favor of a resolution to set the
number of directors at eleven.
It is intended that the enclosed proxy will be voted for the election
of the eleven persons named below as directors unless such authority has been
withheld in the proxy. The term of office of persons elected will be until the
next regular meeting of the shareholders or until their successors are elected
and shall qualify. Pertinent information regarding the nominees is set forth
below.
<TABLE>
<CAPTION>
Name, Age, and Directorship of
Period Served as Principal Occupation and Other Reporting
Director of the Fund Firm at Which Carried On Companies(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Richard W. Cutting Certified public accountant and Other Fortis Funds
Age 66, Director since 1991(2) financial consultant.
Allen R. Freedman Chairman, Chief Executive Officer, Other Fortis Funds; Systems
Age 57, Director since 1988* and President of Fortis, Inc.; a and Computer Technology
Managing Director of Fortis Corporation; Genesis Health
International, N.V. Ventures, Inc.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name, Age, and Directorship of
Period Served as Principal Occupation and Other Reporting
Director of the Fund Firm at Which Carried On Companies(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dr. Robert M. Gavin President, Cranbrook Educational Other Fortis Funds
Age 57, Director since 1986(3) Community; prior to July 1996,
President, Macalester College.
Benjamin S. Jaffray Chairman of The Sheffield Group, Other Fortis Funds
Age 67, Director since 1984(3) Ltd., a financial consulting group.
Jean L. King President, Communi-King, a Other Fortis Funds
Age 53, Director since 1984(2) communications consulting firm.
Dean C. Kopperud* Chief Executive Officer and a Other Fortis Funds
Age 45, Director since 1995(3) Director of Advisers; President and
a Director of Fortis Investors, Inc.
("Investors"), the underwriter of
shares of investment companies
affiliated with the Fund; President
of Fortis Financial Group and a
Director of Fortis Benefits Insurance
Company; and Senior Vice President of
Time Insurance Company.
Edward M. Mahoney Retired; prior to December 1994, Other Fortis Funds;
Age 67, Director since 1982(3) Chairman, Chief Executive Officer, Analysts International
and a Director of Advisers and Corporation
Investors; Senior Vice President
and a Director of Fortis Benefits
Life Insurance Company and Senior
Vice President of Time Insurance
Company.
Robb L. Prince Financial and employee benefit Other Fortis Funds;
Age 56, Director since 1982(3) consultant; prior to July 1995, Analysts International
Vice President and Treasurer, Corporation
Jostens, Inc., a producer
of products and services for youth,
education, sports award, and
recognition markets.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Name, Age, and Directorship of
Period Served as Principal Occupation and Other Reporting
Director of the Fund Firm at Which Carried On Companies(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Leonard J. Santow Principal, Griggs & Santow Other Fortis Funds
Age 61, Director since 1982(4) Incorporated, economic and
financial consultants.
Noel S. Shadko Marketing consultant; prior to Other Fortis Funds
Age 43, Director since 1996(3) 1996, Senior Vice President,
Marketing and Strategic Planning,
Rollerblade, Inc.
Joseph M. Wikler Investment consultant and private Other Fortis Funds
Age 56, Director since 1994(2) investor; prior to1994, Director of
Research, Chief Investment Officer,
principal, and a Director of The
Rothschild Co., an investment
adviser, Baltimore, Maryland.
</TABLE>
- ------------------------
* Denotes directors who are interested persons (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of the Fund and Advisers.
Mr.Kopperud is an "interested person" of Advisers and the Fund primarily
because he holds certain positions, including serving as Chief Executive
Officer and a director of Advisers. Mr.Freedman is an "interested person"
of Advisers and the Fund primarily because he holds certain positions,
including serving as Chairman and Chief Executive Officer of Fortis, Inc.,
the parent company of Advisers, and as a Managing Director of Fortis
International, N.V., the parent company of Fortis, Inc.
(1) "Reporting Companies" means companies with a class of securities registered
pursuant to Section 12 of the federal Securities Exchange Act of 1934 or
subject to the requirements of Section 15(d) of such act and any company
registered as an investment company under the 1940 Act.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Executive Committee of the Board of Directors.
(4) Member of the Investment Consulting Committee of the Board of Directors.
All of the above nominees are currently serving as directors of the
Fund. All of the nominees were elected directors by the shareholders at their
last regular meeting, except for Mr.Kopperud and Ms.Shadko, who were elected by
the Board of Directors in January 1995 and September 1996, respectively, to fill
newly created vacancies on the Board of Directors.
The Board of Directors has an Audit Committee whose members are
selected annually by the full Board of Directors. None of the members of the
Audit Committee are "interested persons" as defined by the 1940 Act. The Audit
Committee met two times during the fiscal year ended September 30, 1997. The
Fund does not have a standing compensation committee or nominating committee of
the Board of Directors.
The functions performed by the Audit Committee are to recommend
annually to the Board a firm of independent certified public accountants to
audit the books and records of the Fund for the ensuing year; to monitor that
firm's performance; to review with the firm the scope and results of each audit
and determine the need, if any, to extend audit procedures; to confer with the
firm and representatives of the Fund on matters concerning the Fund's financial
statements and procedures; to evaluate the independence of the firm; to review
procedures to safeguard
5
<PAGE>
portfolio securities; to review the purchase by the Fund from the firm of
nonaudit services; to review all fees paid to the firm; and to facilitate
communications between the firm and the Fund's officers and directors.
During the fiscal year ended September 30, 1997, there were four
meetings of the full Board of Directors. No director attended fewer than 75% of
the aggregate of the total number of meetings of the Board of Directors (held
during the period during which he or she has been a director) and the total
number of meetings held by all committees of the Board on which such director
served (during the periods that such director served).
The following table sets forth the aggregate compensation received by
each director from the Fund during the fiscal year ended September 30, 1997, as
well as the total compensation received by each director from the Fund and all
Other Fortis Funds during the fiscal year ended September 30, 1997. Neither
Mr.Freedman, who is an officer of the parent company of Advisers, nor
Mr.Kopperud, who is an officer of Advisers and Investors, received any such
compensation 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, 1997.
<TABLE>
<CAPTION>
Total
Aggregate Compensation from
Compensation Fund Complex
Director from the Fund Paid to Director (1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Richard W. Cutting................... $ 1,800 $ 31,200
Dr. Robert M. Gavin.................. 1,800 31,200
Benjamin S. Jaffray.................. 1,790 24,300
Jean L. King......................... 1,760 32,200
Edward M. Mahoney.................... 1,800 31,200
Robb L. Prince....................... 1,860 33,200
Leonard J. Santow.................... 1,700 30,200
Noel S. Shadko....................... 1,800 22,200
Joseph M. Wikler..................... 1,800 31,200
</TABLE>
- --------------------
(1) Includes aggregate compensation paid by the Fund and all nine Other Fortis
Funds to the director.
The Board of Directors recommends that shareholders set the number of
directors at eleven and vote in favor of the foregoing nominees to serves as
directors of the Company. The vote of a majority of the shares of both
Portfolios represented at the meeting, voting together as a single class,
provided at least a quorum (more than 10% of the outstanding shares) is
represented in person or by proxy, is sufficient for the election of the above
nominees to the Board of Directors. Unless otherwise instructed, the proxies
will vote for the above eleven nominees.
All of the nominees listed above have consented to serve as directors
if elected. In the event any of the above nominees are not candidates for
election at the meeting, the proxies may vote for such other persons as
management may designate. Nothing currently indicates that such a situation will
arise.
PROPOSAL TWO
PROPOSED AMENDMENT TO THE PORTFOLIOS' FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING INVESTING IN COMMODITIES
Summary
The proposal makes certain changes to a restriction prohibiting
investing in commodities to make it clear that the Portfolios may not purchase
or sell physical commodities (such as agricultural products), but the Portfolios
may invest in forms of financial contracts and instruments which may be deemed,
for regulatory purposes, to be
6
<PAGE>
"commodities." If the proposal is approved, new nonfundamental policies will
limit investing in commodities as described below.
Current Restriction and Proposed Amended Restriction
As a fundamental policy, the Portfolios currently may not
Buy or hold any commodity or commodity future contracts, or
any oil, gas, or mineral exploration or development programs.
Subject to shareholder approval, this limitation will be replaced with
a fundamental investment restriction that provides that the Portfolios may not:
Purchase or sell physical commodities (such as grains,
livestock, etc.) or futures or options contracts thereon;
however, it may purchase or sell any forms of financial
instruments or contracts that might be deemed commodities.
The 1940 Act requires a mutual fund to state as a fundamental
investment policy the extent to which it may engage in the purchase and sale of
"commodities." At the time the 1940 Act was enacted, the term "commodities" was
understood to refer principally to physical commodities such as agricultural
products, precious and base metals, oil and gas, and the like. In recent years,
however, a variety of new financial contracts and instruments, such as certain
interest rate futures, have been created which may be deemed, for regulatory
purposes, to be "commodities," and the Board of Directors of the Fund
anticipates that more such contracts and instruments will be created in the
future.
The purpose of the proposed change in this fundamental investment
policy is to provide the Board of Directors with the flexibility, without
further shareholder vote, to determine what categories of financial contracts
and instruments which may be deemed "commodities" are permissible investments
for the Portfolios, while continuing to make it clear that the Portfolios are
not permitted to invest in physical commodities. The Board believes that either
changing conditions or the creation of new financial contracts and instruments
could render it advisable in the future for the Board to expand or contract the
categories of such investments from which the Portfolios' investment adviser may
choose. Furthermore, since the development and potential uses of such contracts
and instruments continue to evolve and change, the Board believes that it is
unnecessarily time-consuming and burdensome to seek shareholder approval for
each change in the permitted use of these contracts and instruments.
The proposed change would permit each Portfolio to a limited extent
enter into options, futures, and forward contracts on a variety of investments
and indexes, in order to protect against declines in the value of Portfolio
securities or increases in the cost of securities to be acquired and, in the
case of options on indexes of securities, to increase a Portfolio's gross
income. In addition, the proposed change would permit the Portfolios to enter
into options, futures and forward contracts to manage the duration of the
Portfolios' investments. Duration is a measure which reflects estimated price
sensitivity to a given change in interest rates. For example, for an interest
rate change of 1%, a portfolio with a duration of 5 years would be expected to
experience a price change of 5%.
The Portfolios would attempt to reduce the risk associated with the use
of options and futures strategies through the adoption, subject to shareholder
approval of the proposed change to the fundamental investment restriction, of a
nonfundamental investment restriction, which may be changed by the Board of
Directors without shareholder approval, on the use of options, futures, and
forward contracts. This nonfundamental investment restriction provides that
neither of the Portfolios will enter into any options, futures, or forward
contract transactions if immediately thereafter (a) the amount of premiums paid
for all options, initial margin deposits on all futures contracts and/or options
on futures contracts, and collateral deposited with respect to forward contracts
held by or entered into by the Portfolio would exceed 5% of the value of the
total assets of the Portfolio or (b) the Portfolio's assets covering, subject
to, or committed to all options, futures, and forward contracts would exceed 20%
of the value of the total assets of the Portfolio.
7
<PAGE>
Futures Contracts and Options on Futures Contracts
The proposed change would permit each Portfolio to invest in futures
contracts and options on futures contracts.
Futures Contracts. A Futures Contract is a bilateral agreement
providing for the purchase and sale of a specified type and amount of a
financial instrument, or for the making and acceptance of a cash settlement, at
a stated time in the future for a fixed price. By its terms, a Futures Contract
provides for a specified settlement date on which, in the case of the majority
of interest rate futures contracts, the fixed income securities underlying the
contract are delivered by the seller and paid for by the purchaser, or on which,
in the case of certain interest rate futures contracts, the difference between
the price at which the contract was entered into and the contract's closing
value is settled between the purchaser and the seller in cash. Interest rate
Futures Contracts currently are traded on a variety of fixed income securities
and include contracts on indexes of municipal securities.
Interest rate Futures Contracts may be purchased or sold to attempt to
hedge against the effects of changes in interest rates on a Portfolio's current
or intended investments in fixed income securities. In the event that an
anticipated decrease in the value of a Portfolio's securities occurs as a result
of a general increase in interest rates, the adverse effects of such changes may
be offset, in whole or in part, by gains on the sale of Futures Contracts.
Conversely, the increased cost of a Portfolio's securities to be acquired caused
by a general decline in interest rates may be offset, in whole or in part, by
gains on Futures Contracts purchased by such Portfolio. A major advantage of
futures contracts is that they provide a low-cost tool for quick action by the
portfolio managers to adjust the duration of the portfolio. For example, if the
manager wishes to lengthen a Portfolio's maturity, securities can be sold and
others purchased to move the Portfolio to its new targeted duration.
Unfortunately, the desired combination of credit quality, call features,
original issue discount, coupon, and maturity are frequently not available in
sufficient quantity to allow for quick shifts in duration, particularly in
municipal securities. There is also an opportunity cost to the Portfolio during
the period when duration is being changed. These delays in adjusting duration
can be avoided by the use of Futures Contracts. A Portfolio will incur brokerage
fees when it purchases and sells Futures Contracts, and it will be required to
make and maintain margin deposits.
Options on Futures Contracts. If the proposed change is approved, the
Portfolios may purchase and write options to buy or sell interest rate futures
contracts. Advisers expects to use such investment strategies as a hedge and not
for speculation. An Option on a Futures Contract provides the holder with the
right to enter into a "long" position in the underlying Futures Contract, in the
case of a call option, or a "short" position in the underlying Futures Contract,
in the case of a put option, at a fixed exercise price up to a stated expiration
date or, in the case of certain options, on such date.
Put and call Options on Futures Contracts may be traded by the
Portfolios in order to protect against declines in the values of Portfolio
securities or against increases in the cost of securities to be acquired.
Purchases of Options on Futures Contracts may present less risk in hedging than
the purchase or sale of the underlying Futures Contracts since the potential
loss is limited to the amount of the premium plus related transaction costs. The
writing of such options, however, does not present less risk than the trading of
Futures Contracts and will constitute only a partial hedge, up to the amount of
the premium received, and, if an option is exercised, a Portfolio may suffer a
loss on the transaction.
Risks of Options and Futures Strategy Transactions
The Portfolios' use of forward contracts and options and futures
strategies would involve certain investment risks and transaction costs. These
risks include:dependence on Advisers' ability to predict movements in the prices
of individual securities, fluctuations in the general securities markets, and
movements in interest rates; imperfect correlation between movements in the
price of futures contracts or options thereon and movements in the price of the
security hedged or used for cover; unexpected adverse price movements which
could render a Portfolio's hedging strategy unsuccessful and could result in
losses; the fact that skills and techniques needed to trade futures contracts
and options thereon or to use forward contracts are different from those needed
to select the securities in which the Portfolios invest; the lack of assurance
that a liquid secondary market will exist for any particular futures contract or
8
<PAGE>
option thereon at any particular time requiring a Portfolio to maintain a
position until exercise or expiration, which could result in losses; and the
possible need to defer closing out certain futures contacts and options thereon
in order to continue to qualify for the beneficial tax treatment afforded
"regulated investment companies" under the Internal Revenue Code.
Shareholder Approval
Each Portfolio votes as a separate series with respect to the
investment restriction applicable to such Portfolio. If approved, the change to
the fundamental investment restriction set forth above is expected to become
effective on or about February 1, 1998. The adoption of the proposal with
respect to a Portfolio requires the affirmative vote of the holders of a
majority of that Portfolio's outstanding shares. In this context, "majority" of
the outstanding voting securities of a Portfolio means the lesser of: (a) 67% of
the Portfolio's outstanding shares present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy or (b) more
than 50% of the Portfolio's outstanding shares. Unless otherwise instructed, the
persons named as proxies will vote for approval of the proposed amended
investment restriction.
THE FUND'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THE
PROPOSED AMENDMENT TO THE FUNDAMENTAL INVESTMENT RESTRICTION.
PROPOSAL THREE
APPROVAL OR DISAPPROVAL OF AN AMENDED
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
WITH FORTIS ADVISERS, INC. FOR THE MINNESOTA PORTFOLIO
Summary
Advisers is currently acting as investment adviser to the Minnesota
Portfolio pursuant to an Investment Advisory and Management Agreement (the
"Current Agreement") dated December 12, 1990, between Advisers and the Fund.
Advisers has proposed, and the Board of Directors has approved resolutions
recommending the adoption by shareholders of the Minnesota Portfolio of an
amended investment advisory and management agreement (the "Proposed Agreement").
Under the Proposed Agreement, the size of the investment advisory fee (as a
percentage of average net assets) payable by the Minnesota Portfolio will
decrease if average net assets are $100,000,000 or less; however, the investment
advisory fee (as a percentage of average net assets) payable by the Minnesota
Portfolio will no longer be based on the combined average net assets of the
National Portfolio and the Minnesota Portfolio but will be based on the average
net assets of the Minnesota Portfolio and the size of the fee (as a percentage
of average net assets) paid by the Minnesota Portfolio will no longer be reduced
if the Minnesota Portfolio has average net assets over $100,000,000. As of
September 30, 1997, the Minnesota Portfolio had net assets of $50,032,792. The
proposed fee structure reduces expenses by approximately 9(cent) for every
$1,000 invested in the Minnesota Portfolio at its current size.
Set forth below is a table illustrating the historical fees paid to
Advisers for investment advisory and management services provided for the
Minnesota Portfolio for its last fiscal year ended September 30, 1997; how such
actual fees compare to fees which would have been payable by the Minnesota
Portfolio had the Proposed Agreement been in effect, and the percentage
decrease:
9
<PAGE>
<TABLE>
<CAPTION>
Approximate Advisory
Fees Payable by
Advisory Fees Paid by Minnesota Minnesota Portfolio
Portfolio During Fiscal Year Ended if Amended Agreement
September 30, 1997 Had Been In Effect Difference
- --------------------------------------------------------------------------------
<S> <C> <C>
$371,144 $361,000 (2.7%)
</TABLE>
Bases for Recommendation of the Proposed Agreement
Despite inflationary factors and increasing costs to Advisers of
rendering investment advisory and other shareholder services to the Minnesota
Portfolio, no increases in the fee structure under which Advisers manages the
Minnesota Portfolio have occurred since the existing advisory fee schedule went
into effect over 11 years ago.
In the years since the existing advisory fee schedule went into
effect, many events have occurred and are continuing that are dramatically
changing the mutual fund industry. Significant increases in the cost of managing
mutual funds and providing shareholder services are two of the more significant
of these events. Consequently, the costs of managing mutual fund assets have
increased and are likely to continue to increase because of continually rising
costs, expenses of personnel, and expansion of services. Unlike most other
mutual funds, the costs to Advisers of acting as the Fund's registrar, transfer
agent, and dividend disbursing agent are included in the investment advisory and
management fee. Therefore, such shareholder servicing cost increases also have
been absorbed by Advisers over the years. An example of an increase in costs is
the increase in first-class postage for a one-ounce letter from $.29 in 1986
(the last time the advisory fee schedule changed) to $.32 in 1997, an increase
of 10%. That percentage increase has been even more significant to Advisers
because it has been applied to a much larger shareholder base. (The number of
shareholders has increased 408% from 247 at December 31, 1986, to 1,255 at
September 30, 1997.)
The quality and quantity of services provided to the Fund have
continuously been maintained and improved. For example, Advisers continues to
upgrade telephone systems and computer systems (as to portfolio management,
shareholder servicing, and portfolio accounting) that have enabled it to offer a
high quality of service. Since [1986] Advisers has added new methods, such as
the use of micro-computers and the development of on-line research databases, to
aid its research efforts. The following is a summary of some of the other
additional services provided by Advisers to the Fund and its shareholders since
1986:
. daily dividends since 1990;
. Fortis Information Line since 1990, which allows the Fund's investors
to receive information regarding prices of the Fund's shares and
account information 24 hours each day Mondays through Fridays and from
6:00 a.m. to 3:00 p.m. on Saturdays;
. telephone redemptions since 1992; and
. quarterly consolidated statements of shareholder accounts since 1993
10
<PAGE>
The tables below shows the effect of the Proposed Agreement on the average
annual total return of Minnesota Portfolio Class A, B, C, and H shares for the
past one year and since inception of such classes and the average annual total
return of Minnesota Portfolio Class E shares for the past one, five, and ten
years, and since inception.
Class A, B, C and H Average Annual Total Returns
For the Period Ended September 30, 1997
<TABLE>
<CAPTION>
If Proposed Agreement
Historical Had Been in Effect
--------------------- ----------------------
Since Since
1 Year Inception* 1 Year Inception*
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Class A shares/1/ 6.66% 8.49% 6.66% 8.49%
Class A shares/2/ 1.86% 6.77% 1.86% 6.77%
Class B shares/1/ 6.01% 7.65% 6.01% 7.65%
Class B shares/2/ 2.41% 6.83% 2.41% 6.83%
Class C shares/1/ 6.00% 7.70% 6.00% 7.70%
Class C shares/2/ 5.00% 7.70% 5.00% 7.70%
Class H shares/1/ 6.00% 7.71% 6.00% 7.71%
Class H shares/2/ 2.40% 6.89% 2.40% 6.89%
</TABLE>
---------------
Past performance is not indicative of future performance. Total
returns include reinvestment of all dividend and capital gains
distributions. The performance of the separate classes (E, A, B,
C, and H) will vary based on the differences in sales loads and
distribution fees paid by shareholders investing in the different
classes. Class E and A have a maximum sales charge of 4.50%, Class
B and H have a CDSC of 4.00% (with a waiver of 10% of the amount
invested) if redeemed within two years of purchase, and Class C
has a CDSC of 1.00% if redeemed within one year of purchase.
/1/ Without Sales Charge.
/2/ With Sales Charge. Classes B, C and H assume full redemption
on September 30, 1997.
* Since November 14, 1994--Date shares were first offered to the
public.
Class E Average Annual Total Return
For the Period Ended September30, 1997
<TABLE>
<CAPTION>
If Proposed Agreement
Historical Had Been in Effect
-----------------------------------------------------------------------------------
Since Since
1 Year 5 Year 10 Year 10/2/86* 1 Year 5 Year 10 year 10/2/86*
------ ------ ------- -------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class E shares/1/ 2.28% 5.18% 7.10% 6.38% 2.28% 5.18% 7.10% 6.38%
Class E shares/2/ 7.10% 6.15% 7.60% 6.81% 7.10% 6.15% 7.60% 6.81%
</TABLE>
- ---------------
Past performance is not indicative of future performance. Investment return and
principal value fluctuate so that shares, when redeemed, may be worth more or
less than their original cost.
* Date shares were first offered to the public.
/1/ SEC defined total returns, including reinvestment of all dividend and
capital gains distributions and the reduction due to the maximum sales
charge of 4.50%.
/2/ These are the total returns of the class during the period, including
reinvestment of all dividend and capital gains distributions without
adjustment for sales charge.
11
<PAGE>
Current Agreement
Since its inception, the Fund has been managed by Advisers or its
former wholly owned subsidiary, AMEV Money Managers, Inc., subject to the
supervision of the Fund's Board of Directors, pursuant to a written advisory
agreement periodically approved by the Fund's directors and the Portfolios'
shareholders. The Current Agreement was last approved by the shareholders of the
Minnesota Portfolio at a special shareholders' meeting held on November 8, 1990.
Although the Current Advisory Agreement contains the same material terms and
conditions, including the fee paid by the Minnesota Portfolio, as the Fund's
former investment advisory and services agreement with Advisers pertaining to
the Minnesota Portfolio, approval of the Current Advisory Agreement was
necessitated by reason of the combination of Fortis AMEV (formerly N.V.AMEV) and
Fortis AG (formerly Compagnie Financiere et de Reassurance du Groupe AG). As a
result of the combination, each of Fortis AMEV and Fortis AG own and control
indirectly 50% of all of its respective subsidiaries and the subsidiaries of the
other party. Immediately prior to the combination, Advisers was an indirect
wholly owned subsidiary of Fortis AMEV. Under the terms of the former agreement,
and as required by the Investment Company Act of 1940 (the "1940 Act"), such
agreement automatically terminated upon its assignment. The combination of
Fortis AMEV and Fortis AG was considered to be an assignment of such agreement,
thereby terminating the agreement upon consummation of the combination on
December 12, 1990.
The Current Agreement gives Advisers the authority and responsibility
to make and execute investment decisions for the Minnesota Portfolio within the
framework of the Portfolio's investment policies. Under the Current Agreement,
Advisers is required to furnish the Fund with all necessary management services,
facilities, equipment, and personnel. Advisers will arrange, if requested by the
Fund, for officers, employees, or other affiliates of Advisers to serve without
compensation to the Fund as directors, officers, or employees of the Fund if
duly elected to such positions by the shareholders or directors of the Fund. In
addition, Advisers will bear the costs of acting as the Fund's transfer agent,
registrar, and dividend disbursing agent. The Current Agreement provides that
Advisers or Investors will also bear all promotional expenses in connection with
the distribution of the Fund's shares, including paying for prospectuses and
shareholder reports for new shareholders and the costs of sales literature.
The Current Agreement provides that Advisers shall receive an
investment advisory and management fee (as a percentage of average net assets)
for the Minnesota Portfolio as its compensation for acting as investment adviser
and manager of the Minnesota Portfolio.
The size of the fee paid by the Minnesota Portfolio (as a percentage
of average net assets) is based upon the combined net assets of the National
Portfolio and the Minnesota Portfolio as shown in the table below.
<TABLE>
<CAPTION>
Average of Combined Portfolio Annual Investment Advisory
Net Assets and Management Fee
----------------------------- --------------------------
<S> <C>
On the first $50 million .8 of 1%
On the next $50 million .7 of 1%
On assets over $100 million .625 of 1%
</TABLE>
Advisers also receives compensation from the National Portfolio of
the Fund for acting as investment adviser and manager of the National Portfolio
pursuant to an Investment Advisory and Management Agreement dated January 31,
1992 (the National Portfolio Agreement"). Under the National Portfolio
Agreement, Advisers receives an investment advisory and management fee based
upon the net assets of the National Portfolio as shown in the table below.
<TABLE>
<CAPTION>
Average of Portfolio Annual Investment Advisory
Net Assets and Management Fee
-------------------- --------------------------
<S> <C>
On the first $50 million .8 of 1%
On assets over $50 million .7 of 1%
</TABLE>
12
<PAGE>
Advisers has not waived, reduced, or otherwise agreed to reduce its
compensation under the National Portfolio Agreement.
During the fiscal year ended September 30, 1997, the Fund paid
investment advisory and management fees to Advisers aggregating $576,384 and
$371,144 for the National Portfolio and the Minnesota Portfolio, respectively.
As of September 30, 1997, the National Portfolio and the Minnesota Portfolio had
net assets of $73,971,150 and $50,032,792, respectively.
The Current Agreement provides that in addition to the investment
advisory and management fee described above, the Fund shall also pay all its
expenses which are not assumed by Advisers or Investors. These Fund expenses
include, for example, the fees and expenses of directors and officers of the
Fund who are not "affiliated persons" of Advisers, interest expenses, taxes,
brokerage fees and commissions, fees and expenses of registering and qualifying
the Fund and its shares for distribution under federal and state securities
laws, expenses of preparing prospectuses and of printing and distributing
prospectuses annually to existing shareholders, custodian charges, auditing and
legal expenses, insurance expenses, association membership dues, and the expense
of reports to shareholders, shareholders' meetings, and proxy solicitations. The
Fund is also liable for such nonrecurring expenses as may arise, including
litigation to which it may be a party. The Fund may have an obligation to
indemnify its directors and officers with respect to any litigation.
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 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 numbers of
accounts.
The Current Agreement provides that it will continue in effect from
year to year only so long as such continuation is specifically approved at least
annually by the Board of Directors of the Fund or, with respect to the Minnesota
Portfolio, by a vote of a majority of the outstanding voting securities of the
Portfolio, provided that in either event such continuation is also approved by
the vote of the majority of the directors who are not parties to such agreement
or interested persons of such parties, cast in person at a meeting called for
the purpose of voting on such approval. The Current Agreement automatically
terminates upon its assignment and is terminable at any time without penalty by
the Board of Directors of the Fund or, with respect to the Minnesota Portfolio,
by the vote of the holders of a majority of the outstanding voting securities of
the Minnesota Portfolio on 60 days' notice to Advisers and by Advisers on 60
days' notice to the Fund. For purposes of these provisions, a majority of the
outstanding voting securities of a Portfolio means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares.
Proposed Agreement
At the Board of Directors meeting held June 24, 1997, in response to a
proposal by Advisers, the Board of Directors approved resolutions recommending
the adoption by shareholders of the Minnesota Portfolio of an amended Investment
Advisory and Management Agreement (the "Proposed Agreement"), which includes a
change in the fee structure and a decrease in the investment advisory and
management fee (as a percentage of average net assets) payable by the Minnesota
Portfolio if average net assets are $100,000,000 or less as described above
under "Summary." In 1992, the Fund's Board of Directors approved an amended
Investment Advisory and Management Agreement for the Minnesota Portfolio and the
National Portfolio; however, although the proposed amended agreement was
approved by shareholders of the National Portfolio it did not receive the
sufficient votes required for approval by the Minnesota Portfolio at the
shareholders' meeting held January 28, 1992. On June 24, 1997, the Fund's Board
of Directors therefore approved the Proposed Agreement.
The Proposed Agreement differs from the Current Agreement in only the
following material respects:
(a) The investment advisory fee (as a percentage of average net assets)
payable by the Minnesota Portfolio will no longer be based on the
combined average net assets of the National Portfolio and the Minnesota
Portfolio but will be based on the average net assets of the Minnesota
Portfolio and
13
<PAGE>
(b) the size of the fee (as a percentage of average net assets) paid by
the Minnesota Portfolio will no longer be reduced if the Minnesota
Portfolio has average net assets over $100 million. The new fee
schedule is set forth below:
<TABLE>
<CAPTION>
Average of Portfolio Annual Investment Advisory
Net Assets and Management Fee
-------------------- --------------------------
<S> <C>
On the first $50 million .72 of 1%
On average assets over $50 million .7 of 1%
</TABLE>
As indicated above, the annual fee for the Minnesota Portfolio
as a percentage of average net assets would change to .72 of 1% for the first
$50 million in average net assets and .7 of 1% on the next $50 million in
average net assets. The annual fee as a percentage of average net assets for the
Minnesota Portfolio would no longer decrease to .625 of 1% on average net assets
over $100 million but would remain at .7 of 1% on average net assets over $100
million.
In approving the Proposed Agreement and recommending its
approval by shareholders, the directors who are not "interested persons" of the
Fund, in weighing what was in the best interests of the shareholders of the
Fund, evaluated all factors deemed relevant. The factors considered, which were
augmented by the documentation received and evaluated, were the nature, quality,
and extent of the services furnished by Advisers to the Minnesota Portfolio; the
fact that the investment and management fee also covers the added costs to
Advisers of acting as the Fund's registrar, transfer agent, and dividend
disbursing agent, which Advisers pays, which costs are paid directly by most
other investment companies; the necessity of Advisers being able to maintain its
ability to retain and attract capable personnel to serve the Fund; the
advantages and possible disadvantages to the Minnesota Portfolio of having an
adviser which serves other funds; the investment record of Advisers; Advisers'
before-tax profitability for the year ended December 31, 1996, and the nine-
month period ended September 30, 1997, from serving the Minnesota Portfolio,
which Advisers reported as $98,018 and $1,178, respectively; comparative data as
to investment performance, advisory fees and expense ratios of other mutual
funds; possible benefits to Advisers from serving as adviser; the economic
benefits to Advisers from higher advisory fees; current and developing
conditions in the financial services industry, including the presence in the
industry of large and highly capitalized companies which are spending and appear
to be prepared to continue to spend substantial sums to engage personnel and to
provide services to competing investment companies; the financial resources of
Advisers; and the need for appropriate incentives to assure that Advisers will
continue to furnish high quality services to the Minnesota Portfolio.
The directors also considered the following:
. The Minnesota Portfolio's average management fees for the fiscal year
ended September 30, 1997, were a low .73 of 1% of the Minnesota
Portfolio's average net assets and the total expense ratios of the
Portfolio's Class A, B, C, E, and H shares were 1.21%, 1.96%, 1.96%,
0.96%, and 1.96%, respectively, of the Portfolio's average net assets .
. If the Current Agreement were to remain in effect, the Minnesota
Portfolio's average management fees for each Class for the fiscal year
ending September 30, 1998, were estimated to equal .73 of 1% of the
Portfolio's average net assets and the total expense ratios of the
Portfolio's Class A, B, C, E, and H shares were estimated to equal
1.21%, 1.96%, 1.96%, 0.96%, and 1.96%, respectively, of the Portfolio's
average net assets.
. If the Proposed Agreement is approved, the Minnesota Portfolio's
average management fees for each Class for the fiscal year ending
September 30, 1998, were estimated to equal .72 of 1% of the
Portfolio's average net assets and the total expense ratios of the
Portfolio's Class A, B, C, E, and H shares were estimated to equal
1.20%, 1.95%, 1.95%, 0.95%, and 1.95%, respectively, of the Portfolio's
average net assets.
Only holders of the Minnesota Portfolio's shares vote on this proposal.
The adoption of the proposal requires the affirmative vote of the holders of a
majority of the Minnesota Portfolio's outstanding shares
14
<PAGE>
as defined above. Unless otherwise instructed, the proxies will vote in favor of
the adoption of the Proposed Agreement.
The Proposed Agreement will become effective February 1, 1998, if
approved by shareholders. The Proposed Agreement will continue in effect from
year to year thereafter only so long as such continuance is specifically
approved at least annually by the Board of Directors of the Fund or, with
respect to the Minnesota Portfolio, by a vote of the holders of a majority of
the outstanding voting securities of the Minnesota Portfolio, provided that in
either event such continuance is also approved by a vote of a majority of the
directors who are not parties to such Proposed Agreement or interested persons
of such parties cast in person at a meeting called for the purpose of voting on
such approval. If the shareholders do not approve the Proposed Agreement, the
Current Agreement may continue in effect, or Advisers may propose alternative
amendments at a subsequent shareholders' meeting.
THE FUND'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS OF THE
MINNESOTA PORTFOLIO APPROVE THE PROPOSED AGREEMENT WITH ADVISERS.
PORTFOLIO TRANSACTIONS
As the Fund's Portfolios are 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 such commissions are directed to these other broker-dealers who furnish
research services to Advisers, Advisers receives a benefit, not capable of
valuation 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 criteria for the
selection of broker-dealers (discussed above) have 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 than the lowest rates available.
15
<PAGE>
During the fiscal year ended September 30, 1997, fixed income
securities transactions having an aggregate dollar value of approximately
$110,655,057 and $64,441,383 for National Portfolio and Minnesota Portfolio,
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 its
portfolio securities with any broker-dealer affiliated directly or indirectly
with Advisers, unless such transactions, including the frequency thereof, the
receipt of commission 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 Portfolio. No commission were paid to
any affiliate of Advisers during the fiscal year ended September 30, 1997.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to the policies as set
forth in the preceding paragraphs and such other policies as the Fund's
directors may determine, Advisers considers sales of shares of the Portfolios
and of other funds advised by Advisers as a factor in the selection of broker-
dealers to execute Portfolio securities transactions.
EXECUTIVE OFFICERS OF THE FUND
Certain information about the executive officers of the Fund is set
forth below. Unless otherwise indicated, all positions have been held more than
five years.
<TABLE>
<CAPTION>
Current Position with Advisers
Name, (Age), Position and Term of and Business Experience
and Address Office with the Fund During Past Five Years
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dean C. Kopperud (45) President since 1995 See biographical information in Proposal One.
500 Bielenberg Drive
Woodbury, Minnesota
Gary N. Yalen (55) Vice President since 1995 President and Chief Investment Officer of
One Chase Manhattan Plaza Advisers (since 1995) and Senior Vice President,
New York, New York Investments, of Fortis, Inc; prior to 1996,
President and Chief Investment Officer, Fortis
Asset Management, a former division of Fortis, Inc.
Howard G. Hudson (60) Vice President since 1995 Executive Vice President and Head of Fixed
One Chase Manhattan Plaza Income Investments of Advisers since 1995;
New York, New York prior to 1996, Senior Vice President, Fixed
Income, Fortis Asset Management.
Lucinda S. Mezey (50) Vice President since 1997 Executive Vice President and Head of Equity
One Chase Manhattan Plaza Investments of Advisers since October 1997;
New York, New York from 1995 to October 1997, Chief Investment Officer,
Alex Brown Capital Advisory and Trust Co., Baltimore,
MD; prior to 1995, Senior Vice President and Head of
Equity Investments, PNC Bank, Philadelphia,
Pennsylvania.
James S. Byrd (46) Vice President since 1991 Executive Vice President of Advisers since 1995;
5500 Wayzata Boulevard prior to 1995, Vice President of Advisers and of
Golden Valley, Minnesota Investors.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Current Position with Advisers
Name, (Age), Position and Term of and Business Experience
and Address Office with the Fund During Past Five Years
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nicholas L. M. de Peyster (31) Vice President since 1995 Vice President of Advisers since 1995; prior
One Chase Manhattan Plaza to 1996, Vice President, Equities, Fortis
New York, New York Asset Management.
Charles J. Dudley (38) Vice President since 1995 Vice President of Advisers since 1995; prior
One Chase Manhattan Plaza to 1995, Senior Vice President, Sun America
New York, New York Asset Management, Los Angeles, California.
Maroun M. Hayek (49) Vice President since 1995 Vice President of Advisers since 1995; prior
One Chase Manhattan Plaza to 1996, Vice President, Fixed Income, Fortis
New York, New York Asset Management.
Robert C. Lindberg (44) Vice President since 1993 Vice President of Advisers since 1993; prior
One Chase Manhattan Plaza to 1993, Vice President, Portfolio Manager
New York, New York and Chief Securities Trader, COMERICA, Inc.,
Detroit, Michigan.
Charles L. Mehlhouse (55) Vice President since 1996 Vice President of Advisers; prior to March
One Chase Manhattan Plaza 1996, Portfolio Manager, Marshall & Ilsley
New York, New York Bank Corporation, Milwaukee, Wisconsin.
Kevin J. Michels (46) Vice President since 1995 Vice President of Advisers since 1995; prior
One Chase Manhattan Plaza to 1996, Vice President, Administration,
New York, New York Fortis Asset Management.
Christopher J. Pagano (34) Vice President since 1996 Vice President of Advisers since 1996; prior
One Chase Manhattan Plaza to March 1996, government strategist ,
New York, New York Merrill Lynch, New York, New York.
Stephen M. Rickert (54) Vice President since 1995 Vice President of Advisers since 1995; from
One Chase Manhattan Plaza 1994 to 1996, Corporate Bond Analyst, Fortis
New York, New York Asset Management; from 1993 to 1994, Corporate
Bond Analyst, Dillon, Reed & Co., Inc., New York,
New York.
Keith R. Thomson (60) Vice President since 1993 Vice President of Advisers.
5500 Wayzata Boulevard
Golden Valley, Minnesota
Christopher J. Woods (37) Vice President since 1995 Vice President of Advisers since 1995; prior
One Chase Manhattan Plaza to 1996, Vice President, Fixed Income, Fortis
New York, New York Asset Management.
Robert W. Beltz, Jr. (48) Vice President since 1993 Vice President--Securities Operations of
500 Bielenberg Drive Advisers and of Investors.
Woodbury, Minnesota
Peggy E. Ettestad (40) Vice President since 1997 Senior Vice President, Operations of Advisers
500 Bielenberg Drive since March 1997; prior to March 1997, Vice
Woodbury, Minnesota President, G.E. Capital Fleet Services,
Minneapolis, Minnesota.
Tamara L. Fagely (39) Treasurer since 1993 and Second Vice President of Advisers and of
500 Bielenberg Drive Vice President since 1996 Investors.
Woodbury, Minnesota
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Current Position with Advisers
Name, (Age), Position and Term of and Business Experience
and Address Office with the Fund During Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dickson W. Lewis (48) Vice President since 1997 Senior Vice President, Marketing and Sales of
500 Bielenberg Drive Advisors and of Investors since July 1997; from
Woodbury, Minnesota 1993 to July 1997, President and Chief Executive
Office, Hedstrom/Blessing, Inc., Minneapolis, Minnesota;
from 1992 to 1993, an independent marketing consultant.
David A. Peterson (55) Vice President since 1991. Vice President and Assistant General Counsel of Fortis
500 Bielenberg Drive Benefits Insurance Company.
Woodbury, Minnesota
Scott R. Plummer (38) Vice President since 1996. Second Vice President, Corporate Counsel and
500 Bielenberg Drive Assistant Secretary of Advisers since 1994; prior to
Woodbury, Minnesota 1994, Attorney, Zelle & Larson, Minneapolis, Minnesota.
Michael J. Radmer (52) Secretary since 1982. Partner, Dorsey & Whitney LLP, the Fund's General
220 South Sixth Street Counsel.
Minneapolis, Minnesota
Rhonda J. Schwartz (40) Vice President since 1996. Since January 1996, Senior Vice President and General
500 Bielenberg Drive Counsel of Advisers, Senior Vice President and
Woodbury, Minnesota General Counsel, Life and Investment Products, of Fortis
Benefits Insurance Company and Vice President and
General Counsel, Life and Investment Products, of Time
Insurance Company; from 1993 to January 1996, Vice
President and General Counsel of Fortis, Inc.; prior to
1993, Attorney, Norris, McLaughlin & Marcus, Washington,
D.C.
</TABLE>
UNDERWRITING AND DISTRIBUTION
On December 11, 1997, the Board of Directors (including a majority of
the directors who were not parties to the contract or interested persons of any
such party) reapproved the existing Underwriting Agreement with Investors dated
November 14, 1994 (the "Underwriting Agreement") The Underwriting Agreement may
be terminated by the Fund or Investors at any time by the giving of 60 days'
written notice, and it terminates automatically in the event of an assignment.
The Underwriting Agreement may be terminated with respect to a Portfolio by the
vote of the holders of a majority of the outstanding voting securities of that
Portfolio upon 60 days' written notice to Investors. 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 specifically approved at
least annually by 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.
During the fiscal year ended September 30, 1997, Investors received
$99,076 and $58,107, respectively, for underwriting the National Portfolio's
shares and the Minnesota Portfolio's shares. Of such amount received, Investors
paid to broker-dealers and registered representatives $66,974 and $49,659,
respectively, for selling shares of the National Portfolio and the Minnesota
Portfolio.
18
<PAGE>
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 Funds' 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. 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. During the fiscal period
ended September 30, 1997, Investors received $33,596 from the Minnesota
Portfolio pursuant to the Plan of Distribution, paid $22,370 to broker-dealers
and registered representatives, and in addition to such amount (along with
Advisers) spent $38,470 on activities related to the distribution of the
Minnesota Portfolio's share.
CONTROL AND MANAGEMENT OF ADVISERS
Dean C. Kopperud is the Chief Executive Officer of Advisers. Messrs.
Kopperud, Gary N. Yalen, and James S. Byrd are the Directors of Advisers.
Fortis, Inc. owns 100% of the outstanding voting securities of
Advisers. Fortis, Inc. 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").
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 1947.
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.
No officer or director of the Fund owns any securities of Advisers. No
officer or director of the Fund or of Advisers owns more than 1% of the
outstanding common stock of Fortis, Inc. or N.V. AMEV.
The address of Fortis, Inc. is One Chase Manhattan Plaza, New York, New
York. The address of Fortis International, AMEV/VSB 1990, and Fortis AMEV is
Archimedeslaan 10, 3584 BA Utrecht, The Netherlands. The address of Fortis AG is
Boulevard Emile Jacqanin 53, 1000 Brussels, Belgium.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP serves the Fund's independent public accountants
for the fiscal year ending September 30, 1998. KPMG Peat Marwick LLP has served
as the independent public accountants of the Fund since the then fiscal year
ended December 31, 1988. KPMG Peat Marwick LLP also serves as independent public
accountants for the Other Fortis Funds.
Representatives of KPMG Peat Marwick LLP are expected to be present at
the meeting. Such representatives will be given the opportunity to make a
statement to the shareholders if they desire to do so and are expected to be
available to respond to any questions which may be raised at the meeting.
19
<PAGE>
OTHER MATTERS
Management does not intend to present any business to the meeting not
mentioned in this Proxy Statement and currently knows of no other business to be
presented. If any other matters are brought before the meeting, the persons
named as proxies will vote on such matters in accordance with their judgment of
the best interests of the Fund.
PROPOSALS OF FUND SHAREHOLDERS
The Fund is not required to hold annual meetings of shareholders.
Therefore, an anticipated date of the next regular meeting cannot be provided.
If a shareholder has a proposal which such shareholder feels should be presented
to all shareholders, the shareholder should send the proposal to the Fund. The
proposal will be considered as appropriate at a meeting of the Board of
Directors as soon as practicable. Should it be a matter which would have to be
submitted to shareholders at a regular meeting, it will be presented at the next
special or regular meeting of shareholders. In addition, should it be a matter
which the Board of Directors deems of such significance as to require a special
meeting, such a meeting will be called.
Dated: December 29, 1997 Michael J. Radmer, Secretary
20
<PAGE>
[Preliminary Copy]
FORTIS TAX-FREE PORTFOLIOS, INC.
500 Bielenberg Drive
Woodbury, Minnesota 55125
Mailing Address: P.O. Box 64284
St. Paul, Minnesota 55164
PROXY FOR SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON JANUARY 26, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Robert W. Beltz, Jr., Tamara L. Fagely, Scott
R. Plummer, and Michael J. Radmer, and each of them with power to act without
the other and with all the right of substitution in each, the proxies of the
undersigned to vote all shares of Fortis Tax-Free Portfolios, Inc. (the "Fund")
held by the undersigned on December 15, 1997, at the Special Shareholders'
Meeting of the Fund, to be held at the offices of the Fund, 500 Bielenberg
Drive, Woodbury, Minnesota, on Monday, January 26, 1998, at 10:00 a.m. and any
adjournment thereof, with all powers the undersigned would possess if present in
person. All previous proxies given with respect to the meeting are revoked.
THIS PROXY WILL BE VOTED AS INSTRUCTED ON THE MATTERS ON THE REVERSE
SIDE. IT IS UNDERSTOOD THAT IF NO CHOICE IS SPECIFIED ON THE REVERSE SIDE, THIS
PROXY WILL BE VOTED "FOR" ALL ITEMS. UPON ALL OTHER MATTERS THE PROXIES SHALL
VOTE AS THEY DEEM IN THE BEST INTERESTS OF THE FUND.
Receipt of Notice of Special Shareholders' Meeting and Proxy Statement
is acknowledged by your execution of this proxy. Mark, sign, date, and return
this proxy in the addressed envelope--no postage required. Please mail promptly
to save further solicitation expenses.
<PAGE>
[Preliminary Copy]
FORTIS TAX-FREE PORTFOLIOS, INC.
NATIONAL PORTFOLIO
P R O X Y
THE PROXIES ARE INSTRUCTED TO VOTE MY SHARES AS FOLLOWS:
1. Election of directors:
For all nominees listed to the right (Nominees: Richard W. Cutting, Allen
(except as marked to the contrary below). R. Freedman, Dr. Robert M. Gavin,
Benjamin S. Jaffray, Jean L. King,
Dean C. Kopperud, Edward M. Mahoney,
[_] Robb L. Prince, Noel S. Shadko
Leonard J. Santow, and Joseph M.
Withhold authority to vote for Wikler.)
all nominees listed to the right.
[_]
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
2. Proposal to amend the Portfolio's fundamental investment restriction on
investing in commodities:
FOR [_] AGAINST [_] ABSTAIN [_]
3. To vote with discretionary authority upon such other matters as may come
before the meeting.
- --------------------------------------------- -----------------------------
(Please sign name(s) exactly as registered) Telephone Number
- --------------------------------------------- -----------------------------
(If there are co-owners, both should sign) Dated
<PAGE>
[Preliminary Copy]
FORTIS TAX-FREE PORTFOLIOS, INC.
500 Bielenberg Drive
Woodbury, Minnesota 55125
Mailing Address: P.O. Box 64284
St. Paul, Minnesota 55164
PROXY FOR SPECIAL SHAREHOLDERS' MEETING
TO BE HELD ON JANUARY 26, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Robert W. Beltz, Jr., Tamara L. Fagely, Scott
R. Plummer, and Michael J. Radmer, and each of them with power to act without
the other and with all the right of substitution in each, the proxies of the
undersigned to vote all shares of Fortis Tax-Free Portfolios, Inc. (the "Fund")
held by the undersigned on December 15, 1997, at the Special Shareholders'
Meeting of the Fund, to be held at the offices of the Fund, 500 Bielenberg
Drive, Woodbury, Minnesota, on Monday, January 26, 1998 at 10:00 a.m. and any
adjournment thereof, with all powers the undersigned would possess if present in
person. All previous proxies given with respect to the meeting are revoked.
THIS PROXY WILL BE VOTED AS INSTRUCTED ON THE MATTERS ON THE REVERSE
SIDE. IT IS UNDERSTOOD THAT IF NO CHOICE IS SPECIFIED ON THE REVERSE SIDE, THIS
PROXY WILL BE VOTED "FOR" ALL ITEMS. UPON ALL OTHER MATTERS THE PROXIES SHALL
VOTE AS THEY DEEM IN THE BEST INTERESTS OF THE FUND.
Receipt of Notice of Special Shareholders' Meeting and Proxy Statement
is acknowledged by your execution of this proxy. Mark, sign, date, and return
this proxy in the addressed envelope--no postage required. Please mail promptly
to save further solicitation expenses.
<PAGE>
[Preliminary Copy]
FORTIS TAX-FREE PORTFOLIOS, INC.
MINNESOTA PORTFOLIO
P R O X Y
THE PROXIES ARE INSTRUCTED TO VOTE MY SHARES AS FOLLOWS:
<TABLE>
<C> <S> <C> <C>
1. Election of directors:
For all nominees listed to the right Withhold authority to vote (Nominees: Richard W. Cutting, Allen R.
(except as marked to the contrary for all nominees listed to Freedman, Dr. Robert M. Gavin, Benjamin S.
below). the right. Jaffray, Jean L. King, Dean C. Kopperud,
Edward M. Mahoney, Robb L. Prince, Noel S.
Shadko Leonard J. Santow, and Joseph M. Wikler.)
[_] [_]
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name on the space provided below.)
- ----------------------------------------------------------------------------------------------------------------------
2. Proposal to amend the Portfolio's fundamental investment restriction on investing in commodities:
FOR [_] AGAINST [_] ABSTAIN [_]
3. Proposal to approve an amended Investment Advisory and Management Agreement with Fortis Advisers, Inc., which includes a
change in the fee structure and a decrease in the investment advisory and management fee (as a percentage of average net
assets) if average net assets are $100,000,000 or less and an increase in the fee on average net assets over $100,000,000:
FOR [_] AGAINST [_] ABSTAIN [_]
4. To vote with discretionary authority upon such other matters as may come before the meeting.
</TABLE>
- ------------------------------------------------ --------------------------
(Please sign name(s) exactly as registered) Telephone Number
Dated
- ------------------------------------------------ ---------------------
(If there are co-owners, both should sign)
