<PAGE>
1933 Act Registration No. 2-78148
1940 Act Registration No. 811-03498
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 24
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No.
(Check appropriate box or boxes)
FORTIS TAX-FREE PORTFOLIOS, INC.
(Exact Name of Registrant as Specified in Charter)
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Address of Principal Executive Offices, Zip Code)
(651) 738-4000
(Registrant's Telephone Number, including Area Code)
Scott R. Plummer, Esq.
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Name and Address of Agent for Service)
COPY TO:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
---
X on February 1, 1999 pursuant to paragraph (b) of Rule 485
---
75 days after filing pursuant to paragraph (a) of Rule 485
---
on (specify date) pursuant to paragraph (a) of Rule 485
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60 days after filing pursuant to paragraph (a) of Rule 485
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<PAGE>
[LOGO]
Solid partners, flexible solutions-SM-
Fortis Tax-Free Portfolios Prospectus
Dated February 1, 1999
- National Portfolio
- Minnesota Portfolio
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY STATEMENT TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
MAILING ADDRESS:
P.O. Box 64284
St. Paul, Minnesota 55164-0284
STREET ADDRESS:
500 Bielenberg Drive
Woodbury, Minnesota 55125-1400
TELEPHONE: (651) 738-4000
TOLL FREE: (800) 800-2000, extension 3012
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
<S> <C>
The Funds
National Portfolio.................................................................................... 1
Minnesota Portfolio................................................................................... 4
Shareholder Information
Choosing a Share Class................................................................................ 7
Determining Your Purchase Price....................................................................... 8
How to Buy Shares..................................................................................... 10
How to Sell Shares.................................................................................... 11
Dividend and Capital Gains Distributions.............................................................. 14
Tax Considerations.................................................................................... 14
Shareholder Inquiries................................................................................. 14
Fund Management
Investment Adviser.................................................................................... 15
Portfolio Managers.................................................................................... 15
More Information on Fund Objectives, Investment Strategies and Risks
Objectives............................................................................................ 16
Investment Strategies................................................................................. 16
Principal Risks....................................................................................... 16
Financial Highlights
National Portfolio.................................................................................... 18
Minnesota Portfolio................................................................................... 20
</TABLE>
<PAGE>
THE FUNDS
- -------------------------------------------------------------------
This section briefly describes the objectives, principal investment strategies
and principal risks of National Portfolio and Minnesota Portfolio (the "Funds").
It also provides you with information on Fund expenses how the Funds have
performed. For more information, please read the section entitled "More
Information on Fund Objectives, Investment Strategies and Risks."
AN INVESTMENT IN EITHER FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
NATIONAL PORTFOLIO
OBJECTIVE
National Portfolio's ("National Fund") objective is to maximize total return, to
be derived primarily from current income exempt from federal income tax (at a
level consistent with prudent investment risk) and from change in the market
value of the securities held by the Fund.
PRINCIPAL INVESTMENT STRATEGIES
National Fund pursues its objective by primarily investing in securities that
pay interest that is exempt from federal income tax. The Fund invests 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 Fund invests in tax exempt obligations issued by states, territories, and
possessions of the United States, and their political subdivisions, agencies and
instrumentalities. Tax exempt obligations include any debt obligation generating
interest that is exempt from federal income tax. At least 90% of the tax exempt
obligations purchased by the Fund 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 Ratings Services (AAA, AA, A or BBB) or will be unrated
securities which are judged by the Fund's adviser ("Advisers") to be of
comparable quality to securities rated within these four highest grades.
The overall approach of Advisers emphasizes security selection and duration
management and seeks a portfolio which is diversified geographically and by
industry. Advisers will attempt to maintain an average effective duration for
the Fund of six to ten years.
PRINCIPAL RISKS
As with any non-money market mutual fund, National Fund's share price and yield
will change daily because of changes in interest rates and other factors. You
may lose money if you invest in the Fund. The principal risks of investing in
National Fund include:
- INTEREST RATE RISK. Debt securities in the Fund will fluctuate in value
with changes in interest rates. In general, debt securities will increase in
value when interest rates fall and decrease in value when interest rates
rise. One measure of interest rate risk is duration. Securities with longer
durations generally have more volatile prices than securities of comparable
quality with shorter durations.
- INCOME RISK. Income risk is the potential for a decline in the Fund's
income due to falling lowest rates.
- CREDIT OR DEFAULT RISK. If a bond issuer's credit quality declines or its
credit agency ratings are downgraded, there may be a resulting decline in
the bond's price. If credit quality deteriorates to the point of possible or
actual default (inability to pay interest or repay principal on a timely
basis), the bond's market value could decline precipitously.
- CALL RISK. The Fund is subject to the possibility that, under certain
conditions, especially during periods of falling interest rates, a bond
issuer will "call"--or repay--its bonds before their maturity date. The Fund
may then be forced to invest the unanticipated proceeds at lower interest
rates, resulting in a decline in the Fund's income.
- STATE AND LOCAL POLITICAL AND ECONOMIC RISK. The Fund is also subject to
the risk that the value of obligations owned by the Fund will be adversely
affected by local or state political and economic conditions and
developments. The value of obligations owned by the Fund also may be
adversely affected by future changes in federal or state income tax laws,
including rate reductions or the imposition of a flat tax.
1
<PAGE>
FUND PERFORMANCE
The bar chart and table below provide you with information on National Fund's
volatility and performance. The bar chart shows you how performance of the
Fund's Class E shares has varied from year to year. The performance of other
classes of shares will differ due to differences in expenses. Sales loads are
not reflected in the bar chart; if they had been, returns would be lower. The
table, which does reflect sales loads, compares the Fund's performance over
different time periods to that of a broad measure of market performance.
Remember, how the Fund has performed in the past is not necessarily an
indication of how it will perform in the future.
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 8.94%
<S> <C>
1990 5.33%
1991 12.97%
1992 8.88%
1993 12.31%
1994 -5.17%
1995 15.86%
1996 3.17%
1997 8.73%
1998 5.23%
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: 6.23% (Quarter ending March 31, 1995)
WORST QUARTER: -5.32% (Quarter ending March 31, 1994)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
TEN YEARS
OR SINCE
ONE YEAR FIVE YEARS INCEPTION*
----------- ----------- -------------
<S> <C> <C> <C>
Class A Shares.................................................................. 0.20% N/A 7.45%
Class E Shares.................................................................. 0.49% 4.37% 6.98%
Class B Shares**................................................................ 0.54% N/A 7.47%
Class H Shares**................................................................ 0.35% N/A 7.47%
Class C Shares**................................................................ 3.14% N/A 7.80%
Lehman Brothers Municipal Bond Index***......................................... 6.12% 6.08% 8.14%
</TABLE>
-------------------------------
* Ten years for Class E shares; since inception on November 14, 1994
for Class A, Class B, Class C and Class H shares.
** With CDSC. Assumes redemption on December 31, 1998.
*** An unmanaged index of municipal bonds with maturities greater than
two years. The average annual returns over the various time periods
are comparable to those of the Class E shares.
2
<PAGE>
FEES AND EXPENSES
As an investor, you pay certain fees and expenses if you buy and hold shares of
National Fund. Shareholder fees are fees paid directly from your investment.
Annual fund operating expenses are deducted from Fund assets. The figures below
are based on expenses during the fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
CLASS B
CLASS A AND H CLASS C CLASS E
SHARES SHARES SHARES SHARES
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)......................... 4.50% None None 4.50 %
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)....................... -- * 4.00 % 1.00 % -- *
ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. 0.77 % 0.77 % 0.77 % 0.77 %
Distribution and/or Service
(12b-1) Fees................... 0.25 % 1.00 % 1.00 % None
Other Expenses................... 0.21 % 0.21 % 0.21 % 0.21 %
Total Annual Fund Operating
Expenses....................... 1.23 % 1.98 % 1.98 % 0.98 %
</TABLE>
- ------------------------
* A contingent deferred sales charge of 1.00% is imposed on certain redemptions
of Class A and Class E shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. See "Shareholder
Information."
EXAMPLE This example is intended to help you compare the cost of investing in
the different share classes of National Fund with the cost of investing in other
mutual funds. It assumes that you invest $10,000 in the Fund for the time
periods indicated, that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING CLASS B/H ASSUMING CLASS C
REDEMPTION SHARES REDEMPTION SHARES
CLASS A AT END OF ASSUMING NO AT END OF ASSUMING NO CLASS E
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION SHARES
--------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 year............................. $ 570 $ 561 $ 201 $ 301 $ 201 $ 545
3 years............................ 823 891 621 621 621 748
5 years............................ 1,095 1,248 1,068 1,068 1,068 967
10 years........................... 1,872 2,113 2,113 2,306 2,306 1,597
</TABLE>
3
<PAGE>
MINNESOTA PORTFOLIO
OBJECTIVE
Minnesota Portfolio's ("Minnesota Fund") objective is to maximize total return,
to be derived primarily from current income exempt from both federal and
Minnesota income tax (at a level consistent with prudent investment risk) and
from change in the market value of the securities held by the Fund.
PRINCIPAL INVESTMENT STRATEGIES
Minnesota Fund pursues its objective by investing primarily in securities that
pay interest that is exempt from federal and Minnesota state income tax. The
Fund invests 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.
The Fund primarily invests in tax exempt obligations issued by the State of
Minnesota, its agencies, instrumentalities and political subdivisions. Tax
exempt obligations include any debt obligation generating interest income that
is exempt from federal income tax and that is not includable in taxable net
income of individuals, estates and trusts for Minnesota income tax purposes. At
least 90% of the tax exempt obligations purchased by the Fund 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 Ratings Services (AAA,
AA, A or BBB) or will be unrated securities which are judged by the Fund's
adviser ("Advisers") to be of comparable quality to securities rated within
these four highest grades.
The overall approach of Advisers emphasizes security selection and duration
management and seeks a portfolio which is diversified by industry. Advisers will
attempt to maintain an average effective duration for the Fund of six to ten
years.
PRINCIPAL RISKS
As with any non-money market mutual fund, Minnesota Fund's share price and yield
will change daily because of changes in interest rates and other factors. You
may lose money if you invest in the Fund. The principal risks of investing in
Minnesota Fund include:
- INTEREST RATE RISK. Debt securities in the Fund will fluctuate in value
with changes in interest rates. In general, debt securities will increase in
value when interest rates fall and decrease in value when interest rates
rise. One measure of interest rate risk is duration. Securities with longer
durations generally have more volatile prices than securities of comparable
quality with shorter durations.
- INCOME RISK. Income risk is the potential for a decline in the Fund's
income due to falling interest rates.
- CREDIT OR DEFAULT RISK. If a bond issuer's credit quality declines or its
credit agency ratings are downgraded, there may be a resulting decline in
the bond's price. If credit quality deteriorates to the point of possible or
actual default (inability to pay interest or repay principal on a timely
basis), the bond's market value could decline precipitously.
- CALL RISK. The Fund is subject to the possibility that during periods of
falling interest rates, a bond issuer will "call"--or repay--its
high-yielding bonds before their maturity date. The Fund would then be
forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the Fund's income.
- STATE AND LOCAL POLITICAL AND ECONOMIC RISK. The Fund is also subject to
the risk that the value of obligations owned by the Fund will be adversely
affected by local or state of Minnesota political and economic conditions
and developments. The value of obligations owned by the Fund also may be
adversely affected by future changes in federal or state income tax laws,
including rate reductions or the imposition of a flat tax.
4
<PAGE>
FUND PERFORMANCE
The bar chart and table below provide you with information on Minnesota Fund's
volatility and performance. The bar charts show you how performance of the
Fund's Class E shares has varied from year to year. The performance of other
classes of shares will differ due to differences in expenses. Sales loads are
not reflected in the bar charts; if they had been, returns would be lower. The
table, which does reflect sales loads, compares the Fund's performance over
different time periods to that of a broad measure of market performance.
Remember, how the Fund has performed in the past is not necessarily an
indication of how it will perform in the future.
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 8.19%
<S> <C>
1990 6.20%
1991 10.61%
1992 8.74%
1993 11.52%
1994 -4.25%
1995 14.09%
1996 2.99%
1997 7.76%
1998 5.76%
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: 5.67% (Quarter ending March 31, 1995)
WORST QUARTER: -4.99% (Quarter ending March 31, 1994)
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
TEN YEARS
OR SINCE
ONE YEAR FIVE YEARS INCEPTION*
----------- ----------- -------------
<S> <C> <C> <C>
Class A Shares.................................................................. 0.69% N/A 6.70%
Class E Shares.................................................................. 1.00% 4.14% 6.56%
Class B Shares**................................................................ 1.01% N/A 6.68%
Class H Shares**................................................................ 1.10% N/A 6.74%
Class C Shares**................................................................ 3.70% N/A 7.09%
Lehman Brothers Municipal Bond Index***......................................... 6.12% 6.08% 8.14%
</TABLE>
-------------------------------
* Ten years for Class E shares; since inception on November 14, 1994
for Class A, Class B, Class C and Class H shares.
** With CDSC. Assumes redemption on December 31, 1998.
*** An unmanaged index of municipal bonds with maturities greater than
two years. The average annual returns over the various time periods
are comparable to those of the Class E shares.
5
<PAGE>
FEES AND EXPENSES
As an investor, you pay certain fees and expenses if you buy and hold shares of
Minnesota Fund. Shareholder fees are fees paid directly from your investment.
Annual fund operating expenses are deducted from Fund assets. The figures below
are based on expenses during the fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
CLASS B
CLASS A AND H CLASS C CLASS E
SHARES SHARES SHARES SHARES
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)......................... 4.50% None None 4.50 %
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)....................... -- * 4.00 % 1.00 % -- *
ANNUAL FUND OPERATING EXPENSES
(as a % of average net assets)
Management Fees.................. 0.72 % 0.72 % 0.72 % 0.72 %
Distribution and/or Service
(12b-1) Fees................... 0.25 % 1.00 % 1.00 % None
Other Expenses................... 0.19 % 0.19 % 0.19 % 0.19 %
Total Annual Fund Operating
Expenses....................... 1.16 % 1.91 % 1.91 % 0.91 %
</TABLE>
- ------------------------
* A contingent deferred sales charge of 1.00% is imposed on certain redemptions
of Class A and Class E shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. See "Shareholder
Information."
EXAMPLE. This example is intended to help you compare the cost of investing in
the different share classes of Minnesota Fund with the cost of investing in
other mutual funds. It assumes that you invest $10,000 in the Fund for the time
periods indicated, that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
CLASS B/H CLASS C
SHARES SHARES
ASSUMING CLASS B/H ASSUMING CLASS C
REDEMPTION SHARES REDEMPTION SHARES
CLASS A AT END OF ASSUMING NO AT END OF ASSUMING NO CLASS E
SHARES EACH PERIOD REDEMPTION EACH PERIOD REDEMPTION SHARES
--------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 year............................. $ 563 $ 554 $ 194 $ 294 $ 194 $ 539
3 years............................ 802 870 600 600 600 727
5 years............................ 1,060 1,212 1,032 1,032 1,032 931
10 years........................... 1,796 2,038 2,038 2,233 2,233 1,519
</TABLE>
6
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------
CHOOSING A SHARE CLASS
The Funds offer you a choice among multiple classes of shares with different
sales charges and expenses. These alternatives enable you to choose the best
method of purchasing shares, given the amount of your purchase, the length of
time you expect to hold your shares, and other factors. Here is a brief summary
of the different share classes offered by the Funds:
CLASS A SHARES
- You pay a sales charge at the time of purchase. (THIS CHARGE MAY BE
REDUCED OR WAIVED FOR CERTAIN PURCHASES.)
- There is no sales charge when you redeem your shares. (SALES IN EXCESS OF
$1 MILLION THAT WERE NOT SUBJECT TO AN INITIAL SALES CHARGE MAY BE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.)
- Shares are subject to an annual Rule 12b-1 fee equal to .25% of a Fund's
average daily net assets.
- Because Rule 12b-1 fees are lower, Class A shares have lower expenses and
pay higher dividends than Class B, Class H or Class C shares.
CLASS E SHARES
- These shares are available only if you were a shareholder of the Funds on
November 13, 1994.
- You pay a sales charge at the time of purchase. (THIS CHARGE MAY BE
REDUCED OR WAIVED FOR CERTAIN PURCHASES.)
- There is no sales charge when you redeem your shares. (SALES IN EXCESS OF
$1 MILLION THAT WERE NOT SUBJECT TO AN INITIAL SALES CHARGE MAY BE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.)
- Shares are not subject to an annual Rule 12b-1 fee.
- Class E shares have the lowest expenses and pay the highest dividends of
all share classes.
CLASS B AND CLASS H SHARES
- You do not pay any sales charge at the time of purchase.
- There is a contingent deferred sales charge (CDSC) if you redeem within
six years of purchase. The CDSC is 4% during the first two years after
purchase, and declines thereafter to as low as 1% during the sixth year
after purchase. There is no CDSC after the sixth year.
- There is an annual Rule 12b-1 fee equal to 1.00% of a Fund's average daily
net assets.
- After eight years, shares automatically convert to Class A shares at no
charge to you, resulting in a lower Rule 12b-1 fee thereafter.
- Class B and Class H shares provide the benefit of putting your entire
investment to work immediately.
- Shares in these classes will have a higher expense ratio and pay lower
dividends than Class A and Class E shares due to the higher Rule 12b-1
fee.
- The only difference between Class B and Class H shares is the amount of
the concession paid to dealers. This difference does not affect you in any
way.
CLASS C SHARES
- You do not pay any sales charge at the time of purchase.
- There is a contingent deferred sales charge of 1.00% if you redeem within
one year of purchase.
- There is an annual Rule 12b-1 fee of 1.00% of a Fund's average daily net
assets.
- Shares do not convert to Class A shares. However, they are subject to a
lower contingent deferred sales charge than Class B or Class H shares and
do not have to be held for as long a time (one year vs. six years) to
avoid paying a contingent deferred sales charge.
- Class C shares provide the benefit of putting your entire investment to
work for you immediately.
- Shares in this class will have a higher expense ratio and pay lower
dividends than Class A and Class E shares due to the higher Rule 12b-1
fee.
7
<PAGE>
DECIDING WHICH CLASS TO PURCHASE
In deciding which class of shares to purchase, you should consider, among other
things:
- the length of time you expect to hold your investment,
- the amount of any sales charge (whether imposed at the time of purchase or
redemption) and Rule 12b-1 fees,
- whether you qualify for any reduction or waiver of sales charges (E.G., if
you are exempt from the sales charge, you must invest in Class A shares),
- the various exchange privileges among the different classes of shares, and
- the fact that Class B and Class H shares automatically convert to Class A
shares after eight years.
Class A shares may be a better choice if your investment qualifies for a reduced
sales charge. Class B and Class H share orders for more than $500,000 and Class
C share orders for more than $1,000,000 will be treated as orders for Class A
shares.
DETERMINING YOUR PURCHASE PRICE
NET ASSET VALUE OF FUND SHARES
Your purchase price is equal to a Fund's net asset value per share plus any
initial sales charge. The net asset value per share is determined as of the
primary closing time for business on the New York Stock Exchange (the
"Exchange") on each day the Exchange is open.
Your purchase price will be the next net asset value per share of the Fund
calculated after your purchase order is accepted by Fortis Investors
("Investors"), the Funds' underwriter. Orders generally must be received by
Investors prior to the close of the Exchange to receive that day's price. If you
purchase Fund shares through a broker-dealer other than Investors, your order
must be received by your broker-dealer prior to the close of the Exchange.
Investors will apply that day's price to the order if the broker-dealer places
the order with Investors by the end of Investors' business day.
Each Fund's net asset value per share is determined by dividing the value of the
securities and other assets owned by the Fund, less all liabilities, by the
number of the Fund's shares outstanding. The securities owned by the Fund are
generally valued at market value. However, there are times when market values
are not readily available. In these cases, securities are valued at fair value
as determined in good faith by Advisers under supervision of the Funds' Board of
Directors.
PURCHASE PRICE OF CLASS A AND CLASS E SHARES
(Note: Class E shares are available only if you were a shareholder in the Funds
on November 13, 1994.)
The purchase price of Class A and Class E Fund shares is the next net asset
value per share calculated after receipt of your purchase order, plus a sales
charge. Sales charges and broker-dealer concessions, which vary with the size of
your purchase, are shown in the following table. A broker-dealer receives
additional compensation (as a percentage of sales charge) 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 AS SALES CHARGE AS
PERCENTAGE OF PERCENTAGE OF THE NET BROKER-DEALER
AMOUNT OF SALE PURCHASE PRICE AMOUNT 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>
- ------------------------
* You will pay a contingent deferred sales charge if you redeem these shares
within two years of purchase.
In determining your sales charge above, purchases by you, your spouse, your
children under the age or 21, and purchases by any tax-qualified plan of any of
the foregoing (provided there is only one participant) will be combined. The
above schedule also applies to (1) purchases by a trustee or fiduciary of a
single trust estate or single fiduciary account, and
8
<PAGE>
(2) purchases by any organized group with a tax identification number, if these
purchases result in economy of sales effort or expense. An organized group does
not include clients of an investment advisor.
REDUCING YOUR SALES CHARGE FOR CLASS A AND CLASS E SHARES. As shown above,
larger purchases of Class A and Class E shares have a reduced sales charge. You
also may reduce your sales charge through one of the special purchase plans
listed below. For more information on these plans, see the Statement of
Additional Information or contact your broker-dealer or sales representative. It
is your obligation to notify your broker-dealer or sales representative about
your eligibility for either of the following plans.
- RIGHT OF ACCUMULATION. The sales charge discounts apply to your current
purchase plus the net asset value of shares you already own in any Fortis
Fund which has a sales charge.
- STATEMENT OF INTENTION. The sales charge discounts apply to an initial
purchase of at least $1,000 if you intend to purchase the balance needed to
qualify within 13 months (excluding shares purchased by reinvesting
dividends or capital gains).
EXEMPTIONS FROM SALES CHARGES ON CLASS A AND CLASS E SHARES. The Statement of
Additional Information contains information on investors who are eligible to
purchase Class A and Class E shares without a sales charge.
CONTINGENT DEFERRED SALES CHARGES ("CDSC"). You pay no initial sales charge on
purchases of Class A and Class E shares of $1,000,000 or more. Out of its own
assets, however, Investors pays broker-dealers a fee of up to 1.00% of the
offering price of these shares. If you redeem these shares within two years, you
will pay a contingent deferred sales charge of 1.00%. For more information, see
"How to Sell Shares--Contingent Deferred Sales Charge."
PURCHASE PRICE OF CLASS B AND CLASS H SHARES
The purchase price of Class B and Class H shares is their net asset value.
Because you pay no sales charge, the Fund receives the full amount of your
investment. However, if you redeem shares within six years of purchase, you will
pay a contingent deferred sales charge at the following rates. For additional
information, see "How to Sell Shares--Contingent Deferred Sales Charge."
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE PURCHASE SALES CHARGE
- ----------------------- -----------------------
<S> <C>
First.................. 4.00%
Second................. 4.00%
Third.................. 3.00%
Fourth................. 3.00%
Fifth.................. 2.00%
Sixth.................. 1.00%
Seventh................ None
Eighth................. None
</TABLE>
Investors receives the CDSC, in part to defray expenses incurred in selling
Class B and Class H shares. Investors pays broker-dealers who sell Class B
shares a concession equal to 4.00% of the amount invested and an annual fee of
.25% of the average daily net assets of the Fund attributable to such shares.
Broker-dealers who sell Class H shares are paid a concession of between 5.25%
and 5.50% of the amount invested.
CONVERSION TO CLASS A SHARES. Class B and Class H shares (except for those
purchased by reinvestment of dividends and other distributions) will
automatically convert to Class A shares after eight years. When these shares
convert to Class A, a proportionate amount of Class B and H shares in your
account that were purchased through the reinvestment of dividends and other
distributions will also convert to Class A.
PURCHASE PRICE OF CLASS C SHARES
The purchase price of Class C shares is their net asset value. Because you pay
no initial sales charge, the Fund receives the full amount of your investment.
However, if you redeem your shares within one year of purchase, you will pay a
CDSC of 1.00%. For additional information, see "How to Sell Shares--Contingent
Deferred Sales Charge."
9
<PAGE>
Investors receives the CDSC, in part to defray expenses incurred in selling
Class C shares. Investors pays broker-dealers who sell Class C shares a
concession equal to 1.00% of the amount invested 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
Each Fund pays Investors Rules 12b-1 fees for the distribution and sale of its
shares and for services provided to shareholders. These fees differ by class, as
follows:
<TABLE>
<CAPTION>
RULE 12b-1 FEE
SHARE CLASS (AS A % OF AVERAGE NET ASSETS)
- ------------------------------ --------------------------------------
<S> <C>
Class A....................... 0.25%
Class E....................... None
Class B and Class H........... 1.00%
Class C....................... 1.00%
</TABLE>
These fees are paid out of a Fund's assets on an ongoing basis. Rule 12b-1 fees
will increase the cost of your investment and over time may cost you more than
paying other types of sales charges.
HOW TO BUY SHARES
You may become a shareholder in either Fund with an initial investment of $500
or more. If you invest under the Systematic Investment Plan, the minimum initial
investment is $25 for the Pre-Authorized Check Plan and $50 for any other
Systematic Investment Plan (except for telephone or wire orders).
The minimum subsequent investment is $50 for investments by mail ($25 for the
Pre-Authorized Check Plan), $100 for investments by telephone through the
automated Fortis Information Line and $500 for other investments by telephone or
by wire.
The Funds may reject any purchase order or restrict purchases at any time.
INVESTING BY TELEPHONE
Your registered representative may make your purchase ($500 minimum) by
telephoning the number on the cover page of this Prospectus. You must promptly
send your check and the Account Application which accompanies this Prospectus so
that Investors receives it within three business days. Please make your check
payable to Fortis Investors, Inc. and mail it with your Application to "CM-9651,
St. Paul, MN 55170-9651."
If you have a bank account authorization form on file, you may invest $100 -
$10,000 by telephone through the automated Fortis Information Line.
INVESTING BY WIRE
If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares ($500 minimum) by requesting your bank
to transmit immediately available funds (Federal Funds) by wire to:
U.S. Bank National Association
ABA #091000022, credit account no: 1-702-2514-1341
Fortis Funds Purchase Account
For further credit to: (your name)
Fortis Account NBR (your account number)
Before making an initial investment by wire, your broker-dealer must telephone
Investors at the number on the cover page of this Prospectus to open your
account and obtain your account number. You must promptly send your Account
Application which accompanies this Prospectus to Investors at "CM-9614, St.
Paul, MN 55170-9614." You may make
10
<PAGE>
additional investments by wire at any time even if your initial investment was
by mail. Your bank should transmit Federal Funds using the instructions above.
INVESTING BY MAIL
You should complete and sign the Account Application which accompanies this
Prospectus. Please make your check or other negotiable bank draft payable to
Fortis Funds and mail it with your Application to "CM-9614, St. Paul, MN
55170-9614."
You may make additional purchases at any time by mailing a check or other
negotiable bank draft along with your confirmation stub. Be sure to identify the
account to which any such purchase is to be credited by specifying the name(s)
of the registered owner(s) and the account number.
SPECIAL PURCHASE PLANS
GIFTS OR TRANSFERS TO MINOR CHILDREN. Adults can make an irrevocable gift or
transfer of Fund shares in an account established for a minor.
SYSTEMATIC INVESTMENT PLAN. You may have $25 or more automatically withdrawn
each month from your checking account (see the Systematic Investment Plan
Authorization Agreement in the Account Application). A systematic investment
plan may lower your average cost per share through the principle of "dollar cost
averaging." Advisers may elect to send confirmations for purchases made under a
Systematic Investment Plan quarterly, rather than following each transaction.
EXCHANGE PRIVILEGE
Except for Class E shares, you may exchange your Fund shares for the same class
of shares in another Fortis Fund. If you hold Class E shares, you may exchange
those shares for Class A shares of another Fortis Fund. You pay no exchange fee
or additional sales charge for exchanges. If you held Class E shares and
exchanged those shares for Class A shares of another Fortis Fund, you may
re-exchange your Class A shares for Class E shares of the Funds.
If you own shares of another Fortis Fund, you may exchange those shares for Fund
shares of the same class. You pay no sales charge if the shares to be exchanged
have already been subject to a sales charge. If you own Class E shares of
another Fortis Fund, you may exchange those shares for Class A Fund shares. If
you own Fortis Money Fund Class A shares, you may exchange those shares for any
class of Fund shares, other than Class E shares. However, if the Fortis Money
Fund Class A shares have already incurred a sales charge, exchanges will be made
at net asset value and may be made only into Class A Fund shares.
You may initiate an exchange by writing to or telephoning your broker-dealer,
sales representative or the Fund. You may also use the automated Fortis
Information Line for exchanges of $100 - $100,000. You may make a telephone
exchange only if you have completed and returned the Telephone Exchange section
of the Account Application. During times of chaotic economic or market
circumstances, you may have difficulty reaching your broker-dealer, sales
representative or the Fund by telephone. A telephone exchange may be difficult
to implement at those times. (See "How to Sell Shares--By Phone").
An exchange of shares is a sale for federal income tax purposes and you may have
a taxable capital gain or loss.
Advisers has the right to change, terminate, impose charges on or restrict the
frequency of exchanges. You will receive at least 30 days notice before any such
change is made.
HOW TO SELL SHARES
You may sell your shares on any day when the Exchange is open. Your redemption
price will be the net asset value of your shares, less any applicable contingent
deferred sales charge.
11
<PAGE>
REDEEMING BY MAIL
If you redeem by mail, your redemption price will be the next net asset value of
your shares which is determined after the Fund receives your written redemption
request in proper form (and a properly endorsed stock certificate if one has
been issued).
To redeem by mail, send a written request to Fortis Funds, P.O. Box 64284, St.
Paul, MN 55164-0284.
Your request should include the following information:
- name of Fund
- account number
- dollar amount or number of shares to be redeemed
- name on the account
- signatures of all registered account owners
If you hold certificates for your shares, you must include them with your
request. You should send certificates by certified mail. These certificates (and
any stock powers included with your redemption request) must be endorsed and
executed exactly as the Fund shares are registered.
No signature guarantee is required if you are the registered holder and the
redemption proceeds are sent to your address on the Fund's records. A written
redemption request requires a signature guarantee if:
- the Funds do not have the signature of the registered holder on file and
the redemption proceeds are greater than $25,000,
- the redemption proceeds are paid to someone other than the registered
holder, or
- the redemption proceeds are sent to an address other than the address on
the Funds' records.
You may obtain a signature guarantee from a bank, broker-dealer, credit union,
national securities exchange, registered securities association, clearing agency
or savings association. A signature guarantee assures that a signature is
genuine and protects you from unauthorized account transfers.
REDEEMING BY PHONE
Your broker-dealer may place a redemption order by phone if it has a selling
agreement with Investors. The proceeds will be released after the Fund receives
appropriate written materials. If your broker-dealer receives your order prior
to the close of the Exchange and places the order with Investors by the end of
the business day, you will receive that day's price on the order. Some
broker-dealers may charge a fee to process redemptions.
You may also redeem up to $25,000 by calling the Funds at (800) 800-2000, ext.
3012, provided that:
- the check is sent to the address on the Fund's records, and
- you have not changed your address on the Fund's records for at least 30
days.
In addition, you may use the automated Fortis Information Line for redemptions
of $500 - $25,000.
The telephone redemption procedure is automatically available. The Funds will
employ reasonable procedures to confirm that telephone instructions are genuine.
The Funds will not be responsible for any losses that may result from acting on
telephone instructions that they reasonably believe to be genuine. The Funds'
procedures will verify your address and social security number, tape record the
telephone call and provide written confirmation of the transaction. The security
measures for automated telephone redemptions using the Fortis Information Line
involve using a personal identification number and providing written
confirmation of the transaction.
12
<PAGE>
You may have difficulty reaching your broker-dealer, sales representative or the
Funds by telephone during times of chaotic economic or market circumstances. If
you are unable to reach the Funds or their agents by telephone, written
instructions should be sent.
Advisers has the right to change, terminate or impose charges on the telephone
redemption privilege. You will receive at least 30 days notice before any such
change is made.
PAYMENT OF REDEMPTION PROCEEDS
Your redemption proceeds generally will be paid as soon as possible, but not
later than three business days after receipt of a proper redemption request.
However, if your shares were recently purchased with non-guaranteed funds, such
as a personal check, the mailing of your redemption check may be delayed by up
to fifteen days from the date of purchase. If you wish to avoid this delay, you
should consider the wire purchase method described under "How to Buy Shares."
INVOLUNTARY REDEMPTIONS
Each Fund has the right to redeem accounts that fall below $500 as a result of
selling or exchanging shares. If you actively participate in the Funds'
Systematic Investment Plan your account will not be redeemed. Before redeeming
your account, the Fund will mail you a notice of its intention to redeem and
give you an opportunity to make an additional investment. If you do not make an
additional investment within 60 days from the date the notice was mailed, your
account will be redeemed.
SYSTEMATIC WITHDRAWAL PLAN
Each Fund has a Systematic Withdrawal Plan which provides for voluntary
automatic withdrawals of at least $50 monthly, quarterly, semiannually or
annually. Deferred sales charges may apply to monthly redemptions. Confirmations
for redemptions made under the Systematic Withdrawal Plan may be sent to you
quarterly, rather than following each transaction. For further information about
the Systematic Withdrawal Plan, contact your broker-dealer or sales
representative.
REINVESTMENT PRIVILEGE
If you redeem your shares, you may reinvest the proceeds within 60 days without
payment of an additional sales charge. If the shares you redeemed were subject
to a CDSC, that charge will be credited to your account. The reinvested shares
will be subject to the same CDSC that would have applied to the original shares.
For further information, contact your broker-dealer or sales representative.
CONTINGENT DEFERRED SALES CHARGES
If you redeem shares subject to a CDSC, your CDSC will be based on the value of
the shares at the time of purchase or at the time of sale, whichever is less.
The CDSC does not be apply to shares acquired by reinvesting income dividends or
capital gain distributions.
Unless instructed otherwise, the Funds will redeem shares in the following
order:
- Shares not subject to a CDSC and having a higher Rule 12b-1 fee will be
redeemed first.
- Shares not subject to a CDSC and having a lower Rule 12b-1 fee will be
redeemed next.
- Shares subject to a CDSC then will be redeemed in the order purchased.
A CDSC is not imposed:
- When a Fund exercises its right to liquidate accounts which are less than
the minimum account size.
- When shares are redeemed because of a shareholder's death or disability,
as defined in Section 72(m)(7) of the Internal Revenue Code (if
satisfactory evidence is provided to the Fund).
- With respect to Class B and H shares only, to 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.
13
<PAGE>
If you exchange shares subject to a CDSC for shares of a different Fortis Fund,
the transaction is not subject to a CDSC. However, when you redeem the shares
acquired through the exchange, you will be treated as if no exchange took place
for the purpose of determining the CDSC. In addition, a CDSC is not imposed at
the time that Fund shares subject to a CDSC are exchanged for shares of Fortis
Money Fund or at the time those Fortis Money Fund shares are re-exchanged for
shares of any Fortis Fund subject to a CDSC. In each case, however, the shares
acquired will remain subject to the CDSC that would have applied to the original
Fund shares.
DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS
Each Fund declares a daily dividend from its net investment income and pays the
dividend monthly. You will earn dividends starting the day after you purchase
your shares. If you made a telephone purchase, you will earn dividends after
payment is received. Any capital gains distributions are made annually. You will
receive confirmations after each dividend (or quarterly, at Advisers' option).
Dividend and capital gains distributions will be reinvested in additional Fund
shares of the same class (at net asset value). However, you may request that
dividends and/or capital gain distributions be sent to you in cash or reinvested
(at net asset value) in shares of the same class of another Fortis Fund.
Dividends will be paid to you or reinvested in the same Fund on the last
business day of each month at the net asset value. If they are reinvested in
another Fortis Fund, processing normally takes one business day. If you elect
cash payment, a check will be mailed within three business days after the end of
the month. If you withdraw your entire account, all dividends accrued will be
paid at that time.
Prior to purchasing shares of a Fund, you should consider the impact of capital
gains distributions which are expected to be announced, or which have been
announced but not paid. If you purchase shares shortly before the record date
for such a distribution, you will pay the full price for the shares and then
receive a portion of that price back as a distribution, all or a portion of
which may be taxable (to the same extent the distribution is otherwise taxable
to Fund shareholders).
TAX CONSIDERATIONS
Some of the common tax consequences of investing in the Funds are discussed
below. However, because everyone's tax situation is unique, be sure to consult
with your tax adviser.
FEDERAL INCOME TAXATION
TAXES ON DISTRIBUTIONS. Each Fund intends to meet certain federal tax
requirements so that distributions of tax-exempt interest income may be treated
as "exempt-interest dividends." These dividends are not subject to regular
federal income tax. However, each Fund may invest up to 20% of its net assets in
tax-exempt obligations subject to the alternative minimum tax. Any portion of
exempt-interest dividends attributable to interest on these obligations may
increase some shareholders' alternative minimum tax. The Funds expect that their
distributions will consist primarily of exempt-interest dividends. National
Fund's exempt-interest dividends may be subject to state or local taxes.
Distributions paid from any interest income that is not tax-exempt and from any
short-term or long-term capital gains will be taxable whether you reinvest those
distributions or receive them in cash. Distributions paid from a Fund's net
long-term capital gains are taxable to you as long-term capital gains,
regardless of the length of time during which you have held your shares of the
Fund. Information about the tax status of each year's distributions will be
mailed to you annually.
TAXES ON TRANSACTIONS. If you sell or exchange your Fund shares, you will have
a taxable event that may result in a capital gain or loss. The gain or loss will
be considered long-term if you have held your shares for more than one year. A
gain or loss on shares held for one year or less is considered short-term and is
taxed at the same rates as ordinary income.
MINNESOTA INCOME TAXATION
Minnesota Fund intends to comply with certain state tax requirements so that
dividends it pays that are attributable to interest on Minnesota tax-exempt
obligations will be excluded from the Minnesota taxable net income of
individuals, estates and trusts. To meet these requirements, at least 95% of the
exempt-interest dividends paid by the Fund must be derived from interest income
on Minnesota tax-exempt obligations. A portion of each Fund's dividends may be
subject to
14
<PAGE>
the Minnesota alternative minimum tax. Exempt-interest dividends are not
excluded from the Minnesota taxable income of corporations and financial
institutions.
SHAREHOLDER INQUIRIES
You should direct your inquiries to your broker-dealer or sales representative,
or to the Funds at the telephone number or mailing address listed on the cover
of this Prospectus. A $10 fee will be charged for copies of Annual Account
Summaries older than the preceding year.
FUND MANAGEMENT
- -------------------------------------------------------------------
INVESTMENT ADVISER
Fortis Advisers, Inc. ("Advisers") is the investment adviser for the Funds.
Advisers also serves as the Funds' transfer agent and dividend agent. Advisers
has been managing investment company portfolios since 1949. In addition to
providing investment advice, Advisers is responsible for managing each Fund's
business affairs, subject to the overall authority of the Board of Directors.
Advisers' address is that of the Funds.
Each Fund pays Advisers a monthly fee for providing investment advisory
services. During their most recent fiscal year, the Funds paid the following
investment advisory fees to Advisers:
<TABLE>
<CAPTION>
ADVISORY FEE
AS A % OF
AVERAGE DAILY NET
ASSETS
-----------------------
<S> <C>
National Fund.................................................................... 0.77%
Minnesota Fund................................................................... 0.72%
</TABLE>
PORTFOLIO MANAGERS
Howard G. Hudson supervises the portfolio management of the Funds. Robert C.
Lindberg has been primarily responsible for the day-to-day management of the
Funds since 1993.
- Mr. Hudson, an Executive Vice President of Advisers and Head of Fixed
Income Investments of Advisers since 1991, has been managing debt
securities for Fortis, Inc. since that time.
- Mr. Lindberg, a Vice President of Advisers since 1993, has managed debt
securities for Advisers since that time.
15
<PAGE>
MORE INFORMATION ON FUND OBJECTIVES, INVESTMENT
STRATEGIES AND RISKS
- -------------------------------------------------------------------
OBJECTIVES
The Funds' objectives, which are described above under "The Funds," may be
changed without shareholder approval.
INVESTMENT STRATEGIES
The principal investment strategies of the Funds are described above under "The
Funds" and in more detail below. These are the strategies that Advisers believes
are most likely to be important in trying to achieve the Funds' goals. Of
course, there is no guarantee that either Fund will achieve its goal. You should
be aware that each Fund may also use strategies and invest in securities that
are not described below, but that are described in the Statement of Additional
Information.
The overall investment approach of Advisers emphasizes security selection and
duration management and seeks a portfolio which is diversified by industry for
both Funds, and geographically for National Portfolio. Individual securities
should possess appropriate credit quality and liquidity characteristics within
the context of the overall portfolio. Securities should possess a combination of
coupon rate, original issue discount and call protection which will maximize
Fund performance.
Each Fund attempts to maintain the effective duration of its portfolio
securities within a specified range. Effective duration, one measure of interest
rate risk, measures how much the value of a security is expected to change with
a given change in interest rates. The longer a security's effective duration,
the more sensitive its price to changes in interest rates. For example, if
interest rates were to increase by one percentage point, the market value of a
bond with an effective duration of five years would decrease by 5%, with all
other factors being constant. Effective duration is based on assumptions and
subject to a number of limitations. It is most useful when interest rate changes
are small, rapid and occur equally in short-term and long-term securities. In
addition, it is difficult to calculate precisely, especially in the case of a
bond that is callable prior to maturity, and can be greatly affected by interest
rate changes.
Under unusual market circumstances, for temporary defensive purposes each Fund
may invest without limit in assets which are highly defensive in nature,
including U.S. Treasury Bills. Such measures would be utilized to protect the
net asset value of the Fund from severe adverse movements and could result in a
portion of the Fund's regular income distribution being federally taxable.
PORTFOLIO TURNOVER
Portfolio transactions will be undertaken principally to accomplish the Funds'
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 obligations or changes in the investment
objectives of investors.
Investment policies may lead to frequent changes in investments, particularly in
periods of rapidly fluctuating interest rates. A change in securities held by
the Funds is known as "portfolio turnover" and may involve the payment by the
Funds 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 "Financial Highlights" section of this prospectus shows
each Fund's historical portfolio turnover rate.
PRINCIPAL RISKS
The principal risks of investing in the Funds, which are listed above under "The
Funds," are discussed in more detail here. Please remember, you may lose money
if you invest in the Funds.
16
<PAGE>
- INTEREST RATE RISK. Debt securities in the Funds will fluctuate in value
with changes in interest rates. In general, debt securities will increase in
value when interest rates fall and decrease in value when interest rates
rise. Longer term debt securities are generally more sensitive to interest
rate changes. One measure of interest rate risk is duration which is
discussed above.
- STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of
obligations owned by the Funds may be adversely affected by state and 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.
- CREDIT OR DEFAULT RISK. Each Fund is subject to the risk that the issuers
of debt securities held by the Fund will not make payments on the securities
or that the other party to a contract (such as a securities lending
agreement) will default on its obligations. There is also the risk that an
issuer could suffer adverse changes in financial condition that could lower
the credit quality of a security. This could lead to greater volatility in
the price of the security and in shares of the Fund. Also, a change in the
credit quality rating of a bond can affect the bond's liquidity and make it
more difficult for the Fund to sell.
At least 90% of the tax-exempt obligations purchased by each Fund will be
investment grade. However, all of these securities, especially those in the
lower investment grade rating categories, have credit risk. In adverse
economic or other circumstances, issuers of these lower rated securities are
more likely to have difficulty making principal and interest payments than
issuers of higher rated securities. When a Fund purchases unrated
securities, it will depend on Advisers' analysis of credit risk more heavily
than usual.
- CALL RISK. Many municipal bonds may be redeemed ("called") at the option
of the issuer before their stated maturity date. In general, an issuer will
call its bonds if they can be refinanced by issuing new bonds which bear a
lower interest rate. The Funds are subject to the possibility that during
periods of falling interest rates, a bond issuer will call its bonds. A Fund
would then be forced to invest the unanticipated proceeds at lower interest
rates, resulting in a decline in the Fund's income.
- MANAGEMENT RISK. The Funds are actively managed by professionals with
extensive money management experience and expertise. The performance of the
Funds will reflect in part the ability of Advisers to select securities
which are suited to achieving the Funds' investment objectives. Due to their
active management, the Funds could underperform other mutual funds with
similar investment objectives or the market generally.
- YEAR 2000 ISSUES. Like other mutual funds and financial and business
organizations around the world, the Funds could be adversely affected if the
computer systems used by the Funds, Advisers and other service providers and
entities with computer systems that are linked to the Funds' records do not
properly process and calculate date-related information and data from and
after January 1, 2000. The Funds and Advisers and its affiliates are taking
steps that they believe are reasonably designed to address year 2000 issues
with respect to the computer systems they use and to obtain satisfactory
assurances that comparable steps are being taken by each Fund's other major
service providers. However, there can be no assurance that these steps will
be sufficient to avoid any adverse impact on the Funds. In addition, the
prices of securities in which the Funds invest could be adversely affected
by Year 2000 problems experienced by the issuers of those securities.
17
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------
The tables that follow present performance information about each class of
shares of the Funds. This information is intended to help you understand each
Fund's financial performance for the past five years or, if shorter, the period
of the Fund's operations. Some of this information reflects financial results
for a single Fund share. The total returns in the tables represent the rate that
you would have earned or lost on an investment in a Fund, assuming you
reinvested all of your dividends and distributions.
This information has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report, along with the Funds' financial statements, is included
in the Funds' annual report, which is available upon request.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
THREE-MONTH
PERIOD ENDED YEAR ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
--------------------------------------------------- -------------- ------------
NATIONAL PORTFOLIO - CLASS E 1998 1997 1996 1995 1994 1994
- ----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $11.07 $10.76 $10.72 $10.38 $10.46 $11.13
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net............... .52 .55 .56 .58 .15 .60
Net realized and unrealized gains
(losses) on investments............. .34 .31 .04 .36 (.09) (.64)
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations................... .86 .86 .60 .94 .06 (.04)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.......... (.51) (.55) (.56) (.59) (.14) (.59)
From net realized gains on
investments......................... (.04) -- -- (.01) -- (.04)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders..... (.55) (.55) (.56) (.60) (.14) (.63)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.......... $11.38 $11.07 $10.76 $10.72 $10.38 $10.46
- -----------------------------------------------------------------------------------------------------------------------------
Total return@........................... 7.97% 8.19% 5.69% 9.30% .59% (.49%)
Net assets end of period (000s
omitted)............................... $56,959 $59,727 $65,237 $ 70,531 $ 74,877 $76,746
Ratio of expenses to average daily net
assets................................. .98% .95% .93% 1.03% .87%* .87%
Ratio of net investment income to
average daily net assets............... 4.65% 5.03% 5.19% 5.54% 5.74%* 5.38%
Portfolio turnover rate................. 74% 71% 52% %35 17% 25%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
------------------------------------- -------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
NATIONAL PORTFOLIO 1998 1997 1996 1995+ 1998 1997 1996 1995+
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $11.06 $10.75 $10.71 $9.79 $11.05 $10.74 $10.70 $9.79
- ---------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .50 .53 .53 .49 .42 .44 .45 .42
Net realized and unrealized gains on
investments................................... .34 .31 .04 .94 .34 .31 .04 .93
- ---------------------------------------------------------------------------------------------------------------------------------
Total from operations............................. .84 .84 .57 1.43 .76 .75 .49 1.35
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.49) (.53) (.53) (.50) (.41) (.44) (.45) (.43)
From net realized gains on investments.......... (.04) -- -- (.01) (.04) -- -- (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.53) (.53) (.53) (.51) (.45) (.44) (.45) (.44)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.................... $11.37 $11.06 $10.75 $10.71 $11.36 $11.05 $10.74 $10.70
- ---------------------------------------------------------------------------------------------------------------------------------
Total return@..................................... 7.75% 7.96% 5.46% 14.80% 6.95% 7.14% 4.65% 13.96%
Net assets end of period (000s omitted)........... $8,308 $7,263 $6,239 $1,807 $1,493 $1,287 $ 997 $ 668
Ratio of expenses to average daily net assets..... 1.23% 1.20% 1.18% 1.28%* 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income to average daily
net assets....................................... 4.40% 4.78% 4.97% 5.03%* 3.65% 4.02% 4.20% 4.04%*
Portfolio turnover rate........................... 74% 71% 52% 35% 74% 71% 52% 35%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the total returns during the periods, including reinvestment of all
dividend and capital gains distributions without adjustment for sales charge.
18
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CLASS C
------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
NATIONAL PORTFOLIO 1998 1997 1996 1995+
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 11.04 $ 10.74 $ 10.70 $ 9.79
- ----------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .41 .43 .45 .43
Net realized and unrealized gains on
investments................................... .34 .31 .04 .92
- ----------------------------------------------------------------------------------------------
Total from operations............................. .75 .74 .49 1.35
- ----------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.41) (.44) (.45) (.43)
From net realized gains on investments.......... (.04) -- -- (.01)
- ----------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.45) (.44) (.45) (.44)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period.................... $ 11.34 $ 11.04 $ 10.74 $ 10.70
- ----------------------------------------------------------------------------------------------
Total return@..................................... 6.86% 7.04% 4.65% 13.95%
Net assets end of period (000s omitted)........... $ 493 $ 584 $ 223 $ 106
Ratio of expenses to average daily net assets..... 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income to average daily
net assets....................................... 3.65% 4.05% 4.20% 4.14%*
Portfolio turnover rate........................... 74% 71% 52% 35%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CLASS H
------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
NATIONAL PORTFOLIO 1998 1997 1996 1995+
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 11.06 $ 10.75 $ 10.71 $ 9.79
- ----------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .40 .44 .45 .43
Net realized and unrealized gains on
investments................................... .34 .31 .04 .93
- ----------------------------------------------------------------------------------------------
Total from operations............................. .74 .75 .49 1.36
- ----------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.41) (.44) (.45) (.43)
From net realized gains on investments.......... (.04) -- -- (.01)
- ----------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.45) (.44) (.45) (.44)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period.................... $ 11.35 $ 11.06 $ 10.75 $ 10.71
- ----------------------------------------------------------------------------------------------
Total return@..................................... 6.76% 7.13% 4.64% 14.06%
Net assets end of period (000s omitted)........... $ 6,099 $ 5,111 $ 4,015 $ 1,757
Ratio of expenses to average daily net assets..... 1.98% 1.95% 1.93% 2.03%*
Ratio of net investment income to average daily
net assets....................................... 3.65% 4.03% 4.20% 4.24%*
Portfolio turnover rate........................... 74% 71% 52% 35%
- ----------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the total returns during the periods, including reinvestment of all
dividend and capital gains distributions without adjustment for sales charge.
19
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
THREE-MONTH
PERIOD ENDED YEAR ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
----------------------------------------- ------------- ----------
MINNESOTA PORTFOLIO - CLASS E 1998 1997 1996 1995 1994 1994
- --------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $10.46 $10.28 $10.32 $10.08 $10.15 $10.65
- --------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .52 .53 .55 .57 .15 .59
Net realized and unrealized gains (losses) on
investments................................... .32 .18 (.04) .24 (.08) (.51)
- --------------------------------------------------------------------------------------------------------------------------
Total from operations............................. .84 .71 .51 .81 .07 .08
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.52) (.53) (.55) (.57) (.14) (.58)
From net realized gains on investments.......... (.01) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.53) (.53) (.55) (.57) (.14) (.58)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.................... $10.77 $10.46 $10.28 $10.32 $10.08 $10.15
- --------------------------------------------------------------------------------------------------------------------------
Total return@..................................... 8.25% 7.10% 5.01% 8.35% .72% .64%
Net assets end of period (000s omitted)........... $42,170 $43,584 $49,262 $52,603 $54,560 $54,854
Ratio of expenses to average daily net assets..... .91% .96% .93% .98% .85%* .85%
Ratio of net investment income to average daily
net assets....................................... 4.94% 5.14% 5.34% 5.60% 5.69%* 5.51%
Portfolio turnover rate........................... 55% 61% 41% 27% 8% 11%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
------------------------------------- -------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
MINNESOTA PORTFOLIO 1998 1997 1996 1995+ 1998 1997 1996 1995+
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $10.43 $10.26 $10.30 $9.55 $10.42 $10.24 $10.27 $9.55
- ------------------------------------------------------------------------------------------------------------------
Operations:
Investment income - net.......... .49 .50 .52 .48 .41 .42 .45 .41
Net realized and unrealized gains
(losses) on investments........ .32 .18 (.04) .76 .32 .18 (.04) .73
- ------------------------------------------------------------------------------------------------------------------
Total from operations.............. .81 .68 .48 1.24 .73 .60 .41 1.14
- ------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net..... (.49) (.51) (.52) (.49) (.41) (.42) (.44) (.42)
From net realized gains on
investments.................... (.01) -- -- -- (.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders...................... (.50) (.51) (.52) (.49) (.42) (.42) (.44) (.42)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period..... $10.74 $10.43 $10.26 $10.30 $10.73 $10.42 $10.24 $10.27
- ------------------------------------------------------------------------------------------------------------------
Total return@...................... 8.13% 6.66% 4.78% 13.15% 7.18% 6.01% 4.04% 12.10%
Net assets end of period (000s
omitted).......................... $3,170 $3,689 $1,822 $ 884 $1,271 $1,301 $1,109 $ 180
Ratio of expenses to average daily
net assets........................ 1.16% 1.21% 1.18% 1.23%* 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to
average daily net assets.......... 4.69% 4.89% 5.07% 5.10%* 3.94% 4.14% 4.34% 4.37%*
Portfolio turnover rate............ 55% 61% 41% 27% 55% 61% 41% 27%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the total returns during the periods, including reinvestment of all
dividend and capital gains distributions without adjustment for sales charge.
20
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CLASS C
------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
MINNESOTA PORTFOLIO 1998 1997 1996 1995+
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 10.44 $ 10.26 $ 10.30 $ 9.55
- ----------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .39 .42 .44 .42
Net realized and unrealized gains (losses) on
investments................................... .32 .18 (.04) .75
- ----------------------------------------------------------------------------------------------
Total from operations............................. .71 .60 .40 1.17
- ----------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.41) (.42) (.44) (.42)
From net realized gains on investments.......... (.01) -- -- --
- ----------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.42) (.42) (.44) (.42)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period.................... $ 10.73 $ 10.44 $ 10.26 $ 10.30
- ----------------------------------------------------------------------------------------------
Total return@..................................... 6.97% 6.00% 4.00% 12.31%
Net assets end of period (000s omitted)........... $ 194 $ 232 $ 210 $ 143
Ratio of expenses to average daily net assets..... 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to average daily
net assets....................................... 3.94% 4.14% 4.31% 4.28%*
Portfolio turnover rate........................... 55% 61% 41% 27%
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CLASS H
------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------
MINNESOTA PORTFOLIO 1998 1997 1996 1995+
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 10.44 $ 10.26 $ 10.30 $ 9.55
- ----------------------------------------------------------------------------------------------
Operations:
Investment income - net......................... .42 .42 .44 .41
Net realized and unrealized gains (losses) on
investments................................... .32 .18 (.04) .76
- ----------------------------------------------------------------------------------------------
Total from operations............................. .74 .60 .40 1.17
- ----------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income - net.................... (.41) (.42) (.44) (.42)
From net realized gains on investments.......... (.01) -- -- --
- ----------------------------------------------------------------------------------------------
Total distributions to shareholders............... (.42) (.42) (.44) (.42)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period.................... $ 10.76 $ 10.44 $ 10.26 $ 10.30
- ----------------------------------------------------------------------------------------------
Total return@..................................... 7.26% 6.00% 3.93% 12.42%
Net assets end of period (000s omitted)........... $ 1,458 $ 1,227 $ 1,061 $ 638
Ratio of expenses to average daily net assets..... 1.91% 1.96% 1.93% 1.98%*
Ratio of net investment income to average daily
net assets....................................... 3.94% 4.14% 4.33% 4.29%*
Portfolio turnover rate........................... 55% 61% 41% 27%
- ----------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ For the period from November 14, 1994 (commencement of operations) to
September 30, 1995.
@ These are the total returns during the periods, including reinvestment of all
dividend and capital gains distributions without adjustment for sales charge.
21
<PAGE>
FORTIS-SM-
ACCOUNT APPLICATION
Complete this application to open a new Fortis
account or to add services to an existing Fortis
Mail to: account. For personal service, please call your
FORTIS MUTUAL FUNDS investment professional or Fortis customer service
CM-9614 at 1-800-800-2000, ext. 3012. Submission of an
St. Paul, MN 55170-9614 incomplete application may cause processing delays.
DO NOT USE TO OPEN A FORTIS IRA, SEP, 403(B) OR
FORTIS MONEY FUND ACCOUNT.
________________________________________________________________________________
1 ACCOUNT INFORMATION
________________________________________________________________________________
Please provide the information requested below:
/ /INDIVIDUAL: Please print your name, Social Security number, U.S. citizen
status.
/ /JOINT TENANT: List all names, one Social Security number, one U.S. citizen
status.
/ /UNIFORM GIFT/TRANSFER TO MINORS: Provide name of custodian (ONLY ONE) and
minor, minor's Social Security number, minor's U.S. citizen status and date
of birth of minor.
/ /TRUST: List trustee and trust title, including trust date, trust's Taxpayer
ID number; also include a photocopy of the first and last page of the trust
agreement.
/ /CORPORATION, ASSOCIATION, PARTNERSHIP: Include full name, Taxpayer ID number.
/ /FORTIS KEY PLAN: Include Social Security number.
/ /QUALIFIED PLAN: Include name of Plan and trustee, Plan's Taxpayer ID number.
/ / OTHER: _____________________________________________________________________
- ---------------------------------------------------------------
Owner (Individual, 1st Joint Tenant, Custodian, Trustee) (Please print)
- ------------------------------------------------------------------------
Owner (2nd Joint Tenant, Minor, Trust Name) (Please print)
- ------------------------------------------------------------------------
Additional information, if needed
- ------------------------------------------------------------------------
Street address
- ------------------------------------------------------------------------
City State Zip
- ------------------------------------------------------------------------
Social Security number (Taxpayer ID)
( )
- ---------------------------------------------------------------
Daytime phone Date of birth
(Uniform Gift/Transfer to Minors)
Date of Trust (if applicable) __________________________________________________
Are you a U.S. citizen? / / Yes / / No
If no, country of permanent residence __________________________________________
95749 (11/98)
________________________________________________________________________________
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 who are exempt from the
sales charge. 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).
The Fortis logo and Fortis-SM- are servicemarks of Fortis AMEV and Fortis AG
<PAGE>
________________________________________________________________________________
5 SIGNATURE & CERTIFICATION
________________________________________________________________________________
I have received and read each appropriate fund prospectus and understand that
its terms are incorporated by reference into this application. I am of legal age
and legal capacity.
I understand that this application is subject to acceptance by Fortis Investors,
Inc.
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:
(1) THE SOCIAL SECURITY NUMBER OR TAXPAYER ID NUMBER PROVIDED IS CORRECT; AND
(CROSS OUT THE FOLLOWING IF NOT TRUE)
(2) THAT THE IRS HAS NEVER NOTIFIED ME THAT I AM SUBJECT TO 31% BACKUP
WITHHOLDING, OR HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO SUCH BACKUP
WITHHOLDING.
Each person signing on behalf of any entity represents that his or her actions
are authorized. It is agreed that all Fortis Funds, Fortis Investors, Fortis
Advisers and their officers, directors, agents and employees will not be liable
for any loss, liability, damage or expense for relying upon this application or
any instruction believed genuine.
IF YOU ARE NOT SIGNING AS AN INDIVIDUAL, STATE YOUR TITLE OR CAPACITY (INCLUDE
APPROPRIATE DOCUMENTS VERIFYING YOUR CAPACITY).
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
AUTHORIZED SIGNATURE(S)
X
- ---------------------------------------------------------------
Owner, Custodian, Trustee Date
X
- ---------------------------------------------------------------
Joint Owner, Trustee Date
________________________________________________________________________________
6 DEALER/REPRESENTATIVE INFORMATION
________________________________________________________________________________
- --------------------------------------------------
Representative's name (please print)
- ------------------------------------------------------------------------
Name of Broker/Dealer
- ------------------------------------------------------------------------
Branch Office address
- ------------------------------------------------------------------------
Representative's signature
( )
- ------------------------------------------------------------------------
Representative's number Representative's Phone Number
- ------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF BROKER/DEALER
________________________________________________________________________________
7 DISTRIBUTION OPTIONS
________________________________________________________________________________
If no option is selected, all distributions will be reinvested in the same
Fortis fund(s) selected above. Please note that distributions can only be
reinvested in the SAME CLASS.
/ / Reinvest dividends and capital gains
/ / Dividends in cash and reinvest capital gains (See Section 9 for payment
options.)
/ / Dividends and capital gains in cash (See Section 9 for payment options.)
/ / Distributions into another Fortis fund (must be SAME CLASS).
____________________________________________________________________________
Fund Name Fund/Account # (if existing account)
________________________________________________________________________________
8 SYSTEMATIC EXCHANGE PROGRAM
________________________________________________________________________________
Fortis' Systematic Transfer Program allows you to transfer money from any Fortis
fund, in which you have a current balance of at least $1,000, into any other
Fortis fund (maximum of three), on a monthly basis. The minimum amount for each
transfer is $50. Generally, transfers between funds must be within the SAME
CLASS. See prospectus for details.
- ------------------------------------------------------------------------
Fund from which shares will be exchanged: Effective Date
FUND(S) TO RECEIVE INVESTMENT(S):
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Fund Amount to invest monthly
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
________________________________________________________________________________
9 WITHDRAWAL OPTIONS
________________________________________________________________________________
A. CASH DIVIDENDS
PLEASE FORWARD THE PAYMENT TO:
<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)
/ / Via U.S. Mail
/ / Via ACH (electronic transfer)
/ / My address of record.
</TABLE>
B. SYSTEMATIC WITHDRAWAL PLAN
Please consult your financial or tax adviser before electing a Systematic
Withdrawal Plan.
Please redeem shares from my Fortis ______________________________________ Fund,
account number _______________________ in the amount of $______________________.
Effective Withdrawal Date __________________
<TABLE>
<S> <C> <C> <C>
FREQUENCY: / / Monthly / / Semi-Annually
/ / Quarterly / / Annually
</TABLE>
PLEASE FORWARD THE PAYMENT TO:
<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)
/ / Via U.S. Mail
/ / Via ACH (electronic transfer)
/ / My address of record.
</TABLE>
C. TELEPHONE OPTIONS
/ / TELEPHONE EXCHANGE. All exchanges must be into accounts having the identical
registration-ownership. All authorized signatures listed in Section 5 (or
your registered representative with shareholder consent) can make telephone
transfers.
/ / TELEPHONE REDEMPTION ($25,000 LIMIT AND NOT AVAILABLE FOR QUALIFIED PLANS)
This option allows all authorized signatures in Section 5 (or your
registered representative with shareholder consent) to redeem up to $25,000
from your Fortis account.
PLEASE FORWARD THE PAYMENT TO:
<TABLE>
<S> <C>
/ / My Bank. (Please complete Bank Information in
Section D, and choose one option below. Payment
will be sent via U.S. Mail if neither option is
checked.)
/ / Via U.S. Mail
/ / Via ACH (electronic transfer)
/ / My address of record.
</TABLE>
<PAGE>
(WITHDRAWAL OPTIONS, CONTINUED)
D. BANK INFORMATION
I request Fortis Financial Group (FFG) to pay sums due me by crediting my bank
account in the form of electronic entries. This authorization will remain in
effect until I notify FFG.
TYPE OF ACCOUNT: / / Checking / / Savings
Bank name ______________________________________________________________________
Address ________________________________________________________________________
City, State, Zip _______________________________________________________________
Name of bank account ___________________________________________________________
Bank account number ____________________________________________________________
Bank transit number ____________________________________________________________
Bank phone number ______________________________________________________________
ATTACH A VOIDED CHECK FROM YOUR BANK CHECKING ACCOUNT
________________________________________________________________________________
10 REDUCED FRONT-END SALES CHARGES
________________________________________________________________________________
A. RIGHT OF ACCUMULATION
/ / I own shares of more than one fund in the Fortis Family of Funds, which may
entitle me to a reduced sales charge.
- --------------------------------------------------------------------------------
Name on account Account number
- --------------------------------------------------------------------------------
Name on account Account number
- --------------------------------------------------------------------------------
Name on account Account number
B. STATEMENT OF INTENT
I agree to invest $_________ over a 13-month period beginning ____________ (not
more than 90 days prior to this application). I understand that an additional
sales charge must be paid if I do not complete my purchase.
________________________________________________________________________________
11 PRIVILEGED ACCOUNT SERVICE
________________________________________________________________________________
Fortis' Privileged Account Service systematically rebalances your funds back to
your original specifications ($10,000 minimum per account). All funds must be
within the SAME CLASS.
Frequency: / / quarterly / / semi-annually / / annually
<TABLE>
<S> <C> <C>
Fund Selected Percentage
(up to 5) (whole %)
1)
------------------------- ---------------
2)
------------------------- ---------------
3)
------------------------- ---------------
4)
------------------------- ---------------
5)
------------------------- ---------------
</TABLE>
________________________________________________________________________________
12 SUITABILITY
________________________________________________________________________________
NOTE: Must be completed with each fund application unless you provide
suitability information to your broker/dealer on a different form.
State In Which Application Was Signed ______________________________________
- --------------------------------------------------------------------------------
Employer
- --------------------------------------------------------------------------------
Business Address
- --------------------------------------------------------------------------------
City, State, ZIP
- --------------------------------------------------------------------------------
Occupation Age (optional)
Is customer associated with or employed by another
NASD member? / / Yes / / No
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Please mark one box under ESTIMATED
ESTIMATED ANNUAL INCOME ESTIMATED NET
and one box under ANNUAL WORTH
ESTIMATED NET WORTH INCOME (Exclusive of
(All Sources) Family Residence)
- --------------------------------------------------------------------------------
under $10,000
- --------------------------------------------------------------------------------
$10,000 - $25,000
- --------------------------------------------------------------------------------
$25,000 - $50,000
- --------------------------------------------------------------------------------
$50,000 - $100,000
- --------------------------------------------------------------------------------
$100,000 - $500,000
- --------------------------------------------------------------------------------
$500,000 - $1,000,000
- --------------------------------------------------------------------------------
Over $1,000,000
- --------------------------------------------------------------------------------
Declined
- --------------------------------------------------------------------------------
</TABLE>
Source of Funds
- --------------------------------------------------------------------------------
ESTIMATED FEDERAL TAX BRACKET
/ / 15% / / 28% / / 31% / / 36% / / 39.6% / / Declined
INVESTMENT OBJECTIVES
/ / Growth (long-term capital appreciation)
/ / Income (cash generating)
/ / Tax-free Income
/ / Diversification
/ / Other (please specify) _________________________________________
Did you use a Fortis Asset Allocation model? / / Yes / / No
________________________________________________________________________________
13 SYSTEMATIC INVESTMENT PLAN
________________________________________________________________________________
Complete the Automated Clearing House (ACH) Authorization Agreement Form 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>
<TABLE>
<S> <C>
FORTIS BENEFITS INSURANCE COMPANY FORTIS-SM-
Fortis Advisers, Inc. (fund management since 1949)
Fortis Investors, Inc. (principal underwriter; member NASD, SIPC)
Fortis Benefits Insurance Company & Fortis Insurance Company
(issuers of FFG's insurance products)
P.O. Box 64284, St. Paul, MN 55164-0284 (800) 800-2000
http://www.ffg.us.fortis.com
</TABLE>
FORTIS MUTUAL FUND AUTOMATED CLEARING
HOUSE (ACH) AUTHORIZATION AGREEMENT
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) 800-2000, extension 3012. For investment
options, complete sections 1, 2, 3, 5. For withdrawal, complete sections 1, 2,
4, 5.
1. FORTIS ACCOUNT INFORMATION
Account registration:
- -----------------------------------------------------------------
Owner (individual, first joint tenant, custodian, trustee)
- ---------------------------------------------------------------------------
Owner (second joint tenant, minor, trust name)
- ---------------------------------------------------------------------------
Additional information, if needed
- ---------------------------------------------------------------------------
Street address
- ---------------------------------------------------------------------------
City State Zip
<TABLE>
<S> <C>
- ------------------------------------------------- ------------------------
Social security number (taxpayer I.D.) Daytime phone
</TABLE>
2. BANK/FINANCIAL INSTITUTION INFORMATION
<TABLE>
<S> <C> <C>
PLAN TYPE: / / New plan / / Bank change
ACCOUNT TYPE: / / Savings / / Checking
(must attach a voided (must attach a deposit
check) slip)
</TABLE>
- --------------------------------------------------------------------------------
Transit number
- ---------------------------------------------------------------------------
Bank account number
- ---------------------------------------------------------------------------
Account owner(s) (please print)
- ---------------------------------------------------------------------------
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
3. INVESTMENT OPTION(S)
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 days for collected funds to be
available in your Fortis account.
<TABLE>
<S> <C> <C>
A. / / Invest via Fortis Information Line by phone
(minimum $100, maximum $25,000)
Please allow up to four business days for deposits 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
C. / / Beginning draft date: --------------------------------------
D. / / Account number: -----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fund
Class Amount
A B C H $25.00 per fund minimum
-----------
<S> <C> <C>
/ / / / / / / /
- -------------------------- --------------------------
/ / / / / / / /
- -------------------------- --------------------------
/ / / / / / / /
- -------------------------- --------------------------
/ / / / / / / /
- -------------------------- --------------------------
</TABLE>
4. WITHDRAWAL OPTION(S)
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
from Fortis Fund(s) requires account owner(s) signature(s) - see section 5
(Please consult your financial or tax adviser before electing a systematic
withdrawal plan. For tax-qualified accounts, additional forms are required for
distribution.)
<TABLE>
<S> <C> <C>
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
D. / / Beginning withdrawal date:
E. / / Account number: -----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fund
Class Amount
A B C H $25.00 per fund minimum
-----------
<S> <C> <C>
/ / / / / / / /
- -------------------------- --------------------------
/ / / / / / / /
- -------------------------- --------------------------
/ / / / / / / /
- -------------------------- --------------------------
/ / / / / / / /
- -------------------------- --------------------------
</TABLE>
5. 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
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
---------------
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO, 3794
MINNEAPOLIS, MN
---------------
[LOGO]
FORTIS FINANCIAL GROUP:
P.O. Box 64284
St. Paul, Minnesota 55164-0284
Prospectus
Dated December 1, 1998
- - Fortis Tax-Free National Portfolio
- - Fortis Tax-Free Minnesota Portolio
SEC file numbers: 811-03498
[LOGO]
FORTIS FINANCIAL GROUP
Fortis Advisers, Inc. (fund management since 1949)
Fortis Investors, Inc. (principal underwriter; member NASD, SIPC)
Fortis Benefits Insurance Company & Fortis Insurance Company (issuers of FFG's
insurance products)
P.O. Box 64284 - St. Paul, MN 55164-0284 - (800) 800-2000
http://www.ffg.us.fortis.com
98301 -C-Fortis 11/98
More information about the Funds is available in the Funds' Statement of
Additional Information (SAI) and annual and semiannual reports.
- - STATEMENT OF ADDITIONAL INFORMATION. The SAI provides more details about
the Funds and their policies. A current SAI is on file with the Securities
and Exchange Commission (SEC) and is incorporated into this Prospectus by
reference, which means that it is legally considered part of this
Prospectus.
- - ANNUAL AND SEMIANNUAL REPORTS. Additional information about Funds'
investments is available in the Funds' annual and semiannual reports to
shareholders. In the Funds' annual report, you will find a discussion of
the market conditions and investment strategies that significantly affected
the Funds' performance during their last fiscal year.
You can obtain a free copy of the Funds' SAI and/or free copies of the Funds'
most recent annual or semiannual reports by calling (800) 800-2000, extension
3012. The material you request will be sent by first-class mail, or other means
designed to ensure equally prompt delivery, within three business days of
receipt of request.
You can also obtain copies by visiting the SEC's public reference room in
Washington DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington DC 20549-6009. For more information, call
(800) SEC-0330.
Information about the Funds is available on the Internet. Text-only versions of
the Fund documents can be viewed online or downloaded from the SEC's Internet
site at http://www.sec.gov.
The Fortis logo and Fortis-SM- are servicemarks of Fortis AMEV and Fortis AG.
<PAGE>
NATIONAL PORTFOLIO
MINNESOTA PORTFOLIO
EACH A SERIES OF FORTIS TAX-FREE PORTFOLIOS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 1999
National Portfolio ("National Fund") and Minnesota Portfolio (Minnesota
Fund") are collectively referred to as the "Funds." This Statement of Additional
Information is NOT a prospectus. Information from the Funds' prospectus dated
February 1, 1999 is incorporated by reference into this Statement of Additional
Information. 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: (651) 738-4000. Toll Free
(800) 800-2000 (x3012).
No broker-dealer, sales representative, or other person has been
authorized to give any information or to make any representations other than
those contained in this Statement of Additional Information, and if given or
made, such information or representations must not be relied upon as having been
authorized by the Funds 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Fund History 3
Description of the Funds 3
Investment Policies and Restrictions 3
Investment Practices and Risk Considerations 6
Management of the Funds 17
Principal Holders of Securities 21
Investment Advisory and Other Services 22
Brokerage Allocation and Other Practices 25
Capital Stock 28
Pricing of Shares 29
Purchase of Shares 31
Redemption of Shares 33
Taxation 35
Underwriter and Distribution of Shares 37
Performance Information 38
Tax-Exempt versus Taxable Income 41
Financial Statements 42
Other Service Providers 42
Limitation of Director Liability 42
Additional Information 43
Appendix A
Description of Futures, Options and Forward Contracts 44
</TABLE>
1
<PAGE>
FUND HISTORY
National Fund and Minnesota Fund are portfolios of Fortis Tax-Free
Portfolios, Inc. ("Fortis Tax-Free") which was incorporated in Minnesota in
1986. National Fund and Minnesota Fund each commenced operations on March 17,
1986.
DESCRIPTION OF THE FUNDS
Fortis Tax-Free is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (the "1940 Act") as open-end
diversified management investment company. Fortis Tax-Free currently consists of
two separate investment portfolios. As a fundamental policy, each Fund operates
as a "diversified" investment company as defined under the 1940 Act, which means
that it must meet the following requirements:
At least 75% of the value of the Fund's total assets will be
represented by cash and cash items (including receivables), Government
securities, securities of other investment companies, and other
securities for the purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value
of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of such issuer.
Fortis Tax-Free may establish other portfolios, each corresponding to a
distinct investment portfolio and a distinct series of their common stock.
INVESTMENT POLICIES AND RESTRICTIONS
Each Fund's investment objective and, except as otherwise noted, the
policies by which each Fund seeks to achieve its objective, may be changed
without the approval of shareholders. No changes are contemplated at this time,
but a change in investment objective or policies could result in a Fund no
longer being appropriate for an investor.
Any investment policy or restriction in the Prospectus or this
Statement of Additional Information which involves a maximum percentage of
securities or assets except those dealing with borrowing and illiquid
securities, 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.
Some investment policies and restrictions are fundamental and may be
changed only by the approval of a majority of a Fund's shareholders. In this
situation, majority means the lesser of (i) 67% of the Fund's outstanding shares
present at a meeting of the holders if more than 50% of the outstanding shares
are present in person or by proxy or (ii) more than 50% of the Fund's
outstanding shares.
INVESTMENT POLICIES -- NATIONAL FUND
<PAGE>
National Fund will seek to achieve its investment objectives by
investing primarily in Tax Exempt Bonds. For purposes of the National Fund, "Tax
Exempt Bonds" means any debt obligation generating interest income that is, in
the opinion of bond counsel, exempt from federal income tax. National Fund 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.
As a policy which may not be changed without shareholder approval
(except for defensive purposes), National Fund 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.
INVESTMENT POLICIES -- MINNESOTA FUND
Minnesota Fund will seek to achieve its investment objectives by
investing primarily in Tax Exempt Bonds. For purposes of the Minnesota Fund,
"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. Minnesota Fund will invest primarily in
securities which are issued by the State of Minnesota, its agencies,
instrumentalities and political subdivisions.
As a policy which may not be changed without shareholder approval
(except for defensive purposes), Minnesota Fund 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 Fund will be derived from interest income on obligations of the State
of Minnesota or its political or governmental subdivisions, municipalities,
governmental agencies or instrumentalities.).
RATINGS OF SECURITIES
A policy which may not be changed without shareholder approval is that
at least 90% of the Tax Exempt Bonds purchased by each Fund 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. ("Moody's") (Aaa, Aa, A or Baa) or Standard & Poor's Ratings
Services ("Standard & Poor's") (AAA, AA, A or BBB) or will be 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 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
<PAGE>
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.
The Fund may invest up to 10% of its total assets in Tax Exempt Bonds
rated below investment grade, but no lower than Caa as determined by Moody's and
CCC as determined by S&P, or comparably rated by another nationally recognized
rating agency. Securities in the Caa/CCC rating categories are considered to be
of poor standing and are predominantly speculative Additionally, investments in
securities rated Caa or CCC involve significant risk exposure to adverse
conditions. Such securities may be in default, or there may be present elements
of danger with respect to the payment of principal or interest.
The Funds may retain a security whose rating has changed if the
security otherwise meets the Fund's 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 Funds are free to invest in securities of any
maturity, it is expected that the average maturity of the Funds will generally
range from six to twenty years.
INVESTMENT RESTRICTIONS -- NATIONAL FUND AND MINNESOTA FUND
The following investment restrictions are fundamental and may be
changed only by the approval of shareholders. Neither Fund will:
(1) 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.
(2) Invest directly in real estate or interests in real estate;
however, the Funds 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.
(3) Act as an underwriter of securities of other issuers, except
to the extent that, in connection with the disposition of
portfolio securities, the Fund may be deemed an underwriter
under applicable laws.
(4) Purchase securities on margin or otherwise borrow money or
issue senior securities, except that the Fund, in accordance
with its investment objectives and policies, may purchase
securities on a when-issued, delayed delivery, or forward
commitment basis (including the entering into of "roll"
transactions). The Fund may also obtain such short-term credit
as it needs for the clearance of securities
<PAGE>
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 Fund's total assets. Investment securities will not be
purchased while outstanding bank borrowings (including "roll"
transactions) exceed 5% of the value of the Fund's total
assets.
(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 Fund
includes the amount lent as well as the collateral securing
such loans.)
The following investment restrictions may be changed without
shareholder approval. Neither Fund will:
(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.
(2) Invest more than 15% of its net assets in all forms of
illiquid investments.
(3) Make short sales, except for sales "against the box."
(4) Mortgage, pledge, or hypothecate its assets, except to the
extent necessary to secure permitted borrowings.
(5) Invest in real estate investment trusts.
(6) Buy securities of any issuer for the purpose of exercising
control or management.
(7) Enter into any options, futures, or forward contract
transactions if immediately thereafter (a) the amount of
premiums paid for all options, initial margin deposits on all
futures contracts and/or options on futures contracts, and
collateral deposited with respect to forward contracts held by
or entered into by the Fund would exceed 5% of the value of
the total assets of the Fund or (b) the Fund's assets
covering, subject to, or committed to all options, futures,
and forward contracts would exceed 20% of the value of the
total assets of the Fund.
INVESTMENT PRACTICES AND RISK CONSIDERATIONS
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,
<PAGE>
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 Fund, State of Minnesota income taxation (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 Funds do 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 a 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 Funds, particular Tax Exempt Bonds or other
investments
<PAGE>
may cease to be rated or their ratings may be reduced below the minimum rating
required for purchase by the Funds. Neither event will require the elimination
of an investment from a Fund, but Advisers will consider such an event in its
determination of whether the Fund should continue to hold such an investment.
As a fundamental policy, each Fund will not invest 25% or more 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. These refunded municipal bonds will however be counted toward the 80%
policy described under "Investment Policies."
Securities in which the Funds 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 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.
For the purpose of diversification under the 1940 Act, the
identification of the issuer of a Tax Exempt Bond 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
Fund exceeds 10% of the value of the Fund's total assets, the guarantee will be
considered a separate security and will be treated as an issue of the guarantor.
SPECIAL CONSIDERATIONS RELATING TO MINNESOTA TAX EXEMPT BONDS
Minnesota's constitutionally prescribed fiscal period is a biennium,
and the state operates
<PAGE>
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 1999 Forecast projects that, under current laws, the State will
complete its current biennium June 30, 1999 with an unrestricted balance of $953
million, plus a $350 million cash flow account balance, plus a $622 million
budget reserve. Total General Fund expenditures and transfers for the biennium
are projected to be $21.6 billion. 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. 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.
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.
HIGH YIELD/HIGH RISK SECURITIES
While at least 90% of each Fund 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.
<PAGE>
The high yield/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 Funds 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 Fund defaulted, such Fund 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 Fund'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 yield/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 Funds would have to replace the security with a lower-yielding
security, resulting in a decreased return for investors. Conversely, a high
yield/ high risk security's value will decrease in a rising interest rate
market, as will the value of such Fund's assets. If the Funds 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 Funds' expenses can be spread and possibly reducing the rate of return.
To the extent that there is no established secondary market, there may
be thin trading of high yield/high risk securities. This may adversely affect
the ability of the Board of Directors to accurately value such securities and a
Fund's assets, and the Funds' 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 yield/high risk securities purchased by the
Funds 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 yield/high risk securities. For example, credit ratings
evaluate the safety of principal and interest
<PAGE>
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 Funds
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 Funds can meet redemption requests. The achievement of the
investment objective of the Funds may be more dependent upon Advisers' own
credit analysis than is the case for higher quality bonds. Also, the Funds may
retain a portfolio security whose rating has been changed if the security
otherwise meets the Fund's investment objective and investment criteria.
FLOATING AND VARIABLE RATE SECURITIES
The Funds 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 Fund, Minnesota
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.
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 Funds may enter into such forward commitments if the Funds hold,
and maintain until the settlement date in a segregated account, cash or any
security that is not considered restricted or illiquid, equal to the value of
the when-issued or forward commitment securities and marked to market daily.
There is no percentage limitation on the Funds' 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 Fund to risk because the
securities may decrease in value prior to their delivery. Purchasing securities
on a when-issued, delayed delivery or forward commitment basis involves the
additional risk that the return available in the
<PAGE>
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 Fund's
net asset value to the extent that such Fund purchases securities on a
when-issued, delayed delivery or forward commitment basis while remaining
substantially fully invested. There is also a risk that the securities may not
be delivered or that a Fund may incur a loss or will have lost the opportunity
to invest the amount set aside for such transaction in the segregated asset
account. Although the Funds 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 Funds may realize short-term profits or losses upon the sale of
forward commitments.
VARIABLE AMOUNT MASTER DEMAND NOTES
Each 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 a 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 when 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 Fund may invest up to 15% of the value of its net assets in
illiquid securities, including "restricted" 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. 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. Securities that have been
determined to be liquid by the Board of Directors of the Fortis Tax Free, or by
Advisers subject to the oversight of such Board of Directors, will not be
subject to this limitation. The U.S. Securities and Exchange Commission adopted
Rule 144A under the 1933 Act, which provides a safe harbor exemption from the
registration requirements of the 1933 Act for resales of "restricted securities"
to
<PAGE>
"qualified institutional buyers," each as defined in the rule. The result of
this rule has been the development of a more liquid and efficient institutional
resale market for restricted securities.
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 Fortis Tax-Free 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 Act. Under these procedures, factors taken
into account in determining the liquidity of a security include (a) the
frequency of trades and quotes for the security, (b) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, (c) dealer undertakings to make a market in the security, and (d)
the nature of the security and the nature of the marketplace trades (E.G., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). Section 4(2) commercial paper or a Rule 144A security
that when purchased enjoyed a fair degree of marketability may subsequently
become illiquid, thereby adversely affecting the liquidity of the Fund.
Illiquid securities may offer a higher yield than securities that are
more readily marketable. The sale of illiquid securities, however, often
requires more time and results in higher brokerage charges or dealer discounts
or other selling expenses than does the sale of securities eligible for trading
on national securities exchanges or in the over-the-counter markets. A Fund may
also be restricted in its ability to 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.
OPTIONS
As provided below, each Fund may enter into transactions in options on
a variety of instruments and indexes, in order to protect against declines in
the value of portfolio securities or increases in the costs of securities to be
acquired and in order to increase the gross income of the Fund. The types of
instruments to be purchased and sold are further described in the Appendix to
this Statement of Additional Information, which should be read in conjunction
with the following sections.
OPTIONS ON SECURITIES Each Fund may write (sell) covered call and put
options and purchase call and put options. The total market value of securities
against which a Fund may write call or put options will not exceed 25% of its
total assets. The Funds will not commit more than 5% of their respective total
assets to premiums when purchasing call or put options. Neither Fund may write
"naked" call options.
<PAGE>
If a Fund writes an option which expires unexercised or is closed out
by the Fund at a profit, it will retain all or a portion of the premium received
for the option, which will increase its gross income and will offset in part the
reduced value of the Fund security underlying the option, or the increased cost
of portfolio securities to be acquired. In contrast however, if the price of the
underlying security moves adversely to the Fund's position, the option may be
exercised and the Fund will be required to purchase or sell the underlying
security at a disadvantageous price, which may only be partially offset by the
amount of the premium, if at all. Each Fund may also write combinations of put
and call options on the same security known as "straddles." Such transactions
can generate additional premium income but also present increased risk.
Each Fund may purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the prices
of securities that the Fund wants to purchase at a later date. In the event that
the expected market fluctuations occur, the Fund may be able to offset the
resulting adverse effect on its portfolio, in whole or in part, through the
options purchased. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any realized by the Fund upon
exercise or liquidation of the option, and unless the price of the underlying
security changes sufficiently, the option may expire without value to the Fund.
Options transactions may subject the Funds to a number of risks. The
risk of purchasing options is that the Fund pays a premium for such options,
whether they are exercised or not. The risk of writing calls is that the Fund
forgoes a portion of the profit if the securities' price increases
substantially. The risk of writing put options is that the Fund may incur a loss
if the price of the security falls and the option is exercised.
Options contracts are valued daily at their closing prices, and
unrealized appreciation or depreciation is recorded. Gains from options
transactions are taxable income to shareholders. Gains and losses are realized
when the options position is closed or expires.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS. Each Fund may enter into interest rate futures
contracts for hedging purposes. Interest rate futures contracts are purchased or
sold to attempt to hedge against the effects of interest rate changes on a
Fund's current or intended investments in fixed income securities. In the event
that an anticipated decrease in the value of portfolio 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 portfolio 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 the Funds. In addition,
Futures Contracts provide a tool for quick action by the portfolio managers to
adjust the duration of the portfolio. A Fund will incur brokerage fees when it
purchases and sells Futures Contracts, and it will be required to make and
maintain margin deposits.
OPTIONS ON FUTURES CONTRACTS. Each Fund may purchase and write options
to buy or sell interest rate futures contracts. Unless otherwise stated in the
Prospectus or in this Statement of
<PAGE>
Additional Information, such investment strategies will be used as a hedge and
not for speculation.
Put and call options on Futures Contracts may be traded by the Funds in
order to protect against declines in the values of portfolio securities or
against increases in the cost of securities to be acquired. Purchases of options
on Futures Contracts may present less risk in hedging the portfolios of the
Funds than the purchase or sale of the underlying Futures Contracts since the
potential loss is limited to the amount of the premium plus related transaction
costs. The writing of such options, however, does not present less risk than the
trading of futures contracts and will constitute only a partial hedge, up to the
amount of the premium received, and, if an option is exercised, the Funds may
suffer a loss on the transaction.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS
Although the Funds will enter into transactions in Futures Contracts,
Options on Futures Contracts and certain options solely for hedging purposes,
their use does involve certain risks. For example, a lack of correlation between
the index or instrument underlying an option or Futures Contract and the assets
being hedged, or unexpected adverse price movements, could render a Fund's
hedging strategy unsuccessful and could result in losses. The Funds also may
enter into transactions in futures, forward contracts and options on securities,
indexes and other investments for other than hedging purposes, which involves
greater risk. For example, the Funds may enter into these transactions to manage
the duration of certain of the Funds' investments. Duration is a measure which
reflects estimated price sensitivity to a given change in interest rates. In
addition, there can be no assurance that a liquid secondary market will exist
for any contract purchased or sold, and a Fund may be required to maintain a
position until exercise or expiration, which could result in losses.
Other risks include: dependence on Advisers' ability to predict
movements in the prices of individual securities; fluctuations in the general
securities markets and movements in interest rates; imperfect correlation
between movements in the price of options, futures contracts, or options thereon
and movements in the price of the security hedged or used for cover; unexpected
adverse price movements which could render a Fund's hedging strategy
unsuccessful and could result in losses; the fact that skills and techniques
needed to trade options, futures contracts and options thereon or to use forward
contracts are different from those needed to select the securities in which the
Funds invest, lack of assurance that a liquid secondary market will exist for
any particular option, futures contract or option thereon at any particular time
requiring a Fund to maintain a position until exercise or expiration, which
could result in losses; and the possible need to defer closing out certain
options, futures contracts and options thereon in order to continue to qualify
for the beneficial tax treatment afforded regulated investment companies under
the Internal Revenue Code.
TEMPORARY INVESTMENTS
The Funds may invest without limitation in taxable obligations on a
temporary, defensive basis due to market conditions. Such taxable obligations,
whether purchased for temporary or
<PAGE>
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 Funds may also hold their respective assets in cash.
PORTFOLIO TURNOVER
Portfolio transactions will be undertaken principally to accomplish the
Funds' 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.
Investment policies may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest rates. A change in
securities held by a Fund is known as "portfolio turnover" and may involve the
payment by the Funds 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 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.
MANAGEMENT OF THE FUNDS
Under Minnesota law, the Board of Directors of Fortis Tax-Free has
overall responsibility for managing it in good faith, in a manner reasonably
believed to be in the best interests of the company and with the care an
ordinarily prudent person would exercise in similar circumstances. This
management may not be delegated. The Articles of Incorporation limit the
liability of directors to the fullest extent permitted by law.
The names, addresses, principal occupations and other affiliations of
directors and executive officers of Fortis Tax-Free are listed below. Unless
stated otherwise, all positions have been held at least five years. Each
director and officer also serves as a director or officer of all investment
companies managed by Advisers (the "Fund Complex"), with the exception of Mr.
Jaffray and Ms. Shadko who are not directors of Fortis Series Fund, Inc. The
Fund Complex currently consists of one closed-end and eight open-end investment
companies.
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- ---------- -----------------------------------------
<S> <C> <C> <C>
Richard W. Cutting 67 Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York
Allen R. Freedman* 58 Director Chairman, Chief Executive Officer and President of Fortis, Inc.; a
One Chase Manhattan Plaza Managing Director of Fortis International, N. V.
New York, New York
Dr. Robert M. Gavin 58 Director President, Cranbrook Education Community, Prior to July 1996,
380 Lone Pine Road President Macalester College, St. Paul, MN.
Bloomfield Hills, Michigan
Benjamin S. Jaffray 68 Director Chairman of the Sheffield Group, Ltd., a financial consulting group,
4040 IDS Center Minneapolis, MN.
Minneapolis, Minnesota
Jean L. King 54 Director President, Communi-King, a communications consulting firm, St.
12 Evergreen Lane Paul, MN.
St. Paul, Minnesota
Dean C. Kopperud * 46 President and Chief Executive Officer and a Director of Advisors, President and a
500 Bielenberg Drive Director Director of Investors, President of Fortis Financial Group, a
Woodbury, Minnesota Director of Fortis Benefits Insurance Company and a Senior Vice
President of Time Insurance Company.
Edward M. Mahoney 68 Director Retired; prior to December, 1994, Chairman and Chief Executive
2760 Pheasant Road Officer and a Director of Advisers and Investors, Senior Vice
Excelsior, Minnesota President and a Director of Fortis Benefits Insurance Company, and
Senior Vice President of Time Insurance Company.
Robb L. Prince 57 Director Financial and Employee Benefit Consultant; prior to July, 1995,
5108 Duggan Plaza Vice President and Treasurer, Jostens, Inc., a producer of products
Edina, Minnesota and services for the youth, education, sports award, and recognition
markets, Minneapolis, MN.
Leonard J. Santow 62 Director Principal, Griggs & Santow, Incorporated, economic and financial
75 Wall Street consultants, New York, NY.
21st Floor
New York, New York
Noel S. Shadko 44 Director Marketing Consultant; prior to May 1996, Senior Vice President of
1908 W. 49th Street Marketing & Strategic Planning, Rollerblade, Inc., Minneapolis,
Minneapolis, Minnesota MN.
Joseph M. Wikler 57 Director Investment consultant and private investor.
12520 Davan Drive
Silver Spring, Maryland
Gary N. Yalen 56 Vice President President and Chief Investment Officer of Advisers (since 1995)
One Chase Manhattan Plaza New York, NY, and Senior Vice President, Investments, Fortis, Inc.;
New York, New York prior to 1996, President and Chief Investment Officer, Fortis Asset
Management, a former
division of Fortis, Inc.
Howard G. Hudson 61 Vice President Executive Vice President and Head of Fixed Income Investments of
One Chase Manhattan Plaza Advisers since 1995; prior to 1996, Senior Vice President, Fixed
New York, New York Income, Fortis Asset Management.
Lucinda S. Mezey 51 Vice President Executive Vice President and Head of Equity Investments of
One Chase Manhattan Plaza Advisers since October 1997; from 1995 to October 1997, Chief
New York, New York Investment Officer, Alex Brown Capital Advisory and Trust Co.,
Baltimore, MD; and prior to 1995, Senior Vice President and Head of
Equity Investments, PNC Bank, Philadelphia, PA.
James S. Byrd 47 Vice President Executive Vice President of Advisers since 1995; prior to 1995,
90 South 7th Street, #5030 Vice President of Advisers and Investors.
Minneapolis, Minnesota
Nicholas L. M. de Peyster 32 Vice President Vice President of Advisers since 1995; prior to 1996, Vice
One Chase Manhattan Plaza President, Equities, Fortis Asset Management.
New York, New York
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- ---------- -----------------------------------------
<S> <C> <C> <C>
Diane M. Gotham 40 Vice President Vice President of Advisers since 1998; from 1994 to 1998,
90 South 7th Street, #5030 securities analyst for Advisers.
Minneapolis, Minnesota
Laura E. Granger 37 Vice President Vice President of Advisers since 1998; from 1993 to 1998, portfolio
One Chase Manhattan Plaza manager, General Motors Investment Management, New York, NY.
New York, New York
Maroun M. Hayek 50 Vice President Vice President of Advisers; prior to August 1996, Vice President,
One Chase Manhattan Plaza Fixed Income, Fortis Asset Management.
New York, New York
Robert C. Lindberg 46 Vice President Vice President of Advisers since 1993.
One Chase Manhattan Plaza
New York, New York
Charles L. Mehlhouse 56 Vice President Vice President of Advisers since 1996; prior to March 1996,
One Chase Manhattan Plaza Portfolio Manager to Marshall & Ilsley Bank Corporation,
New York, New York Milwaukee, WI.
Kevin J. Michels 47 Vice President Vice President of Advisers since 1995. Prior to 1996, Vice
One Chase Manhattan Plaza President, Administration, Fortis Asset Management.
New York, New York
Christopher J. Pagano 35 Vice President Vice President of Advisers since 1996; prior to March 1996,
One Chase Manhattan Plaza Government Strategist for Merrill Lynch, New York, N.Y.
New York, New York
Stephen M. Rickert 55 Vice President Vice President of Advisers since 1995; from 1994 to 1996,
One Chase Manhattan Plaza Corporate Bond Analyst, Fortis Asset Management.
New York, New York
Michael J. Romanowski 47 Vice President Vice President of Advisers since 1998; from October 1995 to March
One Chase Manhattan Plaza 1998, Portfolio Manager, Value Line, New York, NY; prior to
New York, New York October 1995, securities analyst, Conning & Co., Hartford, CT.
Ho Wang 51 Vice President Vice President of Advisers since 1998; from 1995 to 1998, senior
One Chase Manhattan Plaza securities analyst, Lord, Abbett & Co., New York, NY; prior to
New York, New York 1995, portfolio manager, New York Life, New York, NY.
Christopher J. Woods 38 Vice President Vice President of Advisers since 1995; prior to 1996, Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management.
New York, New York
Robert W. Beltz, Jr. 49 Vice President Vice President - Securities Operations of Advisers and Investors.
500 Bielenberg Drive
Woodbury, Minnesota
Peggy E. Ettestad 41 Vice President Senior Vice President, Operations of Advisers; prior to March 1997,
500 Bielenberg Drive Vice President G.E. Capital Fleet Services, Minneapolis, MN.
Woodbury, Minnesota
Tamara L. Fagely 40 Vice President Vice President of Advisers and Investors since 1998; prior thereto,
500 Bielenberg Drive and Treasurer Second Vice President of Advisers and Investors.
Woodbury, Minnesota
Dickson Lewis 49 Vice President Senior Vice President, Marketing and Sales of Advisers; from 1993
500 Bielenberg Drive to July 1997, President and Chief Executive Officer
Woodbury, Minnesota Hedstrom/Blessing, Inc., a marketing communications company,
Minneapolis, MN.
David A. Peterson 56 Vice President Vice President and Assistant General Counsel, Fortis Benefits
500 Bielenberg Drive Insurance Company.
Woodbury, Minnesota
Scott R. Plummer 39 Vice President Vice President since 1998, Associate General Counsel since 1998
500 Bielenberg Drive and Assistant Secretary of Advisers; prior thereto, Second Vice
Woodbury, Minnesota President and Corporate Counsel of Advisers.
Rhonda J. Schwartz 40 Vice President Senior Vice President and General Counsel of Advisers; Senior Vice
500 Bielenberg Drive President and General Counsel, Life and Investment Products, Fortis
Woodbury, Minnesota Benefits Insurance Company and Vice President and General
Counsel, Life and Investment Products, Time Insurance Company;
from 1993 to January 1996, Vice President, General Counsel, Fortis,
Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- --- ---------- -----------------------------------------
<S> <C> <C> <C>
Melinda S. Urion 45 Vice President Since December 1997, Senior Vice President and Chief Financial
500 Bielenberg Drive Officer of Advisers. Prior to December 1997, Senior Vice President
Woodbury, Minnesota of Finance and Chief Financial Officer, American Express Financial
Corporation; prior to 1995, Corporate Controller, American Express
Financial Corporation.
Michael J. Radmer 53 Secretary Partner, Dorsey & Whitney LLP, the Fund's General Counsel.
220 South Sixth Street
Minneapolis, Minnesota
</TABLE>
- -------------------
* Mr. Kopperud is an "interested person" (as defined under the 1940 Act) of
Advisers and Fortis Tax-Free 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 Fortis Tax-Free because he holds certain
positions including serving as Chairman and Chief Executive Officer of Fortis,
Inc., the parent company of Advisers.
Each director who is not affiliated with Advisers or Investors receives
a monthly fee ($90 per month from National Fund and $59 per month from Minnesota
Fund), $100 per meeting attended from each Fund, and $100 per committee meeting
attended from each Fund (and reimbursement of travel expenses to attend
meetings). Each such director also receives a monthly fee, a meeting fee and a
committee meeting fee from each fund in the Fund Complex for which they are a
director. The following table sets forth the aggregate compensation received by
each director from Fortis Tax-Free during the fiscal year ended September 30,
1998, as well as the total compensation received by each director from the Fund
Complex during the calendar year ended December 31, 1998. Mr. Freedman and Mr.
Kopperud, who are affiliated with Advisers and Investors, did not receive any
compensation. No executive officer receives any compensation from the Funds.
<TABLE>
<CAPTION>
AGGREGATE TOTAL
COMPENSATION COMPENSATION
FROM FROM
DIRECTOR FORTIS TAX-FREE FUND COMPLEX*
-------- --------------- -------------
<S> <C> <C>
Richard W. Cutting $1,800 $30,200
Dr. Robert M. Gavin $1,800 $29,200
Benjamin S. Jaffray $1,800 $20,400
Jean L. King $1,800 $30,200
Edward M. Mahoney $1,800 $29,200
Robb L. Prince $1,800 $29,200
Leonard J. Santow $1,700 $29,050
Noel S. Shadko $1,800 $20,400
Joseph M. Wikler $1,800 $30,300
</TABLE>
- -----------
* The Fund Complex consists of one closed-end and eight open-end
investment companies managed by Advisers.
During the fiscal year ended September 30, 1998, National Fund paid
$1,986 and Minnesota Fund paid $1,319 in legal fees and expenses to a law firm
of which the Funds' Secretary is a partner.
Directors Gavin, Jaffray, Kopperud, Mahoney, Prince and Shadko 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
<PAGE>
Board of Directors, except as limited by law, it is expected that the Committee
will meet at least twice a year.
Directors, officers and other persons affiliated with the Funds are
eligible to purchase shares of the Funds without a sales charge. For more
complete information about these arrangements, refer to "Purchase of Shares -
Exemptions from the Sales Charge."
PRINCIPAL HOLDERS OF SECURITIES
As of January 15, 1999 no person owned of record or, to the Fund's
knowledge, beneficially as much as 5% of the outstanding shares of any class of
Fund shares, except as follows:
NATIONAL PORTFOLIO. CLASS A -- Brian L. and Joan M. Johnson, PO Box
400, Spooner, WI (14%). CLASS B -- Anthony Ciccarino TOD, 55 McClellan Ave.,
Amsterdam, NY (10%) and Norwest Investment Services, 608 Second Ave. S,
Minneapolis, MN (21%). CLASS C -- Byron V. Nair TOD, 612 Arizona St., Glidden,
IA (5%); Roberto Corona Jr. and Eurebia A. Corona, 100 Paseo Dr., Rio Grande
City, TX (5%); Eugene E. Shepard, Trustee for Eugene Shepard Living Trust, 12690
Grandin Ln., Bridgeton, MO (6%); Roberto Corona TOD, 100 Paseo Dr., Rio Grande
City, TX (7%); Sheldon Schram TOD, 61 Ridgeview Dr, West Patterson, NJ (9%);
Glenn H. and Bernita K. Mannes, RR1, Yankton, SD (9%) and Jerry J. and Susan L.
Cummins, 5340 Wolf Rd., Western Springs, IL (13%).
MINNESOTA PORTFOLIO. CLASS A -- Harold A. Fischer TOD, 3701 Chandler
Dr. NE, Apt. #313, Minneapolis, MN (6%) and Ruth R. Gillespie, Rt 3 Box 98, Pine
City, MN (7%). CLASS B -- Gary D. Floss TOD, 1444 18th St NW, New Brighton, MN
(5%); Elsie M. Krostue TOD, 100 Roosevelt St. SE #6, Bemidji, MN (6%); Joseph J.
Glatzmaier, 333 8th St. SE #313, Minneapolis, MN (7%) and U.S. Bancorp
Investments, 100 S 5th St., Minneapolis, MN (39%). CLASS H -- Norwest Bank
Minnesota, FBO Boentje Living Trust, PO Box 1533, Minneapolis, MN (9%); Mary C.
Jackson, 4300 W River Pkwy. #215, Minneapolis, MN (10%); Norwest Investment
Services, 608 Second Ave S, Minneapolis, MN (12%); Jean Giroulx Trustee for
Calvin & Jean Giroulx Family Trust, 30826 Tanoa Rd., Evergreen, CO (12%) and
U.S. Bancorp Investments, 100 S Fifth St., Minneapolis, MN (20%). CLASS C --
Donaldson, Lufkin, Jenrette Securities Corporation, PO Box 2052, Jersey City, NJ
(8%); Dennis E. Jones and Pamela M. Jones, PO Box 186, Lowry, MN (8%); Lyle W.
Jahnke TOD, 1305 W Birch Ave., Olivia, MN (8%); Greg L. and Debra Krause, 19050
101st Ave. N, Maple Grove, MN (9%); Catherine A. Estrem TOD, 1594 Lakewood Dr.,
Maplewood, MN (10%); Ardis E. Ninke TOD, 8006 Hayes St. NE, Spring Lake Park, MN
(13%); Henry A. and Patricia E. Prchal, 214 SW 2nd St., Young America, MN (13%)
and Theodore Pulasky Custodian, Brandie L. Pearson UTMA, RR 1 Box 87, Donnelly,
MN (13%).
As of January 15, 1999, the directors and executive officers as a group
beneficially owned less than 1% of the outstanding shares of each class of each
Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
<PAGE>
GENERAL
Fortis Advisers, Inc. ("Advisers") has been the investment adviser and
manager of each Fund since inception. Fortis Investors, Inc. ("Investors") acts
as the Funds underwriter. Each acts pursuant to written agreements periodically
approved by the directors or shareholders. The address of each is that of the
Funds. As of December 31, 1998, Advisers managed thirty-three investment company
portfolios with combined net assets of approximately $6.4 billion.
CONTROL AND MANAGEMENT OF ADVISERS AND INVESTORS
Fortis, Inc. ("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 financial services company
that provides specialty insurance and investment products to individuals,
businesses, associations and other financial services organizations in the
United States. Fortis is a part of a worldwide group of companies active in the
fields of insurance, banking and investments. Fortis is jointly owned by Fortis
(NL) N.V. of The Netherlands and Fortis (B) of Belgium.
Fortis (NL) N.V. is a diversified financial services company
headquartered in Utrecht, The Netherlands, where its insurance operations began
in 1847. Fortis (B) is a diversified financial services company headquartered in
Brussels, Belgium, where it insurance operations began in 1824. Fortis (NL) N.V.
and Fortis (B) own a group of companies active in insurance, banking and
financial services, and real estate development in The Netherlands, Belgium, the
United States, Western Europe, and the Pacific Rim.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENTS
Advisers act as investment adviser and manager of each Fund under
separate Investment Advisory and Management Agreements. These agreements are
individually referred to as an "Agreement" and collectively referred to as the
"Agreements." Each Agreement will terminate automatically in the event of its
assignment. In addition, 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 a Fund's outstanding voting securities, on not more
than 60 days' written notice to Advisers, and by Advisers on 60 days' notice to
the Funds. 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 Fund, by a vote of a majority of the outstanding voting
securities of the applicable Fund; 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.
Each Agreement provides for an investment advisory and management fee
to be paid by each Fund calculated as described below:
<PAGE>
<TABLE>
<CAPTION>
Average Daily Net Annual Investment Advisory
Assets of each Fund and Management Fee
------------------------- --------------------------
<S> <C> <C>
National Fund For the first $50,000,000 0.80%
For assets over $50,000,000 0.70%
Minnesota Fund For the first $50,000,000 0.72%
For assets over $50,000,000 0.70%
</TABLE>
Each Agreement requires each Fund to pay all its expenses which are not
assumed by Advisers and/or Investors. These 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 Funds and their 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.
Although investment decisions for the Funds 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 a Fund and other funds or accounts may have a
detrimental effect on a Fund, as this may affect the price paid or received by a
Fund or the size of the position obtainable by a Fund.
The Funds paid advisory and management fees as follows during the last
three fiscal years:
<TABLE>
<CAPTION>
ADVISORY FEES PAID DURING:
Fiscal year ended Fiscal year ended Fiscal year ended
September 30, 1996 September 30, 1997 September 30, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
National Fund $ 581,556 $ 576,384 $ 560,282
Minnesota Fund 395,618 371,144 352,796
</TABLE>
EXPENSES
Advisers bears the costs of acting as each Fund's transfer agent,
registrar and dividend agent. Advisers also furnishes each Fund with all
required management services, facilities, equipment, and personnel. 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.
<PAGE>
Expenses that relate exclusively to a particular Fund, such as
custodian charges and registration fees for shares, are charged to that Fund.
Other expenses are allocated pro rata between the Funds and the Classes 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
accounts.
PLAN OF DISTRIBUTION
Fortis Tax-Free on behalf of each Fund has adopted a plan pursuant to
Rule 12b-1 under the 1940 Act. Rule 12b-1(b) provides that any payments made by
a 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.
Pursuant to the provisions of the Distribution Plan each Fund pays
Advisers an annual fee of .25% of the average daily net assets attributable to
that Fund's Class A shares and 1.00% attributable to that Fund's Class B, Class
C and Class H shares. Such fees are paid in connection with servicing of the
Fund's shareholder accounts and in connection with distribution-related services
provided with respect to the Fund. Payments made under the Distribution Plan are
not tied to actual expenses incurred by Investors and may exceed such expenses.
A portion of each Fund's total fee is paid as a distribution fee and
will be used by Investors to cover expenses that are primarily intended to
result in, or that are primarily attributable to, the sale of shares of the Fund
("Distribution Fees"), and the remaining portion of the fee is paid as a
shareholder servicing fee and will be used by Investors to provide compensation
for ongoing servicing and/or maintenance of shareholder accounts ("Shareholder
Servicing Fees"). For the Class A shares, the entire fee of .25% is designated
as a Distribution Fee. For the Class B, Class C and Class H shares, Investors
receives a total fee of 1.00% of the average daily net assets of each such
class, of which .75% is designated as a Distribution Fee and .25% is designated
as a Shareholder Servicing Fee.
Distribution Fees under the Plan include, but are not limited to,
initial and ongoing sales compensation (in addition to sales charges) paid to
registered representatives of Investors and to other broker-dealers; expenses
incurred in the printing of prospectuses, statements of additional information
and reports used for sales purposes; expenses of preparation and distribution of
sales literature; expenses of advertising of any type; an allocation of
Investors' overhead; and payments to and expenses of persons who provide support
services in connection with the distribution of Fund shares. Shareholder
Servicing Fees include all expenses of Investors incurred in connection with
providing administrative or accounting services to shareholders, including, but
not limited to, an allocation of Investors' overhead and payments made to
persons, including employees of Investors, who respond to inquiries of
shareholders of the Fund regarding
<PAGE>
their ownership of shares or their accounts with the Fund, or who provide other
administrative or accounting services not otherwise required to be provided by
Advisers.
Listed below are the total distribution fees paid by the Funds and how
those fees were used by Investors for the fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
FUND FUND
------------- ------------
<S> <C> <C>
Advertising $ 0 $ 0
Printing and Mailing of Prospectuses to
Other than Current Shareholders 8,006 3,625
Compensation to Underwriters 57,685 21,441
Compensation to Dealers 0 0
Compensation to Sales Personnel 0 0
Interest, Carrying or Other Financing Charges 0 0
Other (distribution-related compensation, sales
literature, supplies, postage, toll-free phone) 26,412 11,533
------------- ------------
TOTAL $ 92,103 $ 36,599
</TABLE>
BROKERAGE ALLOCATION AND OTHER PRACTICES
Advisers selects and (where applicable) negotiates commissions with
broker-dealers who execute trades for each Fund. In selecting a broker-dealer to
execute an equity trade, Advisers primarily considers whether the broker-dealer
can provide best execution on the trade including best price for a security.
Other factors that Advisers considers when selecting a broker-dealer for an
equity trade include:
* competitive commissions commensurate with the value of research
products and services provided to Advisers;
* consistently good service quality;
* adequate capital position;
* broad market coverage;
* continuous flow of information concerning bids and offers;
* the ability to complete, clear and settle trades in a timely and
efficient manner;
* capital usage;
* specialized expertise;
* access to new issues; and
* the ability to handle large blocks of stock discreetly.
For a Fund exclusively composed of debt, rather than equity securities,
portfolio transactions are effected with dealers without the payment of
brokerage commissions, but at net prices which usually include a spread or
markup. The volume of business done with a broker-dealer for fixed income trades
is based to a large extent on the availability and competitive price of the
fixed income securities that fit the strategy of the fixed income portfolio.
Best execution, the quality of research, making of secondary markets and other
services are also
<PAGE>
determining factors for the allocation of business when buying and selling fixed
income securities. If a broker-dealer charging a higher commission or offering a
larger spread is more reliable or provides better execution than a broker-dealer
charging a lower commission or offering a smaller spread, then Advisers may
select the broker-dealer charging a higher commission or offering a larger
spread for a particular equity or fixed income trade.
Advisers may direct orders to broker-dealers who furnish research
products and services to Advisers as long as the broker-dealers meet the
selection criteria outlined above. The research products and services
supplements Advisers' own research and enables Advisers to obtain the views and
information of others prior to making investment decisions for the Funds. During
fiscal year ended September 30, 1998, the Fund did not pay any commissions to
broker-dealers who provided research products and services to Advisers. Advisers
has not entered and will not enter into any agreement with a broker-dealer that
would prevent Advisers from obtaining best execution on a trade.
Advisers will authorize each Fund to pay an amount of commission for
effecting a securities transaction in excess of the amount of commission another
broker-dealer would have charged only if Advisers determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or Adviser's overall responsibilities with
respect to the accounts to which Advisers exercises investment discretion. In
1998, the Funds generally paid higher commissions than those obtainable from
other broker-dealers in return for research products and services.
Advisers believes that most research services obtained by it generally
benefit several or all of the investment companies, insurance company accounts
and private accounts which it manages, as opposed to solely benefitting one
specific managed fund or account. Such research services include advice, both
directly and in writing, as to the value of the securities; the advisability of
investing in, purchasing, or selling securities; the availability of securities,
or purchasers or sellers of securities; and analysis and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. Examples of some of the research products and
services that were furnished to Advisers in 1998 include:
* hard copy securities research services;
* securities research software database services;
* electronic securities trading networks; and
* statistical services useful to mutual fund directors and account
representatives in evaluating the relative performance of mutual fund
portfolios.
If a broker-dealer furnishes Advisers with non-research products and
services, Advisers will pay the broker-dealer for such products and services. No
client brokerage will be used to pay for non-research product and services.
The Funds did not pay any brokerage commissions for the fiscal years
ended September
<PAGE>
30, 1996, 1997 or 1998.
The Funds 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 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 Funds. No commissions were paid to any
affiliate of Advisers during the fiscal years ended September 30, 1996, 1997 and
1998 for any Fund.
From time to time, the Funds may acquire the securities of their
regular brokers or dealers or parent companies of such brokers or dealers. The
Funds acquired the following securities of their regular brokers or dealers or
parent companies of such brokers or dealers during the fiscal period ended
September 30, 1998:
<TABLE>
<CAPTION>
Value of Securities
Name of Issuer Owned at Year End
- -------------- -------------------
<S> <C>
U.S. Bank (N.A.) $ 1,517,714
</TABLE>
Advisers has developed written trade allocation procedures for its
management of the securities trading activities of its clients. Advisers manages
multiple portfolios, both public (mutual funds) and private. The purpose of the
trade allocation procedures is to treat the portfolios fairly and reasonably in
situations where the amount of a security that is available is insufficient to
satisfy the volume or price requirements of each portfolio that is interested in
purchasing that security. Generally, when the amount of securities available in
a public offering or the secondary market is insufficient to satisfy the
requirements for the interested portfolios, the procedures require a pro rata
allocation based upon the amounts initially requested by each portfolio manager.
In allocating trades made on combined basis, each participating portfolio will
receive the same average price for the securities purchased or sold.
Because a pro rata allocation may not always adequately accommodate all
facts and circumstances, the procedures provide for exceptions to allocate
trades on a basis other than pro rata. Examples of where adjustments may be made
include: (i) the cash position of the portfolios involved in the transaction;
and (ii) the relative importance of the security to a portfolio in seeking to
achieve its investment objective.
CAPITAL STOCK
Each Fund's shares have a par value of $.01 per share and equal rights
to share in dividends and assets. The shares possess no preemptive or conversion
rights.
The Funds currently offer their shares in multiple classes, each with
different sales arrangements and bearing different expenses. Under the Articles
of Incorporation, the Board of Directors is authorized to create new portfolios
or classes without the approval of the shareholders of Fortis Tax-Free. Each
share will have a pro rata interest in the assets of the Fund portfolio to which
the shares of that series relates, and will have no interest in the assets of
any other Fund portfolio. In the event of liquidation, each share of a Fund
would have the same
<PAGE>
rights to dividends and assets as every other share of that Fund, 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. The Board of Directors are also authorized to create new
classes without shareholder approval.
The Funds are 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 may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or the chief financial officer. Within ninety days after
receipt of the demand, a regular meeting of shareholders must be held at the
Funds' 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.
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.
PRICING OF SHARES
On September 30, 1998, each Fund's net asset values per share were
calculated as follows:
NATIONAL FUND
CLASS A
NET ASSETS ($8,308,232) = Net Asset Value per Share ($11.37)
-----------------------
Shares Outstanding (731,035)
To obtain the public offering price per share, the 4.5% sales charge must be
added to the net asset value obtained above:
$11.37 = Public Offering Price per Share ($11.91)
---------
0.955
CLASS B
NET ASSETS ($1,493,275) = Net Asset Value per Share ($11.36)
-----------------------
Shares Outstanding (131,496)
CLASS C
NET ASSETS ($492,981) = Net Asset Value per Share ($11.34)
---------------------
Shares Outstanding (43,461)
<PAGE>
CLASS E
NET ASSETS ($56,958,829) = Net Asset Value per Share ($11.38)
------------------------
Shares Outstanding (5,004,664)
To obtain the public offering price per share, the 4.5% sales charge must be
added to the net asset value obtained above:
$11.38 = Public Offering Price per Share ($11.92)
---------
0.955
CLASS H
NET ASSETS ($6,098,660) = Net Asset Value per Share ($11.35)
-----------------------
Shares Outstanding (537,259)
MINNESOTA FUND
CLASS A
NET ASSETS ($3,169,628) = Net Asset Value per Share ($10.74)
-----------------------
Shares Outstanding (295,030)
To obtain the public offering price per share, the 4.5% sales charge must be
added to the net asset value obtained above:
$10.74 = Public Offering Price per Share ($11.25)
---------
0.955
CLASS B
NET ASSETS ($1,271,447) = Net Asset Value per Share ($10.73)
-----------------------
Shares Outstanding (118,444)
CLASS C
NET ASSETS ($193,961) = Net Asset Value per Share ($10.73)
---------------------
Shares Outstanding (18,072)
CLASS E
NET ASSETS ($42,169,545) = Net Asset Value per Share ($10.77)
------------------------
Shares Outstanding (3,914,416)
To obtain the public offering price per share, the 4.5% sales charge must be
added to the net asset value obtained above:
$10.77 = Public Offering Price per Share ($11.28)
---------
0.955
CLASS H
NET ASSETS ($1,458,112) = Net Asset Value per Share ($10.76)
-----------------------
Shares Outstanding (135,454)
<PAGE>
The primary close of trading of the New York Stock Exchange (the
"Exchange") currently is 3:00 P.M. (Central Time), but this time may be changed.
The offering price for purchase orders received in the office of the Funds after
the beginning of each day the Exchange is open for trading is based on net asset
value determined as of the primary closing time for business on the Exchange
that day; the price in effect for orders received after such close is based on
the net asset value as of such close of the Exchange on the next day the
Exchange is open for trading. Net asset value is the value of the securities
owned by the Fund, plus cash or other assets, less liabilities, divided by the
number of Fund shares outstanding.
Generally, the net asset value of the Funds' 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 (or on the nearest Monday or Friday if
the holiday falls on a weekend): New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Additionally, net asset value need not be
determined (i) on days on which changes in the value of the Funds' portfolio
securities will not materially affect the current net asset value of the Funds'
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 Funds.
PURCHASE OF SHARES
EXEMPTIONS FROM SALES CHARGE
The following purchases of Class A shares and Class E shares are exempt
from the sales charge:
o 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/domestic partners of any such persons;
or (4) any of such persons' children, grandchildren, parents,
grandparents, or siblings or spouses/domestic partners of any
of these persons. (All such persons may continue to add to
their account even after their company relationships have
ended);
o Fund directors, officers, or their spouses/domestic partners
(or such persons' children, grandchildren, parents, or
grandparents-or spouses/domestic partners of any such
persons), if all account owners fit this description;
o Representatives of Investors (including agencies) or of other
broker-dealers (or spouses of such representatives) 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;
o Registered investment companies;
o Shareholders of unrelated mutual funds with front-end and/or
deferred sales loads, to the extent that the purchase price of
such Fund shares is funded by the proceeds from the redemption
of shares of any such unrelated mutual fund (within 60 days
<PAGE>
of the purchase of Fund shares), provided that the
shareholder's application so specifies and is accompanied
either by the redemption check of such unrelated mutual fund
(or a copy of the check) or a copy of the confirmation
statement showing the redemption. Similarly, anyone who is or
has been the owner of a fixed annuity contract not deemed a
security under the securities laws who wishes to surrender
such contract and invest the proceeds in a Fund, to the extent
that the purchase price of such Fund shares is funded by the
proceeds from the surrender of the contract (within 60 days of
the purchase of Fund shares), provided that such owner's
application so specifies and is accompanied either by the
insurance company's check (or a copy of the check) or a copy
of the insurance company surrender form. From time to time,
Investors may pay commissions to broker-dealers and registered
representatives on transfers from mutual funds or annuities as
described above;
o Purchases by employees (including their spouses and dependent
children) of banks and other financial institutions that
provide referral and administrative services related to order
placement and payment to facilitate transactions in shares of
the Fund for their clients pursuant to a sales or servicing
agreement with Investors; provided, however, that only those
employees of such banks and other firms who as a part of their
usual duties provide such services related to such
transactions in Fund shares shall qualify;
o 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 the Fund,
provided that the investment adviser, trust company or trust
department provides Advisers with evidence of such authority
or the existence of such a wrap program with respect to the
money invested;
SPECIAL PURCHASE PLANS
STATEMENT OF INTENTION. Your sales charge may be reduced or eliminated
by signing a non-binding Statement of Intention to purchase at least $100,000 of
shares which are sold with a sales charge over a 13-month period. 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
<PAGE>
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.
SYSTEMATIC INVESTMENT PLAN. The Systematic Investment Plan enables you
to make regular purchases in amounts less than normally required and employs the
principle of dollar cost averaging, described below.
By acquiring Fund shares on a regular or systematic basis, you take
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.
The principle of dollar cost averaging will not protect against loss in a
declining market and a loss will result if the plan is discontinued when the
market value is less than cost.
You have no obligation to invest regularly or to continue the Plan,
which you may terminate 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 you instruct Investors in writing to
pay distributions 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. You may exchange your shares for the same class of
shares in another Fortis Fund (except for Class E which may be exchanged for
Class A shares of another Fortis Fund). There is no exchange fee or additional
sales charge. The amount exchanged must meet the minimum purchase amount of the
Fund being purchased. You should consider the investment objectives and policies
of the other fund prior to making such exchange.
For Federal tax purposes, an exchange between funds is a taxable event
that will result in a capital gain or loss. If you exchange your shares within
90 days of purchase, the sales charge on that purchase cannot be taken into
account for determining your 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 your 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.
GIFTS OR TRANSFERS TO MINOR CHILDREN. You may purchase Fund shares in
an account established for a minor. This gift or transfer is registered in the
name of the custodian for a
<PAGE>
minor under the Uniform Transfers to Minors Act (in some states the Uniform
Gifts to Minors Act). Control of the Fund shares passes to the child upon
reaching a specified age (either 18 or 21 years in most states).
REDEMPTION OF SHARES
GENERAL
If you request a redemption, the Fund is required to redeem your
shares, with certain exceptions. The Fund will pay all redemption requests in
cash, 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. If your
redemption request exceeds such amount, 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 an
emergency, such as in those situations listed in the following paragraph, or at
any time a cash distribution would impair the liquidity of the Fund to the
detriment of the remaining shareholders. Any securities being so distributed
would be valued in the same manner as the portfolio of the Fund is valued. If
you received securities which you later sold, you probably would incur brokerage
charges.
Redemption of shares or payment may be suspended at time (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 to fairly
determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist.
There is no charge for redeeming shares. In the event a charge is
established, it would apply only to persons who became shareholders after the
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 Funds 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
You may open a "Systematic Withdrawal Plan" providing for withdrawals
of $50 or more monthly, quarterly, semiannually or annually if the value of your
shares is at least $4,000 ($10,000 if you elect monthly withdrawals).
These withdrawals may constitute return of capital. The redemption of
Fund shares pursuant to the Plan is a taxable event to you. The withdrawals do
not represent a yield or a return on your investment and they may deplete or
eliminate your investment. You have no assurance of receiving payment for any
specific period because payments will terminate when all
<PAGE>
shares have been redeemed. The number of such payments will depend on the amount
and frequency of each payment and the increase (or decrease) in value of the
remaining shares.
Distributions of income and realized capital gains will continue to be
reinvested at net asset value. If you purchase additional shares of the Fund
(other than by reinvestment of distributions), when you have elected a
Systematic Withdrawal Plan, you will pay a sales charge on your purchases at the
same time that withdrawals are made at net asset value. Purchases of additional
shares concurrent with withdrawals are ordinarily disadvantageous to you because
of sales charges and tax liabilities. Additions to your account in which an
election has been made to receive systematic withdrawals will be accepted only
if each additional purchase is equal to at least one year's scheduled
withdrawals or $1,200, whichever is greater. You may not have a "Systematic
Withdrawal Plan" and a "Systematic Investment Plan" in effect at the same time.
The Systematic Withdrawal Plan is voluntary, flexible and under your
control and direction at all times, and does not limit or alter your right to
redeem shares. You or the Fund may terminate the Plan at any time by written
notification. Advisers bears the cost of operating the Plan.
REINVESTMENT PRIVILEGE
If you redeem Fund shares, you have a one-time privilege to reinvest in
the Fund or in any other fund underwritten by Investors and available to the
public, without a sales charge. The reinvestment privilege must be exercised
within 60 days of the redemption and for an amount which does not exceed the
redemption proceeds.
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 you 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 defer any capital gains taxes payable on a
realized gain. Furthermore, if you redeem within 90 days of purchasing your
shares, the sales charge incurred on that purchase cannot be taken into account
for determining your gain or loss on the sale of those shares.
TAXATION
Each Fund has qualified and intends to continue to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). As long as they so qualify, the Funds are not taxed on the income
distributed to shareholders.
Under the Code, each Fund is treated as a separate entity for Federal
tax purposes. Therefore, each Fund is treated separately in determining whether
it qualifies as a regulated investment company and for purposes of determining
the net ordinary income (or loss), net realized capital gains (or losses), and
distributions necessary to relieve each Fund of any Federal income tax
liability.
<PAGE>
Under the Code, each Fund is required to withhold and remit to the U.S.
Treasury 31% of dividend and capital gain income on the accounts of certain
shareholders who fail to provide a correct tax identification number, fail to
certify that they are not subject to backup withholding, or are subject to
backup withholding for some other reason.
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 Funds, is not deductible by the investor in proportion to
the percentage of each Fund's distributions from investment income and
short-term capital gains that is exempt from federal income tax. Minnesota law
also restricts the deductibility of interest on indebtedness incurred or
continued to purchase or carry shares of a Fund. Indebtedness may be allocated
to shares of a 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 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.
If either Fund disposes 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 Funds invest in options on securities, the marked-to-market
rules of the Code may require them to recognize gains and losses on options held
by the Funds at the end of the fiscal year. Under the marked-to-market rules,
60% of a net capital gain or loss recognized is treated as long-term and 40% as
short-term. In addition, if a Fund held offsetting options that were considered
a "straddle" for purposes of the Code, and those options were not subject to the
marked-to-market rules described above, the straddle rules of the Code would
require deferral of certain losses realized on positions of the straddle to the
extent that a Fund had unrealized gains in offsetting positions at year end.
If the Funds invest in zero coupon obligations upon their issuance,
such obligations will have original issue discount in the hands of the Funds.
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. Similarly, if a Fund acquires an already issued
zero coupon bond from another holder, the bond will have original issue discount
in the Fund's hands, equal to the difference between the "adjusted issue price"
of the bond at the time the Fund
<PAGE>
acquires it (that is, the original issue price of the bond plus the amount of
original issue discount accrued to date) and its stated redemption price at
maturity. In each case, the Funds are required to accrue as ordinary interest
income a portion of such original issue discount even though the Funds receive
no cash currently as interest payments, on the obligation. Because the Funds 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 Funds may be required to distribute an amount greater
than the total cash income the Funds actually receive. Accordingly, in order to
make the required distribution, the Funds may be required to borrow or to
liquidate securities. The extent to which the Funds may liquidate securities at
a gain may be limited by the requirement that generally less than 30% of the
Funds' gross income (on an annual basis) must consist of gains from the sale of
securities held for less than three months.
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 Funds are 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 Funds cannot predict the
likelihood that interest on the Minnesota bonds held by the Funds would become
taxable under this Minnesota statutory provision.
The foregoing is a general discussion of the income tax consequences of
an investment in the Funds 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 AND DISTRIBUTION OF SHARES
Pursuant to the Underwriting and Distribution Agreement, Investors has
agreed to act as the principal underwriter for the Funds in the sale and
distribution to the public of shares of the Funds, either through dealers or
otherwise. Investors has agreed to offer such shares for sale at all times when
such shares are available for sale and may lawfully be offered for sale and
sold. As compensation for its services, in addition to receiving its
distribution fees pursuant to the Distribution Plan discussed above, Investors
receives the initial sales charges on sales of Class A and Class E shares of the
Funds and any contingent deferred sales charges on redemptions of certain Class
A shares of the Funds that were not subject to an initial sales charge and
redemptions of Class B, C and H shares, as set forth in the Prospectus. The
following tables set forth the amount of underwriting commissions paid by each
Fund and the amount of such commissions retained by Investors.
<PAGE>
<TABLE>
<CAPTION>
TOTAL UNDERWRITING COMMISSIONS
----------------------------------------------------------
Fiscal year ended Fiscal year ended Fiscal year ended
September 30, 1996 September 30, 1997 September 30, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
National Fund $ 193,184 $ 99,076 $ 107,088
Minnesota Fund 92,398 58,107 74,187
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITING COMMISSIONS RETAINED BY INVESTORS
----------------------------------------------------------
Fiscal year ended Fiscal year ended Fiscal year ended
September 30, 1996 September 30, 1997 September 30, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
National Fund $ 40,771 $ 32,102 $ 36,107
Minnesota Fund 21,877 8,448 22,571
</TABLE>
Investors received the following compensation from each Fund during its
most recent fiscal year.
<TABLE>
<CAPTION>
Net Underwriting Compensation on
Discounts and Redemptions and Brokerage Other
Commissions Repurchases Commissions Compensation
----------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
National Fund $ 93,162 $ 13,926 $ 0 $ 0
Minnesota Fund $ 64,940 $ 9,247
</TABLE>
PERFORMANCE INFORMATION
Advertisements and other sales literature for the Funds may refer to
"average annual total return," "cumulative total return," "yield" and "tax
equivalent yield." All such yield and total return quotations are based on
historical earnings and are not intended to indicate future performance.
The "yield" refers to the income generated by an investment over a
30-day (or one month) period (which period will be stated in the advertisement).
It is calculated by dividing the net investment income per share (as defined
under Securities and Exchange Commission rules) earned during the computation
period by the maximum offering price per share on the last day of the period,
according to the following formula. The result is then annualized using a
formula that provides for semiannual compounding of income.
Yield = 2 [(a-b + 1)(6) - 1]
---
cd
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.
<PAGE>
The Fund's yields for the 30-day period ended September 30, 1998, were:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS H CLASS E
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
National Portfolio 3.71% 3.14% 3.14% 3.14% 3.95%
Minnesota Portfolio 4.13% 3.58% 3.58% 3.58% 4.37%
</TABLE>
"Tax equivalent yield" is computed by dividing the portion of the
Fund's yield which is tax-exempt by one minus a stated income tax rate. The
result is then added to the portion of the Fund's yield, if any, which is not
tax exempt.
The Fund's tax-exempt yields for the 30-day period ended September 30,
1998 (assuming a Federal tax rate of 39.6%, and combined Minnesota/Federal tax
rate of 44.7%) were:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS H CLASS E
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
National Portfolio 6.14% 5.20% 5.20% 5.20% 6.54%
Minnesota Portfolio 7.47% 6.47% 6.47% 6.47% 7.90%
</TABLE>
Average annual total return is the average annual compounded rate of
return on a hypothetical $1,000 investment made at the beginning of the
advertised period. Average annual total return figures are computed according to
the following formula:
P(1+T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period.
This calculation deducts the maximum sales charge from the initial
hypothetical $1,000 investment, assumes all dividends and capital gains
distributions are reinvested at net asset value on the appropriate reinvestment
dates, and includes all recurring fees, such as investment advisory and
management fees, charged to all shareholder accounts. Average annual total
return quotations may be accompanied by quotations which do not reflect the
reduction in value of the initial investment due to the sales charge, and which
thus will be higher.
The following tables set forth the average annual total returns for
each Class of shares of each Fund for one year, five years and since inception
(10 years with respect to Class E shares of each Fund) for the period ending
September 30, 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------
10 YEARS/SINCE
1 YEAR 5 YEARS INCEPTION
------ ------- --------------
NATIONAL FUND
<S> <C> <C> <C>
Class A Shares* 2.90% -- 7.94%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------------------------
10 YEARS/SINCE
1 YEAR 5 YEARS INCEPTION
------ ------- --------------
NATIONAL FUND
<S> <C> <C> <C>
Class B Shares* 3.35% -- 7.83%
Class C Shares* 5.86% -- 8.33%
Class E Shares 3.11% 4.54% 7.23%
Class H Shares* 3.16% -- 7.80%
MINNESOTA FUND
Class A Shares* 3.27% -- 7.12%
Class B Shares* 3.58% -- 6.96%
Class C Shares* 5.97% -- 7.51%
Class E Shares 3.38% 4.42% 6.78%
Class H Shares* 3.66% -- 7.03%
</TABLE>
* Inception date: November 14, 1994.
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 ) 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.
The following table sets forth the cumulative total returns of each
Class of shares of each Fund for the period from inception through September 30,
1998:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
NATIONAL FUND
<S> <C>
Class A Shares* 34.50%
Class B Shares* 33.95%
Class C Shares* 36.41%
Class E Shares+ 131.99%
Class H Shares* 33.81%
MINNESOTA FUND
Class A Shares* 30.58%
Class B Shares* 29.83%
Class C Shares* 32.45%
Class E Shares+ 118.17%
Class H Shares* 30.15%
</TABLE>
* Inception date: November 14, 1994.
<PAGE>
+ Inception date: June 2, 1986
The Funds may advertise relative performance as compiled by outside
organizations or refer to publications which have mentioned their performance or
track the performance of investment companies. Following is a list of ratings
services which may be referred to, along with the category in which the Funds
are included. Because some of these organizations do not take into account sales
charges, their ratings may sometimes be different than had they done so.
<TABLE>
<CAPTION>
RATINGS SERVICE CATEGORY
--------------- --------
<S> <C>
Lipper Analytical Services, Inc. general municipal bond
CDA/Wiesenberger U.S. government securities
Morningstar Publications, Inc. municipal bond - general
Johnson's Charts municipal bond
CDA Technologies, Inc. municipal bond
</TABLE>
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 Fund
or the Minnesota Fund. The tax-exempt yields shown are for illustrative purposes
only and are not indicative of the Funds' yields.
NATIONAL FUND
<TABLE>
<CAPTION>
TAX-EXEMPT YIELDS
-----------------
4.00% 5.00% 6.00% 7.00% 8.00%
FEDERAL TAX RATE TAXABLE EQUIVALENT YIELDS
---------------- -------------------------
<S> <C> <C> <C> <C> <C>
15% 4.71% 5.88% 7.06% 8.24% 9.41%
28% 5.56% 6.94% 8.33% 9.72% 11.11%
31% 5.80% 7.25% 8.70% 10.14% 11.59%
36% 6.25% 7.81% 9.38% 10.94% 12.50%
39.6% 6.62% 8.28% 9.93% 11.59% 13.25%
</TABLE>
MINNESOTA FUND
<TABLE>
<CAPTION>
TAX-EXEMPT YIELDS
-----------------
4.00% 5.00% 6.00% 7.00% 8.00%
APPROXIMATE
COMBINED STATE AND
FEDERAL TAX RATE TAXABLE EQUIVALENT YIELDS
---------------- -------------------------
<S> <C> <C> <C> <C> <C>
20.1% 5.01% 6.26% 7.51% 8.76% 10.01%
21.8% 5.12% 6.39% 7.67% 8.95% 10.23%
33.8% 6.04% 7.55% 9.06% 10.57% 12.08%
34.1% 6.07% 7.59% 9.10% 10.62% 12.14%
36.9% 6.44% 7.92% 9.50% 11.09% 12.68%
41.4% 6.83% 8.53% 10.24% 11.95% 13.65%
44.7% 7.23% 9.04% 10.85% 12.66% 14.47%
</TABLE>
The tax rates shown above are based on federal and Minnesota tax rates
in effect in 1999.
<PAGE>
In the tables for Minnesota Fund, 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 1998, the federal and Minnesota tax
bracket amounts will be adjusted for inflation. If these scheduled changes take
effect, they will result in slightly different taxable equivalent yields for
1999 and later years than those shown in the tables.
FINANCIAL STATEMENTS
The audited financial statements as of September 30, 1998, as set forth
in the Funds' Annual Report to Shareholders, are incorporated herein by
reference. The audited financial statements are provided in reliance on the
report of KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, MN 55402,
independent auditors of the Funds, and given on the authority of such firm as
experts in accounting and auditing.
OTHER SERVICE PROVIDERS
U.S. Bank National Association, 601 Second Avenue South, Minneapolis,
MN 55480 acts as custodian of each Fund's assets and portfolio securities.
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, MN 55402, is the
independent General Counsel for the Funds. Advisers bears the costs of serving
as the transfer agent and dividend-paying agent for each Fund.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director of Fortis Tax-Free 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 Tax-Free 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
<PAGE>
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the 1940 Act and the rules and regulations
adopted under such act.
ADDITIONAL INFORMATION
The Funds have filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the common stock offered hereby. The
Prospectus and this Statement of Additional Information do not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with Rules and Regulations of the Commission. The
Registration Statement may be inspected at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C., and copies thereof may
be obtained from the Commission at prescribed rates.
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
OPTIONS ON SECURITIES
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date or, in the
case of certain options, on such date. The holder pays a non-refundable purchase
price for the option, known as the "premium." The maximum amount of risk the
purchaser of the option assumes is equal to the premium plus related transaction
costs, although this entire amount may be lost. The risk of the seller, or
"writer," however, is potentially unlimited, unless the option is "covered." A
call option written by a Portfolio is "covered" if the Portfolio owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option is also covered if a Portfolio holds a call on the same security and in
the same principal amount as the call written where the exercise price of the
call held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference is
maintained by the Portfolio in cash and high grade government securities in a
segregated account with its custodian. A put option written by a Portfolio is
"covered" if the Fund maintains cash and high grade government securities with a
value equal to the exercise price in a segregated account with its custodian, or
else holds a put on the same security and in the same principal amount as the
put written where the exercise price of the put held is equal to or greater than
the exercise price of the put written. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities and options on indexes of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York Stock Exchange, which are regulated by the
SEC. The Options Clearing Corporation guarantees the performance of each party
to an exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on securities and options on indexes of securities only through a registered
broker-dealer which is a member of the exchange on which the option is traded.
In addition, options on securities and options on indexes of securities may be
traded on
<PAGE>
exchanges located outside the United States and over-the-counter through
financial institutions dealing in such options as well as the underlying
instruments. The particular risks of transactions on foreign exchanges and
over-the-counter transactions are set forth more fully in the Statement of
Additional Information.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND BOND INDEXES
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 seller in cash. Futures Contracts differ from options in that
they are bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. Futures Contracts call for settlement
only on the expiration date and cannot be "exercised" at any other time during
their term.
The purchase or sale of a Futures Contract differs from the purchase or
sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the Futures Contract fluctuates, making positions
in the Futures Contracts more or less valuable, a process known as "marking to
the market."
U.S. Futures Contracts may be purchased or sold only on an exchange,
known as a "contract market," designated by the CFTC for the trading of such
contract, and only through a registered futures commission merchant which is a
member of such contract market. A commission must be paid on each completed
purchase and sale transaction. The contract market clearing house guarantees the
performance of each party to a Futures Contract, by in effect taking the
opposite side of such contract. At any time prior to the expiration of a Futures
Contract, a trader may elect to close out its position by taking an opposite
position on the contract market on which the position was entered into, subject
to the availability of a secondary market, which will operate to terminate the
initial position. At that time, a final determination of variation margin is
made and any loss experienced by the trader is required to be paid to the
contract market clearing house while any profit due to the trader must be
delivered to it. Futures Contracts may also be traded on foreign exchanges.
Interest rate futures contracts currently are traded on a variety of
fixed income securities, including long-term U.S. Treasury Bonds, Treasury
Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities and U.S. Treasury Bills. In addition, interest rate
futures contracts include contracts on indexes of municipal securities.
<PAGE>
The index underlying a municipal bond index futures contract is a broad based
index of municipal securities designed to reflect movements in the municipal
securities market as a whole. The index assigns weighted values to the
securities included in the index and its composition is changed periodically.
OPTIONS ON FUTURES CONTRACTS
An Option on a Futures Contract provides the holder with the right to
enter into a "long" position in the underlying Futures Contract, in the case of
a call option, or a "short" position in the underlying Futures Contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option by
the holder, the contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of Futures Contracts, such as payment of variation margin
deposits. In addition, the writer of an Option on a Futures Contract, unlike the
holder, is subject to initial and variation margin requirements on the option
position.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by affecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
Options on Futures Contracts that are written or purchased by a
Portfolio on United States exchanges are traded on the same contract market as
the underlying Futures Contract, and, like Futures Contracts, are subject to
regulation by the CFTC and the performance guarantee of the exchange clearing
house. In addition, Options on Futures Contracts may be traded on foreign
exchanges.
An option, whether based on a Futures Contract, a stock index or
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
timing of such exercise.
<PAGE>
PART C
National Portfolio
and
Minnesota Portfolio
series of
Fortis Tax-Free Portfolios, Inc.
OTHER INFORMATION
ITEM 23. EXHIBITS
THE FUND IS FILING OR INCORPORATING BY REFERENCE THE FOLLOWING EXHIBITS:
(a).1 Articles of Amendment dated 9/8/94 and Amended and Restated
Articles of Incorporation dated as of 9/9/94 *
(a).2 Certification of Designation of Classes A, B, C & H dated
10/31/94 *
(a).3 Articles of Amendment to Amended and Restated Articles of
Incorporation dated as of 10/15/96 *
(b) Amended and Restated Bylaws dated 1/31/92 *
(c) Instruments Defining Rights of Security Holders - not applicable
(d).1 Investment Advisory and Management Agreement dated 2/1/98 for
Minnesota Portfolio *
(d).2 Investment Advisory and Management Agreement dated 1/31/92 for
National Portfolio *
(e) Underwriting and Distribution Agreement dated 11/14/94 *
(e).2 Dealer Sales Agreement (1)
(e).3 Mutual Fund Supplement to Dealer Sales Agreement (1)
(f) Bonus or Profit Sharing Contracts - not applicable
(g) Custody Agreement dated 3/21/92 *
(h) Other Material Contracts - not applicable
(i) Legal Opinion - not applicable
(j) Consent of KPMG Peat Marwick LLP *
(k) Omitted Financial Statements - not applicable
(l) Initial Capital Agreements - not applicable
(m) Rule 12b-1 Plan (2)
(n) Financial Data Schedule - not applicable
(o) Rule 18f-3 Plan (3)
- -----------------------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 45 to the
Registration Statement of Fortis Income Portfolios, Inc. on Form N-1A filed
with the Commission on December 1, 1998.
(2) Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement of Fortis Worldwide Portfolios, Inc. on Form N-1A
filed with the Commission on February 26, 1998.
(3) Incorporated by reference to Post-Effective Amendment No. 18 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
on January 31, 1996.
* Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
THE FOLLOWING IS A LIST OF ALL PERSONS DIRECTLY OR INDIRECTLY CONTROLLED BY
OR UNDER COMMON CONTROL WITH THE FUND:
No person is directly or indirectly controlled by or under common control
with the
<PAGE>
Registrant.
ITEM 25. INDEMNIFICATION
STATE THE GENERAL EFFECT OF ANY CONTRACT, ARRANGEMENTS OR STATUTE UNDER
WHICH ANY DIRECTOR, OFFICER, UNDERWRITER OR AFFILIATED PERSON OF THE FUND IS
INSURED OR INDEMNIFIED AGAINST ANY LIABILITY INCURRED IN THEIR OFFICIAL
CAPACITY, OTHER THAN INSURANCE PROVIDED BY ANY DIRECTOR, OFFICER, AFFILIATED
PERSON, OR UNDERWRITER FOR THEIR OWN PROTECTION.
Paragraph 8(d) of the Registrant's Articles of Incorporation provides that
the Registrant shall indemnify such person for such expenses and liabilities, in
such manner, under such circumstances, and to the full extent permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereinafter amended, and any rules, regulations, or releases promulgated
thereunder.
The Registrant may indemnify its officers and directors and other "persons"
acting in an "official capacity" (as such terms are defined in Section 302A.521)
pursuant to a determination by the board of directors or shareholders of the
Registrant as set forth in Section 302A.521, by special legal counsel selected
by the board or a committee thereof for the purpose of making such a
determination, or by a Minnesota court upon application of the person seeking
indemnification. If a director is seeking indemnification for conduct in the
capacity of director or officer of the Registrant, then such director generally
may not be counted for the purposes of determining either the presence of a
quorum or such director's eligibility to be indemnified.
In any case, indemnification is proper only if the eligibility determining
body decides that the person seeking indemnification:
(a) has not received indemnification for the same conduct from any other
party or organization;
(b) acted in good faith;
(c) received no improper personal benefit;
(d) in the case of criminal proceedings, has no reasonable cause to
believe the conduct was unlawful;
(e) reasonably believed that the conduct was in the best interest of the
Registrant, or in certain contexts, was not opposed to the best
interest of the Registrant; and
(f) had not otherwise engaged in conduct which precludes indemnification
under either Minnesota or Federal law (including, without limitation,
conduct constituting willful misfeasance, bad faith, gross negligence,
or reckless disregard of duties as set forth in Section 17(h) and (i)
of the Investment Company Act of 1940).
ADVANCES. If a person is made or threatened to be made a party to a
proceeding, the person is entitled, upon written request to the Registrant, to
payment or reimbursement by the Registrant of reasonable expenses, including
attorneys fees and disbursements, incurred by the person in advance of the final
disposition of the proceeding, (a) upon receipt by the Registrant of
<PAGE>
a written affirmation by the person of a good faith belief that the criteria for
indemnification set forth in Section 302A.521 have been satisfied and a written
undertaking by the person to repay all amounts so paid or reimbursed by the
Registrant, if it is ultimately determined that the criteria for indemnification
have been satisfied, and (b) after a determination that the facts then known to
those making the determination would not preclude indemnification under
302A.521. The written undertaking required by clause (a) is an unlimited
general obligation of the person making it, but need not be secured and shall be
accepted without reference to financial ability to make the repayment.
UNDERTAKING. The Registrant undertakes that insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provision, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless, in the opinion of its counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
DESCRIBE ANY OTHER BUSINESS, PROFESSION, VOCATION OR EMPLOYMENT OF A
SUBSTANTIAL NATURE THAT EACH INVESTMENT ADVISER, AND EACH DIRECTOR, OFFICER OR
PARTNER OF THE ADVISER, IS OR HAS BEEN ENGAGED WITHIN THE LAST TWO FISCAL YEARS
FOR HIS OR HER OWN ACCOUNT OR IN THE CAPACITY OF DIRECTOR, OFFICER, EMPLOYEE,
PARTNER OR TRUSTEE.
Information on the business of the Adviser, its directors and officers is
described in the Statement of Additional Information. The following officers
are not listed in the Statement of Additional Information:
<TABLE>
<CAPTION>
Other Business/Employment
Name Position with Adviser During Past Two Years
- ---- --------------------- ---------------------
<S> <C> <C>
Michael D. O'Connor Qualified Plan Officer Qualified Plan Officer of Fortis
Benefits Insurance Company
David C. Greenzang Money Market Portfolio Debt securities manager with
Officer Fortis, Inc.
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) STATE THE NAME OF EACH INVESTMENT COMPANY (OTHER THAN THE FUND) FOR WHICH
EACH PRINCIPAL UNDERWRITER CURRENTLY DISTRIBUTING THE FUND'S SECURITIES ALSO
ACTS AS A PRINCIPAL UNDERWRITER, DEPOSITOR, OR INVESTMENT ADVISER.
Investors also acts as the principal underwriter for: Fortis Advantage
Portfolios, Inc.,
<PAGE>
Fortis Equity Portfolios, Inc., Fortis Income Portfolios, Inc., Fortis Tax Free
Portfolios, Inc., Fortis Securities, Inc., Fortis Series Fund, Inc., Fortis
Worldwide Portfolios, Inc., Fortis Growth Fund, Inc., Variable Account C of
Fortis Benefits Insurance Company and Variable Account D of Fortis Benefits
Insurance Company.
(b) PROVIDE THE INFORMATION REQUIRED BY THE FOLLOWING TABLE FOR EACH DIRECTOR,
OFFICER, OR PARTNER OF EACH PRINCIPAL UNDERWRITER NAMED IN RESPONSE TO ITEM 20.
In addition to those listed in the Statement of Additional Information with
respect to Investors, the following are also officers of Investors. The
principal business address of each individual is 500 Bielenberg Drive, Woodbury,
Minnesota 55125.
<TABLE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Fund
- --------------------- --------------------------- ---------------------
<S> <C> <C>
Carol M. Houghtby Director, Vice President & None
Treasurer
Roger W. Arnold Senior Vice President None
Peter M. Delehanty Senior Vice President None
John E. Hite Vice President & Secretary None
</TABLE>
(c) PROVIDE THE INFORMATION REQUIRED BY THE FOLLOWING TABLE FOR ALL COMMISSIONS
AND OTHER COMPENSATION RECEIVED, DIRECTLY OR INDIRECTLY, FROM THE FUND DURING
THE LAST FISCAL YEAR BY EACH PRINCIPAL UNDERWRITER WHO IS NOT AN AFFILIATED
PERSON OF THE FUND OR ANY AFFILIATED PERSON OF AN AFFILIATED PERSON.
Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
STATE THE NAME AND ADDRESS OF EACH PERSON MAINTAINING PHYSICAL POSSESSION
OF EACH ACCOUNT, BOOK, OR OTHER DOCUMENT REQUIRED TO BE MAINTAINED BY SECTION
31(a) AND THE RULES UNDER THAT SECTION.
The physical possession of the accounts, books, and other documents
required to be maintained by Section 31(a) of the Investment Company Act of 1940
and Rules 31a-1 to 31a-3 promulgated thereunder is maintained by the Registrant
at Fortis Advisers, Inc., 500 Bielenberg Drive, Woodbury, MN 55125.
ITEM 29. MANAGEMENT SERVICES
PROVIDE A SUMMARY OF THE SUBSTANTIVE PROVISIONS OF ANY MANAGEMENT-RELATED
SERVICE CONTRACT NOT DISCUSSED IN PART A OR B, DISCLOSING THE PARTIES TO THE
CONTRACT AND THE TOTAL AMOUNT PAID AND BY WHOM FOR THE FUND FOR THE LAST THREE
FISCAL YEARS.
All contracts were discussed in Part A or B.
ITEM 30. UNDERTAKINGS
<PAGE>
(a) IN INITIAL REGISTRATION STATEMENTS FILED UNDER THE SECURITIES ACT, PROVIDE
AN UNDERTAKING TO FILE AN AMENDMENT TO THE REGISTRATION STATEMENT WITH
CERTIFIED FINANCIAL STATEMENTS SHOWING THE INITIAL CAPITAL RECEIVED BEFORE
ACCEPTING SUBSCRIPTIONS FROM MORE THAN 25 PERSONS IF THE FUND INTENDS TO
RAISE ITS INITIAL CAPITAL UNDER SECTION 14(a)(3).
Not applicable.
(b) Each recipient of a prospectus of any series of the Registrant may request
the latest Annual Report of such series, and such Annual Report will be
furnished by the Registrant without charge.
(c) Registrant represents that it is relying on a No-Action Letter (IDS
Financial Services, June 20, 1986) and that it has complied with the
provisions of paragraphs (a) - (d) of such No-Action Letter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement on Form
N-1A pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Woodbury and State of
Minnesota on the 29th day of January 1999.
FORTIS TAX-FREE PORTFOLIOS, INC.
(Registrant)
By /S/ DEAN C. KOPPERUD
----------------------------
Dean C. Kopperud, President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/S/ DEAN C. KOPPERUD President (principal January 29, 1999
- ------------------------- executive officer)
Dean C. Kopperud
/S/ TAMARA L. FAGELY Treasurer (principal financial January 29, 1999
- ------------------------- and accounting officer)
Tamara L. Fagely
Richard D. Cutting* Director
Allen R. Freedman* Director
Robert M. Gavin* Director
Benjamin S. Jaffray* Director
Jean L. King* Director
Edward M. Mahoney* Director
Robb L. Prince* Director
Leonard J. Santow* Director
Noel S. Shadko Director
Joseph M. Wikler* Director
*By /S/ DEAN C. KOPPERU January 29, 1999
---------------------
Dean C. Kopperud, Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT 99(A).1
ARTICLES OF AMENDMENT
AMENDING AND RESTATING
ARTICLES OF INCORPORATION
OF
FORTIS TAX-FREE PORTFOLIOS, INC.
1. The name of the corporation is Fortis Tax-Free Portfolios, Inc., a
Minnesota corporation.
2. The document entitled "Amended and Restated Articles of Incorporation
of Fortis Tax- Free Portfolios, Inc.," marked as Exhibit A attached
hereto, contains the full text of the amendment to the Articles of
Incorporation of the corporation.
3. The date of adoption of the amendment by the shareholders of the
corporation was August 23, 1994.
4. The amendment, among other things, permits Fortis Tax-Free Portfolios,
Inc. to issue multiple classes of shares and to increase the authorized
capital of the corporation.
5. The amendment amends and restates the Articles of Incorporation of the
corporation in their entirety, and the Amended and Restated Articles of
Incorporation attached hereto as Exhibit A supersede the original
Articles of Incorporation and all amendments to and restatements of
them.
6. The amendment has been adopted pursuant to Chapter 302A of the
Minnesota Statutes.
IN WITNESS WHEREOF, the undersigned, Michael J. Radmer, the Secretary
of Fortis Tax-Free Portfolios, Inc., being duly authorized on behalf of Fortis
Tax-Free Portfolios, Inc., has executed this document this 8th day of September,
1994.
/S/ MICHAEL J. RADMER
---------------------------
Michael J. Radmer
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FORTIS TAX-FREE PORTFOLIOS, INC.
Pursuant to the provisions of Minnesota Statutes, Chapter 302A, the
following Articles of Incorporation are adopted, as amended and restated:
1. The name of this corporation is Fortis Tax-Free Portfolios, Inc.
2. This corporation shall have general business purposes and shall have
unlimited power to engage in and do any lawful act concerning any and all lawful
businesses for which corporations may be organized under the Minnesota Statutes,
Chapter 302A. Without limiting the generality of the foregoing, this corporation
shall have specific power:
(a) To conduct, operate and carry on the business of a
so-called "open-end" management investment company pursuant to
applicable state and federal regulatory statutes, and exercise all the
powers necessary and appropriate to the conduct of such operations.
(b) To purchase, subscribe for, invest in or otherwise
acquire, and to own, hold, pledge, mortgage, hypothecate, sell,
possess, transfer or otherwise dispose of, or turn to account or
realize upon, and generally deal in, all forms of securities of every
kind, nature, character, type and form, and other financial instruments
which may not be deemed to be securities, including but not limited to
futures contracts and options thereon. Such securities and other
financial instruments may include but are not limited to shares,
stocks, bonds, debentures, notes, scrip, participation certificates,
rights to subscribe, warrants, options, certificates of deposit,
bankers' acceptances, repurchase agreements, commercial paper, choses
in action, evidences of indebtedness, certificates of indebtedness and
certificates of interest of any and every kind and nature whatsoever,
secured and unsecured, issued or to be issued, by any corporation,
company, partnership (limited or general), association, trust, entity
or person, public or private, whether organized under the laws of the
United States, or any state, commonwealth, territory or possession
thereof, or organized under the laws of any foreign country, or any
state, province, territory or possession thereof, or issued or to be
issued by the United States government or any agency or instrumentality
thereof, options on stock indexes, stock index and interest rate
futures contracts and options thereon, and other futures contracts and
options thereon.
(c) In the above provisions of this Article 2, purposes shall
also be construed as powers and powers shall also be construed as
purposes, and the enumeration of
A-2
<PAGE>
specific purposes or powers shall not be construed to limit other
statements of purposes or to limit purposes or powers which the
corporation may otherwise have under applicable law, all of the same
being separate and cumulative, and all of the same may be carried on,
promoted and pursued, transacted or exercised in any place whatsoever.
3. This corporation shall have perpetual existence.
4. The location and post office address of the registered office in Minnesota is
500 Bielenberg Drive, Woodbury, Minnesota 55125.
5. The total authorized number of shares of this corporation is 100,000,000,000,
all of which shall be common shares of the par value of $.01 each. The
corporation may issue and sell any of its shares in fractional denominations to
the same extent as its whole shares, and shares and fractional denominations
shall have, in proportion to the relative fractions represented thereby, all the
rights of whole shares, including, without limitation, the right to vote, the
right to receive dividends and distributions, and the right to participate upon
liquidation of the corporation.
(a) Of said common shares, 10,000,000,000 shares may be issued
in the series of common shares designated "Series A Common Shares,"
10,000,000,000 shares may be issued in the series of common shares
designated "Series B Common Shares," and 10,000,000,000 shares may be
issued in the series of common shares designated "Series C Common
Shares." The balance of 70,000,000,000 shares may be issued in such
series with such designations, preferences and relative, participating,
optional or other special rights, or qualifications, limitations or
restrictions thereof, as shall be stated or expressed in a resolution
or resolutions providing for the issue of any series of common shares
as may be adopted from time to time by the Board of Directors of this
corporation pursuant to the authority hereby vested in said Board of
Directors. Each series of common shares which the Board of Directors
may establish, as provided herein, may evidence, if the Board of
Directors shall so determine by resolution, an interest in a separate
and distinct portion of the corporation's assets, which shall take the
form of a separate portfolio of investment securities, cash and other
assets. Authority to establish such separate portfolios is hereby
vested in the Board of Directors of this corporation, and such separate
portfolios may be established by the Board of Directors without the
authorization or approval of the holders of any series of shares of
this corporation.
(b) The shares of each series may be classified by the Board
of Directors in one or more classes with such relative rights and
preferences as shall be stated or expressed in a resolution or
resolutions providing for the issue of any such class or classes as may
be adopted from time to time by the Board of Directors of the
corporation pursuant to the authority hereby vested in the Board of
Directors and Minnesota Statutes, Section 302A.401, Subd. 3, or any
successor provision. The shares of each class within a series may be
subject to such charges and expenses (including by way of example, but
not by way of limitation, front-end and deferred sales charges,
expenses under Rule l2b-1
A-3
<PAGE>
plans, administration plans, service plans, or other plans or
arrangements, however designated) as may be adopted from time to time
by the Board of Directors in accordance, to the extent applicable, with
the Investment Company Act of 1940, as amended (together with the rules
and regulations promulgated thereunder, the "1940 Act"), which charges
and expenses may differ from those applicable to another class within
such series, and all of the charges and expenses to which a class is
subject shall be borne by such class and shall be appropriately
reflected (in the manner determined or approved by the Board of
Directors) in determining the net asset value and the amounts payable
with respect to dividends and distributions on, and redemptions or
liquidations of, such class. Subject to compliance with the
requirements of the 1940 Act, the Board of Directors shall have the
authority to provide that shires of any class shall be convertible
(automatically, optionally or otherwise) into shares of one or more
other classes in accordance with such requirements and procedures as
may be established by the Board of Directors.
6. The shareholders of each series (or class thereof) of common shares of this
corporation:
(a) shall not have the right to cumulate votes for the
election of directors; and
(b) shall have no preemptive right to subscribe to any issue
of shares of any class or series of this corporation now or hereafter
created, designated, or classified.
7. A description of the relative rights and preferences of all series of shares
(and classes thereof) is as follows, unless otherwise set forth in one or more
amendments to these Articles of Incorporation or in the resolutions providing
for the issue of such series (and classes thereof):
(a) On any matter submitted to a vote of shareholders of this
corporation, all common shares of this corporation then issued and
outstanding and entitled to vote, irrespective of series or class,
shall be voted in the aggregate and not by series or class, except: (i)
when otherwise required by Minnesota Statutes, Chapter 302A, in which
case shares will be voted by individual series or class, as applicable;
(ii) when otherwise required by the 1940 Act, as amended, or the rules
adopted thereunder, in which case shares shall be voted by individual
series or class, as applicable; and (iii) when the matter does not
affect the interests of a particular series or class, in which case
only shareholders of the series or class affected shall be entitled to
vote thereon and shall vote by individual series or class, as
applicable.
(b) All consideration received by this corporation for the
issue or sale of shares of any series, together with all assets,
income, earnings, profits and proceeds derived therefrom (including all
proceeds derived from the sale, exchange or liquidation thereof and, if
applicable, any assets derived from any reinvestment of such proceeds
in whatever form the same may be) shall become part of the assets of
the portfolio to which the shares of that series relate, for all
purposes, subject only to the rights of creditors, and shall be so
treated upon the books of account of this corporation. Such assets,
income,
A-4
<PAGE>
earnings, profits and proceeds (including any proceeds derived from the
sale, exchange or liquidation thereof and, if applicable, any assets
derived from any reinvestment of such proceeds in whatever form the
same may be) are herein referred to as "assets belonging to" a series
of the common shares of this corporation.
(c) Assets of this corporation not belonging to any particular
series are referred to herein as "General Assets." General Assets shall
be allocated to each series in proportion to the respective net assets
belonging to such series. The determination of the Board of Directors
shall be conclusive as to the amount of assets, as to the
characterization of assets as those belonging to a series or as General
Assets, and as to the allocation of General Assets.
(d) The assets belonging to a particular series of common
shares shall be charged with the liabilities incurred specifically on
behalf of such series of common shares ("Special Liabilities"). Such
assets shall also be charged with a share of the general liabilities of
this corporation ("General Liabilities") in proportion to the
respective net assets belonging to such series of common shares. The
determination of the Board of Directors shall be conclusive as to the
amount of liabilities, including accrued expenses and reserves, as to
the characterization of any liability as a Special Liability or General
Liability, and as to the allocation of General Liabilities among
series.
(e) The Board of Directors may, to the extent permitted by
Minnesota Statutes, Chapter 302A or any successor provision thereto,
and in the manner provided herein, declare and pay dividends or
distributions in shares or cash on any or all series (or classes
thereof) of common shares, the amount of such dividends and the payment
thereof being wholly in the discretion of the Board of Directors.
Dividends or distributions on shares of any series of common shares
shall be paid only out of the earnings, surplus, or other lawfully
available assets belonging to such series (including, for this purpose,
any General Assets allocated to such series).
(f) In the event of the liquidation or dissolution of this
corporation, holders of the shares of any series shall have priority
over the holders of any other series with respect to, and shall be
entitled to receive, out of the assets of this corporation available
for distribution to holders of shares, the assets belonging to such
series of common shares and the General Assets allocated to such series
of common shares, and the assets so distributable to the holders of the
shares of any series shall be distributed among such holders in
proportion to the number of shares of such series held by each such
shareholder and recorded on the books of this corporation, except that,
in the case of a series with more than one class of shares, such
distributions shall be adjusted to reflect appropriately any charges
and expenses borne by each individual class.
(g) With the approval of a majority of the shareholders of
each of the affected series of common shares present in person or by
proxy at a meeting called for the
A-5
<PAGE>
following purpose (provided that a quorum of the issued and outstanding
shares of the affected series is present at such meeting in person or
by proxy), the Board of Directors may transfer the assets of any series
to any other series. Upon such a transfer, the corporation shall issue
common shares representing interests in the series to which the assets
were transferred in exchange for all common shares representing
interests in the series from which the assets were transferred. Such
shares shall be exchanged at their respective net asset values.
8. The following additional provisions, when consistent with law, are hereby
established for the management of the business, for the conduct of the affairs
of the corporation, and for the purpose of describing certain specific powers of
the corporation and of its directors and shareholders.
(a) In furtherance and not in limitation of the powers
conferred by statute and pursuant to these Articles of Incorporation,
the Board of Directors is expressly authorized to do the following:
(1) to make, adopt, alter, amend and repeal Bylaws of
the corporation unless reserved to the shareholders by the
Bylaws or by the laws of the State of Minnesota, subject to
the power of the shareholders to change or repeal such Bylaws;
(2) to distribute, in its discretion, for any fiscal
year (in the year or in the next fiscal year) as ordinary
dividends and as capital gains distributions, respectively,
amounts sufficient to enable each series to qualify under the
Internal Revenue Code as a regulated investment company to
avoid any liability for federal income tax in respect of such
year. Any distribution or dividend paid to shareholders from
any capital source shall be accompanied by a written statement
showing the source or sources of such payment;
(3) to authorize, subject to such vote, consent, or
approval of shareholders and other conditions, if any, as may
be required by any applicable statute, rule or regulation, the
execution and performance by the corporation of any agreement
or agreements with any person, corporation, association,
company, trust, partnership (limited or general) or other
organization whereby, subject to the supervision and control
of the Board of Directors, any such other person, corporation,
association, company, trust, partnership (limited or general),
or other organization shall render managerial, investment
advisory, distribution, transfer agent, accounting and/or
other services to the corporation (including, if deemed
advisable, the management or supervision of the investment
portfolios of the corporation) upon such terms and conditions
as may be provided in such agreement or agreements;
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<PAGE>
(4) to authorize any agreement of the character
described in subparagraph (3) of this paragraph (a) with any
person, corporation, association, company, trust, partnership
(limited or general) or other organization, although one or
more of the members of the Board of Directors or officers of
the corporation may be the other party to any such agreement
or an officer, director, employee, shareholder, or member of
such other party, and no such agreement shall be invalidated
or rendered voidable by reason of the existence of any such
relationship;
(5) to allot and authorize the issuance of the
authorized but unissued shares of any series, or class
thereof, of this corporation;
(6) to accept or reject subscriptions for shares of
any series, or class thereof, made after incorporation;
(7) to fix the terms, conditions and provisions of
and authorize the issuance of options to purchase or subscribe
for shares of any series, or class thereof, including the
option price or prices at which shires may be purchased or
subscribed for, and
(8) to determine what constitutes net income, total
assets and the net asset value of the shires of each series
(or class thereof) of the corporation. Any such determination
made in good faith shall be final and conclusive and shall be
binding upon the corporation and all holders (past, present,
and future) of shares of each series (and class thereof).
(b) Except as provided in the next sentence of this paragraph
(b), shares of any series, or class thereof, which are redeemed,
exchanged, or otherwise acquired by this corporation shall return to
the status of authorized and unissued shares of such series or class.
Upon the redemption, exchange, or other acquisition by the corporation
of all outstanding shares of any series (or class thereof), such shares
shall return to the status of authorized and unissued shares without
designation as to series (if no shares of the series remain
outstanding) or with the same designation as to series, but no
designation as to class within such series (if shares of such series
remain outstanding, but no shares of such class thereof remain
outstanding), and all provisions of these Articles of Incorporation
relating to such series, or class thereof (including, without
limitation, any statement establishing or fixing the rights and
preferences of such series, or class thereof), shall cease to be of
further effect and shall cease to be a part of these Articles. Upon the
occurrence of such events, the Board of Directors of the corporation
shall have the power, pursuant to Minnesota Statutes Section 302A.135,
Subdivision 5 or any successor provision and without shareholder
action, to cause restated articles of incorporation of the corporation
to be prepared and filed with the Secretary of State of the State of
Minnesota which reflect such removal from these Articles of all such
provisions relating to such
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<PAGE>
series, or class thereof.
(c) The determination as to any of the following matters made
by or pursuant to the direction of the Board of Directors consistent
with these Articles of Incorporation and in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
duties, shall be final and conclusive and shall be binding upon the
corporation and every holder of shares of its capital stock: namely,
the amount of the assets, obligations, liabilities and expenses of each
series (or class thereof) of the corporation; the amount of the net
income of each series (or class thereof) of the corporation from
dividends and interest for any period and the amount of assets at any
time legally available for the payment of dividends in each series (or
class thereof); the amount of paid-in surplus, other surplus, annual or
other net profits, or net assets in excess of capital, undivided
profits, or excess of profits over losses on sales of securities of
each series (or class thereof); the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or
charges and the propriety thereof (whether or not any obligation or
liability for which such reserves or charges shall have been created
shall have been paid or discharged); the market value, or any sale, bid
or asked price to be applied in determining the market value, of any
security owned or held by or in each series (or class thereof) of the
corporation; the fair value of any other asset owned by or in each
series of the corporation; the number of shares of each series (or
class thereof) of the corporation issued or issuable; any matter
relating to the acquisition, holding and disposition of securities and
other assets by each series (or class thereof) of the corporation; and
any question as to whether any transaction constitutes a purchase of
securities on margin, a short sale of securities, or an underwriting of
the sale of, or participation in any underwriting or selling group in
connection, with the public distribution of any securities.
(d) The Board of Directors or the shareholders of the
corporation may adopt, amend, affirm or reject investment policies and
restrictions upon investment or the use of assets of each series of the
corporation and may designate some such policies as fundamental and not
subject to change other than by a vote of a majority of the outstanding
voting securities, as such phrase is defined in the Investment Company
Act of 1940, of the affected series of the corporation.
(e) The corporation shall indemnify such persons for such
expenses and liabilities, in such manner, under such circumstances, and
to the full extent permitted by Section 302A.521 of the Minnesota
Statutes, as now enacted or hereafter amended, provided, however, that
no such indemnification may be made if it would be in violation of
Section 17(h) of the Investment Company Act of 1940, as now enacted or
hereafter amended.
(f) Any action which might be taken at a meeting of the Board
of Directors, or any duly constituted committee thereof, may be taken
without a meeting if done in
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<PAGE>
writing and signed by a majority of the directors or committee members.
(g) To the fullest extent permitted by the Minnesota Business
Corporation Act, as the same exists or may hereafter be amended (except
as prohibited by the Investment Company Act of 1940, as the same exists
or may hereafter be amended), a director of this corporation shall not
be liable to this corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director.
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<PAGE>
EXHIBIT 99(A).2
CERTIFICATE OF DESIGNATION
OF
CLASS A, CLASS B, CLASS C AND CLASS H SHARES
OF
FORTIS TAX-FREE PORTFOLIOS, INC.
The undersigned duly elected Secretary of Fortis Tax-Free Portfolios,
Inc., a Minnesota corporation (the "Fund"), hereby certifies that the following
is a true, complete and correct copy of resolutions duly adopted by a majority
of the directors of the Board of Directors of the Fund on June 28, 1994, and
further certifies that the Amended and Restated Articles referred to in such
resolutions were approved by shareholders of the Fund on August 23, 1994.
APPROVAL OF CREATION AND DESIGNATION OF
CLASS A, CLASS B, CLASS C AND CLASS H SHARES
WHEREAS, shareholders of the Fund are being asked to approve Amended and
Restated Articles of Incorporation (the "Articles") to allow the Fund to issue
Multiple Classes of shares and to increase its authorized capital; and
WHEREAS, following the approval of such amended Articles the total authorized
number of shares of the Fund will be 100,000,000,000 (one hundred billion); and
WHEREAS, as amended the Articles will provide that the sole currently
outstanding series will have 10,000,000,000 (ten billion) shares of designated
shares; and
WHEREAS, the amended Articles set forth that the authorized shares may be issued
in such Classes and with such relative rights and preferences as shall be stated
or expressed in a resolution or resolutions providing for the issue of any such
Class or Classes of common shares as may be adopted from time to time by the
Board of Directors;
NOW, THEREFORE, BE IT RESOLVED, that of the to be authorized common shares of
the Fund, for the sole currently outstanding series, 1,000,000,000 (one billion)
are hereby designated as Class A Common Shares, 1,000,000,000 (one billion) are
hereby designated as Class B Common Shares, 1,000,000,000 (one billion) are
hereby designated as Class C Common Shares and 1,000,000,000 (one billion) are
hereby designated as Class H Common Shares; and the shares of the Fund which are
outstanding on November 13, 1994 are hereby redesignated as Class E Common
Shares of the currently outstanding series of the Fund.
FURTHER RESOLVED, that the Class A, Class B, Class C , Class E and Class H
Common Shares designated by these resolutions shall have the relative rights and
preferences set forth in the amended Articles of the Fund. As provided in
Article 5(b) of such amended Articles, any Class of Common Shares designated by
these resolutions may be subject to such charges and expenses (including by way
of example, but not by way of limitation, such front-end and deferred sales
charges as may be permitted under the Investment Company Act of 1940, as amended
(the "1940 Act") and the rules of the National Association of Securities
Dealers, Inc., and expenses under Rule 12b- 1 plans, administration plans,
service plans, or other plans or arrangements, however designated) as may be
adopted from time to time by the Board of Directors of the Fund in accordance,
to the extent applicable, with the 1940 Act, which charges and expenses may
differ from those applicable to another Class, and all of the charges and
expenses to which a Class is subject shall be borne by such Class and shall be
appropriately reflected in determining the net asset value and the amounts
payable with respect to dividends and distributions on, and redemptions or
liquidations of, such Class.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation on behalf of Fortis Tax-Free Portfolios, Inc. this 31st day of
October 1994.
/S/MICHAEL J. RADMER
----------------------------
Michael J. Radmer, Secretary
<PAGE>
Exhibit 99.A3
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FORTIS TAX-FREE PORTFOLIOS, INC.
The undersigned officer of Fortis Tax-Free Portfolios, Inc. (the
"Corporation"), a corporation subject to the provisions of Chapter 302A of the
Minnesota Statutes, hereby certifies that the Corporation's Board of Directors
and shareholders, at meetings held March 21, 1996, and November 12, 1996,
respectively, adopted the resolutions hereinafter set forth; and such officer
further certifies that the amendments to the Corporation's Amended and Restated
Articles of Incorporation set forth in such resolutions were adopted pursuant to
said Chapter 302A.
WHEREAS, the Corporation is registered as an open end management
investment company (i.e., a mutual fund) under the Investment Company
Act of 1940 and offers its shares to the public in several series, each
of which represents a separate and distinct portfolio of assets; and
WHEREAS, it is desirable and in the best interests of the holders of
the Series C Shares of the Corporation (also known as the "New York
Portfolio") that the assets belonging to such series be sold to
Voyageur Mutual Funds, Inc. ("Voyageur"), a Minnesota corporation and
an open end management investment company registered under the
Investment Company Act of 1940, in exchange for the Series J shares of
Voyageur (also known as the "Voyageur New York Tax Free Fund"); and
WHEREAS, the Corporation wishes to provide for the pro rata
distribution of such shares of Voyageur received by it to holders of
shares of the Corporation's New York Portfolio and the simultaneous
cancellation and retirement of the outstanding shares of the
Corporation's New York Portfolio; and
WHEREAS, the Corporation and Voyageur have entered into an Agreement
and Plan of Reorganization providing for the foregoing transactions;
and
WHEREAS, the Agreement and Plan of Reorganization requires that, in
order to bind all holders of shares of the Corporation's New York
Portfolio to the foregoing transaction, and in particular to bind such
holders to the cancellation and retirement of the outstanding shares of
the Corporation's New York Portfolio, it is necessary to adopt an
amendment to the Corporation's Amended and Restated Articles of
Incorporation.
NOW, THEREFORE BE IT RESOLVED, that the Corporation's Amended and
Restated Articles of Incorporation be, and the same hereby are, amended
to add the following Articles 5A immediately following Articles 5
thereof:
5A.(a) For purposes of this Article 5A, the following terms
shall have the following meanings:
"CORPORATION" means this corporation.
"VOYAGEUR" means Voyageur Mutual Funds, Inc., a Minnesota
corporation.
"ACQUIRED FUND" means the Corporation's New York Portfolio,
which is represented by the Corporation's Series C shares.
"ACQUIRED FUND SHARES" means the Corporation's Series C
Shares.
<PAGE>
"CLASS A ACQUIRED FUND SHARES" means the Acquired Fund's
Class A Shares.
"CLASS B ACQUIRED FUND SHARES" means the Acquired Fund's
Class B Shares.
"CLASS C ACQUIRED FUND SHARES" means the Acquired Fund's
Class C Shares.
"CLASS E ACQUIRED FUND SHARES" means the Acquired Fund's
Class E Shares.
"CLASS H ACQUIRED FUND SHARES" means the Acquired Fund's
Class H Shares.
"ACQUIRING FUND" means Voyageur's New York Tax Free Fund,
which is represented by Voyageur's Series J Shares.
"ACQUIRING FUND SHARES" means Voyageur's Series J Shares.
"CLASS A ACQUIRED FUND SHARES" means the Acquiring Fund's
Class A Shares.
"CLASS B ACQUIRED FUND SHARES" means the Acquiring Fund's
Class B Shares.
"CLASS C ACQUIRED FUND SHARES" means the Acquiring Fund's
Class C Shares.
"EFFECTIVE TIME" means 4:00 p.m. Eastern time on the date upon
which these Articles of Amendment are filed with the Minnesota
Secretary of State.
(b) At the Effective Time, the assets belonging to the Acquired Fund,
the Special Liabilities associated with such assets, and the specific General
Assets and General Liabilities allocated to the Acquired Fund, shall be sold to
and assumed by the Acquiring Fund in return for Class A Acquiring Fund Shares,
Class B Acquiring Fund Shares, and Class C Acquiring Fund Shares, all pursuant
to the Agreement and Plan of Reorganization between the Corporation and Voyageur
relating thereto. For purposes of the foregoing, the terms "assets belonging
to," "Special Liabilities," "General Assets" and "General Liabilities" have the
meanings assigned to them in Article 7(b), (c) and (d) of the Corporation's
Amended and Restated Articles of Incorporation.
(c) The number of Class A Acquiring Fund Shares, Class B Acquiring Fund
Shares, and Class C Acquiring fund Shares to be received by the Acquired Fund
and distributed by it to the respective Acquired Fund shareholders shall be
determined as follows:
(i) The net asset value per share of the Class A Acquired Fund
Shares, Class B Acquired Fund Shares, Class C Acquired Fund Shares,
Class E Acquired Fund Shares and Class H Acquired Fund Shares shall be
computed as of the Effective Time using the valuation procedures set
forth in the Corporation's Amended and Restated Articles of
Incorporation, bylaws, then-current prospectus and statement of
additional information, and as may be required by the Investment
Company Act of 1940, as amended.
(ii) The total number of all classes of Acquiring Fund Shares
to be issued (including fractional shares, if any) in exchange for the
assets and liabilities of the Acquired Fund shall have an aggregate net
asset value equal to the aggregate net asset value of all classes of
the Acquired Fund Shares immediately prior to the Effective Time, as
determined pursuant to (i) above. The total number of Class A Acquiring
Fund Shares to be issued (including fractional shares, if any) in
<PAGE>
exchange for the assets and liabilities of the Acquired Fund which are
allocable collectively to the Class A Acquired Fund Shares and Class E
Acquired Fund Shares shall have an aggregate net asset value equal to
the sum of the aggregate net asset value of the Class A Acquired Fund
Shares and the aggregate net asset value of the Class E Acquired Fund
Shares immediately prior to the Effective Time, as determined pursuant
to (i) above; the total number of the Class B Acquiring Fund Shares to
be issued (including fractional shares, if any) in exchange for the
assets and liabilities of the Acquired Fund which are allocable
collectively to the Class B Acquired Fund Shares and Class H Acquired
Fund Shares shall have an aggregate net asset value equal to the sum of
the aggregate net asset value of the Class B Acquired Fund Shares and
the aggregate net asset value of the Class H Acquired Fund Shares
immediately prior to the Effective Time, as determined pursuant to (i)
above; and the total number of Class C Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the assets
and liabilities of the Acquired Fund which are allocable collectively
to the Class C Acquired Fund Shares shall have an aggregate net asset
value equal to the sum of the aggregate net asset value of the Class C
Acquired Fund Shares, immediately prior to the Effective Time, as
determined pursuant to (i) above.
(iii) Immediately after the Effective Time, the Acquired Fund
shall distribute to the Acquired Fund shareholders of the respective
classes in liquidation of the Acquired Fund pro rata (based upon the
ratio that the number of Acquired Fund Shares of the respective classes
owned by each Acquired Fund shareholder immediately prior to the
Effective Time bears to the total number of issued and outstanding
Acquired Fund Shares of such class immediately prior to the Effective
Time) the full and fractional Acquiring Fund Shares of the respective
classes received by the Acquired Fund pursuant to (i) and (ii) above.
Accordingly, each holder of Class A Acquired Fund Shares shall receive,
immediately after the Effective Time, Class A Acquiring Fund Shares
with an aggregate net asset value equal to the aggregate net asset
value of the Class A Acquired Fund Shares owned by such Acquired Fund
shareholder immediately prior to the Effective Time; each holder of
Class B Acquired Fund Shares shall receive, immediately after the
Effective Time, Class B Acquiring Fund Shares with an aggregate net
asset value equal to the aggregate net asset value of the Class B
Acquired Fund Shares owned by such Acquired Fund shareholder
immediately prior to the Effective Time; each holder of Class C
Acquired Fund Shares shall receive, immediately after the Effective
Time, Class C Acquiring Fund Shares with an aggregate net asset value
equal to the aggregate net asset value of the Class C Acquired Fund
Shares owned by such Acquired Fund shareholder immediately prior to the
Effective Time; each holder of Class B Acquired Fund Shares shall
receive, immediately after the Effective Time, Class A Acquiring Fund
Shares with an aggregate net asset value equal to the aggregate net
asset value of the Class E Acquired Fund Shares owned by such Acquired
Fund shareholder immediately prior to the Effective Time; and each
holder of Class H Acquired Fund Shares shall receive, immediately
after the Effective Time, Class B Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of the
Class H Acquired Fund Shares shall receive, immediately after the
Effective Time, Class B Acquiring Fund Shares with an aggregate net
asset value equal to the aggregate net asset value of the Class H
Aquired Fund Shares owned by such Acquired Fund shareholder immediately
prior to the Effective Time.
(d) The distribution of Class A Acquiring Fund Shares, Class B
Acquiring Fund Shares and Class C Acquiring Fund Shares to Acquired Fund
shareholders provided for in paragraph (c) above shall be accomplished by the
issuance of such Class A Acquiring Fund Shares, Class B Acquiring Fund Shares
and Class C Acquiring Fund Shares to open accounts on the share records of the
Acquiring Fund in the names of the Acquired Fund shareholders representing the
numbers of Class A Acquiring Fund Shares, Class B Acquiring Fund Shares and
Class C Acquiring Fund Shares due each such shareholder pursuant to the
foregoing provisions. All issued and outstanding Acquired Fund Shares shall
simultaneously be canceled in the books of the Acquired Fund and retired. From
and after the Effective Time, share certificates formerly representing Acquired
Fund Shares shall represent the numbers of Class A Acquiring Fund Shares, Class
B Acquiring Fund Shares or Class C Acquiring Fund Shares determined in
accordance with the foregoing provisions.
(e) From and after the Effective Time, the Acquired Fund Share canceled
and retired pursuant to
<PAGE>
paragraph (d) above shall have the status of authorized and unissued shares of
the Corporation, without designation as to series.
IN WITNESS WHEREOF, the undersigned officer the Corporation has
executed these Articles of Amendment on behalf of the Corporation on November
15, 1996.
FORTIS TAX-FREE PORTFOLIOS, INC.
By /s/ Scott Plummer
---------------------------
Its Assistant Secretary
---------------------------
<PAGE>
EXHIBIT 99(B)
As amended and restated
effective January 31, 1992
AMENDED AND RESTATED
BYLAWS
OF
FORTIS TAX-FREE PORTFOLIOS, INC.
(formerly AMEV TAx-Free Fund, Inc.)
ARTICLE I
OFFICES, CORPORATE SEAL
Section 1.01. NAME. The name of the corporation is Fortis
Tax-Free Portfolios, Inc. The Articles of Incorporation of the corporation have
designated the following series of Common Shares: Series A, Series B and Series
C. The names of the series represented by Series A Common Shares, Series B
Common Shares and Series C Common Shares shall be "National Portfolio,"
"Minnesota Portfolio," and "New York Portfolio," respectively.
Section 1.02. REGISTERED OFFICE. The registered office of the
corporation in Minnesota shall be that set forth in the Articles of
Incorporation or in the most recent amendment of the Articles of Incorporation
or resolution of the directors filed with the Secretary of State of Minnesota
changing the registered office.
Section 1.03. OTHER OFFICES. The corporation may have such
other offices and places of business, within or without the State of Minnesota,
as the directors shall, from time to time, determine.
Section 1.04. CORPORATE SEAL. The corporate seal shall be
circular in form and shall have inscribed thereon the name of the corporation
and the word "Minnesota" and the words "Corporate Seal." The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the corporation shall have
authority to affix the corporate seal of the corporation to any document
requiring the same.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. PLACE AND TIME OF MEETINGS. Except as provided
otherwise by Minnesota Statutes Chapter 302A, meetings of the shareholders may
be held at any place, within or without the State of Minnesota, designated by
the directors and, in the absence of such designation, shall be held at the
registered office of the corporation in the State of Minnesota. The directors
shall designate the time of day for each meeting and, in the absence of such
designation, every meeting of shareholders shall be held at ten o'clock a.m.
<PAGE>
Section 2.02. REGULAR MEETINGS. Annual meetings of
shareholders are not required by these Bylaws. Regular meetings shall be held
only with such frequency and at such times and places as provided in and
required by law.
Section 2.03. SPECIAL MEETINGS. Special meetings of the
shareholders may be held at any time and for any purpose and may be called by
the Chairman of the Board, the President, and two or more directors, or by one
or more shareholders holding ten percent (10%) or more of the shares entitled to
vote on the matters to be presented to the meeting, except that a special
meeting for the purpose of considering any action directly or indirectly to
facilitate or effect a business combination, including any action to change or
otherwise affect the composition of the Board of Directors for that purpose,
must be called by 25% of the voting power of all shares entitled to vote.
Section 2.04. QUORUM; ADJOURNED MEETINGS. The holders of ten
percent (10%) of the shares outstanding and entitled to vote at the meeting
shall constitute a quorum for the transaction of business at any regular or
special shareholders' meeting. In case a quorum shall not be present at a
meeting, those present in person or by proxy shall adjourn to such day as they
shall, by majority vote, agree upon without further notice other than by
announcement at the meeting at which such adjournment is taken. If a quorum is
present, a meeting may be adjourned from time to time without notice other than
announcement at the meeting. At adjourned meetings at which a quorum is present,
any business may be transacted which might have been transacted at the meeting
as originally noticed. If a quorum is present, the shareholders may continue to
transact business until adjournment notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 2.05. VOTING. At each meeting of the shareholders,
every shareholder shall have the right to vote in person or by proxy. Each
shareholder, unless the Articles of Incorporation or applicable laws provide
otherwise, shall have one vote for each share having voting power registered in
his name on the books of the corporation. Upon the demand of any shareholder,
the vote upon any question before the meeting shall be by written ballot. Except
as otherwise specifically provided by these Bylaws or as required by provisions
of the Investment Company Act of 1940 or other applicable laws, all questions
shall be decided by a majority vote of the number of shares entitled to vote and
represented at the meeting at the time of the vote. If the matter(s) to be
presented at a regular or special meeting relates only to a particular portfolio
or portfolios of the corporation, then only the shareholders of the series of
stock issued by each portfolio or portfolios are entitled to vote on such
matter(s).
Section 2.06. VOTING - PROXIES. The right to vote by proxy
shall exist only if the instrument authorizing such proxy to act shall have been
executed in writing by the shareholder himself or by his attorney thereunto duly
authorized in writing. No proxy shall be voted after three years from its date
unless it provides for a longer period.
Section 2.07. CLOSING OF BOOKS. The Board of Directors may fix
a time, not
-2-
<PAGE>
exceeding sixty (60) days preceding the date of any meeting of shareholders, as
a record date for the determination of the shareholders entitled to notice of,
and to vote at, such meeting, notwithstanding any transfer of shares on the
books of the corporation after any record date so fixed. If the Board of
Directors fails to fix a record date for determination of the shareholders
entitled to notice of, and to vote at, any meeting of shareholders, the record
date shall be the thirtieth (30th) day preceding the date of such meeting.
Section 2.08. NOTICE OF MEETINGS. The Secretary or an
Assistant Secretary shall mail to each shareholder, shown by the books of the
corporation to be a holder of record of voting shares, at his address as shown
by the books of the corporation, a notice setting out the time and date and
place of each regular meeting and each special meeting, which notice shall be
mailed at least ten (10) days prior thereto; except that notice of a meeting at
which an agreement of merger or consolidation is to be considered shall be
mailed to all shareholders of record, whether entitled to vote or not, at least
two (2) weeks prior thereto; and except that notice of a meeting at which a
proposal to dispose of all, or substantially all, of the property and assets of
the corporation is to be considered shall be mailed to all shareholders of
record, whether entitled to vote or not, at least ten (10) days prior thereto;
and except that notice of a meeting at which a proposal to dissolve the
corporation or to amend the Articles of Incorporation is to be considered shall
be mailed to all shareholders of record, whether entitled to vote or not, at
least ten (10) days prior thereto. Every notice of any special meeting shall
state the purpose or purposes for which the meeting has been called, pursuant to
Section 2.03, and the business transacted at all special meetings shall be
confined to the purpose stated in the call.
Section 2.09. WAIVER OF NOTICE. Notice of any regular or
special meeting may be waived either before, at or after such meeting in writing
signed by each shareholder or representative thereof entitled to vote the shares
so represented.
ARTICLE III
DIRECTORS
Section 3.01. NUMBER, QUALIFICATIONS AND TERM OF OFFICE. Until
the first meeting of shareholders, or until the directors increase their number
by resolution, the number of directors shall be the number named in the Articles
of Incorporation. Thereafter, the number of directors shall be established by
resolution of the shareholders (subject to the authority of the Board of
Directors to increase the number of directors as permitted by law), but shall
not be less than the lesser of (i) the number of shareholders of record and
beneficially, or (ii) three (3). In the absence of such resolution, the number
of directors shall be the number last fixed by the shareholders or the Board of
Directors, or the Articles of Incorporation. Directors may but need not be
shareholders. Each of the directors shall hold office until the regular meeting
of shareholders next held after his election and until his successor shall have
been elected and shall qualify, or until he shall resign, or shall have been
removed as hereinafter provided.
Section 3.02. ELECTION OF DIRECTORS. Except as otherwise
provided in Section
-3-
<PAGE>
3.11 and 3.12 hereof, the directors shall be elected at all regular
shareholders' meeting. Directors may be elected at a special shareholders'
meeting, provided that the notice of such meeting shall contain mention of such
purpose. At each shareholders' meeting for the election of directors, the
directors shall be elected by a plurality of the votes validly cast at such
election. The shareholders of each series of stock of the corporation shall be
entitled to vote for directors and shall have equal voting power.
Section 3.03. GENERAL POWERS.
(a) The property, affairs and business of the corporation
shall be managed by the Board of Directors, which may exercise all the powers of
the corporation except those powers vested solely in the shareholders of the
corporation by statute, the Articles of Incorporation, or these Bylaws, as
amended.
(b) All acts done by any meeting of the Directors or by any
person acting as a director, so long as his successor shall not have been duly
elected or appointed, shall, notwithstanding that it be afterwards discovered
that there was some defect in the election of the directors or such person
acting as aforesaid or that they or any of them were disqualified, be as valid
as if the directors or such other person, as the case may be, had been duly
elected and were or was qualified to be directors or a director of the
corporation.
Section 3.04. POWER TO DECLARE DIVIDENDS.
(a) The Board of Directors, from time to time as they may deem
advisable, may declare and pay dividends in cash or other property of the
corporation, out of any source available for dividends, to the shareholders of
the corporation.
(b) The Board of Directors shall cause to be accompanied by a
written statement any dividend payment wholly or partly from any source other
than
(i) each investment portfolio's accumulated and
accrued undistributed net income (determined in accordance
with generally accepted accounting practice and the rules and
regulations of the Securities and Exchange Commission then in
effect) and not including profits or losses realized upon the
sale of securities or other properties; or
(ii) each investment portfolio's net income so
determined for the current or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Commission may
prescribe.
(c) Notwithstanding the above provisions of this Section 3.04,
the Board of
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Directors may at any time declare and distribute pro rata among the shareholders
a "stock dividend" out of the corporation's authorized but unissued shares of
stock, including an shares previously purchased by a portfolio of the
corporation.
Section 3.05. ANNUAL MEETING. The Board of Directors shall
meet annually at the registered office of the corporation, or at such other
place within or without the State of Minnesota as may be designated by the Board
of Directors, for the purpose of electing the officers of the corporation and
for the transaction of such other business as shall come before the meeting.
Section 3.06. REGULAR MEETINGS. Regular meetings of the Board
of Directors shall be held from time to time at such time and place within or
without the State of Minnesota as may be fixed by resolution adopted by a
majority of the whole Board of Directors.
Section 3.07. SPECIAL MEETINGS. Special meetings of the Board
of Directors may be called by the Chairman of the Board, the President, or by
any two of the directors and shall be held from time to time at such time and
place as may be designated in the notice of such meeting.
Section 3.08. NOTICE OF MEETINGS. Unless otherwise required by
Statute, no notice need be given of any annual or regular meeting of the Board
of Directors. Notice of each special meeting of the Board of Directors shall be
given by the Secretary who shall give at least twenty-four (24) hours' notice
thereof to each director by mail, telephone, telegram or in person.
Section 3.09. WAIVER OF NOTICE. Notice of any meeting of the
Board of Directors may be waived either before, at, or after such meeting in
writing signed by each director. A director, by his attendance and participation
in the action taken at any meeting of the Board of Directors, shall be deemed to
have waived notice of such meeting.
Section 3.10. QUORUM. A majority of the whole Board of
Directors shall constitute a quorum for the transaction of business except that,
when a vacancy or vacancies exist, a majority of the remaining directors
(provided such majority consists of not less than the lesser of (i) the number
of directors required by Section 3.02, or (ii) two (2) directors) shall
constitute a quorum.
Section 3.11. VACANCIES; NEWLY CREATED DIRECTORSHIPS.
Vacancies in the Board of Directors of this corporation occurring by reason of
death, resignation or increase in the number of directors by the shareholders to
the minimum number required by Section 3.01 or by the Board pursuant to Section
3.01, shall be filled for the unexpired term by a majority of the remaining
directors of the Board although less than a quorum; newly created directorships
resulting from an increase in the authorized number of directors by action of
the Board of Directors as permitted by Section 3.01 may be filled by a
two-thirds (2/3) vote of the directors serving at the time of such increase; and
each person so elected shall be a director until his
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<PAGE>
successor is elected by the shareholders, who may make such election at their
next regular meeting or at any meeting duly called for that purpose; provided,
however, that no vacancy can be filled as provided above if prohibited by the
provisions of the Investment Company Act of 1940.
Section 3.12. REMOVAL. Removal of directors shall be governed
by the provisions of Section 302A.233 of the Minnesota Statutes or other
applicable provisions of the Minnesota Statutes or successors thereto.
Section 3.13. EXECUTIVE COMMITTEE. The Board of Directors, by
unanimous affirmative action of the entire Board, may establish an Executive
Committee consisting of two (2) or more directors. Such Committee may meet at
stated times or on notice of all given by any of their own number. During the
intervals between meetings of the Board of Directors, such Committee shall
advise and aid the officers of the corporation in all matters concerning the
business and affairs of the corporation and, generally, perform such duties and
exercise such powers as may be directed or delegated by the Board of Directors
from time to time. The Board of Directors may, by unanimous affirmative action
of the entire Board, delegate to such Committee authority to exercise all the
powers of the Board of Directors, except the power to amend the Bylaws and to
take action on matters reserved to the entire Board by the Investment Company
Act of 1940, while the Board of Directors is not in session. Vacancies in the
membership of the Committee shall be filled by the Board of Directors at a
regular meeting or at a special meeting called for that purpose.
Section 3.14. OTHER COMMITTEES. The Board of Directors may
establish other committees from time to time making such regulations as it deems
advisable with respect to the membership, authority and procedures of such
committees.
Section 3.15. WRITTEN ACTION. Any action which might be taken
at a meeting of the Board of Directors, or any duly constituted committee
thereof, may be taken without a meeting if done in writing and signed by a
majority of the directors or committee members.
Section 3.16. COMPENSATION. Directors who are not salaried
officers of this corporation shall receive such fixed sum per meeting attended
or such fixed annual sum as shall be determined, from time to time, by
resolution of the Board of Directors. All directors may receive their expenses,
if any, of attendance at meetings of the Board of Directors or any committee
thereof. Nothing herein contained shall be construed to preclude any director
from serving this corporation in any other capacity and receiving proper
compensation therefor.
ARTICLE IV
OFFICERS
Section 4.01. NUMBER. The officers of the corporation shall
consist of a Chairman of the Board (if one is elected by the Board), the
President, one or more Vice
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<PAGE>
Presidents (if desired by the Board), a Secretary and one or more Assistant
Secretaries, a Treasurer and one or more Assistant Treasurers, and such other
officers and agents as may, from time to time, be elected by the Board of
Directors.
Section 4.02. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. At
each annual meeting of the Board of Directors, the Board shall elect, from
within or without their number, the President, the Secretary, the Treasurer and
such other officers as may be deemed advisable. Such officers shall hold office
until the next annual meeting of the directors or until their successors are
elected and qualified. The President and all other officers who may be directors
shall continue to hold office until the election and qualification of their
successors, notwithstanding an earlier termination of their directorship.
Section 4.03. RESIGNATION. Any officer may resign his office
at any time by delivering a written resignation to the Board of Directors, the
President, the Secretary, or any Assistant Secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery.
Section 4.04. REMOVAL AND VACANCIES. Any officer may be
removed from his office by a majority of the whole Board of Directors, with or
without cause. Such removal, however, shall be without prejudice to the contract
rights of the person so removed. If there be a vacancy among the officers of the
corporation by reason of death, resignation or otherwise, such vacancy shall be
filled for the unexpired term by the Board of Directors.
Section 4.05. CHAIRMAN OF THE BOARD. The Chairman of the
Board, if one is elected, shall preside at all meetings of the shareholders and
directors and shall have such other duties as may be prescribed, from time to
time, by the Board of Directors.
Section 4.06. PRESIDENT. The President shall have general
active management of the business of the corporation. In the absence of the
Chairman of the Board, he shall preside at all meetings of the shareholders and
directors. He shall be the chief executive officer of the corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall be ex officio a member of all standing committees. He may
execute and deliver, in the name of the corporation, any deeds, mortgages,
bonds, contracts or other instruments pertaining to the business of the
corporation and, in general, shall perform all duties usually incident to the
office of President. He shall have such other duties as may, from time to time,
be prescribed by the Board of Directors.
Section 4.07. VICE PRESIDENT. Each Vice President shall have
such powers and shall perform such duties as may be specified in the Bylaws or
prescribed by the Board of Directors or by the President. In the event of
absence or disability of the President, Vice Presidents shall succeed to his
power and duties in the order designated by the Board of Directors.
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<PAGE>
Section 4.08. SECRETARY. The Secretary shall be secretary of,
and shall attend all, meetings of the shareholders and Board of Directors and
shall record all proceedings of such meetings in the minute book of the
corporation. He shall give proper notice of meetings of shareholders and
directors. He shall keep the seal of the corporation and shall affix the same to
any instrument requiring it and may, when necessary, attest the seal by his
signature. He shall perform such other duties as may, from time to time, be
prescribed by the Board of Directors or by the President.
Section 4.09. TREASURER. The Treasurer shall keep accurate
accounts of all moneys of the corporation received or disbursed. He shall
deposit all moneys, drafts and checks in the name of, and to the credit of, the
corporation in such banks and depositories as a majority of the whole Board of
Directors shall, from time to time, designate. He shall have power to endorse,
for deposit, all notes, checks and drafts received by the corporation. He shall
disburse the funds of the corporation, as ordered by the Board of Directors,
making proper vouchers therefor. He shall render to the President and the
directors, whenever required, an account of all his transactions as Treasurer
and of the financial condition of the corporation, and shall perform such other
duties as may, from time to time, be prescribed by the Board of Directors or by
the President.
Section 4.10. ASSISTANT SECRETARIES. At the request of the
Secretary, or in his absence or disability, any Assistant Secretary shall have
power to perform all the duties of the Secretary and, when so acting, shall have
all the powers of, and be subject to all restrictions upon, the Secretary. The
Assistant Secretaries shall perform such other duties as from time to time may
be assigned to them by the Board of Directors or the President.
Section 4.11. ASSISTANT TREASURERS. At the request of the
Treasurer, or in his absence or disability, any Assistant Treasurer shall have
power to perform all the duties of the Treasurer, and when so acting, shall have
all the powers of, and be subject to all the restrictions upon, the Treasurer.
The Assistant Treasurers shall perform such other duties as from time to time
may be assigned to them by the Board of Directors or the President.
Section 4.12. COMPENSATION. The officers of this corporation
shall receive such compensation for their services as may be determined, from
time to time, by resolution of the Board of Directors.
Section 4.13. SURETY BONDS. The Board of Directors may require
any officer or agent of the corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940 and the
rules and regulations of the Securities and Exchange Commission) to the
corporation in such sum and with such surety or sureties as the Board of
Directors may determine, conditioned upon the faithful performance of his duties
to the corporation, including responsibility for negligence and for the
accounting of any of the corporation's property, funds or securities that may
come into his hands. In any such case, a new bond of like character shall be
given at least every six years, so that the date of the new bond
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<PAGE>
shall not be more than six years subsequent to the date of the bond immediately
preceding.
ARTICLE V
SHARES AND THEIR TRANSFER AND REDEMPTION
Section 5.01. CERTIFICATES FOR SHARES.
(a) Every owner of shares of the corporation shall be entitled
to a certificate, to be in such form as shall be prescribed by the Board of
Directors, certifying the number of shares of the corporation owned by him. The
certificates for such shares shall be numbered in the order in which they shall
be issued and shall be signed, in the name of the corporation, by the President
or a Vice President and by the Treasurer, or by such officers as the Board of
Directors may designate. Such signatures may be facsimile if authorized by the
Board of Directors. Every certificate surrendered to the corporation for
exchange or transfer shall be canceled, and no new certificate or certificates
shall be issued in exchange for any existing certificate until such existing
certificate shall have been so canceled, except in cases provided for in Section
5.08.
(b) In case any officer, transfer agent or registrar who shall
have signed any such certificate, or whose facsimile signature has been placed
thereon, shall cease to be such an officer because of death, resignation or
otherwise) before such certificate is issued, such certificate may be issued and
delivered by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 5.02. ISSUANCE OF SHARES. The Board of Directors is
authorized to cause to be issued shares of the corporation up to the full amount
authorized by the Articles of Incorporation in such series and in such amounts
as may be determined by the Board of Directors and as may be permitted by law.
No shares shall be allotted except in consideration of cash or of an amount
transferred from surplus to stated capital upon a share dividend. At the time of
such allotment of shares, the Board of Directors making such allotments shall
state, by resolution, their determination of the fair value to the corporation
in monetary terms of any consideration other than cash for which shares are
allotted. The amount of consideration to be received in cash, or otherwise,
shall not be less than the par value of the shares so allotted. No shares of
stock issued by the corporation shall be issued, sold, or exchanged by or on
behalf of the corporation for any amount less than the net asset value per share
of the shares outstanding as determined pursuant to Article XI hereunder.
Section 5.03. REDEMPTION OF SHARES. Upon the demand of any
shareholder this corporation shall redeem any share of stock issued by it held
and owned by such shareholder at the net asset value thereof as determined
pursuant to Article XI hereunder. The Board of Directors may suspend the right
of redemption or postpone the date of payment during any period when: (a)
trading on the New York Stock Exchange is restricted or such Exchange is closed
for other than weekends or holidays; (b) the Securities and Exchange Commission
has by order permitted such suspension; or (c) an emergency as defined by rules
of the Securities and
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<PAGE>
Exchange Commission exists, making disposal of portfolio securities or valuation
of net assets of the corporation not reasonably practicable.
Section 5.04. TRANSFER OF SHARES. Transfer of shares on the
books of the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares or a duly executed assignment covering shares held
in unissued form. The corporation may treat, as the absolute owner of shares of
the corporation, the person or persons in whose name shares are registered on
the books of the corporation.
Section 5.05. REGISTERED SHAREHOLDERS. The corporation shall
be entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by the laws of Minnesota.
Section 5.06. TRANSFER AGENTS AND REGISTRARS. The Board of
Directors may from time to time appoint or remove transfer agents and/or
registrars of transfers of shares of stock of the corporation, and it may
appoint the same person as both transfer agent and registrar. Upon any such
appointment being made all certificates representing shares of capital stock
thereafter issued shall be countersigned by one of such transfer agents or by
one of such registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 5.07. TRANSFER REGULATIONS. The shares of stock of the
corporation may be freely transferred, and the Board of Directors may from time
to time adopt rules and regulations with reference to the method of transfer of
the shares of stock of the corporation.
Section 5.08. LOST, STOLEN, DESTROYED AND MUTILATED
CERTIFICATES. The holder of any stock of the corporation shall immediately
notify the corporation of any loss, theft, destruction or mutilation of any
certificate therefor, and the Board of Directors may, in its discretion, cause
to be issued to him a new certificate or certificates of stock upon the
surrender of the mutilated certificate or in case of loss, theft or destruction
of the certificate, upon satisfactory proof of such loss, theft or destruction,
after the owner of the lost, stolen or destroyed certificate, or his legal
representatives, gives to the corporation and to such registrar or transfer
agent as may be authorized or required to countersign such new certificate or
certificates a bond, in such sum as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be made
against them or any of them on account of or in connection with the alleged
loss, theft, or destruction of any such certificate.
Section 5.09. REDEMPTION OF SMALL SHAREHOLDER ACCOUNTS. Unless
the original
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purchase price of such investment in shares (including sales commission) was at
least $250, if the value of a shareholder's investments in the corporation
becomes less than $250 (or such other amount as may be determined from time to
time by the Board of Directors) as a result of a redemption or transfer of
shares, the corporation's officers are authorized, in their discretion, on
behalf of the corporation, to redeem such shareholder's entire interest and
remit such amount, provided that such a redemption will only be effected by the
corporation following (a) the mailing by the corporation to such shareholder of
a "notice of intention to redeem," and (b) the passage of such time period as
may be determined by the Board of Directors, during which time the shareholder
will have the opportunity to make an additional investment in the corporation to
increase the value of such shareholder's account to at least such minimum
amount.
ARTICLE VI
DIVIDENDS, SURPLUS, ETC.
Section 6.01. The corporation's net investment income will be
determined, and its dividends shall be declared and made payable at such time(s)
as the Board of Directors shall determine; dividends shall be payable to
shareholders of record as of the date of declaration.
It shall be the policy of the corporation to qualify for and
elect the tax treatment applicable to regulated investment companies under the
Internal Revenue Code, so that the corporation will not be subjected to Federal
income tax on such part of its income or capital gains as it distributes to
shareholders.
ARTICLE VII
BOOKS AND RECORDS, AUDIT, FISCAL YEAR
Section 7.01. BOOKS AND RECORDS. The Board of Directors
of the corporation shall cause to be kept:
(1) share register, giving the names and addresses of the
shareholders, the number and classes held by each,
and the dates on which the certificates therefor were
issued;
(2) records of all proceedings of shareholders and
directors; and
(3) such other records and books of account as shall be
necessary and appropriate to the conduct of the
corporate business.
Section 7.02. DOCUMENTS KEPT AT REGISTERED OFFICE. The Board
of Directors shall cause to be kept at the registered office of the corporation
originals or copies of:
(1) records of all proceedings of shareholders and
directors
(2) Bylaws of the corporation and all amendments thereto;
and
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(3) reports made to any or all of the shareholders within
the last preceding three (3) years.
Section 7.03. AUDIT, ACCOUNTANT.
(a) The Board of Directors shall cause the records and books
of account of the corporation to be audited at least once in each fiscal year
and at such other times as it may deem necessary or appropriate.
(b) The corporation shall employ an independent certified
public accountant or firm of independent certified public accountants as its
Accountant to examine the accounts of the corporation and to sign and certify
financial statements filed by the corporation. The Accountant's certificates and
reports shall be addressed both to the Board of Directors and to the
shareholders.
(c) Any vacancy occurring between regular meetings, due to the
death, resignation or otherwise of the Accountant, may be filled by the Board of
Directors.
Section 7.04. FISCAL YEAR. The fiscal year of the corporation
shall be determined by the Board of Directors.
ARTICLE VIII
INSPECTION OF BOOKS
Section 8.01. Every shareholder of the corporation and every
holder of a voting trust certificate shall have a right to examine, in person or
by agent or attorney, at any reasonable time or times, for any proper purpose,
and at the place or places where usually kept, the share register, books of
account and records of the proceedings of the shareholders and directors and to
make extracts therefrom.
ARTICLE IX
VOTING OF STOCK HELD
Section 9.01. Unless otherwise provided by resolution of the
Board of Directors, the President, any Vice President, the Secretary or the
Treasurer, may from time to time appoint an attorney or attorneys or agent or
agents of the corporation, in the name and on behalf of the corporation, to cast
the votes which the corporation may be entitled to cast as a stockholder or
otherwise in any other corporation or association, any of whose stock or
securities may be held by the corporation, at meetings of the holders of the
stock or other securities of any such other corporation or association, or to
consent in writing to any action by any such other corporation or association,
and may instruct the person or persons so appointed as to the manner of casting
such votes or giving such consent, and may execute or cause to be executed on
behalf
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of the corporation and under its corporate seal, or otherwise, such written
proxies, consents, waivers, or other instruments as it may deem necessary or
proper in the circumstances; or any of such officers may themselves attend any
meeting of the holders of stock or other securities of any such corporation or
association and thereat vote or exercise any or all other powers of the
corporation as the holder of such stock or other securities of such other
corporation or association, or consent in writing to any action by any such
other corporation or association.
ARTICLE X
VALUATION OF NET ASSET VALUE
Section 10.01. The net asset value per share of each share of
stock issued by the corporation shall be determined in good faith by or under
supervision of the officers of the corporation as authorized by the Board of
Directors as often and on such days and at such time(s) as the Board of
Directors shall determine.
ARTICLE XI
CUSTODY OF ASSETS
Section 11.01. All securities and cash owned by this
corporation shall, as hereinafter provided, be held by or deposited with a bank
or trust company having (according to its last published report) not less than
two million dollars ($2,000,000) aggregate capital, surplus and undivided
profits (the "Custodian").
This corporation shall enter into a written contract with the
Custodian regarding the powers, duties and compensation of the Custodian with
respect to the cash and securities of this corporation held by the Custodian.
Said contract and all amendments thereto shall be approved by the Board of
Directors of this corporation. In the event of the Custodian's resignation or
termination, the corporation shall use its best efforts promptly to obtain a
successor Custodian and shall require that the cash and securities owned by this
corporation held by the Custodian be delivered directly to such successor
Custodian.
ARTICLE XII
AMENDMENTS
Section 12.01. These Bylaws may be amended or altered by a
vote of the majority of the whole Board of Directors at any meeting provided
that notice of such proposed amendment shall have been given in the notice given
to the directors of such meeting. Such authority in the Board of Directors is
subject to the power of the shareholders to change or repeal such Bylaws by a
majority vote of the shareholders present or represented at any annual or
special meeting of shareholders called for such purpose. The Board of Directors
shall not make or alter any Bylaws fixing their qualifications, classifications,
term of office, or number, except that the Board of Directors may make or alter
any Bylaw to increase their number.
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ARTICLE XIII
MISCELLANEOUS
Section 13.01. INTERPRETATION. When the context in which words
are used in these Bylaws indicates that such is the intent, singular words will
include the plural and vice versa, and masculine words will include the feminine
and neuter genders and vice versa.
Section 13.02. ARTICLE AND SECTION TITLES. The titles of
Sections and Articles in these Bylaws are for descriptive purposes only and will
not control or alter the meaning of any of these Bylaws as set forth in the
text.
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<PAGE>
EXHIBIT 99(D).1
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
THIS AGREEMENT, made this 1st day of February 1998, by and
between Fortis Tax-Free Portfolios, Inc. (formerly AMEV Tax-Free Fund), a
Minnesota corporation (the "Fund") and Fortis Advisers, Inc. (formerly AMEV
Advisers, Inc.), a Minnesota corporation ("Advisers").
1. INVESTMENT ADVISORY AND MANAGEMENT SERVICES.
The Fund hereby engages Advisers, and Advisers hereby agrees to act, as
investment adviser for, and to manage the affairs, business and the investment
of the assets of the Fund's Minnesota Portfolio. Such Portfolio is herein
referred to as the "Portfolio" and other Portfolios of the Fund from time to
time created by the Board of Directors of the Fund are herein collectively
referred to as the "Portfolios."
The investment of the assets of the Portfolio shall at all times be
subject to the applicable provisions of the Articles of Incorporation, Bylaws,
Registration Statement and current Prospectus and Statement of Additional
Information of the Fund and shall conform to the policies and purposes of the
Fund and the Portfolio as set forth in the Registration Statement and Prospectus
and Statement of Additional Information and as interpreted from time to time by
the Board of Directors of the Fund. Within the framework of the investment
policies of the Portfolio, Advisers shall have the sole and exclusive
responsibility for the management of the Portfolio and the making and execution
of all investment decisions for the Portfolio. Advisers shall report to the
Board of Directors regularly at such times and in such detail as the Board may
from time to time determine to be appropriate, in order to permit the Board to
determine the adherence of Advisers to the investment policies of the Portfolio.
Advisers shall, at its own expense, furnish the Fund suitable office
space, and all necessary office facilities, equipment and personnel for
servicing the investments of the Portfolio. Advisers shall arrange, if requested
by the Fund, for officers, employees, or other affiliates of Advisers to serve
without compensation from the Fund as directors, officers, or employees of the
Fund if duly elected to such positions by the shareholders or directors of the
Fund.
Advisers hereby acknowledges that all records necessary in the
operation of the Fund, including records pertaining to its shareholders and
investments, are the property of the Fund, and in the event that a transfer of
management or investment advisory services to someone other than Advisers should
ever occur, Advisers will promptly, and at its own cost, take all steps
necessary to segregate such records and deliver them to the Fund.
2. COMPENSATION FOR SERVICES.
In payment for all services, facilities, equipment and personnel, and
for other costs of
<PAGE>
Advisers hereunder, the Fund shall pay to Advisers a monthly fee for the
Portfolio, which fee shall be paid to Advisers not later than the fifth business
day of the month following the month in which such services are rendered. Such
monthly fee shall be at the rate or rates set forth below and shall be based on
the average of the net asset values of all of the issued and outstanding shares
of the Portfolio as determined as of the close of each business day of the month
pursuant to the Articles of Incorporation, Bylaws and currently effective
Prospectus and Statement of Additional Information of the Fund. The following
table sets forth the fees on a monthly and annual basis:
<TABLE>
<CAPTION>
Monthly Equivalent Average Asset
Rate Annual Rate Values of the Portfolio
---- ----------- -----------------------
<S> <C> <C> <C>
Minnesota 1/12 of .72% .72% On the first $50,000,000
Portfolio 1/12 of .7% .7% On average assets over
$50,000,000
</TABLE>
The fees shall be prorated for any fraction of a month at the
commencement or termination of this Agreement.
3. ALLOCATION OF EXPENSES.
(a) In addition to the fee described in Section 2 hereof, the Fund
shall pay all its expenses which are not assumed by Advisers and/or Fortis
Investors, Inc. ("Investors"). These Fund expenses include, by way of example,
but not by way of limitation, the fees and expenses of directors and officers of
the Fund who are not "affiliated persons" of Advisers, interest expenses, taxes,
brokerage fees and commissions, fees and expenses of registering and qualifying
the Fund and its shares for distribution under federal and state securities
laws, expenses of preparing prospectuses and of printing and distributing
prospectuses annually to existing shareholders, custodian charges, auditing and
legal expenses, insurance expense, association membership dues, and the expense
of reports to shareholders, shareholders' meetings, and proxy solicitations.
Advisers shall bear the costs of acting as the Fund's transfer agent, registrar,
and dividend disbursing agent.
(b) Advisers or Investors shall 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.
4. LIMIT ON EXPENSES.
Advisers reserves the right, but shall not be obligated, to institute
further voluntary expense reimbursement programs, which shall be in such amounts
and based upon such terms and conditions as Advisers, in its sole and absolute
discretion, determines. Furthermore, Advisers reserves the absolute right to
discontinue any of such reimbursement programs at any time without notice to the
Fund.
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<PAGE>
5. FREEDOM TO DEAL WITH THIRD PARTIES.
Advisers shall be free to render services to others similar to those
rendered under this Agreement or of a different nature except as such services
may conflict with the services to be rendered or the duties to be assumed
hereunder.
6. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT.
The effective date of this Agreement shall be February 1, 1998.
Wherever referred to in this Agreement, the vote or approval of the holders of a
majority of the outstanding voting securities of the Portfolio or the Fund shall
mean the vote of 67% or more of such securities if the holders of more than 50%
of such securities are present in person or by proxy or the vote of more than
50% of such securities, whichever is less.
Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect only so long as such continuance is specifically approved at
least annually (a) by the Board of Directors of the Fund, or with respect to the
Portfolio by the vote of the holders of a majority of the outstanding voting
securities of the Portfolio, and (b) by a majority of the directors who are not
interested persons of Advisers or of the Fund cast in person at a meeting called
for the purpose of voting on such approval; provided that, if a majority of the
outstanding voting securities of the Portfolio approves this Agreement, this
Agreement shall continue in effect with respect to such approving Portfolio
whether or not the shareholders of any other Portfolios of the Fund approve this
Agreement.
This Agreement may be terminated at any time without the payment of any
penalty by the vote of the Board of Directors of the Fund or by Advisers, upon
sixty (60) days' written notice to the other party. This Agreement may be
terminated with respect to the Portfolio at any time without the payment of any
penalty by the vote of the holders of a majority of the outstanding voting
securities of the Portfolio, upon sixty (60) days' written notice to Advisers.
Any such termination may be made effective with respect to both the investment
advisory and management services provided for in this Agreement or with respect
to either of such kinds of services. This Agreement shall automatically
terminate in the event of its assignment.
7. AMENDMENTS TO AGREEMENT.
No material amendment to this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding voting
securities of the Portfolio which has approved and is subject to this Agreement.
In addition, if a majority of the outstanding voting securities of the Portfolio
of the Fund votes to amend this Agreement, such amendment shall be effective
with respect to such Portfolio whether or not the shareholders of any other
Portfolios of the Fund vote to adopt such amendment.
-3-
<PAGE>
8. NOTICES.
Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Fund and Advisers have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
FORTIS TAX-FREE PORTFOLIOS, INC.
By /S/ DEAN C. KOPPERUD
--------------------
Dean C. Kopperud
Its President
FORTIS ADVISERS, INC.
By /S/ DEAN C. KOPPERUD
--------------------
Dean C. Kopperud
Its Chief Executive Officer
-4-
<PAGE>
EXHIBIT 99(D).2
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
THIS AGREEMENT, made this 31st day of January 1992, by and
between Fortis Tax-Free Portfolios, Inc. (formerly AMEV Tax-Free Fund, Inc.), a
Minnesota corporation (the "Fund") and Fortis Advisers, Inc. (formerly AMEV
Advisers, Inc.), a Minnesota ("Advisers").
1. INVESTMENT ADVISORY AND MANAGEMENT SERVICES
The Fund hereby engages Advisers, and Advisers hereby agrees
to act, as investment adviser for, and to manage the affairs, business and the
investment of the assets of the assets of the Fund's National Portfolio and any
other Portfolios other than Minnesota Portfolio or New York Portfolio from time
to time created by the Board of Directors of the Fund. Each such Portfolio is
herein individually referred to as a "Portfolio," and the Portfolios are herein
collectively referred to as the "Portfolios."
The investment of the assets of the Portfolios shall at all times be
subject to the applicable provisions of the Articles of Incorporation, Bylaws,
Registration Statement and current Prospectus and Statement of Additional
Information of the Fund and shall conform to the policies and purposes of the
Fund and the Portfolios as set forth in the Registration Statement and
Prospectus and Statement of Additional Information as interpreted from time to
time by the Board of Directors of the Fund. Within the framework of the
investment policies of the Portfolios, Advisers shall have the sole and
exclusive responsibility for the management of the Portfolios and the making and
execution of all investment decisions for the Portfolios. Advisers shall report
to the Board of Directors regularly at such times and in such detail as the
Board may from time to time determine to be appropriate, in order to permit the
Board to determine the adherence of Advisers to the investment policies of the
Portfolios.
Advisers shall, at its own expense, furnish the Fund suitable
office space, and all necessary office facilities, equipment and personnel for
servicing the investments of the Fund. Advisers shall arrange, if requested by
the Fund, for officers, employees or other affiliates of Advisers to serve
without compensation from the Fund as directors, officers, or employees of the
Fund if duly elected to such positions by the shareholders or directors of the
Fund.
Advisers hereby acknowledges that all records necessary in the
operation of the Fund, including records pertaining to shareholders and
investments, are the property of the Fund, and in the event that a transfer of
management or investment advisory services to someone other than Advisers should
ever occur, Advisers will promptly, and at its own cost, take all steps
necessary to segregate such records and deliver them to the Fund.
2. COMPENSATION FOR SERVICES.
In payment for all services, facilities, equipment and personnel, and
for other costs of Advisers hereunder, the Fund shall pay to Advisers a monthly
fee for each Portfolio, which fee shall be paid to Advisers not later than the
fifth business day of the month following the month in which such services are
rendered. Such monthly fee shall be at the rate or rates set forth below and
shall be based on the average of the net asset values of all of the issued and
outstanding
<PAGE>
shares of the respective Portfolio und as determined as of the close of each
business day of the month pursuant to the Articles of Incorporation, Bylaws and
currently effective Prospectus and Statement of Additional Information of the
Fund. The following table sets forth the fee on a monthly and annual basis:
<TABLE>
<CAPTION>
Monthly Equivalent Average Asset
Rate Annual Rate Values of the Fund
---- ----------- ------------------
<S> <C> <C> <C>
National Portfolio 1/12 of 0.80% 0.80% On the first $50,000,000
1/12 of 0.70% 0.70% On average net assets over
$50,000,000
</TABLE>
The fee shall be prorated for any fraction of a month at the
commencement or termination of this Agreement.
The investment advisory fee for any future Portfolio(s) shall
be as determined by the Board of Directors of the Fund upon the creation of any
such Portfolio(s).
3. ALLOCATION OF EXPENSES.
In addition to the fee described in Section 2 hereof, the Fund
shall pay all its expenses which are not assumed by Advisers, Fortis Investors,
Inc. ("Investors") or any other person. These Fund expenses include, by way of
example, but not by way of limitation, the fees and expenses of directors and
officers of the Fund who are not "affiliated persons" of Advisers, interest
expenses, taxes, brokerage fees and commissions, fees and expenses of
registering and qualifying the Fund and its shares for distribution under
federal and state securities laws, expenses of preparing Prospectuses and of
printing and distributing Prospectuses and Statements of Additional Information
annually to existing shareholders, custodian charges, auditing and legal
expenses, insurance expenses, association membership dues, and the expenses of
reports to shareholders, shareholders' meetings and proxy solicitations.
Advisers shall bear the costs of acting as the Fund's transfer agent, registrar
and dividend disbursing agent.
Advisers or Investors shall 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.
3. LIMIT ON EXPENSES.
Advisers shall reimburse the Fund from the date of the initial
public offering and until the earlier of the date of the Fund's aggregate net
assets (for all Portfolios) first reach $10,000,000 or January 1, 1987, to the
extent that the aggregate expenses of the Fund (including the investment
advisory and management fee under paragraph 2 of this Agreement, but excluding
interest, taxes, brokerage fees and commissions) exceed an amount equal, on an
annual basis, to 1% of the average daily net assets of the Fund
Advisers reserves the right, but shall not be obligated, to
institute further voluntary expense reimbursement programs which shall e in such
amounts and based upon such terms and conditions as Advisers, i its sole and
absolute discretion, determines. Furthermore, Advisers reserves the absolute
right to discontinue any of such reimbursement programs at any
<PAGE>
time without notice to the Fund.
4. FREEDOM TO DEAL WITH THIRD PARTIES.
Advisers shall be free to render services to others similar to
those rendered under this Agreement or of a different nature except as such
services may conflict with the services to be rendered or the duties to be
assumed hereunder.
5. EFFECTIVE DATE, DURATION AND TERMINATION OF
AGREEMENT.
. The effective date of this Agreement shall be January 31, 1992. Wherever
referred to in this Agreement, the vote or approval of the holders of a majority
of the outstanding voting securities of a Portfolio of the Fund shall mean the
vote of 67% or more of such securities if the holders of more than 50% of such
securities are present in person or by proxy or the vote of more than 50% of
such securities, whichever is less.
Unless sooner terminated as hereinafter provided, this
Agreement shall continue in effect only so long as such continuance is
specifically approved at least annually (a) by the Board of Directors of the
Fund, or with respect to a particular Portfolio by the vote of the holders of a
majority of the outstanding voting securities of such Portfolio, and (b) by a
majority of the directors who are not interested persons of Advisers or of the
Fund cast in person at a meeting called for the purpose of voting on such
approval; provided that, if a majority of the outstanding voting securities of
any of the Portfolios approves this Agreement, this Agreement shall continue in
effect with respect to such approving Portfolio whether or not the shareholders
of any other Portfolio of the Fund approve this Agreement.
This Agreement may be terminated at any time without the
payment of any penalty by the vote of the Board of Directors of the Fund or by
Advisers, upon sixty (60) days' written notice to the other party. This
Agreement may be terminated with respect to a particular Portfolio at any time
without the payment of any penalty by the vote of the holders of a majority of
the outstanding voting securities of such Portfolio, upon sixty (60) days'
written notice to Advisers. Any such termination may be made effective with
respect to both the investment advisory and management services provided for in
this Agreement or with respect to either of such kinds of services. This
Agreement shall automatically terminate in the event of its assignment.
6. AMENDMENTS TO AGREEMENT.
No material amendment to this Agreement shall be effective
until approved by a vote of the holders of a majority of the outstanding voting
securities of the Portfolios which have approved and are subject to this
Agreement. In addition, if a majority of the outstanding voting securities of
any Portfolio of the Fund votes to amend this Agreement, such amendment shall be
effective with respect to such Portfolio whether or not the shareholders of any
other Portfolio vote to adopt such amendment.
7. NOTICES.
<PAGE>
Any notice under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Fund and Advisers have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
FORTIS TAX-FREE PORTFOLIOS, INC.
By /S/ EDWARD M. MAHONEY
----------------------------
Its President
FORTIS ADVISERS, INC.
By /S/ EDWARD M. MAHONEY
----------------------------
Its President
<PAGE>
EXHIBIT 99(E).1
UNDERWRITING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT, made this 14th day of November 1994, by and between
Fortis Tax-Free Portfolios, Inc. (formerly AMEV Tax-Free Fund, Inc.), a
Minnesota corporation (the "Fund") for and on behalf of each class of shares
(each such class is referred to hereinafter as a "Class") of each of the Fund's
Portfolios and Fortis Investors, Inc. (formerly AMEV Investors, Inc.), a
Minnesota corporation ("Investors")
WITNESSETH:
1. UNDERWRITING SERVICES.
The Fund on behalf of each Class hereby engages Investors, and
Investors hereby agrees to act, as principal underwriter for each Class in
connection with the sale and distribution of the shares of each Class of the
Fund's Portfolios to the public, either through dealers or otherwise. Investors
agrees to offer such shares for sale at all times when such shares are available
for sale and may lawfully be offered for sale and sold.
As used herein, "Portfolios" is defined as National Portfolio,
Minnesota Portfolio, New York Portfolio and any other Portfolios which may
hereafter be created by the Board of Directors of the Fund. In addition, as used
herein, "Classes" of the Fund's Portfolios is defined as Class A, Class B, Class
C, Class E and Class H shares of each Portfolio and any other classes which may
hereinafter be created by the Fund's Board of Directors.
2. SALE OF FUND SHARES.
The shares of each Class are to be sold only on the following terms:
(a) All subscriptions, offers or sales shall be subject to
acceptance or rejection by the Fund. Any offer or sale shall be conclusively
presumed to have been accepted by the Fund if the Fund shall fail to notify
Investors of the rejection of such offer or sale prior to the computation of the
net asset value of the applicable Class's shares next following receipt by the
Fund of notice of such offer or sale.
(b) No share of a Class shall be sold by Investors (i) for any
amount less than the net asset value of such share, computed as provided in the
Bylaws of the Fund, or (ii) for any consideration other than cash, or, pursuant
to any exchange privilege provided for by such Class's currently effective
Prospectus or Statement of Additional Information, shares of the corresponding
Class of shares of any other investment company for which Investors acts as an
underwriter. In addition, except as provided below or in the Class's currently
effective Prospectus or Statement of Additional Information, all shares of the
Fund's Portfolios sold by Investors shall be sold at the applicable public
offering price, as hereinafter defined, provided that, in the case of sales of
such shares to or through bona fide dealers in securities, Investors
may allow, or sell at, a discount from said public offering price to such
dealers, which discount
<PAGE>
shall be no greater than the "sales load" hereinafter referred to.
(c) The public offering price of the shares of the Fund's
Portfolios shall be the current net asset value thereof (computed as provided in
the Bylaws of the Fund) plus the applicable "sales load" or loading charge, if
any, which shall be such percentage of the public offering price, computed to
the nearest cent, as may be agreed upon by the Fund and Investors and
specifically approved by the Board of Directors of the Fund, provided that no
schedule of sales loads shall be effective until set forth in a prospectus of
the Fund meeting the requirements of the Securities Act of 1933. Said sales
loads may be graduated on a scale based on the dollar amount of shares sold.
(d) In connection with certain sales of shares, a contingent
deferred sales charge will be imposed in the event of a redemption transaction
occurring within a certain period of time following such a purchase, as
described in each Class's currently effective Prospectus and Statement of
Additional Information.
(e) The front-end sales charge, if any, for any Class may, at
the discretion of the Fund and Investors, be increased, reduced or eliminated as
permitted by the Investment Company Act of 1940, and the rules and regulations
thereunder, as they may be amended from time to time, or as set forth elsewhere
in this Agreement, provided that, if necessary, such increase, reduction or
elimination shall be set forth in the Prospectus for such Class, and provided
that the Fund shall in no event receive for any shares sold an amount less than
the net asset value thereof. In addition, any contingent deferred sales charge
for any Class may, at the discretion of the Fund and Investors, be increased,
reduced or eliminated in accordance with the terms of an exemptive order
received from, or any applicable rule or rules promulgated by, the Securities
and Exchange Commission by the Fund, provided such increase, reduction or
elimination shall be set forth in the Prospectus for such Class.
(f) Investors may decline to offer for sale or sell shares of
the Fund in an amount the cumulative public offering price of which is less than
$500 or such smaller amount as it may from time to time fix.
3. INVESTMENT OF DIVIDEND AND DISTRIBUTIONS.
The Fund may extend to its shareholders the right to purchase shares
issued by each Class of the Fund at the net asset value thereof with the
proceeds of any dividend or capital gain distribution paid or payable by the
Fund (or any other fund for which Investors serves as underwriter) to its
shareholders.
4. REGISTRATION OF SHARES.
The Fund agrees to make prompt and reasonable efforts to effect and
keep in effect, at its own expense, the registration or qualification of each
Class's shares for sale in such jurisdictions as the Fund may designate.
5. INFORMATION TO BE FURNISHED INVESTORS.
-2-
<PAGE>
The Fund agrees that it will furnish Investors with such information
with respect to the affairs and accounts of the Fund (and each Class and
Portfolio thereof) as Investors may from time to time reasonably require, and
further agrees that Investors, at all reasonable times, shall be permitted to
inspect the books and records of the Fund.
6. ALLOCATION OF EXPENSES.
During the period of this contract, the Fund shall pay or cause to be
paid all expenses, costs and fees incurred by the Fund which are not assumed by
Investors or Fortis Advisers, Inc. ("Advisers"). Investors agrees to provide,
and shall pay costs which it incurs in connection with providing personal,
continuing services to shareholders (such costs are referred to as "Shareholder
Servicing Costs"). Shareholder Servicing Costs include all expenses of Investors
incurred in connection with providing administrative or accounting services to
shareholders of each Class, including, but not limited to, an allocation of
Investor's overhead and payments made to persons, including employees of
Investors, who respond to inquiries of shareholders regarding their ownership of
Class shares, or who provide other administrative or accounting services not
otherwise required to be provided by the applicable Funds' investment adviser or
transfer agent. Notwithstanding the foregoing, if the National Association of
Securities Dealers, Inc. ("NASD") adopts a definition of "service fee" for
purposes of Section 26(d) of the NASD Rules of Fair Practice that differs from a
definition of Shareholder Servicing Costs in this paragraph, or if the NASD
adopts a related definition intended to define the same concept, the definition
of Shareholder Servicing Costs in this paragraph shall be automatically amended,
without further action of the parties, to conform to such NASD definition.
Investors shall also pay all costs of distributing the shares of each Class
("Distribution Expenses"). Distribution expenses include, but are not limited
to, initial and ongoing sales compensation (in addition to sales loads) paid to
registered representatives of Investors and to other broker-dealers and
participating financial institutions; expenses incurred in the printing of
prospectuses, statements of additional information and reports used for sales
purposes; expenses of preparation and distribution of sales literature; expenses
of advertising of any type; an allocation of Investors' overhead; payments to
and expenses of persons who provide support services in connection with the
distribution of Fund shares; and other distribution-related expenses. Advisers,
rather than Investors, may bear the expenses referred to in this paragraph, but
Investors shall be primarily liable for such expenses until paid.
7. COMPENSATION TO INVESTORS.
As compensation for all of its services provided and its costs assumed
under this contract, Investors shall receive the following forms of and amounts
of compensation:
(a) Investors shall be entitled to receive and retain the
front-end sales charge (if any) imposed in connection with sales of each Class,
as set forth in the applicable Class's current Prospectus. Up to the entire
amount of the front-end sales charge (if any) with respect to each applicable
Class may be reallowed by Investors to broker-dealers and participating
financial
-3-
<PAGE>
institutions in connection with their sale of Fund shares. The amount of the
front-end sales charge (if any) may be retained or deducted by Investors from
any sums received by it in payment for shares so sold. If such amount is not
deducted by Investors from such payments, such amount shall be paid to Investors
by the Fund not later than five business days after the close of any month
during which any such sales were made by Investors and payment therefor received
by the Fund.
(b) Investors shall be entitled to receive any contingent
deferred sales charge imposed in connection with any redemption of applicable
Class shares, as set forth in each applicable Class's current Prospectus.
(c) Investors shall be entitled to receive the following l2b-1
fees, payable under the Plan of Distribution adopted by each Class (except Class
E) in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"Plan"):
(i) CLASS A SHARES: Class A shares of each of the
Portfolios are obligated to pay Investors, the principal underwriter of the
Fund's shares, a total fee in connection with distribution-related services
provided with respect to Class A and in connection with the servicing of
shareholder accounts of said Class A. This fee shall be calculated and payable
at a monthly rate of .25% of the value of the Class's average daily net assets.
All or a 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 Fund's Board of Directors. Until further
action by the Board of Directors, all of such fee shall be designated and
payable as a Distribution Fee.
(ii) CLASS B, CLASS C AND CLASS H SHARES: Class B,
Class C and Class H shares of the Portfolios are each obligated to pay Investors
a total fee in connection with the distribution-related services and servicing
of shareholder accounts provided for their respective Class. The total fee paid
by each Class shall be calculated and payable monthly, at an annual rate of
1.00% of the value of the respective Class's 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 Fund's Board of Directors. Until further
action by the Board, 75% of such fee (.75 of 1.00%) shall be designated and
payable as a Distribution Fee and 25% of such fee (.25 of 1.00%) shall be
designated and payable as a Shareholder Servicing Fee.
(iii) FUTURE PORTFOLIOS AND/OR CLASSES: The 12b-1
fees for Class A, Class B, Class C or Class H shares of any future Portfolios
shall be as determined by the Board of Directors of the Fund upon the creation
of any such Portfolios, but in no event shall such fees exceed any then existing
limitations imposed under any applicable rule or rules promulgated by the
Securities and Exchange Commission and/or the National Association of Securities
Dealers, Inc. Upon the creation of any new classes of shares for any or all of
the Portfolios, the respective levels of sales charges and 12b-1 fees shall be
determined by the Board of Directors of the Fund, subject to any necessary
shareholder approval and only in accordance with any applicable rule or rules
promulgated by the Securities and Exchange Commission and/or the National
Association
-4-
<PAGE>
of Securities Dealers, Inc. All or any portion of the l2b-1 fees referred to in
this paragraph may be payable as a Distribution Fee, and all or any portion of
such l2b-1 fees may be payable as a Shareholder Servicing Fee, as determined
from time to time by the Fund's Board of Directors.
(iv) OTHER INFORMATION: Average daily net assets
shall be computed in accordance with the Prospectus of each applicable Class.
Amounts payable to Investors under the Plan may exceed or be less than
Investor's actual distribution expenses and shareholder servicing costs. In the
event such distribution expenses and/or shareholder servicing expenses exceed
amounts payable to Investors under the Plan, Investors shall not be entitled to
reimbursement from the Fund.
(d) In each year during which this contract remains in effect,
Investors will prepare and furnish to the Board of Directors of the Fund, and
the Board will review, on a quarterly basis written reports complying with the
requirements of Rule l2b-1 under the Investment Company Act of 1940 (the " 1940
Act") that set forth the amounts expended under this contract and the Plan and
the purposes for which those expenditures were made.
8. LIMITATION OF INVESTORS' AUTHORITY.
Investors shall be deemed to be an independent contractor and, except
as specifically provided or authorized herein, shall have no authority to act
for or represent the Fund. In connection with its role as underwriter of Fund
shares, Investors shall at all times be deemed an agent of the Fund and shall
sell Fund shares to purchasers thereof as agent and not as principal.
9. SUBSCRIPTION FOR SHARES; REFUND FOR CANCELED ORDERS.
Investors shall effect the subscription of Fund shares as agent for the
Fund. In the event that an order for the purchase of shares of the Fund is
placed with Investors by a customer or dealer and subsequently canceled,
Investors, on behalf of such customer or dealer, shall forthwith cancel the
subscription for such shares entered on the books of the Fund, and, if Investors
has paid the Fund for such shares, shall be entitled to receive from the Fund in
refund of such payment the lesser of:
(a) the consideration received by the Fund for said shares; or
(b) the net asset value of such shares at the time of
cancellation by Investors.
10. INDEMNIFICATION OF THE FUND.
Investors agrees to indemnify the Fund against any and all litigation
and other legal proceedings of any kind or nature and against any liability,
judgment, cost or penalty imposed as a result of such litigation or proceedings
in any way arising out of or in connection with the sale or distribution of the
shares of the Fund by Investors. In the event of the threat or institution of
any such litigation or legal proceedings against the Fund, Investors shall
defend such action on behalf of the Fund at its own expense, and shall pay any
such liability, judgment, cost or penalty
-5-
<PAGE>
resulting therefrom, whether imposed by legal authority or agreed upon by way of
compromise and settlement; provided, however, Investors shall not be required to
pay or reimburse the Fund for any liability, judgment, cost or penalty incurred
as a result of information supplied by, or as the result of the omission to
supply information by, the Fund to Investors, or to Investors by a director,
officer, or employee of the Fund who is not an interested person of Investors,
unless the information so supplied or omitted was available to Investors or the
Fund's investment adviser without recourse to the Fund or any such interested
person of the Fund.
11. FREEDOM TO DEAL WITH THIRD PARTIES.
Investors shall be free to render to others services of a nature either
similar to or different from those rendered under this contract, except such as
may impair its performance of the services and duties to be rendered by it
hereunder.
12. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT.
(a) This Agreement shall be effective as to the National
Portfolio, Minnesota Portfolio and New York Portfolio and each Class thereof on
November 14, 1994. Unless sooner terminated as hereinafter provided, this
Agreement shall continue in effect only so long as such continuance is
specifically approved at least annually (a) by the Board of Directors of the
Fund, or with respect to a particular Class by the vote of the holders of a
majority of the outstanding voting securities of such Class, and (b) by a
majority of the directors who are not interested persons of Investors or of the
Fund, cast in person at a meeting called for the purpose of voting on such
approval; provided that, if a majority of the outstanding voting securities of
any of the Classes approves this Agreement, this Agreement shall continue in
effect with respect to such approving Class whether or not the shareholders of
any other Class of the Fund approve this Agreement.
(b) This Agreement may be terminated at any time without the
payment of any penalty by the vote of the Board of Directors of the Fund or by
Investors, upon sixty (60) days' written notice to the other party. This
Agreement may be terminated with respect to a particular Class at any time
without the payment of any penalty by the vote of the holders of a majority of
the outstanding voting securities of such Class, upon sixty (60) days' written
notice to Investors.
(c) This Agreement shall automatically terminate in the event
of its "assignment" (as defined by the provisions of the 1940 Act).
(d) Wherever referred to in this Agreement, the vote or
approval of the holders of a majority of the outstanding voting securities of a
Class or the Fund shall mean the vote of 67% or more of such securities if the
holders of more than 50% of such securities are present in person or by proxy or
the vote of more than 50% of such securities, whichever is less.
13. AMENDMENTS TO AGREEMENT.
-6-
<PAGE>
No material amendment to this Agreement shall be effective until
approved by a vote of the Board of Directors of the Fund, including a majority
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in this Agreement, cast in person at a
meeting called for the purpose of voting on such amendment. Additionally, no
amendment to this Agreement that materially increases the distribution fee
and/or shareholder servicing fee payable by any Class hereunder shall be
effective until any necessary amendment to the applicable Rule 12b-1 Plan has
been approved by a vote of the holders of a majority of the outstanding voting
securities of the applicable Class and approved by the Fund's Board of Directors
as required under Rule 12b-1 under the Investment Company Act of 1940.
14. NOTICES.
Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid to the other party at such address as such
other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Fund and Investors have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.
FORTIS TAX-FREE PORTFOLIOS, INC.
By: /S/ EDWARD M. MAHONEY
-----------------------------
Its President
FORTIS INVESTORS, INC.
By: /S/ DEAN C. KOPPERUD
-----------------------------
Its President
-7-
<PAGE>
EXHIBIT 99(G)
CUSTODIAN AGREEMENT
THIS AGREEMENT, made as of the 21st day of March, 1992, by and between
Fortis Tax-Free Portfolios, Inc., a Minnesota corporation (the "Fund"), for and
on behalf of each series of the Fund that adopts this Agreement (said series
being hereinafter referred to, individually, as a "Series" and, collectively, as
the "Series"), and Norwest Bank Minnesota, N.A., a national banking association
organized and existing under the laws of the United States of America (the
"Custodian"). The name of each Series that adopts this Agreement and the
effective date of this Agreement with respect to each such Series are set forth
in EXHIBIT A hereto.
WITNESSETH:
WHEREAS, the Fund desires to appoint the Custodian as the custodian for
the assets of each Series, and the Custodian desires to accept such appointment,
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
herein made, the Fund and the Custodian agree as follows:
ARTICLE 1. DEFINITIONS
The word "Securities" as used herein shall be construed to include,
without being limited to, shares, stocks, bonds, debentures, notes, scrip,
participation certificates, rights to subscribe, warrants, options, certificates
of deposit, bankers' acceptances, repurchase agreements, commercial paper,
choses in action, evidences of indebtedness, investment contracts, voting trust
certificates, certificates of indebtedness and certificates of interest of any
and every kind and nature whatsoever, severed and unsecured, issued or to be
issued, by any corporation, company, partnership (limited or general),
association, trust, entity or person, public or private, whether organized under
the laws of the United States, or any state, commonwealth, territory or
possession thereof, or organized under the laws of any foreign country, or any
state, province, territory or possession thereof, or issued or to be issued by
the United States government or any agency or instrumentality thereof, options
on stock indexes, stock index and interest rate futures contracts and options
thereon, and other futures contracts and options thereon.
The words "Written Order from the Fund" shall mean a writing signed or
initialed by one or more person or persons designated in the current certified
list referred to in Article 2, provided that if said writing is signed by only
one person, that person shall be an officer of the Fund designated in said
current certified list. "Written Order from the Fund" also may include a
communication effected directly between electro-mechanical or electronic devices
(including, but not limited to, facsimile transceivers) provided that management
of the Fund and the Custodian are satisfied that such procedures afford adequate
safeguards for the assets of each Series.
<PAGE>
ARTICLE 2. NAMES, TITLES AND SIGNATURES OF FUND'S OFFICERS
The Fund shall certify to the Custodian the names, titles and
signatures of officers and other persons who are authorized to give any Written
Order from the Fund on behalf of each Series. The Fund agrees that, whenever any
change in such authorization occurs, it will file with the Custodian a new
certified list of names, titles and signatures which shall be signed by at least
one officer previously certified to the Custodian if any such officer still
holds an office in the fund. The Custodian is authorized to rely and act upon
the names, titles and signatures of the individuals as they appear in the most
recent such certified list which has been delivered to the Custodian as
hereinbefore provided.
ARTICLE 3. SUB-CUSTODIANS AND DEPOSITORIES
Notwithstanding any other provision in this Agreement to the contrary,
all or any of the cash and Securities of each Series may be held in the
Custodian's own custody or in the custody of one or more other banks or trust
companies selected by the Custodian or as directed in one or more Written Orders
from the fund. Any such sub-custodian must have the qualifications required for
custodians under the Investment Company Act of 1940, as amended. The Custodian
or sub-custodian, as the case may be, may participate directly or indirectly in
one or more "securities depositories" (as defined in Rule 17f-4 under the
Investment Company Act of 1940, as amended, or in any successor provisions or
rules thereto). Any references in this Agreement to the delivery of Securities
by or to the Custodian shall, with respect to Securities custodied with one of
the aforementioned "securities depositories," be interpreted to mean that the
Custodian shall cause a bookkeeping entry to be made by the applicable
securities depository to indicate the transfer of ownership of the applicable
Security to or from the Fund, all as set forth in one or more Written Orders
from the Fund. Additionally, any references in this Agreement to the receipt of
proceeds or payments with respect to Securities transactions shall, with respect
to Securities custodied with one of the aforementioned "securities
depositories," be interpreted to mean that the Custodian shall have received an
advice from such securities depository that said proceeds or payments have been
received by such depository and deposited in the Custodian's account.
ARTICLE 4. RECEIPT AND DISBURSING OF MONEY
SECTION (1). The Fund shall from time to time cause cash owned by the
Fund to be delivered or paid to the Custodian for the account of any Series, but
the Custodian shall not be under any obligation or duty to determine whether all
cash of the Fund is being so deposited or to take any action or to give any
notice with respect to cash not so deposited. The Custodian agrees to hold such
cash, together with any other sum collected or received by it for or on behalf
of each Series of the Fund, in the account of such Series in conformity with the
terms of this Agreement. The Custodian shall be authorized to disburse cash from
the account of each Series only:
(a) upon receipt of and in accordance with Written Orders from
the Fund stating that such cash is being used for one or more of the
following purposes, and
<PAGE>
specifying such purpose or purposes, provided, however, that a
reference in such Written Order from the Fund to the pertinent
paragraph or paragraphs of this Article shall be sufficient compliance
with this provision:
(i) the payment of interest;
(ii) the payment of dividends;
(iii) the payment of taxes;
(iv) the payment of the fees or charges to any investment
adviser of any Series;
(v) the payment of fees to a Custodian, stock registrar,
transfer agent or dividend disbursing agent for any
Series; (vi) the payment of distribution fees and
commissions; (vii) the payment of any operating
expenses, which shall be deemed to include legal and
accounting fees and all other expenses not
specifically referred to in this paragraph (a);
(viii) payments to be made in connection with the
conversion, exchange or surrender of Securities owned
by any Series;
(ix) payments on loans that may from time to time be due;
(x) payment to a recognized and reputable broker for
Securities purchased by the fund through said broker
(whether or not including any regular brokerage fees,
charges or commissions on the transaction) upon
receipt by the Custodian of such Securities in proper
form for transfer and after the receipt of a
confirmation from the broker or dealer with respect
to the transaction;
(xi) payment to an issuer or its agent on a subscription
for Securities of such issuer upon the exercise of
rights so to subscribe, against a receipt from such
issuer or agent for the cash so paid;
(b) as provided in Article 5 hereof; and
(c) upon the termination of this Agreement.
SECTION (2). The Custodian is hereby appointed the attorney-in-fact of
the Fund to use reasonable efforts to enforce and collect all checks, drafts or
other orders for the payment of money received by the Custodian for the account
of each Series and drawn to or to the order of the Fund and to deposit them in
the account of the applicable Series.
ARTICLE 5. RECEIPT OF SECURITIES
The Fund agrees to place all of the Securities of each Series in its
account with the Custodian, but the Custodian shall not be under any obligation
or duty to determine whether all Securities of any Series are being so
deposited, or to require that such Securities be so deposited, or to take any
action or give any notice with respect to the Securities not so deposited. The
Custodian agrees to hold such Securities in the account of the Series designated
by the Fund, in the name of the Fund or of bearer or of a nominee of the
Custodian, and in conformity with the
<PAGE>
terms of this Agreement. The Custodian also agrees, upon Written Order from the
Fund, to receive from persons other than the Fund and to hold in the account of
the Series designated by the Fund Securities specified in said Written Order of
the Fund, and, if the same are in proper form, to cause payment to be made
therefor to the persons from whom such Securities were received, from the funds
of the applicable Series held by the Custodian in said account in the amounts
provided and in the manner directed by the Written Order from the Fund.
The Custodian agrees that all Securities of each Series placed in its
custody shall be kept physically segregated at all times from those of any other
Series, person, firm or corporation, and shall be held by the Custodian with all
reasonable precautions for the safekeeping thereof. Upon delivery of any
Securities of any Series to a subcustodian pursuant to Article 3 of this
Agreement, the Custodian will create and maintain records identifying those
assets which have been delivered to the subcustodian as belonging to the
applicable Series.
ARTICLE 6. DELIVERY OF SECURITIES
The Custodian agrees to transfer, exchange or deliver Securities as
provided in Article 7, or on receipt by it of, and in accordance with, a Written
Order from the Fund in which the Fund shall state specifically which of the
following cases is covered thereby:
(a) in the case of deliveries of Securities sold by the Fund,
against receipt by the Custodian of the proceeds of sale and after
receipt of a confirmation from a broker or dealer (or, in accordance
with industry practice with respect to "same day trades," acceptance of
delivery of such securities by the broker or dealer, which acceptance
is followed up by confirmation thereof within the normal settlement
period) with respect to the transaction;
(b) in the case of deliveries of Securities which may mature
or be called, redeemed, retired or otherwise become payable, against
receipt by the Custodian of the sums payable thereon or against interim
receipts or other proper delivery receipts;
(c) in the case of deliveries of Securities which are to be
transferred to and registered in the name of the Fund or of a nominee
of the Custodian and delivered to the Custodian for the account of the
Series, against receipt by the Custodian of interim receipts or other
proper delivery receipts;
(d) in the case of deliveries of Securities to the issuer
thereof, its transfer agent or other proper agent, or to any committee
or other organization for exchange for other Securities to be delivered
to the Custodian in connection with a reorganization or
recapitalization of the issuer or any split-up or similar transaction
involving such Securities, against receipt by the Custodian of such
other Securities or against interim receipts or other proper delivery
receipts;
(e) in the case of deliveries of temporary certificates in
exchange for
<PAGE>
permanent certificates, against receipt by the Custodian of such
permanent certificates or against interim receipts or other proper
delivery receipts;
(f) in the case of deliveries of Securities upon conversion
thereof into other Securities, against receipt by the Custodian of such
other Securities or against interim receipts or other proper delivery
receipts;
(g) in the case of deliveries of Securities in exchange for
other Securities (whether or not such transactions also involve the
receipt or payment of cash), against receipt by the Custodian of such
other Securities or against interim receipts or other proper delivery
receipts;
(h) in the case of warrants, rights or similar Securities, the
surrender thereof in the exercise of such warrants, rights or similar
Securities or the surrender of interim receipts or temporary Securities
for definitive Securities;
(i) for delivery in connection with any loans of securities
made by the Fund for the benefit of any Series, but only against
receipt of adequate collateral as agreed upon from time to time by the
Custodian and the Fund;
(j) for delivery as security in connection with any borrowings
by the Fund for the benefit of any Series requiring a pledge of assets
from the applicable Series, but only against receipt of amounts
borrowed;
(k) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a bank, broker-dealer or
futures commission merchant relating to compliance with applicable
rules and regulations regarding account deposits, escrow or other
arrangements in connection with transactions by the Fund for the
benefit of any Series;
(l) in a case not covered by the preceding paragraphs of this
Article, upon receipt of a resolution adopted by the Board of Directors
of the Fund, signed by an officer of the Fund and certified to by the
Secretary, specifying the Securities and assets to be transferred,
exchanged or delivered, the purposes for which such delivery is being
made, declaring such purposes to be proper corporate purposes, and
naming a person or persons (each of whom shall be a properly bonded
officer or employee of the Fund) to whom such transfer, exchange or
delivery is to be made; and
(m) in the case of deliveries pursuant to paragraphs (a)
through (k) above, the Written Order from the Fund shall direct that
the proceeds of any Securities delivered, or Securities or other assets
exchanged for or in lieu of Securities so delivered, are to be
delivered to the Custodian.
ARTICLE 7. CUSTODIAN'S ACTS WITHOUT WRITTEN ORDERS FROM THE FUND
<PAGE>
Unless and until the Custodian receives contrary Written Orders from
the Fund, the Custodian shall without order from the Fund:
(a) present for payment all bills, notes, checks, drafts and
similar items, and all coupons or other income items (except stock
dividends), held or received for the account of any Series, and which
require presentation in the ordinary course of business, and credit
such items to the account of the applicable Series conditionally,
subject to final payment;
(b) present for payment all Securities which may mature or be
called, redeemed, retired or otherwise become payable and credit such
items to the account of the applicable Series conditionally, subject to
final payment;
(c) hold for and credit to the account of any Series all
shares of stock and other Securities received as stock dividends or as
the result of a stock split or otherwise from or on account of
Securities of the Series, and notify the Fund, in the Custodian's
monthly reports to the Fund, of the receipt of such items;
(d) deposit or invest (as instructed from time to time by the
Fund) any cash received by it from, for or on behalf of any Series to
the credit of the account of the applicable Series;
(e) charge against the account for any Series disbursements
authorized to be made by the Custodian hereunder and actually made by
it, and notify the Fund of such charges at least once a month;
(f) deliver Securities which are to be transferred to and
reissued in the name of any Series, or of a nominee of the Custodian
for the account of any Series, and temporary certificates which are to
be exchanged for permanent certificates, to a proper transfer agent for
such purpose against interim receipts or other proper delivery
receipts; and
(g) hold for disposition in accordance with Written Orders
from the Fund hereunder all options, rights and similar Securities
which may be received by the Custodian and which are issued with
respect to any securities held by it hereunder, and notify the Fund
promptly of the receipt of such items.
ARTICLE 8. SEGREGATED ACCOUNTS
Upon receipt of a Written Order from the Fund, the Custodian shall
establish and maintain one or more segregated accounts for and on behalf of the
Series specified in said Written Order from the Fund for purposes of segregating
cash and/or Securities (of the type agreed upon from time to time by the
Custodian and the Fund) for the purpose or purposes specified in said Written
Order from the Fund.
<PAGE>
ARTICLE 9. DELIVERY OF PROXIES
The Custodian shall deliver promptly to the Fund all proxies, notices
and communications with relation to Securities held by it which it may receive
from sources other than the Fund.
ARTICLE 10. TRANSFER
The Fund shall furnish to the Custodian appropriate instruments to
enable the Custodian to hold or deliver in proper form for transfer any
Securities which it may hold for the account of any Series of the Fund. For the
purpose of facilitating the handling of Securities, unless otherwise directed by
Written Order from the Fund, the Custodian is authorized to hold Securities
deposited with it under this Agreement in the name of its registered nominee or
nominees (as defined in the Internal Revenue Code and any regulations of the
United States Treasury Department issued thereunder or in any provision of any
subsequent federal tax law exempting such transaction from liability for stock
transfer taxes) and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. The Custodian shall, if requested by the Fund, advise the
Fund of the certificate number of each certificate so presented for transfer and
that of the certificate received in exchange therefor, and shall use its best
efforts to the end that the specific Securities held by it hereunder shall be at
all times identifiable.
ARTICLE 11. TRANSFER TAXES AND OTHER DISBURSEMENTS
The Fund, for and on behalf of each Series, shall pay or reimburse the
Custodian for any transfer taxes payable upon transfers of Securities made
hereunder, including transfers incident to the termination of this Agreement,
and for all other necessary and proper disbursements and expenses made or
incurred by the Custodian in the performance or incident to the termination of
this Agreement, and the Custodian shall have a lien upon any cash or Securities
held by it for the account of each applicable Series of the fund for all such
items, enforceable, after thirty days' written notice by registered mail from
the Custodian to the Fund, by the sale of sufficient Securities to satisfy such
lien. The Custodian may reimburse itself by deducting from the proceeds of any
sale of Securities an amount sufficient to pay any transfer taxes payable upon
the transfer of Securities sold. The Custodian shall execute such certificates
in connection with Securities delivered to it under this Agreement as may be
required, under the provisions of any federal revenue act and any regulations of
the Treasury Department issued thereunder or any state laws, to exempt from
taxation any transfers and/or deliveries of any such Securities as may qualify
for such exemption.
ARTICLE 12. CUSTODIAN'S LIABILITY FOR PROCEEDS OF SECURITIES SOLD
If the mode of payment for Securities to be delivered by the Custodian
is not specified in the Written Order from the Fund directing such delivery, the
Custodian shall make delivery of
<PAGE>
such Securities against receipt by it of cash, a postal money order or a check
drawn by a bank, trust company or other banking institution, or by a broker
named in such Written Order from the Fund, for the amount the Custodian is
directed to receive. The Custodian shall be liable for the proceeds of any
delivery of Securities made pursuant to this Article, but provided that it has
complied with the provisions of this Article, but provided that is has complied
with the provisions of this Article, only to the extent that such proceeds are
actually received.
ARTICLE 13. CUSTODIAN'S REPORT
The Custodian shall furnish the Fund, as of the close of business on
the last business day of each month, a statement showing all cash transactions
and entries for the account of each Series of the Fund. The books and records of
the Custodian pertaining to its actions as Custodian under this Agreement shall
be open to inspection and audit, at reasonable times, by officers of, and
auditors employed by, the Fund. The Custodian shall furnish the Fund with a list
of the Securities held by it in custody for the account of each Series of the
fund as of the close of business on the last business day of each quarter of the
Fund's fiscal year.
ARTICLE 14. CUSTODIAN COMPENSATION
The Custodian shall be paid compensation at such rates and at such
times as may from time to time be agreed on in writing by the parties hereto (as
set forth with respect to each Series in EXHIBIT B hereto), and the Custodian
shall have a lien for unpaid compensation, to the date of termination of this
Agreement, upon any cash or Securities held by it for the Series accounts of the
Fund, enforceable in the manner specified in Article 11 hereof.
ARTICLE 15. DURATION, TERMINATION AND AMENDMENT OF AGREEMENT
This Agreement shall remain in effect with respect to each Series, as
it may from time to time be amended, until it shall have been terminated as
hereinafter provided, but no such amendment or termination shall affect or
impair any rights or liabilities arising out of any acts or omissions to act
occurring prior to such amendment or termination.
The Custodian may terminate this Agreement by giving the Fund ninety
days' written notice of such termination by registered mail addressed to the
Fund at its principal place of business.
The Fund may terminate this Agreement by giving ninety days' written
notice thereof delivered by registered mail to the Custodian at its principal
place of business. Additionally, this Agreement may be terminated with respect
to any Series of the Fund pursuant to the same procedures, in which case this
Agreement shall continue in full effect with respect to all other Series of the
Fund.
Upon termination of this Agreement, the assets of the Fund, or Series
thereof, held by the Custodian shall be delivered by the Custodian to a
successor custodian upon receipt by the Custodian of a Written Order from the
Fund designating the successor custodian; and if no
<PAGE>
successor custodian is designated in said Written Order from the Fund, the
Custodian shall, upon such termination, deliver all such assets to the Fund.
This Agreement may be amended or terminated at any time to the mutual
agreement of the Fund and the Custodian. Additionally, this Agreement may be
amended or terminated with respect to any Series of the Fund at any time by the
mutual agreement of the Fund and the Custodian, in which case such amendment or
termination would apply to such Series amending or terminating this Agreement
but not to the other Series of the Fund.
This Agreement may not be assigned by the Custodian without the consent
of the Fund, authorized or approved by a resolution of its Board of Directors.
ARTICLE 16. SUCCESSOR CUSTODIAN
Any bank or trust company into which the Custodian or any successor
custodian may be merged or converted or with which it or any successor custodian
may be consolidated, or any bank or trust company resulting from any merger,
conversion or consolidation to which the Custodian or any successor custodian
shall be a party, or any bank or trust company succeeding to the business of the
Custodian, shall be and become the successor custodian without the execution of
any instrument or any further act on the part of the Fund or the Custodian or
any successor custodian.
Any successor custodian shall have all the power, duties and
obligations of the preceding custodian under this Agreement and any amendments
thereof and shall succeed to all the exemptions and privileges of the preceding
custodian under this Agreement and any amendments thereof.
ARTICLE 17. GENERAL
Nothing expressed or mentioned in or to be implied from any provisions
of this Agreement is intended to give or shall be construed to give any person
or corporation other than the parties hereto any legal or equitable right,
remedy or claim under or in respect of this Agreement or any covenant, condition
or provision herein contained, this Agreement and all of the covenants,
conditions and provisions hereof being intended to be, and being, for the sole
and exclusive benefit of the parties hereto and their respective successors and
assigns.
It is the purpose and intention of the parties hereto that the Fund
shall retain all the power, rights and responsibilities of determining policy,
exercising discretion and making decisions with respect to the purchase, or
other acquisition, and the sale, or other disposition, of all of its Securities,
and that the duties and responsibilities of the Custodian hereunder shall be
limited to receiving and safeguarding the assets and Securities of each Series
of the Fund and to delivering or disposing of them pursuant to the Written Order
from the Fund as aforesaid, and the Custodian shall have no authority, duty or
responsibility for the investment policy of the Fund or for any acts of the Fund
in buying or otherwise acquiring, or in selling or otherwise disposing of, any
Securities, except as hereinbefore specifically set forth.
<PAGE>
The Custodian shall in no case or event permit the withdrawal of any
money or Securities of the Fund upon the mere receipt of any director, officer,
employee or agent of the Fund, but shall hold such money and Securities for
disposition under the procedures herein set forth.
ARTICLE 18. STANDARD OF CARE; INDEMNIFICATION
In connection with the performance of its duties and responsibilities
hereunder, the Custodian (and each officer, employee, agent, sub-custodian and
depository of or engaged by the Custodian) shall at all times be held to the
standard of reasonable care. The Custodian shall be fully responsible for any
action taken or omitted by any officer, employee, agent, sub-custodian or
depository of or engaged by the Custodian to the same extent as if the Custodian
were to take or omit to take such action directly. The Custodian agrees to
indemnify and hold the Fund and each Series of the Fund harmless from and
against any and all loss, liability and expense, including reasonable legal fees
and expenses, arising out of the Custodian's own negligence, misfeasance, bad
faith or willful misconduct or that of any officer, employee, agent,
sub-custodian and depository of or engaged by the Custodian in the performance
of the Custodian's duties and obligations under this Agreement; PROVIDED,
HOWEVER, that, notwithstanding any other provision in this Agreement, the
Custodian shall not be responsible for the following:
(a) any action taken or omitted in accordance with any Written
Order from the Fund reasonably believed by the Custodian to be genuine
and to be signed by the proper party or parties; or
(b) any action taken or omitted in reasonable reliance on the
advice of counsel of or reasonably acceptable to the Fund relating to
any of its duties and responsibilities hereunder.
The Fund agrees to indemnify and hold the Custodian harmless from and
against any and all loss, liability and expense, including reasonable legal fees
and expenses, arising out of the performance by the Custodian (and each officer,
employee, agent, sub-custodian and depository of or engaged by the Custodian) of
its duties and responsibilities under this Agreement PROVIDED THAT the Custodian
(or any officer, employee, agent, sub-custodian and depository of or engaged by
the Custodian, as applicable) exercised reasonable care in the performance of
its duties and responsibilities under this Agreement.
ARTICLE 19. EFFECTIVE DATE
This Agreement shall become effective with respect to each Series that
adopts this Agreement when this Agreement shall have been approved with respect
to such Series by the Board of Directors of the Fund. The effective date with
respect to each Series shall be set forth on EXHIBIT A hereto. The Fund shall
transmit to the Custodian promptly after such approval by said Board of
Directors a copy of its resolution embodying such approval, certified by the
Secretary of the Fund.
<PAGE>
ARTICLE 20. GOVERNING LAW
This Agreement is executed and delivered in Minneapolis, Minnesota, and
the laws of the State of Minnesota shall be controlling and shall govern the
construction, validity and effect of this contract.
IN WITNESS WHEREOF, the Fund and the custodian have caused this
Agreement to be executed in duplicate as of the date first above written by
their duly authorized officers.
ATTEST: FORTIS TAX-FREE PORTFOLIOS, INC.
/S/ MICHAEL J. RADMER By /S/ EDWARD M. MAHONEY
- -------------------------- ---------------------------
Secretary Its PRESIDENT
-----------------------
ATTEST: NORWEST BANK MINNESOTA, N.A.
/S/ CHRISTINE A. GARRICK By /S/ ROBERT SPIES
- ------------------------- ---------------------------
Trust Officer Its VICE PRESIDENT
-----------------------
<PAGE>
Exhibit A
(as amended through March 21, 1992)
TO
CUSTODIAN AGREEMENT
BETWEEN
FORTIS TAX-FREE PORTFOLIOS, INC.
AND
NORWEST BANK MINNESOTA, N.A.
<TABLE>
<CAPTION>
NAME OF SERIES EFFECTIVE DATE
-------------- --------------
<S> <C>
National Portfolio March 21, 1992
10206330 Fortis Tax Free - National
10206335 Fortis Tax Free - National Segregated
New York Portfolio March 21, 1992
10600290 Fortis Tax Free - New York
10600295 Fortis Tax Free - New York Segregated
Minnesota Portfolio March 21, 1992
10206320 Fortis Tax Free - Minnesota
10206325 Fortis Tax Free - Minnesota Segregated
</TABLE>
<PAGE>
EXHIBIT B
(as amended through March 21, 1992)
TO
CUSTODIAN AGREEMENT
BETWEEN
FORTIS TAX-FREE PORTFOLIOS, INC.
AND
NORWEST BANK MINNESOTA, N.A.
COMPENSATION SCHEDULE
INVENTORY HOLDING CHARGE:
Bonds (face value) x .10M x 1/4
Stock (market value) x .,10M x 1/4
TRANSACTION CHARGE:
TDOA FB Milwaukee trans 10.00 each
Principal transactions 20.00 each
Remittances 2.50 each
VDN transactions 10.00 each
ISSUE CHARGE:
Issues 20.00 each x 1/4
TRUST FEE CREDIT
Average Daily Collected Balance
Less: Reserve of 12%
*Average Positive Daily Balances x Rate x Days/365
*Average Negative Daily Balances x Rate x Days/365
*Credit due using the average 90-day treasury bill rate averaged over
the 90-day period ending is .
<PAGE>
Exhibit 99(h)
INDEPENDENT AUDITOR'S 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 "Financial Statements" in Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
----------------------------------
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1999
