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PROSPECTUS DATED
FORTIS SERIES FUND, INC. May 1, 1996
UVW (A series fund with three available STREET ADDRESS:
MAILING ADDRESS: series, 500 BIELENBERG
P.O. BOX 64582 each with different goals and DRIVE
ST. PAUL investment policies) WOODBURY
MINNESOTA 55164 MINNESOTA 55125
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Fortis Series Fund, Inc. ("Fortis Series") is an open-end management investment
company (commonly known as a "mutual fund") that is intended to provide a range
of investment alternatives through its separate series (the "Series"), each of
which is, for investment purposes, in effect a separate fund with its own
separate goals and investment policies. All of the available Series are
diversified series of Fortis Series.
Shares of Fortis Series are currently sold to separate accounts (the "Separate
Accounts") of Fortis Benefits Insurance Company ("Fortis Benefits") and First
Fortis Life Insurance Company ("First Fortis"), which are the funding vehicles
for benefits under variable life insurance policies (the "Policies") and
variable annuity contracts (the "Annuities") (collectively, the "Contracts")
issued by Fortis Benefits and First Fortis. The Separate Accounts invest in
shares of Fortis Series through subaccounts that correspond to the different
Series. The Separate Accounts will redeem shares of Fortis Series to the extent
necessary to provide benefits under the Contracts or for such other purposes as
may be consistent with the Contracts.
The investment objectives of the Series, which can be changed at any time
without the approval of Contract owners, are as follows:
- - The objectives of the "Money Market Series" are high levels of capital
stability and liquidity and, to the extent consistent with these primary
objectives, a high level of current income. Money Market Series will invest in
a diversified portfolio of investment grade bonds and other debt securities.
AN INVESTMENT IN MONEY MARKET SERIES IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT.
- - The primary objective of the "Growth Stock Series" is short and long-term
capital appreciation. Current income through the receipt of interest and
dividends will merely be incidental to the efforts of Growth Stock Series in
pursuing its primary objective. Growth Stock Series will seek to meet these
objectives by investing primarily in common stocks and securities convertible
into common stocks.
- - The primary objective of the "Global Growth Series" is long-term capital
appreciation, which it seeks primarily by investing in a global portfolio of
equity securities, allocated among diverse international markets. Current
income through the receipt of income such as interest or dividends from
investments is a secondary objective.
This Prospectus concisely sets forth the information a prospective investor
should know about Fortis Series before investing. Investors should retain this
Prospectus for future reference. Fortis Series has filed a Statement of
Additional Information (also dated May 1, 1996) with the Securities and Exchange
Commission. The Statement of Additional Information is available free of charge
from Fortis Series at the above mailing address, and is incorporated by
reference into this Prospectus in accordance with the Commission's rules. SHARES
IN THE FORTIS SERIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; AND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
No broker-dealer, sales representative, or other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus, and if given or made, such information or representations
must not be relied upon as having been authorized by Fortis Benefits, First
Fortis, Fortis Series, or Fortis Investors, Inc. ("Investors"). This Prospectus
does not constitute an offer or solicitation by anyone in any state in which
such offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation.
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TABLE OF CONTENTS
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Financial Highlights.............................. 2
Organization and Classification................... 3
The Separate Accounts and the Contracts........... 3
Investment Objectives and Policies; Risk
Considerations................................... 3
- Money Market Series......................... 3
- Growth Stock Series......................... 4
- Global Growth Series........................ 5
- Investment Policies, Restrictions and Risks
Applicable to More Than One Series........ 8
- General Risks to Consider................... 9
Management........................................ 10
- Board of Directors.......................... 10
- The Investment Adviser/Transfer
Agent/Dividend Agent........................ 10
- Expenses and Allocations Among Series....... 10
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- Brokerage Allocation........................ 10
- Periodic Reports............................ 11
Capital Stock..................................... 11
- Voting Privileges........................... 11
Dividends and Capital Gains Distributions......... 11
Taxation.......................................... 11
Purchase and Redemption of Shares................. 11
- Generally................................... 11
- Offering Price.............................. 11
- Transfers Among Subaccounts................. 12
- The Underwriter............................. 12
- Redemption.................................. 12
Appendix.......................................... 12
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FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The information below has been derived from audited financial statements, and
should be read in conjunction with the financial statements of Fortis Series and
the independent auditors' report of KMPG Peat Marwick LLP found in its 1995
Annual Report to Shareholders which may be obtained without charge. The selected
per share historical data for each of the Series is presented based upon average
shares outstanding. Total return figures do not reflect charges pursuant to the
terms of the variable life insurance policies and variable annuity contracts
funded by separate accounts that invest in the Series shares and including those
charges would reduce the total return figures for all Series shown.
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- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
MONEY MARKET SERIES 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period..... $10.63 $10.23 $10.21 $10.15 $10.19 $9.92 $9.65 $9.98 $10.09
- ---------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income --
net................... .60 .41 .28 .36 .62 .78 .77 .76 .70
Net realized and
unrealized gains
(losses) on
investments........... -- (.01) .02 .06 (.02) .28 .27 (.29) (.07)
- ---------------------------------------------------------------------------------------------------------------------------
Total from operations.... .60 .40 .30 .42 .60 1.06 1.04 .47 .63
- ---------------------------------------------------------------------------------------------------------------------------
Distribution to
shareholders:
From investment income
-- net................ (.40) -- (.28) (.36) (.64) (.79) (.77) (.80) (.74)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period.................. $10.83 $10.63 $10.23 $10.21 $10.15 $10.19 $9.92 $9.65 $9.98
- ---------------------------------------------------------------------------------------------------------------------------
Total Return(@).......... 5.71% 3.92% 2.77% 3.36% 5.91% 7.87% 9.42% 6.78% 5.80%
Net assets end of period
(000s omitted).......... $41,807 $44,833 $28,682 $27,528 $10,737 $8,897 $2,868 $1,939 $2,832
Ratio of expenses to
average daily net
assets.................. .40% .40% .44% .46% .55% .60% .60% .60% .60%
Ratio of net investment
income to average daily
net assets.............. 5.44% 3.96% 2.74% 3.51% 5.74% 7.75% 8.03% 7.71% 6.92%
Portfolio turnover
rate.................... N/A* N/A*** N/A*** N/A*** N/A*** 58% 19% 79% 72%
- ---------------------------------------------------------------------------------------------------------------------------
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- -------------------------
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MONEY MARKET SERIES 1986*
- -------------------------
Net asset value,
beginning of period..... $10.00
- -------------------------
Operations:
Investment income --
net................... .09
Net realized and
unrealized gains
(losses) on
investments........... --
- -------------------------
Total from operations.... .09
- -------------------------
Distribution to
shareholders:
From investment income
-- net................ --
- -------------------------
Net asset value, end of
period.................. $10.09
- -------------------------
Total Return(@).......... .90%
Net assets end of period
(000s omitted).......... $2,119
Ratio of expenses to
average daily net
assets.................. .60%**
Ratio of net investment
income to average daily
net assets.............. 4.98%**
Portfolio turnover
rate.................... --
- -------------------------
</TABLE>
***Pursuant to Rule 2a-7 under the Investment Company Act of 1940, under which
the Money Market Series began to operate on May 1, 1991, the portfolio
turnover rate is not applicable.
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YEAR ENDED DECEMBER 31,
GROWTH STOCK SERIES 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period..... $22.11 $22.92 $21.15 $20.68 $13.57 $14.26 $10.59 $10.42 $9.53
- -----------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income --
net................... .13 .18 .09 .18 .22 .38 .26 .29 .20
Net realized and
unrealized gains
(losses) on
investments........... 5.98 (.81) 1.77 .47 7.11 (.69) 3.67 .16 .92
- -----------------------------------------------------------------------------------------------------------------------------
Total from operations.... 6.11 (.63) 1.86 .65 7.33 (.31) 3.93 .45 1.12
- -----------------------------------------------------------------------------------------------------------------------------
Distribution to
shareholders:
From investment income
-- net................ (.13) (.18) (.09) (.18) (.22) (.38) (.26) (.28) (.21)
From net realized
gains................. -- -- -- -- -- -- -- -- (.02)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders............ (.13) (.18) (.09) (.18) (.22) (.38) (.26) (.28) (.23)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period.................. $28.09 $22.11 $22.92 $21.15 $20.68 $13.57 $14.26 $10.59 $10.42
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(@).......... 27.66% (2.82%) 8.78% 2.94% 53.50% (3.10)% 36.46% 4.49% 11.31%
Net assets end of period
(000s omitted).......... $530,945 $377,483 $304,293 $188,172 $100,690 $25,623 $8,632 $3,023 $2,914
Ratio of expenses to
average daily net
assets.................. .67% .68% .69% .76% .81% 1.01% 1.00% 1.00% 1.00%
Ratio of net investment
income to average daily
net assets.............. .51% .81% .46% .92% 1.28% 2.72% 2.03% 2.76% 1.79%
Portfolio turnover
rate.................... 20% 19% 26% 24% 31% 50% 40% 85% 64%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
GROWTH STOCK SERIES 1986*
<S> <C>
- -------------------------
Net asset value,
beginning of period..... $10.00
- -------------------------
Operations:
Investment income --
net................... .02
Net realized and
unrealized gains
(losses) on
investments........... (.49)
- -------------------------
Total from operations.... (.47)
- -------------------------
Distribution to
shareholders:
From investment income
-- net................ --
From net realized
gains................. --
- -------------------------
Total distributions to
shareholders............ --
- -------------------------
Net asset value, end of
period.................. $9.53
- -------------------------
Total Return(@).......... (4.70)%
Net assets end of period
(000s omitted).......... $1,716
Ratio of expenses to
average daily net
assets.................. 1.00%**
Ratio of net investment
income to average daily
net assets.............. 1.44%**
Portfolio turnover
rate.................... 4%
- -------------------------
</TABLE>
- --------------------------
*Period from October 27, 1986 to December 31, 1986.
**Annualized
@These are the Series total returns during the period, including reinvestment
of all dividend and capital gains distributions.
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YEAR ENDED DECEMBER 31,
---------------------------------------------
GLOBAL GROWTH SERIES 1995 1994 1993 1992*
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period........................ $12.31 $12.77 $10.86 $9.82
- -----------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net.................................. .09 .10 .06 .05
Net realized and unrealized gains (losses) on
investments.............................................. 3.66 (.46) 1.91 1.04
- -----------------------------------------------------------------------------------------------------------
Total from operations................................... 3.75 (.36) 1.97 1.09
- -----------------------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net............................. (.09) (.10) (.06) (.05)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period.............................. $15.97 $12.31 $12.77 $10.86
- -----------------------------------------------------------------------------------------------------------
Total Return(@)............................................. 30.49% (2.98)% 17.92% 10.88%
Net assets end of period (000s omitted)..................... $207,913 $144,647 $75,882 $11,091
Ratio of expenses to average daily net assets............... .80% .81% 1.02% 1.22%**
Ratio of net investment income to average daily net
assets..................................................... .64% .82% .53% .73%**
Portfolio turnover rate..................................... 29% 20% 19% 21%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*For the Period May 1, 1992 (commencement of operations) to December 31, 1992.
The Series' inception was April 13, 1992, when it was initially capitalized.
However, the Series' shares did not become effectively registered under the
Securities Act of 1933 until May 1, 1992. Supplementary information is not
presented for the period from April 13, 1992, through May 1, 1992, as the
Series' shares were not registered during that period.
- --------------------------
**Annualized.
@These are the Series total returns during the period, including reinvestment
of all dividend and capital gains distributions.
The Series may advertise their "cumulative total return" and "average annual
total return" and may compare such figures to recognized indices. Money Market
Series may advertise its "yield" and "effective yield." Any advertisement of
Series performance will be accompanied by performance of the Separate Account
being advertised. (See "The Separate Accounts and the Contracts".) Fortis Series
may advertise its relative performance as compiled by outside organizations such
as Lipper Analytical or Wiesenberger, or refer to publications which have
mentioned Fortis Series, Fortis Advisers, Inc. ("Advisers"), or their personnel,
and also may advertise other performance items as set forth in the Statement of
Additional Information. The performance discussion required by the Securities
and Exchange Commission is found in Fortis Series' Annual Report to Shareholders
and will be made available without charge upon request.
ORGANIZATION AND CLASSIFICATION
Fortis Series was incorporated under Minnesota law in 1986, and is registered
with the Securities and Exchange Commission under the Investment Company Act of
1940 (the "1940 Act") as an "open-end management investment company." Each
available Series is classified as a diversified investment company under the
1940 Act. Each Series is, for investment purposes, in effect a separate
investment fund. A separate series of capital stock is issued for each Series.
Each share of capital stock issued with respect to a Series has a pro-rata
interest in the assets of that Series and has no interest in the assets of any
other Series. Each Series bears its own liabilities and also its proportionate
share of the general liabilities of Fortis Series. In other respects, Fortis
Series is treated as one entity.
THE SEPARATE ACCOUNTS AND THE CONTRACTS
Shares in Fortis Series are currently sold to separate accounts of Fortis
Benefits and First Fortis which fund benefits under variable life insurance
policies and variable annuity contracts issued by Fortis Benefits and First
Fortis. Each Contract owner allocates Contract value among the subaccounts of
the Separate Accounts, which in turn invest in the corresponding Series of
Fortis Series. The rights of the Separate Accounts as shareholders should be
distinguished from the rights of a Contract owner, which are described in the
Contract. The term "shareholder" or "shareholders" in this Prospectus refers to
Fortis Benefits, First Fortis, any of their affiliates, or any other insurance
company that owns Fortis Series shares. "Contract owner" means the owner,
annuitant, or beneficiary that is entitled to exercise the rights and privileges
under a Contract.
INVESTMENT OBJECTIVES AND POLICIES; RISK CONSIDERATIONS
Each Series has different investment objectives which it pursues through
different investment policies as described below. The investment objectives of
the Series and, except as otherwise noted, the policies by which the Series seek
to achieve their investment objectives, may be changed without the approval of
shareholders. While no such change is contemplated, such a change could result
in a Series' objectives differing from those deemed appropriate by an investor
at the time of investment.
Through careful selection, broad diversification and constant supervision,
Fortis Series' management aims to limit and counteract various types of risk
that are inherent in all securities, and advance the value of the Series'
assets. There is risk in all investments, and fulfillment of the Series'
objectives cannot be assured.
Fortis Advisers, Inc. is the investment adviser for all of the Series. In
selecting equity securities for the equity Series Advisers uses a distinct
equity investment philosophy. Specifically, Growth Stock Series uses a "growth"
philosophy. Advisers also uses a "bottom up" investment style in which stock
selection is driven primarily by the merits of the company itself.
In managing "growth" portfolios, Advisers invests based on a concept of growth
potential, seeking to identify companies whose earnings and revenue growth
potential exceed industry averages. In addition to superior earnings growth
potential, Advisers seeks companies which it believes to be well managed with
above average returns on equity and invested capital, healthy balance sheets and
the potential to gain market share. Companies of this nature typically have
above average growth potential and a correspondingly higher than average
valuation level as measured by price to earnings, price to cash flow and price
to book value ratios.
MONEY MARKET SERIES
The objectives of Money Market Series are high levels of capital stability and
liquidity and, to the extent consistent with these primary objectives, a high
level of current income. Money Market Series intends to achieve these objectives
through investment in a diversified portfolio of investment grade bonds and
other debt securities which management considers to be of similar quality.
Money Market Series is somewhat different from a "traditional" money market
mutual fund in that it does not attempt to maintain its net asset value at any
set price. It has a nonfundamental investment policy requiring that all of its
assets be invested in debt securities maturing in 13 months or less, except
United States "Government Securities" as defined in the 1940
3
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Act, whose portfolio maturities cannot be more than 25 months from the date of
acquisition. Money Market Series will maintain a dollar weighted average
portfolio maturity of 90 days or less.
Pursuant to Rule 2a-7 under the 1940 Act, Money Market Series will not invest
more than 5% of its total assets in: (1) securities of any one issuer (other
than cash or United States "Government Securities" as defined in the 1940 Act),
except that the Series may at any one time make a single investment of more than
5% of its assets in securities of an issuer in the highest rating category for
up to three business days (subject to the diversification requirements of the
1940 Act, as set forth under "Investment Policies, Restrictions, and Risks
Applicable to More Than One Series"); or (2) securities rated in the second
highest rating category-- with investments in the second highest category
further limited with respect to any particular issuer to the greater of 1% of
total assets or $1,000,000. Certain of the provisions of Rule 2a-7 are more
restrictive than Money Market Series' investment policies and restrictions
described below; Money Market Series' investments will be limited to the more
restrictive provisions of Rule 2a-7.
Money Market Series pursues its objectives by investing exclusively in the
following:
1.
Obligations of domestic issuers (which include, for example,
commercial paper and other debt obligations) which meet the quality and other
standards of Rule 2a-7 (or successors thereto) under the 1940 Act.
2.
Securities of, or guaranteed by, the United States Government, its
agencies or instrumentalities. For a discussion of this type of security and the
federal income tax diversification requirements applicable to investments in
this type of security, see "Investment Policies, Restrictions, and Risks
Applicable to More Than One Series--U.S. Government Securities," below and
"Taxation" in the Statement of Additional Information.
3.
Securities (payable in U.S. dollars) of, or guaranteed by, the
government of Canada or a province of Canada or any instrumentality or political
subdivision thereof, such securities not to exceed 25% of Money Market Series'
total assets, and securities of foreign companies (which do not include domestic
branches of foreign banks and foreign branches of domestic banks), such
securities not to exceed 15% of Money Market Series' total assets. See "Global
Growth Series--Risk Factors" for a discussion of certain risks connected with
investing in foreign securities.
Obligations of: (a)4.domestic or foreign banks having total assets
in excess of one billion dollars or of any branches of such banks, whether
domestic or foreign; or (b) in other foreign issuers; provided, that no more
than 49% of Money Market Series' total assets may be so invested in all such
securities. Such obligations of domestic and foreign banks may include, but are
not limited to, certificates of deposit, letters of credit, and bankers'
acceptances. For this purpose, "bank" includes commercial banks, savings banks
and savings and loan associations.
Overall, with respect to investments set forth in this paragraph and in
paragraph 3, above, Money Market Series may not invest more than 49% of the
value of its total assets collectively in: (i) securities of, or guaranteed by,
the government of Canada, a province of Canada, or any instrumentality or
political subdivision thereof; (ii) securities of foreign companies; and (iii)
securities of domestic branches of foreign banks and foreign branches of
domestic banks.
There are risks associated with investments in obligations of foreign branches
of domestic banks and domestic branches of foreign banks that do not accompany
investments in obligations of domestic banks generally. Domestic banks are
required to maintain specified levels of reserves, are limited in the amounts
they can loan to a single borrower, and are subject to other regulations
designed to promote financial soundness. Not all of such laws and regulations
apply to foreign branches of domestic banks. Money Market Series may also be
subject to additional investment risks from investing in the obligations of
foreign branches of domestic banks. Such risks include future political and
economic developments, the possible imposition of foreign withholding taxes on
interest income payable on securities, the possible seizure or nationalization
of foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. The obligations of
domestic branches of foreign banks may also be subject to other risks, including
political and economic developments in the country in which the foreign bank has
its main office. There may be less publicly available information about a
domestic branch of a foreign bank than about a domestic bank. In addition,
obligations of foreign branches of domestic banks and domestic branches of
foreign banks are not insured by the Federal Deposit Insurance Corporation.
5.
Extendible notes that provide for an optional maturity date, at
Money Market Series' option, of 13 months or less from the date of acquisition.
Extendible notes issued with maturity dates in excess of 13 months from the date
of issuance that provide for optional maturity dates, at the holder's option, of
13 months or less shall be deemed by Money Market Series to have been issued
with the shorter optional maturity dates. Such extendible notes must meet the
quality and other standards of Rule 2a-7 (or successors thereto) and may not
account for greater than 25% of the total assets of Money Market Series.
6.
Repurchase agreements in connection with obligations which are
suitable for investment under the categories set forth above.
7.
Obligations other than those listed above if the obligation is
accompanied by a guarantee of principal and interest, provided that the
guarantee is that of a bank or corporation whose certificates of deposit or
commercial paper may otherwise be purchased by Money Market Series.
SHORT-TERM TRADING. Money Market Series intends to use short-term trading of its
securities as a means of managing its portfolio to achieve its investment
objectives. As used herein, "short-term trading" means selling securities held
for a relatively brief period of time, usually less than three months.
Short-term trading will be used by Money Market Series primarily in two
situations:
(a) MARKET DEVELOPMENTS. A security may be sold to avoid depreciation in
what Advisers anticipates will be a market decline (a rise in interest
rates), or a security may be purchased in anticipation of a market rise (a
decline in interest rates) and later sold; and
(b) YIELD DISPARITIES. A security may be sold and another security of
comparable quality purchased at approximately the same time, in order to
take advantage of what Advisers believes is a temporary disparity in the
normal yield relationship between the two securities (a yield disparity).
Money Market Series will engage in short-term trading if it believes the
transactions, net of costs (including commission, if any), will result in
improving the appreciation potential or income of its investment portfolio.
Whether any improvement will be realized by short-term trading will depend upon
the ability of Advisers to evaluate particular securities and anticipate
relevant market factors, including interest rate trends and variations from such
trends. Short-term trading such as that contemplated by the Series places a
premium upon the ability of Advisers to obtain relevant information, to evaluate
it promptly, and to take advantage of its evaluations by completing transactions
on a favorable basis. To qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, less than 30% of the Series' gross
income (on an annual basis) can be derived from the sale or other disposition of
securities held for less than three months. The Series will not engage in
short-term trading if it would result in violation of this provision.
GROWTH STOCK SERIES
The primary investment objective of Growth Stock Series is short and long-term
capital appreciation. Current income through the receipt of interest or
dividends from investments will merely be incidental to the efforts of Growth
Stock Series in pursuing its primary objective. Growth Stock Series will
generally invest in companies representing a diversified cross section of
American industry. The Growth Stock Series will invest in both large and small
companies and both new and established companies.
In seeking to attain its investment objective, Growth Stock Series will invest
primarily in common stocks or securities convertible into common stocks.
Occasionally, however, limited amounts may be invested in other types of
4
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securities (such as nonconvertible preferred and debt securities). In periods
when a more defensive position is deemed warranted, Growth Stock Series may
invest in high grade preferred stocks, bonds and other fixed income securities
(whether or not convertible into or carrying rights to purchase common stock) or
retain cash, all without limitation. Growth Stock Series may invest in
repurchase agreements and in both listed and unlisted securities.
Growth Stock Series may also invest up to 10% of its total assets (at the time
of investment) in foreign securities. Investing in foreign securities may result
in greater risk than that incurred in investing in domestic securities. For a
discussion of certain considerations of investing in foreign securities see
"Global Growth Series--Risk Factors."
GLOBAL GROWTH SERIES
The primary investment objective of the Global Growth Series is long-term
capital appreciation. Current income through the receipt of income such as
interest or dividends from investments is a secondary objective. The Global
Growth Series seeks its objectives primarily by investing in a global portfolio
of equity securities, allocated among diverse international markets. The Global
Growth Series is designed for investors who wish to accept the risks entailed in
such investments, which are different from those associated with a portfolio
consisting entirely of U.S. securities. See "Risk Factors."
Although the Global Growth Series is not required to maintain any particular
proportion of stocks, bonds, or other securities in its portfolio, the Global
Growth Series, in view of its investment objectives, currently expects to invest
its assets primarily in common stocks of U.S. and non-U.S. issuers. The Global
Growth Series invests approximately 55% to 65% of its equity securities in
established growth companies which have achieved a record of operating earnings
over the past five-year period. Such companies would usually be located in the
United States, Canada, the United Kingdom, Japan, Australia, and other Western
European nations. These companies will also have paid or have the ability to pay
a dividend. Established growth companies typically have less sensitivity to
general economic trends, tend to generate above average returns on invested
capital, and have leadership positions in their respective industries. When
selecting securities of non-U.S. issuers, Advisers considers additional factors
related to the country of the non-U.S. issuer, including foreign currency
exchange, the political stability of the country of such non-U.S. issuer,
foreign regulations, and settlement practices. See "Risk Factors."
In addition, the Global Growth Series may invest up to 35% to 45% of its equity
securities in U.S. and non-U.S. emerging growth companies and in global emerging
markets. Emerging growth companies generally have annual gross revenues ranging
from $10 million to $1 billion, would be expected to show earnings growth over
time that is well above the growth rate of the overall economy and the rate of
inflation, and would have products, management, and market opportunities which
are usually necessary to become more widely recognized as growth companies. The
Global Growth Series has no minimum size requirements for the emerging growth
companies in which it will invest. As used in this Prospectus, global emerging
markets are countries categorized as emerging markets by the International
Finance Corporation, the World Bank's private sector division. Such countries
may include but are not limited to Singapore, Indonesia, China, India, and
certain Latin American countries such as Mexico, Argentina, Chile, and Brazil.
Such markets tend to be in the less economically developed regions of the world.
General characteristics of emerging market countries also include lower degrees
of political stability, a high demand for capital investment, a high dependence
on export markets for their major industries, a need to develop basic economic
infrastructures, and rapid economic growth. Advisers believes that investments
in equity securities in emerging growth companies and in global emerging markets
offer the opportunity for significant long-term investment returns. The Global
Growth Series may invest in any kind of equity security including common stocks,
preferred stocks, and warrants. The above investments involve certain risks. See
"Risk Factors."
For investment purposes, an issuer is typically considered as domiciled in a
particular country if it is incorporated under the laws of that country, at
least 50% of the value of its assets are located in that country, and it derives
at least 50% of its income from operations or sales in that country. For issuers
which do not meet this criteria, Advisers will consider where an issuer has its
principal activities and interests, taking into account such factors as the
location of the issuer's assets, personnel, sales, and earnings in determining
the country of an issuer.
The Global Growth Series may, however, invest substantially or primarily in
investment grade debt securities of U.S. and non-U.S. issuers when the total
return available from investments in such securities may equal or exceed the
total return available from investments in equity securities. The Global Growth
Series may invest up to substantially all of its assets in high quality debt
securities of U.S. and non-U.S. issuers when the Global Growth Series is
temporarily in a defensive position. "High quality" debt securities are
securities rated within one of the two highest ratings categories of Moody's
(Aaa and Aa) or of S&P (AAA and AA), or comparably rated by another nationally
recognized rating agency, or, if unrated, determined to be of comparable quality
by Advisers. To enable the Global Growth Series to respond to general economic
changes and market conditions around the world, the Global Growth Series is
authorized to invest up to 100% of its assets in either equity securities or in
debt securities.
The debt obligations in which the Global Growth Series may invest include a
variety of government bonds and corporate debt obligations. Government bonds the
Global Growth Series may purchase include debt obligations issued or guaranteed
by the United States or foreign governments (including foreign states,
provinces, or municipalities) or their agencies, authorities, or
instrumentalities and also may include debt obligations issued by supranational
entities, which entities are organized or supported by several national
governments, such as the World Bank and the Asian Development Bank. Other debt
obligations held by the Global Growth Series may include corporate bonds of U.S.
and non-U.S. issuers and debt obligations convertible into equity securities or
having attached warrants or rights to purchase equity securities.
The Global Growth Series expects that a large portion of its debt investments
will be "high quality" (as defined above) government or corporate bonds. The
Global Growth Series may retain a portfolio security whose rating has changed if
the security otherwise meets the Series' investment objectives and investment
criteria, provided that no more than 5% of the Global Growth Series' net assets
may be invested in a debt security rated lower than Baa or BBB. A description of
the Moody's and S&P ratings is included in the Appendix.
Global Growth Series invests its net assets in issues of not less than five
different countries (four if less than 80% invested in foreign securities; three
if less than 60%; two if less than 40%; and one if less than 20%). Issues of any
one country other than the United States will represent no more than 20% of net
assets, provided that an additional 15% of net assets may be invested in issuers
located in any one of the following countries: Australia, Canada, France, Japan,
the United Kingdom, or Germany. The Global Growth Series may purchase securities
that are issued by the government or a corporation or financial institution of
one nation but denominated in the currency of another nation (or a multinational
currency unit).
The Global Growth Series may hold cash (U.S. dollars, foreign currencies, or
multinational currency units) and/or invest any portion or all of its assets in
high quality money market instruments as temporary defensive strategies, pending
investment of proceeds from new sales of Global Growth Series shares or to meet
ordinary daily cash needs.
For temporary defensive reasons, such as during times of international political
or economic uncertainty, most or all of the Global Growth Series' investments
may be made in the United States and denominated in U.S. dollars.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS. Global Growth Series may purchase
or sell foreign currency forward exchange contracts ("forward contracts") to
attempt to minimize the risk from adverse changes in the relationship between
the various currencies in which such Series invests. A forward contract is an
obligation to purchase or sell a specific currency for an agreed price at a
future date, which contract is individually
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negotiated and privately traded by currency traders and their customers. The
Series may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the price of the security ("transaction hedge")
in a particular currency. Additionally, when the Series believes that a foreign
currency (for example, the British pound) may suffer a decline against any other
currency or currencies in the Series (for example, the U.S. dollar), it may
enter into a forward sale contract to sell an amount of the foreign currency
expected to decline (the British pound) that approximates the value of some or
all of the Series' investment securities denominated in such foreign currency
(the British pound) (a "position hedge"). In such cases, the Series also may
enter into a forward sale contract to sell a foreign currency for a fixed amount
in another currency (other than the U.S. dollar) where the Series believes that
the value of the currency to be sold pursuant to the forward sale contract will
fall whenever there is a decline in the value of the currency (other than the
U.S. dollar) in which certain portfolio securities of the Series are denominated
(a "cross-hedge").
Under certain conditions, Securities and Exchange Commission (the "Commission")
guidelines require investment companies to set aside cash, U.S. Government
securities or other liquid high quality debt securities in a segregated
custodial account to cover forward contracts. As required by Commission
guidelines, any Series that has the ability to enter into a forward contract for
an essentially speculative purpose will, upon entering into such a transaction,
segregate assets to cover such forward contracts. At the present time, Global
Growth Series may not enter into speculative forward contracts. A speculative
forward contract is one which, unlike the hedging situations defined above, does
not have an underlying position in a security or securities. The Series will not
segregate assets to cover forward contracts entered into for hedging purposes.
Although forward contracts will be used primarily to protect Global Growth
Series from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Global Growth Series may
enter into contracts for the purchase or sale for future delivery of securities
or contracts based on financial indices including any index of U.S. government
securities or corporate debt securities ("futures contracts") and may purchase
and write put and call options to buy or sell futures contracts ("options on
futures contracts"). Global Growth Series may enter into futures contracts for
the purchase or sale for future delivery of fixed income securities, and the
Series may enter into futures contracts for the purchase or sale for future
delivery of equity securities. Global Growth Series may enter into interest rate
futures contracts and stock index futures contracts. Such Series may enter into
contracts for the purchase or sale for future delivery of foreign currencies. A
"sale" of a futures contract means the undertaking of a contractual obligation
to deliver the securities or foreign currencies called for by the contract at a
specified price on a specified date. A "purchase" of a futures contract means
the undertaking of a contractual obligation to acquire the securities or foreign
currencies called for by the contract at a specified price on a specified date.
The purchaser of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified dollar multiple
of the value of the index on the expiration date of the contract ("current
contract value") and the price at which the contract was originally struck. No
physical delivery of the fixed-income securities underlying the index is made.
At the time a futures contract is purchased or sold, the Series must allocate
cash or securities as a deposit payment based on a percentage of a contract's
face value. The futures contract is valued daily thereafter and the Series may
be required to contribute additional cash or securities that reflects any
decline in the contract's value. These investment techniques will be used for a
variety of purposes, including hedging against anticipated future changes in
interest rates that otherwise might either adversely affect the value of the
portfolio securities of the Series or adversely affect the prices of securities
or foreign currencies that the Series intends to purchase at a later date.
Global Growth Series may write only "covered" call options. An option written on
a security or currency is "covered" when, so long as the Series is obligated
under the option, it owns the underlying security or currency. Global Growth
Series will "cover" options on futures contracts it writes by maintaining in a
segregated account either marketable securities which, in Advisers' judgment,
correlate to the underlying futures contract or an amount of cash, U.S.
government securities, or other liquid, high quality debt securities equal in
value to the amount the Series would be required to pay were the option
exercised.
Although Global Growth Series may enter into transactions in futures contracts,
options on futures contracts, currency contracts and certain options for hedging
purposes, their use does involve certain risks. See "Risk Factors."
OPTIONS. Options (a type of potentially high risk derivative) give the investor
the right, but not the obligation, to buy or sell an asset at a predetermined
price in the future. Global Growth Series may write call options and purchase
put and call options on equity and debt securities to hedge against the risk of
fluctuations in the prices of securities held by such Series or which Advisers
intend to include in such Series.
OPTIONS ON FOREIGN CURRENCIES. Global Growth Series may purchase and write put
and call options on foreign currencies for the purpose of protecting against
declines in the value of foreign currency denominated portfolio securities and
against increases in the cost of such securities to be acquired. As in the case
of other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Series could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Series' position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to be written or
purchased by the Series are traded on U.S. and foreign exchanges or
over-the-counter.
LIMITATIONS ON INVESTMENTS IN DERIVATIVE INSTRUMENTS ON SECURITIES, OPTIONS, AND
FUTURES CONTRACTS. Global Growth Series has adopted two percentage restrictions
on the use of options, futures, and forward contracts. The first restriction is
that the Series will not enter into options, futures, or forward contract
transactions if immediately thereafter 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 Series would exceed 5% of the value of the total
assets of the Series. The second restriction is that the aggregate value of the
Series' assets covering, subject to, or committed to all options, futures, and
forward contracts will not exceed 20% of the value of the total assets of the
Series. These two restrictions do not apply to securities purchased on a
when-issued, delayed delivery, or forward commitment basis as described under
"Delayed Delivery Transactions." However, the Series intends to limit its
investment in futures during the coming year so that the aggregate value of the
Series' assets subject to futures contracts will not exceed 5% of the value of
its net assets. In addition, investments in options are further restricted by a
nonfundamental investment restriction that prohibits the Global Growth Series
from investing more than an aggregate of 10% of the value of its total assets
in: (a) restricted securities (both debt and equity) or in equity securities of
any issuer which are not readily marketable; (b) repurchase agreements with a
maturity of more than seven days; and (c) over-the-counter option and futures
contracts.
DEPOSITARY RECEIPTS. The Global Growth Series may hold equity securities of
foreign issuers in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), or other securities convertible into securities of
eligible European or Far Eastern issuers. These securities may not necessarily
be denominated in the same currency as the securities for which they may be
exchanged. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. Generally, ADRs in registered
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form are designed for use in the United States securities markets. For purposes
of the Global Growth Series' investment policies, investments in ADRs and EDRs
will be deemed to be investments in the equity securities representing
securities of foreign issuers into which they may be converted.
RISK FACTORS. The Global Growth Series' net asset value will fluctuate,
reflecting fluctuations in the market value of its portfolio positions.
Foreign investing entails certain risks. The securities of non-U.S. issuers
generally will not be registered with, nor the issuers thereof be subject to,
the reporting requirements of the U.S. Securities and Exchange Commission.
Accordingly, there may be less publicly available information about foreign
securities and issuers than is available about domestic securities and issuers.
Foreign companies are not subject to uniform accounting, auditing, and financial
reporting standards, practices, and requirements comparable to those applicable
to domestic companies. Securities of some foreign companies are less liquid and
their prices may be more volatile than securities of comparable domestic
companies. Settlement periods for foreign securities, which are sometimes longer
than those for securities of U.S. issuers, may affect portfolio liquidity. These
different settlement practices may cause missed purchasing opportunities and/or
the loss of interest on money market and debt investments pending further equity
or long-term debt investments.
In addition, with respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of the Global Growth Series, political, or social instability, or
diplomatic or economic developments which could affect the Global Growth Series'
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross national product, rate of inflation, rate of savings and
capital reinvestment, resource self-sufficiency and balance of payments
positions. It is anticipated that substantially all of the equities purchased by
the Global Growth Series will be listed on foreign exchanges. Trading volume on
foreign and emerging market stock exchanges is substantially less than that on
the New York Stock Exchange. They also have further risks due to permanent or
temporary termination of trading and greater spreads between bid and asked
prices for securities in such markets. In addition, there is generally less
government supervision and regulation of foreign stock exchanges. Furthermore,
stock markets in emerging markets, such as nations in the Far East, while
offering opportunities for substantial returns, can be more volatile during
periods of investment uncertainty than established major exchanges. Shares of
Global Growth Series, therefore, are subject to greater fluctuation in value
than shares of a conservative equity fund or of a growth fund which invests
entirely in more established markets. The Global Growth Series may incur
additional costs because of generally higher foreign brokerage commissions and
the additional custodial costs associated with maintaining securities. Advisers
will rely on its worldwide financial and investment experience to attempt to
limit these risks.
Investing in both U.S. and non-U.S. emerging growth companies involves certain
special risks. The nature of investing in both U.S. and non-U.S. emerging growth
companies involves greater risk than is customarily associated with investments
in more established companies. Emerging growth companies may have limited
product lines, markets, or financial resources, and they may be dependent on a
limited management group. The securities of emerging growth companies may have
limited market stability and may be subject to more abrupt or erratic market
movements than securities of larger, more established companies or the market
averages in general. Shares of Global Growth Series, therefore, are subject to
greater fluctuation in value than shares of a conservative equity fund or of a
growth fund which invests entirely in more established growth stocks.
The risks of foreign investing are of greater concern in the case of investments
in emerging markets which may exhibit greater price volatility and have less
liquidity. Further, the economies of emerging market countries generally are
heavily dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, managed adjustments in
relative currency values, and other protectionist measures imposed or negotiated
by the countries with which they trade. These emerging market economies also
have been and may continue to be adversely affected by economic conditions in
the countries with which they trade.
Since the Global Growth Series may invest substantially in securities
denominated in currencies other than the U.S. dollar, and since the Global
Growth Series may hold foreign currencies, the Global Growth Series may be
affected favorably or unfavorably by exchange control regulations or changes in
the exchange rates between such currencies and the U.S. dollar. Changes in
currency exchange rates will influence the value of dividends and interest
earned by the Global Growth Series and gains and losses realized by the Global
Growth Series. Exchange rates are determined by the forces of supply and demand
in the foreign exchange markets. These forces are affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation, and other factors. In addition, the Global Growth
Series may incur costs associated with currency hedging and the conversion of
foreign currency into U.S. dollars and may be adversely affected by restriction
on the conversion or transfer of foreign currency.
Also, the Global Growth Series' use of foreign currency forward exchange
contracts and options and futures strategies would involve certain additional
investment risks and transaction costs. These risks include: dependence on
Advisers' ability to predict movements in the prices of individual securities,
fluctuations in the general securities markets and movements in interest rates
and currency markets; imperfect correlation between movements in the price of
currency, options, futures contracts, or options thereon and movements in the
price of the currency or security hedged or used for cover; unexpected adverse
price movements which could render the Series' 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 currency
contracts are different from those needed to select the securities in which the
Global Growth Series invests; lack of assurance that a liquid secondary market
will exist for any particular option, futures contract or option thereon at any
particular time; and the possible need to defer closing out certain options,
futures contracts and options thereon in order to continue to qualify for the
beneficial tax treatment afforded "regulated investment companies" under the
Internal Revenue Code. See "Taxation."
ZERO COUPON OBLIGATIONS. The Global Growth Series may invest in zero coupon
obligations of government and corporate issuers, including rights to "stripped"
coupon and principal payments. Certain obligations are "stripped" of their
coupons, and the rights to receive each coupon payment and the principal payment
are sold as separate securities. Once separated, each coupon as well as the
principal amount represents a different single-payment claim due from the issuer
of the security. Each single-payment claim (coupon or principal) is equivalent
to a zero coupon bond. A zero coupon security pays no interest to its holder
during its life, and its value consists of the difference between its face value
at maturity (the coupon or principal amount), if held to maturity, or its market
price on the date of sale, if sold prior to maturity, and its acquisition price
(the discounted "present value" of the payment to be received).
Certain zero coupon obligations represent direct obligations of the issuer of
the "stripped" coupon and principal payments. Other zero coupon obligations are
securities issued by financial institutions which constitute a proportionate
ownership of an underlying pool of stripped coupon or principal payments. The
Global Growth Series may invest in either type of zero coupon obligation. The
investment policies and restrictions applicable to corporate and government
securities in Global Growth Series shall apply equally to its investments in
zero coupon securities (including, for example, minimum corporate bond ratings).
DELAYED DELIVERY TRANSACTIONS. Global Growth Series may purchase securities on a
"when-issued" or delayed delivery basis and purchase or sell securities on a
"forward commitment" basis. When such transactions are negotiated, the price is
fixed at the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but
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delayed settlements beyond two months may be negotiated. At the time Global
Growth Series enters into a transaction on a when-issued or forward commitment
basis, a segregated account consisting of cash, U.S. Government securities or
liquid high-grade debt securities equal to the value of the when-issued or
forward commitment securities will be established and maintained with the
custodian and will be marked to the market daily. During the period between a
commitment and settlement, no payment is made for the securities and, thus, no
interest accrues to the purchaser from the transaction. If Global Growth Series
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
can incur a gain or loss due to market fluctuation. The use of when-issued
transactions and forward commitments enables Global Growth Series to hedge
against anticipated changes in interest rates and prices. Global Growth Series
may also enter into such transactions to generate incremental income. In some
instances, the third-party seller of when-issued or forward commitment
securities may determine prior to the settlement date that it will be unable or
unwilling to meet its existing transaction commitments without borrowing
securities. If advantageous from a yield perspective, Global Growth Series may,
in that event, agree to resell its purchase commitment to the third-party seller
at the current market price on the date of sale and concurrently enter into
another purchase commitment for such securities at a later date. As an
inducement for Global Growth Series to "roll over" its purchase commitment, it
may receive a negotiated fee. The purchase of securities on a when-issued,
delayed delivery, or forward commitment basis exposes a Series to risk because
the securities may decrease in value prior to their delivery. Purchasing
securities on a when-issued, delayed delivery, or forward commitment basis
involves the additional risk that the return available in the market when the
delivery takes place will be higher than that obtained in the transaction
itself. These risks could result in increased volatility of a Series' net asset
value to the extent that the Series purchases securities on a when-issued,
delayed delivery, or forward commitment basis while remaining substantially
fully invested. No more than 20% of Global Growth Series' net assets may be
invested in when-issued, delayed delivery, or forward commitment transactions,
and of such 20%, no more than one-half (i.e., 10% of its net assets) may be
invested in when-issued, delayed delivery, or forward commitment transactions
without the intention of actually acquiring securities (i.e., dollar rolls).
SECURITIES LENDING. Global Growth Series is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors. The
borrower must maintain with Global Growth Series' custodian collateral
consisting of cash, U.S. government securities, or other liquid, high-grade debt
securities equal to at least 100% of the value of the borrowed securities, plus
any accrued interest. Global Growth Series will receive any interest paid on the
loaned securities and a fee and/or a portion of the interest earned on the
collateral. As a fundamental policy, Global Growth Series will limit its loans
of portfolio securities to an aggregate of 30% of the value of its total assets,
measured at the time any such loan is made.
The risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms deemed by Fortis
Advisers, Inc. ("Advisers") to be of good standing and will not be made unless,
in the judgment of Advisers, the consideration to be earned from such loans
would justify the risk.
INVESTMENT POLICIES, RESTRICTIONS, AND RISKS APPLICABLE TO MORE THAN ONE SERIES
LETTERS OF CREDIT. Commercial paper and other short-term obligations may be
backed by irrevocable letters of credit issued by banks that assume the
obligation for payment of principal and interest in the event of default by an
issuer. Only banks the securities of which, in the opinion of Advisers, are of
investment quality comparable to other permitted investments of such Series may
be used for letter of credit-backed investments.
REPURCHASE AGREEMENTS. Each of the Series may invest in repurchase agreements.
RESTRICTED OR ILLIQUID SECURITIES. A policy of Money Market Series and Growth
Stock Series which may not be changed without the approval of the shareholders,
is that each such Series may invest up to 5% of the value of its total assets
(at the time of investment) in securities which it might not be free to sell to
the public without registration of such securities under the Securities Act of
1933 (excluding Rule 144A securities). However, this policy is further
restricted by a policy--which could be changed without shareholder
approval--which prohibits more than an aggregate of 10% of each such Series'
assets from being invested in: (a) restricted securities (both debt and equity)
or in equity securities of any issuer which are not readily marketable; and (b)
companies which have been in business for less than three years.
Global Growth Series may invest up to 10% of the value of its total assets (at
the time of investment) in securities which are not registered under the
applicable securities laws of the country in which such securities are traded
and for which no alternative market is readily available (excluding Rule 144A
securities). This policy is restricted by a further policy which could be
changed without shareholder approval--that prohibits more than an aggregate of
10% of Global Growth Series' assets from being invested in (a) restricted
securities (both debt and equity) or in equity securities of any issuer which
are not readily marketable, (b) repurchase agreements with a maturity of more
than seven days, and (c) over-the-counter option and futures contracts.
BORROWINGS. Each Series may borrow money from banks as a temporary measure to
facilitate redemptions.
As a policy which may not be changed without shareholder approval, however,
borrowings may not exceed 10% of the value of the total assets of Money Market
Series and Growth Stock Series. Global Growth Series' borrowings through banks
and "roll" transactions will not exceed 33 1/3% of its total assets. However, an
investment policy changeable without shareholder approval further restricts
Global Growth Series' borrowings to 10% of its total assets. No additional
investment securities may be purchased by a Series whose outstanding borrowings,
(including "roll" transactions in the case of Global Growth Series) exceed 5% of
the value of such Series' total assets. If market fluctuations in the value of
the portfolio holdings of Global Growth Series or other factors cause the ratio
of Global Growth Series' total assets to outstanding borrowings to fall below
300%, within three days (excluding Sundays and holidays) of such event Global
Growth Series may be required to sell portfolio securities to restore the 300%
asset coverage, even though from an investment standpoint such sales might be
disadvantageous. Interest paid on borrowings will not be available for
investment.
VARIABLE AMOUNT MASTER DEMAND NOTES. Each Series may invest in variable amount
master demand notes. These instruments are short-term, unsecured promissory
notes issued by corporations to finance short-term credit needs. They allow the
investment of fluctuating amounts by the Series at varying market rates of
interest pursuant to arrangements between the Series, as lender, and the
borrower. Variable amount master demand notes permit a series of short-term
borrowings under a single note. Both the lender and the borrower have the right
to reduce the amount of outstanding indebtedness at any time. Such notes provide
that the interest rate on the amount outstanding varies on a daily basis
depending upon a stated short-term interest rate barometer. Advisers will
monitor the creditworthiness of the borrower throughout the term of the variable
master demand note. It is not generally contemplated that such instruments will
be traded and there is no secondary market for the notes. Typically, agreements
relating to such notes provide that the lender shall not sell or otherwise
transfer the note without the borrower's consent. Thus, variable amount master
demand notes may under certain circumstances be deemed illiquid assets. However,
such notes will not be considered illiquid where the Series 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 of the amount then outstanding
together with interest to the date of payment.
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MORTGAGE-RELATED SECURITIES. Each Series may invest in mortgage-related
securities. Mortgage-related securities are securities that, directly or
indirectly, represent a participation in (or are secured by and payable from)
mortgage loans on real property. Mortgage-related securities may represent the
right to receive both principal and interest payments on underlying mortgages or
may represent the right to receive varying proportions of such payments. One
type of mortgage-related security includes certificates which represent pools of
mortgage loans assembled for sale to investors by various governmental and
private organizations. Another type of mortgage-related security includes debt
securities which are secured, directly or indirectly, by mortgages on commercial
or residential real estate.
Investments in mortgage-related securities involve certain risks. In periods of
declining interest rates, prices of fixed income securities tend to rise.
However, during such periods, the rate of prepayment of mortgages underlying
mortgage-related securities tends to increase, with the result that such
prepayments must be reinvested at lower rates. In addition, the value of such
securities may fluctuate in response to the market's perception of the
creditworthiness of the issuers of mortgage-related securities owned by the
Series. The ability of the issuer of mortgage-related securities to reinvest
favorably in underlying mortgages may be limited by prevailing economic
conditions or by government regulation. Additionally, although mortgages and
mortgage-related securities are generally supported by some form of government
or private guarantee and/or insurance, there is no assurance that private
guarantors or insurers will be able to meet their obligations.
SHORT-TERM MONEY MARKET INSTRUMENTS. Each Series may at any time invest funds
awaiting investment or held as reserves for the purposes of satisfying
redemption requests, payment of dividends or making other distributions to
shareholders, in cash and short-term money market instruments. Short-term money
market instruments in which each Series may invest include (i) short-term U.S.
government securities and short-term obligations of foreign sovereign
governments and their agencies and instrumentalities, (ii) interest bearing
savings deposits on, and certificates of deposit and bankers' acceptances of,
United States and foreign banks, (iii) commercial paper of U.S. or foreign
issuers rated A-1 or higher by S&P or Prime-1 by Moody's or comparably rated by
another nationally recognized rating agency, or, if not rated, determined by a
Series sub-adviser to be of comparable quality and (iv) repurchase agreements
relating to the foregoing.
U.S. GOVERNMENT SECURITIES. Each Series may invest in U.S. government
securities, which include: (i) the following U.S. Treasury obligations: U.S.
Treasury bills (initial maturities of one year or less), U.S. Treasury notes
(initial maturities of one to 10 years), and U.S. Treasury bonds (generally
initial maturities of greater than 10 years), all of which are backed by the
full faith and credit of the United States; and (ii) obligations issued or
guaranteed by U.S. government agencies or instrumentalities, including
government guaranteed mortgage-related securities, some of which are backed by
the full faith and credit of the U.S. Treasury, e.g., direct pass-through
certificates of the Government National Mortgage Association; some of which are
supported by the right of the issuer to borrow from the U.S. government, e.g.,
obligations of Federal Home Loan Banks; and some of which are backed only by the
credit of the issuer itself, e.g., obligations of the Student Loan Marketing
Association. U.S. government securities are backed by the full faith and credit
of the U.S. government or guaranteed by the issuing agency or instrumentality
and, therefore, there is generally considered to be no risk as to the issuer's
capacity to pay interest and repay principal. Nevertheless, due to fluctuations
in interest rates, there is no guarantee as to the market value of U.S.
government securities. See "Investment Objectives and Policies" in the Statement
of Additional Information for a further description of obligations issued or
guaranteed by U.S. government agencies or instrumentalities.
FLOATING AND VARIABLE RATE INSTRUMENTS. Certain of the obligations that the
Series may purchase have a floating or variable rate of interest. Such
obligations bear interest at rates that are not fixed, but vary with changes in
specified market rates or indices, such as the prime rate, and at specified
intervals. Certain of these obligations may carry a demand feature that would
permit the holder to tender them back to the issuer at par value prior to
maturity. Each Series limits its purchases of floating and variable rate
obligations to those of the same quality as it otherwise is allowed to purchase.
Advisers monitors on an ongoing basis the ability of an issuer of a demand
instrument to pay principal and interest on demand. A Series' right to obtain
payment at par on a demand instrument can be affected by events occurring
between the date such Series elects to demand payment and the date payment is
due that may affect the ability of the issuer of the instrument to make payment
when due, except when such demand instruments permit same-day settlement. To
facilitate settlement, these same-day demand instruments may be held in book
entry form at a bank other than the Series' custodian, subject to a subcustodian
agreement approved by the Series between the bank and the Series' custodian.
The floating and variable rate obligations that the Series may purchase include
certificates of participation in obligations purchased from banks. A certificate
of participation gives the Series an undivided interest in the underlying
obligations in the proportion that such Series' interest bears to the total
principal amount of such obligations. Certain of such certificates of
participation may carry a demand feature that would permit the holder to tender
them back to the issuer prior to maturity.
To the extent that floating and variable rate instruments without demand
features are not readily marketable, they will be subject to the investment
restrictions pertaining to investments in illiquid securities. See "Restricted
or Illiquid Securities" above.
The insurance laws and regulations of various states as well as the Code and
regulations thereunder may, from time to time, impose additional restrictions on
the investments of the various Series.
GENERAL RISKS TO CONSIDER
An investment in any of the Series involves certain risks in addition to those
noted elsewhere in this Prospectus and the Statement of Additional Information
with respect to particular Series. These include the following:
EQUITY SECURITIES GENERALLY. Market prices of equity securities generally, and
of particular companies' equity securities, frequently are subject to greater
volatility than prices of fixed income securities. Market prices of equity
securities as a group have dropped dramatically in a short period of time on
several occasions in the past, and they may do so again in the future. Each of
the Series which may purchase equity securities (such as common and preferred
stocks) is subject to the risk of generally adverse equity markets.
COMMON AND PREFERRED STOCKS. Stocks represent shares of ownership in a company.
Generally, preferred stock has a specified dividend and ranks after bonds and
before common stocks in its claim on income for dividend payments and on assets
should the company be liquidated. After other claims are satisfied, common
stockholders participate in company profits on a pro rata basis; profits may be
paid out in dividends or reinvested in the company to help it grow. Increases
and decreases in earnings are usually reflected in a company's stock price, so
common stocks generally have the greatest appreciation and depreciation
potential of all corporate securities.
SMALLER-CAPITALIZATION COMPANIES. The equity securities of
smaller-capitalization companies frequently have experienced greater price
volatility in the past than those of larger-capitalization companies, and they
may be expected to do so in the future. To the extent that the Series invest in
smaller-capitalization companies, they are subject to this risk of greater
volatility.
CONVERTIBLE SECURITIES AND WARRANTS. Certain Series may invest in debt or
preferred equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree. In
recent years, convertibles have been developed which combine higher or
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lower current income with options and other features. Warrants are options to
buy a stated number of shares of common stock at a specified price any time
during the life of the warrants (generally, two or more years).
INTEREST RATE RISK. Interest rate risk is the risk that the value of a fixed-
rate debt security will decline due to changes in market interest rates. Because
the Series invest in fixed-rate debt securities, they are subject to interest
rate risk. In general, when interest rates rise, the value of a fixed-rate debt
security declines. Conversely, when interest rates decline, the value of a
fixed-rate debt security generally increases. Thus, shareholders in the Series
bear the risk that increases in market interest rates will cause the value of
their Series' portfolio investments to decline.
In general, the value of fixed-rate debt securities with longer maturities is
more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Series which
invests in securities with longer weighted average maturities (or longer
durations) should be expected to have greater volatility in periods of changing
market interest rates than that of a Series which invests in securities with
shorter weighted average maturities (or shorter durations). As described below
under "Mortgage-Backed Securities," it is more difficult to generalize about the
effect of changes in market interest rates on the values of mortgage-backed
securities.
Although Advisers may for certain Series engage in transactions intended to
hedge the value of a Series' portfolio against changes in market interest rates,
there is no assurance that such hedging transactions will be undertaken or will
fulfill their purpose.
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Series invest in
debt securities, they are subject to credit risk.
Securities issued or guaranteed by the United States Government generally are
viewed as carrying minimal credit risk. Securities issued by governmental
entities but not backed by the full faith and credit of the United States, and
securities issued by private entities, are subject to higher levels of credit
risk. The ratings and certain other requirements which apply to the Series'
permitted investments, as described elsewhere in this Prospectus, are intended
to limit the amount of credit risk undertaken by the Series. Nevertheless,
shareholders in the Series bear the risk that payment defaults could cause the
value of their Series' portfolio investments to decline.
CALL RISK. Many corporate bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In general,
it is advantageous for a corporate issuer to call its bonds if they can be
refinanced through the issuance of new bonds which bear a lower interest rate
than that of the called bonds. Call risk is the risk that corporate bonds will
be called during a period of declining market interest rates so that such
refinancings may take place.
If a bond held by a Series is called during a period of declining interest
rates, the Series probably will have to reinvest the proceeds received by it at
a lower interest rate than that borne by the called bond, thus resulting in a
decrease in the Series' income. To the extent that the Series invest in callable
corporate bonds, Series shareholders bear the risk that reductions in income
will result from the call of the bonds. Most United States Government securities
are not callable before their stated maturity.
MORTGAGE-BACKED SECURITIES. Because residential mortgage loans generally can be
prepaid in whole or in part by the borrowers at any time without any prepayment
penalty, the holder of a mortgage-backed security which represents an interest
in a pool of such mortgage loans is subject to a form of call risk which is
generally called "prepayment risk." In addition, it is more difficult to predict
the effect of changes in market interest rates on the return on mortgage-backed
securities than to predict the effect of such changes on the return of a
conventional fixed-rate debt instrument, the magnitude of such effects may be
greater in some cases, and the return on certain types of mortgage-backed
securities, such as interest-only, principal-only and inverse floating rate
mortgage-backed securities, is particularly sensitive to changes in interest
rates and in the rate at which the mortgage loans underlying the securities are
prepaid by borrowers. For these reasons, a Series' investments in
mortgage-backed securities may involve greater risks than investments in
governmental or corporate bonds. For further information, see "Investment
Policies, Restrictions, and Risks Applicable to More Than One Series--Mortgage
Related Securities."
ACTIVE MANAGEMENT. All of the Series are actively managed by Advisers. The
performance of these Series therefore will reflect in part the ability of
Advisers to select securities which are suited to achieving the Series'
investment objectives. Due to their active management, these Series could
underperform other mutual funds with similar investment objectives or the market
generally.
MANAGEMENT
BOARD OF DIRECTORS
Under Minnesota law, the Board of Directors of Fortis Series (the "Board of
Directors") has overall responsibility for managing Fortis Series in good faith,
in a manner reasonably believed to be in the best interests of Fortis Series,
and with the care an ordinarily prudent person would exercise in similar
circumstances. However, this management may be delegated. The Articles of
Incorporation of Fortis Series limit the liability of directors to the fullest
extent permitted by law.
THE INVESTMENT ADVISER/TRANSFER AGENT/DIVIDEND AGENT
Fortis Advisers, Inc. ("Advisers") is the investment adviser, transfer agent,
and dividend agent for each Series. Advisers has been managing investment
company portfolios since 1949, and is indirectly owned 50% by Fortis AMEV and
50% by Fortis AG, diversified financial services companies. In addition to
providing investment advice, Advisers is responsible for management of Fortis
Series' business affairs, subject to the overall authority of the Board of
Directors. Advisers' address is P.O. Box 64284, St. Paul, MN 55164.
Money Market Series has been managed by Howard G. Hudson, Robert C. Lindberg,
Maroun M. Hayek, and David C. Greenzang since August 1995.
Growth Stock Series has been managed by Stephen M. Poling, James S. Byrd, and
Keith R. Thomson since 1986, 1991, and 1988, respectively.
Global Growth Series has been managed since its inception by Stephen M. Poling
and James S. Byrd.
Mr. Hudson, an Executive Vice President of Advisers and the head of Advisers'
fixed income department, has been managing debt securities for Fortis, Inc.
since 1991. Prior to that, Mr. Hudson managed investments for several firms,
including 20 years with Morgan Guaranty Trust, where he was the head of fixed
income for the Trust and Investment Division. Mr. Hudson reports to Gary N.
Yalen, the President and Chief Investment Officer of Advisers. The other
individuals identified herein, with the exception of Messrs. Poling, Byrd, and
Thomson, report directly or indirectly to Mr. Hudson. Messrs. Poling and Byrd
are Executive Vice Presidents and Mr. Thomson is a Vice President of Advisers.
Mr. Lindberg, a Vice President of Advisers, has been managing debt securities
for Advisers since 1993. Prior to that, Mr. Lindberg was Vice President and
Chief Securities Trader for COMERICA, Inc., Detroit, MI. Mr. Hayek, a Vice
President of Advisers, has been managing debt securities for Fortis, Inc. since
1987. Mr. Greenzang, a Money Market Portfolio officer, has been involved in
management of debt securities for Fortis, Inc. since 1992. Prior to that, Mr.
Greenzang was an Associate with Dean Witter Reynolds, Inc. in New York, NY.
Messrs. Poling, Byrd, and Thomson have managed portfolios for Advisers for at
least the past five years. Messrs. Yalen, Hudson, Lindberg, Hayek, and Greenzang
are located at One Chase Manhattan Plaza, New York, NY 10005 and Messrs. Poling,
Byrd, and Thomson are located at 5500 Wayzata Blvd., Golden Valley, MN 55416.
EXPENSES AND ALLOCATIONS AMONG SERIES
For the most recent fiscal year, the ratio of Fortis Series' investment advisory
and management fee as a percentage of average daily net assets was .30% for
Money Market Series, .62% for Growth Stock Series, and .70% for Global Growth
Series.
BROKERAGE ALLOCATION
Advisers may consider sales of shares of Fortis Series, and of other funds
advised by Advisers, as a factor in the selection of broker-dealers to execute
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Fortis Series' securities transactions when it is believed that this can be done
without causing Fortis Series to pay more in brokerage commissions than it would
otherwise.
PERIODIC REPORTS
Contract owners will receive semiannual reports including the financial
statements of the Series to which their premiums have been allocated and the
investments held in each such Series.
CAPITAL STOCK
Fortis Series has only common shares with equal voting rights.
VOTING PRIVILEGES
The voting privileges of Contract owners, and limitations thereon, are explained
in the accompanying prospectus for the Contracts. The shareholders are entitled
to vote all of the shares of Fortis Series, but they will generally do so in
accordance with the instructions of the Contract owners. Under certain
circumstances, however, shareholders may disregard voting instructions received
from Contract owners. For additional information describing how shareholders
will vote the shares of Fortis Series, see "Voting Privileges" in the
accompanying prospectus(es) for the applicable Contracts.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Fortis Series intends to distribute at least annually as dividends substantially
all the net investment income, if any, of each Series. For dividend purposes,
net investment income of each Series will consist of all dividends (other than
stock dividends) or interest received by such Series less the accrued expenses
of each such Series. Fortis Series will also declare and distribute all net
realized capital gains annually. Dividends from investment income of the Series
and capital gains distributions will be reinvested in additional full and
fractional shares. Dividends and distributions on shares not attributable to
Contracts, however, may be paid in cash.
TAXATION
Each Series intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended. So long as each Series so qualifies,
the Series is not taxed on the income it distributes to the Separate Accounts.
So long as each Series qualifies as a regulated investment company and meets
certain diversification tests applicable to the segregated asset accounts
underlying variable annuity and life insurance contracts, the Contract owners
will not be considered to be the owners of the shares of the Series, and income
earned with respect to the Contracts will not be taxed currently to the Contract
owners.
For the tax consequences of owning a Contract, see the accompanying prospectus
for the Contracts. For more information concerning the taxation of the Series,
see "Taxation" in the Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
GENERALLY
Shares in Fortis Series are currently offered at the respective per share net
asset values of the Series. Such shares are offered only to the Separate
Accounts, which fund benefits payable under the Contracts described in the
accompanying prospectus. Fortis Series sells its shares to the Separate Accounts
through Fortis Investors, Inc. ("Investors"). Investors receives no underwriting
compensation from Fortis Series. Fortis Series may in the future also offer its
shares to separate accounts of other insurance companies.
The Board of Directors will monitor events for the existence of any material
irreconcilable conflict between or among owners of insurance or annuity
contracts, and the relevant insurance companies will take whatever remedial
action may be necessary and appropriate. Fortis Benefits and First Fortis
currently do not foresee any disadvantages to their respective Contract owners
arising out of the fact that Fortis Series offers its shares both for variable
life insurance policies and variable annuity contracts. However, should an
irreconcilable conflict arise between the Separate Accounts, the conflict could
result in one or more of the Separate Accounts terminating its relationship with
Fortis Series, thus necessitating the liquidation of portfolio securities and
thereby potentially having an adverse impact on the net asset values of the
affected Series.
On each day when Fortis Series values its assets, shares of each Series are
purchased or redeemed by the Separate Accounts based upon, among other things,
the amounts of net premiums allocated to the Separate Account, dividends and
distributions reinvested, transfers to and among subaccounts of the Separate
Accounts, Policy loans, loan repayments and benefit payments to be processed on
that date. Such purchases and redemptions for the Separate Account are effected
at the net asset value per share for each Series determined as of that same
date. Any orders to purchase or redeem Fortis Series shares that do not result
automatically from Contract transactions will be effected at the net asset value
per share next computed after the order is placed.
OFFERING PRICE
The offering prices of the Series' shares are determined once daily, and are
equal to the net asset values per share of the shares next calculated after
receipt of the purchase order. The Series' net asset values per share are
determined by dividing the value of the securities owned by the Series, plus any
cash or other assets, less all liabilities, by the number of the Series' shares
outstanding. All significant expenses, including the investment advisory fee
payable to Advisers, are accrued daily. The portfolio securities in which the
Series invest fluctuate in value, and hence the net asset values per share of
the Series also fluctuate. The net asset values of the Series' shares are
determined as of the primary closing time for business on the New York Stock
Exchange (the "Exchange") on each day on which the Exchange is open.
Securities are generally valued at market value. A security listed or traded on
an exchange is valued at its last sale price on the exchange where it is
principally traded on the day of valuation. Lacking any sales on the exchange
where it is principally traded on the day of valuation, prior to the time as of
which assets are valued, the security generally is valued at the previous day's
last sale price on that exchange. A security listed or traded on the Nasdaq
National Market is valued at its last sale price that day, and lacking any sales
that day on the Nasdaq National Market, the security generally is valued at the
last bid price. Options will be valued at market value or fair value, as
determined in good faith by the Board of Directors, if no market exists. Futures
contracts will be valued in a like manner except that open futures contracts
sales will be valued using the closing settlement price or, in the absence of
such a price, the most recent quoted asked price.
When market quotations are not readily available, or when restricted securities
or other assets are being valued, such securities or other assets are valued at
fair value as determined in good faith by management under supervision of the
Board of Directors. Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed well before the
close of the business day in New York. However, debt securities may be valued on
the basis of valuations furnished by a pricing service which utilizes electronic
data processing techniques to determine valuations for normal institutional-size
trading units of debt securities when such valuations are believed to more
accurately reflect the fair market value of such securities. Short-term
investments in debt securities with maturities of less than 60 days when
acquired, or which subsequently are within 60 days of maturity, are valued at
amortized cost. Purchases and sales by the Series after 2:00 P.M. Central Time
normally are not recorded until the following day.
Any assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the official exchange rate or, alternatively, at
the mean of the current bid and asked prices of such currencies against the U.S.
dollar last quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks. If
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neither of these alternatives is available nor provides a suitable methodology
for converting a foreign currency into U.S. dollars, the Board of Directors in
good faith will establish a conversion rate for such currency.
European or Far Eastern securities trading may not take place on all days on
which the Exchange is open. Further, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days on which the Exchange
is not open and therefore the Series' net asset value is not calculated. The
calculation of the Series' net asset value therefore may not take place
contemporaneously with the determination of the prices of securities held by the
Series. Events affecting the values of portfolio securities that occur between
the time their prices are determined and the close of the Exchange will not be
reflected in the Series' net asset value unless management, under the
supervision of the Board of Directors, determines that the particular event
would materially affect net asset value. As a result, the Series' net asset
value may be significantly affected by such trading on days when Fortis Series
is not open for shareholder purchases and redemptions.
TRANSFERS AMONG SUBACCOUNTS
Contract owners may transfer amounts among the subaccounts available to them,
and may change allocations of premiums as explained in the accompanying
prospectus for the Contracts. Transfers between subaccounts are not taxable
under current Federal income tax law.
THE UNDERWRITER
Fortis Investors, Inc. ("Investors"), a subsidiary of Advisers, is Fortis
Series' underwriter. Investors' address is that of Fortis Series. Investors
reserves the right to reject any purchase order. The following persons are
affiliated with both Investors and Fortis Series: Dean C. Kopperud is a director
and officer of both; Stephen M. Poling and Jon H. Nicholson are directors of
Investors and officers of both; and Dennis M. Ott, James S. Byrd, Robert C.
Lindberg, Keith R. Thomson, Larry A. Medin, Anthony J. Rotondi, Rhonda J.
Schwartz, Robert W. Beltz, Jr., Thomas D. Gualdoni, Richard P. Roche, Tamara L.
Fagely, John E. Hite, Carol M. Houghtby and Scott R. Plummer are officers of
both.
REDEMPTION
Fortis Series is required to redeem all full and fractional shares of Fortis
Series for cash within seven days of receipt of proper notice of redemption. The
net asset value of redeemed shares may be more or less than the net asset value
of the same shares at the time the Separate Account invested in such shares.
For further information, Contract owners may also contact Fortis Benefits'
office, the address of which is the same as that of Fortis Series, as set forth
on the cover of this Prospectus. New York contract owners should instead contact
First Fortis' office: P.O. Box 3209, Syracuse, New York 13220.
APPENDIX
COMMERCIAL PAPER RATINGS
STANDARD & POOR'S CORPORATION. A Standard & Poor's commercial paper rating is a
current assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. Ratings are graded into categories
ranging from "A" for the highest quality obligations to "D" for the lowest.
"A" Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2 and 3 to indicate the relative degree of safety.
"A-1" This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a (+) sign
designation.
"A-2" Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
"A-3" Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
MOODY'S INVESTORS SERVICE, INC. Moody's short-term debt ratings are opinions of
the ability of the issuers to repay punctually senior debt obligations which
have an original maturity not exceeding one year. Moody's makes no
representation that such obligations are exempt from registration under the
Securities Act of 1933, nor does it represent that any specific note is a valid
obligation of a rated issuer or issued in conformity with any applicable law.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
"Prime-1" Superior ability for repayment of senior short-term debt obligations.
"Prime-2" Strong ability for repayment of senior short-term debt obligations.
"Prime-3" Acceptable ability for repayment of senior short-term debt
obligations.
CORPORATE BOND RATINGS
STANDARD & POOR'S CORPORATION. Its ratings for corporate bonds have the
following definitions:
Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
Debt rated "AA" has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in a small degree.
Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Debt rated "BBB" is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated "BB," "B," "CCC," "CC," and "C" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
Debt rated "CCC" has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to
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have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
The rating "CC" is typically applied to debt subordinated to senior debt that is
assigned an actual or implied "CCC" rating.
The rating "C" is typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
The rating "CI" is reserved for income bonds on which no interest is being paid.
Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
The ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major categories.
"NR" indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
MOODY'S INVESTORS SERVICE, INC. Its ratings for corporate bonds include the
following:
Bonds which are rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
Bonds which are rated "A" possess many favorable attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Bonds which are rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated "Caa" are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bond which rated "C" are the lowest rated class of bonds and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (Moody's ratings Aaa, Aa, A and Baa, and Standard & Poor's ratings
AAA, AA, A and BBB, commonly known as "Investment Grade" ratings) are generally
regarded as eligible for bank investment. In addition, the Legal Investment Laws
of various states impose certain rating or other standards for obligations
eligible for investment by savings banks, trust companies, insurance companies
and fiduciaries generally.
PREFERRED STOCK RATING
STANDARD & POOR'S CORPORATION. Its ratings for preferred stock have the
following definitions:
An issue rated "AAA" has the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA."
An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions, or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the "A" category.
MOODY'S INVESTORS SERVICE, INC. Its ratings for preferred stock include the
following:
An issue which is rated "Aaa" is considered to be a top-quality preferred stock.
This rating indicates good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
An issue which is rated "Aa" is considered a high-grade preferred stock. This
rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue which is rated "A" is considered to be an upper-medium grade preferred
stock. While risks are judged to be somewhat greater than in the "aaa" and "aa"
classifications, earnings and asset protection are nevertheless expected to be
maintained at adequate levels.
An issue which is rated "Baa" is considered to be medium grade, neither highly
protected nor poorly secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of time.
13
<PAGE>
PROSPECTUS
MAY 1, 1996
FORTIS
SERIES FUND, INC.
A SERIES FUND WITH THREE AVAILABLE SERIES,
EACH WITH DIFFERENT GOALS AND INVESTMENT POLICIES
59101 (REV. 5/96)
<TABLE>
<S> <C>
BULK RATE
U.S. POSTAGE
</TABLE>
UVW
<TABLE>
<S> <C>
PAID
</TABLE>
FORTIS FINANCIAL GROUP
<TABLE>
<S> <C>
MINNEAPOLIS, MN
PERMIT NO. 3794
</TABLE>
P.O. BOX 64284
ST. PAUL, MN 55164
