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PROSPECTUS DATED
May 1, 1997
UVW STREET ADDRESS:
MAILING ADDRESS: FORTIS SERIES FUND, INC. 500 BIELENBERG
P.O. BOX 64582 (S&P 500 Index Series) DRIVE
ST. PAUL 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") with fifteen separate series (the
"Series"), each of which is, for investment purposes, in effect a separate fund
with its own separate goals and investment policies. Only the S&P 500 Index
Series ("Index Series") is available hereunder.
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 objective of the S&P 500 Index Series is to replicate the total
return of the Standard & Poor's Composite Stock Price Index primarily through
investments in equity securities.
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 (dated May 1, 1997) 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 Objective and Policies; Risk
Considerations................................ 3
- S&P 500 Index Series..................... 3
- Investment Policies, Restrictions and
Risks.................................. 4
- General Risks to Consider................ 6
Management..................................... 6
- Board of Directors....................... 6
- The Investment Adviser/Transfer
Agent/Dividend Agent................... 6
- The Sub-Adviser.......................... 6
- Advisory Fees............................ 7
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- Brokerage Allocation..................... 7
- Periodic Reports......................... 7
Capital Stock.................................. 7
- Voting Privileges........................ 7
Dividends and Capital Gains Distributions...... 7
Taxation....................................... 7
Purchase and Redemption of Shares.............. 7
- Generally................................ 7
- Offering Price........................... 8
- Transfers Among Subaccounts.............. 8
- The Underwriter.......................... 8
- Redemption............................... 8
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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 1996
Annual Report to Shareholders which may be obtained without charge. The selected
per share historical data for 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.
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S&P 500 INDEX SERIES 1996*
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Net asset value, beginning of period................................................................ $10.09
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Operations:
Investment income -- net.......................................................................... .10
Net realized and unrealized gain (loss) on investments............................................ 1.37
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Total from operations............................................................................... 1.47
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Distributions to shareholders:
From investment income -- net..................................................................... (.09)
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Net asset value, end of period...................................................................... $11.47
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Total Return @...................................................................................... 14.29%
Net assets end of period (000s omitted)............................................................. $21,979
Ratio of expenses to average daily net assets....................................................... 0.79%**
Ratio of net investment income to average daily net assets.......................................... 1.47%**
Portfolio turnover rate............................................................................. 6%
Average commission rate paid***..................................................................... $.0477
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*
For the period May 1, 1996 (commencement of operations) to December 31,
1996. The Series' inception was March 28, 1996 when it was initially
capitalized. However, the Series' shares did not become effectively
registered under the Securities Act of 1933 until May 1, 1996. Information
is not presented for the period from March 28, 1996 through May 1, 1996, as
the Series' shares were not registered during the period.
**
Annualized.
***
In accordance with rules adopted by the Securities and Exchange Commission,
disclosure of average commission rate paid is required beginning with fiscal
year 1996. The amount represents total brokerage commission paid on
applicable purchases and sales of securities for the period, divided by the
total number of related shares purchased and sold.
@
This is the Series' total return during the period, including reinvestment
of all dividend and capital gain distributions.
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The Series may advertise its "cumulative total return" and "average annual total
return" and may compare such figures to recognized indices. 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." The Series
is classified as a diversified investment company under the 1940 Act. The Series
is, for investment purposes, in effect a separate investment fund. A separate
series of capital stock is issued for the 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. The 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 OBJECTIVE AND POLICIES; RISK CONSIDERATIONS
The Index Series has an investment objective which it pursues through investment
policies as described below. The investment objective of the Index Series and,
except as otherwise noted, the policies by which the Index Series seeks to
achieve its investment objective, may be changed without the approval of
shareholders or contract owners. While no such change is contemplated, such a
change could result in the Index Series objective differing from that 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'
objective cannot be assured.
Fortis Advisers, Inc. is the investment adviser for the Series. As noted below,
Advisers has retained The Dreyfus Corporation as a sub-adviser for the Index
Series.
S&P 500 INDEX SERIES
The Series' investment objective is to replicate the total return of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the
"Index") primarily through investments in equity securities.
The Index Series is not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial and market analysis and investment judgment. Instead,
the Index Series utilizes a "passive" investment approach, attempting to
duplicate the investment performance of the S&P 500 Index through statistical
procedures.
The S&P 500 Index is composed of 500 common stocks that are selected by Standard
& Poor's Corporation ("Standard & Poor's") to capture the best price performance
of a large cross-section of the U. S. publicly traded stock market. The 500
securities, most of which trade on the New York Stock Exchange ("NYSE"),
represent approximately 75% of the market value of all U.S. common stocks. Each
stock in the S&P 500 Index is weighted by its market capitalization. That is,
each security is weighted by its total market value relative to the total market
value of all the securities in the Index. Component stocks included in the S&P
500 Index are chosen with the aim of achieving a distribution at the index level
representative of the various components of the U. S. economy and therefore do
not represent the 500 largest companies. Aggregate market value and trading
activity are also considered in the selection process.
The Index Series expects to invest in all 500 stocks in the S&P 500 Index in
proportion to their weighting in the Index. To the extent that the size of the
Index Series does not permit it to invest in all 500 stocks in the Index, the
Index Series will purchase a representative sample of stocks from each industry
sector included in the Index in proportion to that industry's weighting in the
Index.
To the extent that the Index Series seeks to replicate the S&P 500 Index using
such sampling techniques, a close correlation between the Index Series'
performance and the performance of the Index is anticipated in both rising and
falling markets. The Index Series attempts to achieve a correlation between the
performance of its investments and that of the Index of at least 0.95, before
deduction of expenses. A correlation of 1.00 would represent perfect correlation
between Index Series and Index performance. It is anticipated that the
correlation of the Index Series' performance to that of the Index will increase
as the size of the Index Series increases. The Index Series' ability to achieve
significant correlation between Index Series and Index performance may be
affected by changes in securities markets, changes in the composition of the
Index and the timing of purchases and redemptions of Index Series shares. The
Series' investment adviser (Fortis Advisers, Inc.) and sub-adviser (The Dreyfus
Corporation) monitor this correlation and report periodically to the Board of
Directors of Fortis Series. Should the Index Series fail to achieve an
appropriate level of correlation, the Board will consider alternative
arrangements.
Under normal circumstances, the Index Series invests at least 95% of its total
assets in the common stocks included in the S&P 500 Index. To maintain
liquidity, the Index Series may invest up to 5% of its assets in the following
instruments: U.S. Government securities, commercial paper, bank certificates of
deposit, bank demand and time deposits, repurchase agreements, reverse
repurchase agreements, when-issued transactions and variable amount master
demand notes. The Index Series may enter into futures contracts and options to a
limited extent. For further information on these instruments and investment
techniques, see the Statement of Additional Information.
Standard & Poor's-Registered Trademark-, "S&P-Registered Trademark-," "S&P
500-Registered Trademark-," "Standard & Poor's 500," and "500" are trademarks of
McGraw-Hill, Inc. and have been licensed for use by Fortis Series. The Index
Series is not sponsored, endorsed,
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sold or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the Index Series.
Standard & Poor's makes no representation or warranty, express or implied, to
the owners of the Index Series or any member of the public regarding the
advisability of investing in securities generally or in the Index Series
particularly or the ability of the S&P 500 Index to track general stock market
performance. Standard & Poor's only relationship to Fortis Series is the
licensing of certain trademarks and trade names of Standard & Poor's and of the
S&P 500 Index which is determined, composed and calculated by Standard & Poor's
without regard to Fortis Series or the Index Series. Standard & Poor's has no
obligation to take the needs of Fortis Series or the owners of the Series into
consideration in determining, composing or calculating the S&P 500 Index.
Standard & Poor's is not responsible for and has not participated in the
determination of the prices and amount of the Index Series or the timing of the
issuance or sale of the Index Series or in the determination or calculation of
the equation by which the Index Series is to be converted into cash. Standard &
Poor's has no obligation or liability in connection with the administration,
marketing or trading of the Index Series.
STANDARD & POOR'S DOES NOT GUARANTEE THE ACCURACY AND/ OR THE COMPLETENESS OF
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND STANDARD & POOR'S SHALL HAVE
NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. STANDARD &
POOR'S MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY
THE SERIES, OWNERS OF THE SERIES OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. STANDARD & POOR'S MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OR
MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL STANDARD & POOR'S HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INVESTMENT POLICIES, RESTRICTIONS, AND RISKS
RESTRICTED OR ILLIQUID SECURITIES. A policy of S&P 500 Index Series is that it
may invest up to 15% of its net assets (at the time of investment) in all forms
of illiquid investments, as determined pursuant to applicable Securities and
Exchange Commission rules and regulations.
SECURITIES LENDING. S&P 500 Index Series is authorized to make loans of its
portfolio securities to broker-dealers or to other institutional investors. The
borrower must maintain with the 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. The 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, the Series will limit its loans of portfolio securities to
an aggregate of 33 1/3% of the value of its total assets, measured at the time
any such loan is made; however, an investment policy changeable without
shareholder approval further restricts lending of its portfolio securities by
the Series to 10% of its total assets.
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 the
sub-adviser, to be of good standing and will not be made unless, in the judgment
of the sub-adviser, the consideration to be earned from such loans would justify
the risk.
PORTFOLIO TURNOVER. The portfolio turnover rate for the Series is calculated by
dividing the lesser of purchases or sales by such Series of investment
securities for the particular fiscal year by the monthly average value of
investment securities owned by the Series during the same fiscal year.
"Investment securities" for purposes of this calculation do not include
securities with a maturity date less than twelve months from the date of
investment. A 100% portfolio turnover rate would occur, for example, if the
lesser of the value of purchases or sales of investment securities for a
particular year were equal to the average monthly value of the investment
securities owned during such year.
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 (or the
sub-adviser), are of investment quality comparable to other permitted
investments of the Series may be used for letter of credit-backed investments.
REPURCHASE AGREEMENTS. The Series may invest in repurchase agreements.
BORROWINGS. The Series may borrow money from banks as a temporary measure to
facilitate redemptions. S&P 500 Index Series borrowings through banks and "roll"
transactions will not exceed 33 1/3% of the total assets of the Series; however,
an investment policy changeable without shareholder approval further restricts
borrowings by the Series to temporary borrowing of 25% of total assets when
necessary to meet redemptions of the Series. No additional investment securities
may be purchased by the Series whose outstanding borrowings, (including "roll"
transactions) exceed 5% of the value of the Series' total assets. If market
fluctuations in the value of the portfolio holdings of the Series or other
factors cause the ratio of the Series' total assets to outstanding borrowings to
fall below 300%, within three days (excluding Sundays and holidays) of the event
such 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. The 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.
MORTGAGE-RELATED SECURITIES. The 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
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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.
DELAYED DELIVERY TRANSACTIONS. S&P 500 Index 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 delayed settlements beyond two
months may be negotiated. At the time the Series enters into a transaction on a
when-issued or forward commitment basis, a segregated account consisting of
cash, or any security that is not considered restricted or illiquid, equal to
the value of the when-issued or forward commitment securities will be
established and maintained with the custodian and will be marked to the market
daily. During the period between a commitment and settlement, no payment is made
for the securities and, thus, no interest accrues to the purchaser from the
transaction. If the 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
the Series to hedge against anticipated changes in interest rates and prices.
The 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, the 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
the Series to "roll over" its purchase commitment, the Series may receive a
negotiated fee. The purchase of securities on a when-issued, delayed delivery,
or forward commitment basis exposes the 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 the 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. There
is also a risk that the securities may not be delivered or that the Series may
incur a loss or will have lost the opportunity to invest the amount set aside
for such transaction in the segregated asset account. No more than 20% of its
net assets may be invested in when-issued, delayed delivery, or forward
commitment transactions, and of such 20%, no more than one-half (i.e., 10% of
its net assets) may be invested in when-issued, delayed delivery, or forward
commitment transactions without the intention of actually acquiring securities
(i.e., dollar rolls).
SHORT-TERM MONEY MARKET INSTRUMENTS. The 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 the 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 the
Series sub-adviser to be of comparable quality and (iv) repurchase agreements
relating to the foregoing.
U.S. GOVERNMENT SECURITIES. The 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. The 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. The Series' right to obtain
payment at par on a demand instrument can be affected by events occurring
between the date the 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.
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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 the 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.
GENERAL CONSIDERATIONS. Any investment restriction or limitation, fundamental or
otherwise, that involves a maximum percentage of securities or assets shall not
be considered to be violated (except in the case of the limitation on illiquid
investments), unless an excess over the percentage occurs immediately after an
acquisition of securities or utilization of assets, and such excess results
therefrom.
After purchase by the Series, a security may cease to be rated or its rating may
be reduced below the minimum required for purchase by such Series. Neither event
will require a sale of such security by the Series. To the extent the ratings
may change as a result of changes in the rating organizations or the rating
systems, the Series will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in the
Statement of Additional Information.
The insurance laws and regulations of various states as well as the Internal
Revenue Code of 1986 and regulations thereunder may, from time to time, impose
additional restrictions on the investments of the Series.
GENERAL RISKS TO CONSIDER
An investment in the Series involves certain risks in addition to those noted
elsewhere in this Prospectus and the Statement of Additional Information. 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.
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.
PASSIVE MANAGEMENT. The S&P 500 Index Series utilizes a passive investment
approach as described above and is managed by the sub-adviser. The performance
of this Series therefore will reflect the ability of the sub-adviser to select
securities which are suited to achieving the Series' investment objective. The
Series could underperform other mutual funds with similar investment objectives
or the market generally.
OPTIONS, FUTURES, AND CURRENCY STRATEGIES. The use of forward currency contracts
and options and futures strategies involve certain investment risks and
transaction costs. These risks include: dependence on Advisers' (or the
sub-adviser's) 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 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 requiring a Series to maintain a position
until exercise or expiration, which could result in losses; and the possible
need to defer closing out certain options, futures contracts and options thereon
in order to continue to qualify for the beneficial tax treatment afforded
"regulated investment companies" under the Internal Revenue Code. See
"Taxation."
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, the Series' investments in
mortgage-backed securities may involve greater risks than investments in
governmental or corporate bonds. For further information, see "Mortgage Related
Securities," above.
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 the 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. Advisers reviews the
investments of the sub-advised Series and provides executive and other personnel
for the 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.
THE SUB-ADVISER
The Index Series has retained a sub-adviser under an investment sub-advisory
agreement (the "Sub-Advisory Agreement") to provide investment advice and, in
general, to conduct the management investment program of the Series, subject to
the general control of Advisers and the Board of Directors of Fortis Series.
Pursuant to the Sub-Advisory Agreement, the sub-adviser will regularly provide
the Series with investment research, advice and supervision and furnish
continuously an
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investment program for the Series consistent with its investment objectives and
policies, including the purchase, retention and disposition of securities.
The sub-adviser is also responsible for the selection of brokers and dealers to
effect securities transactions and the negotiation of brokerage commissions, if
any. Purchases and sales of securities on a securities exchange are effected
through brokers who charge a negotiated commission for their services. Orders
may be directed to any broker including, to the extent and in the manner
permitted by applicable law, affiliates of the sub-adviser. Brokerage services
provided by affiliates of the sub-adviser are performed in conformity with Rule
17e-1 under the 1940 Act and procedures adopted by the Board of Directors of
Fortis Series.
The Dreyfus Corporation ("Dreyfus"), 200 Park Avenue, New York, New York 10166,
is the sub-adviser to the S&P 500 Index Series. Dreyfus was formed in 1947.
Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which is a
wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As of March 31,
1997, Dreyfus managed or administered approximately $82 billion in assets for
approximately 1.7 million investor accounts nationwide.
Mellon is a publicly owned multibank holding company incorporated under
Pennsylvania law in 1971 and registered under the Bank Holding Company Act of
1956, as amended. Mellon provides a comprehensive range of financial products
and services in domestic and selected international markets. Mellon is among the
twenty-five largest bank holding companies in the United States based on total
assets. Mellon's principal wholly-owned subsidiaries are Mellon Bank, N.A.,
Mellon Bank (DE) National Association, Mellon Bank (MD) National Association,
The Boston Company, Inc., AFCO Credit Corporation and a number of companies
known as Mellon Financial Services Corporations. Through its subsidiaries,
including Dreyfus, Mellon managed approximately $233 billion in assets as of
December 31, 1996, including approximately $86 billion in proprietary mutual
fund assets. As of December 31, 1996, Mellon, through various subsidiaries,
provided non-investment services, such as custodial or administration services,
for approximately $1,046 billion in assets, including approximately $57 billion
in mutual fund assets.
ADVISORY FEES
The Annual Investment Advisory and Management Fee is .40%, for all levels of
assets, of which Advisers receives .23% and the sub-adviser receives .17%.
BROKERAGE ALLOCATION
Advisers (or the sub-adviser) 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 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 the 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 the Series. For dividend purposes, net
investment income of the 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
The Series intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended. So long as the Series so qualifies,
the Series is not taxed on the income it distributes to the Separate Accounts.
So long as the 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 the 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 the Series determined as of that same
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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.
Investors, Advisers and Fortis Series each reserve the right to reject any
purchase order.
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 value 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 value per share of the
Series also fluctuates. 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.
An outside pricing service may be utilized to provide valuations of debt
securities. The pricing service may employ electronic data processing techniques
and/or a matrix system to determine valuations using methods which include
consideration of yields or prices of bonds of comparable quality, type of issue,
coupon, maturity and rating; indications as to value from dealers; and general
market conditions. When market quotations are not readily available, or when
illiquid securities or other assets are being valued, such securities or other
assets are valued at fair value as determined in good faith by management under
supervision of the Series' Board of Directors. Short-term investments in debt
securities with maturities of less than 60 days when acquired, or which
subsequently are within 60 days of maturity, are valued at amortized cost.
Purchases and sales by the Series after 2:00 P.M. Central Time normally are not
recorded until the following day.
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. 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; Robert W. Beltz, Jr., Thomas D.
Gualdoni, 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.
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PROSPECTUS
MAY 1, 1997
FORTIS
SERIES FUND, INC.
(S&P 500 INDEX SERIES)
59101 (REV. 5/97)
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BULK RATE
U.S. POSTAGE
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UVW
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PAID
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FORTIS FINANCIAL GROUP
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MINNEAPOLIS, MN
PERMIT NO. 3794
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P.O. BOX 64284
ST. PAUL, MN 55164
