<PAGE>
1933 Act Registration No. 33-3920
1940 Act Registration No. 811-4615
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
----
Post-Effective Amendment No. 23
----
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 23
----
(Check appropriate box or boxes)
FORTIS SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Address of Principal Executive Offices, Zip Code)
(612) 738-4000
(Registrant's Telephone Number, including Area Code)
Scott R. Plummer, Esq.
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Name and Address of Agent for Service)
COPY TO:
Michael J. Radmer, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
It is proposed that this filing will become effective (check appropriate box):
X immediately upon filing pursuant to paragraph (b) of Rule 485
-----
on (specify date) pursuant to paragraph (b) of Rule 485
-----
75 days after filing pursuant to paragraph (a) of Rule 485
-----
on (specify date) pursuant to paragraph (a) of Rule 485
-----
60 days after filing pursuant to paragraph (a) of Rule 485
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<PAGE>
FORTIS SERIES FUND, INC.
Registration Statement on Form N-1A
--------------------------------
Cross Reference Sheet
Pursuant to Rule 481(a)
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<TABLE>
<CAPTION>
Item No. Prospectus Heading
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<S> <C>
1. Cover Page. . . . . . . . . . . . . . . . . . Cover Page (no caption)
2. Synopsis. . . . . . . . . . . . . . . . . . . (not included)
3. Financial Highlights. . . . . . . . . . . . . Financial Highlights
4. General Description of Registrant . . . . . . Organization and Classification;
The Separate Accounts and the Contracts,
Investment Objectives and Policies;
Risk Considerations
5. Management of the Fund. . . . . . . . . . . . Management
6. Capital Stock and Other Securities. . . . . . Capital Stock; Dividends and Capital
Gain Distributions; Taxation
7. Purchase of Securities Being Offered. . . . . Purchase and Redemption of Shares
8. Redemption or Repurchase. . . . . . . . . . . Purchase and Redemption of Shares
9. Pending Legal Proceedings . . . . . . . . . . Not Applicable
<CAPTION>
Heading Statement of Additional Information
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<S> <C>
10. Cover Page. . . . . . . . . . . . . . . . . . Cover Page (no caption)
11. Table of Contents . . . . . . . . . . . . . . Table of Contents
12. General Information and History . . . . . . . Organization and Classification
13. Investment Objectives and Policies. . . . . . Investment Objectives and Policies
14. Management of the Fund. . . . . . . . . . . . Directors and Executive Officers
15. Control Persons and Principal
Holders of Securities . . . . . . . . . . . . Capital Stock
16. Investment Advisory and Other
Services. . . . . . . . . . . . . . . . . . . Investment Advisory and Other
Services
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . . . . . Portfolio Transactions and
Allocation of Brokerage
18. Capital Stock and Other Securities. . . . . . Capital Stock
19. Purchase, Redemption and Pricing
of Securities Being Offered . . . . . . . . . Computation of Net Asset Value and
Pricing; Redemption
20. Tax Status. . . . . . . . . . . . . . . . . . Taxation
21. Underwriters. . . . . . . . . . . . . . . . . Underwriter
22. Calculations of Performance Data. . . . . . . Performance
23. Financial Statements. . . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
PROSPECTUS DATED
[LOGO] FORTIS SERIES FUND, INC. May 1, 1998
MAILING ADDRESS: (A fund with eighteen STREET ADDRESS:
P.O. BOX 64582 separate series, 500 BIELENBERG DRIVE
ST. PAUL each with different goals WOODBURY
MINNESOTA 55164 and investment policies) MINNESOTA 55125
</TABLE>
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 eighteen separate series (the "Series"),
each of which is, for investment purposes, a separate fund with its own goals
and investment policies. Each Series is diversified, except the Global Bond
Series, which is a nondiversified series.
Shares 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 each Series are nonfundamental and may be changed
at any time without the approval of Contract owners. The investment objectives
are:
- - 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 commercial paper and other debt securities. AN
INVESTMENT IN MONEY MARKET SERIES IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT.
- - The objective of the "U.S. Government Securities Series" is to maximize total
return (from income and market value change), while providing shareholders
with a high level of current income consistent with prudent investment risk
through investment primarily in debt securities of varying maturities which
have been issued, guaranteed, insured or collateralized by the United States
Government or its agencies or instrumentalities.
- - The objective of the "Diversified Income Series" is to maximize total return
(from income and market value change), by investing primarily in a diversified
portfolio of government securities and investment grade corporate bonds.
However, up to 30% of Diversified Income Series' total assets may be invested
in non-investment grade corporate bonds and other securities.
- - The objective of the "Global Bond Series" is total return from current income
and capital appreciation. The Series invests in a global portfolio principally
consisting of high quality fixed-income securities of governmental and
corporate issuers and supranational organizations, which securities have
varying maturities and are denominated in various currencies.
- - The objective of the "High Yield Series" is to maximize total return (from
income and market value change) by investing primarily in high-yield,
high-risk fixed-income securities, which may not be suitable for all
investors.
- - The objective of the "Global Asset Allocation Series" is maximum total return
to be derived primarily from capital appreciation, dividends and interest, by
following a flexible asset allocation strategy. This strategy contemplates
increased ownership of global equity securities during periods when stock
market conditions appear favorable and increased ownership of global
fixed-income securities during periods when stock market conditions are less
favorable.
- - The objective of the "Asset Allocation Series" is maximum total return on
invested capital to be derived primarily from capital appreciation, dividends,
and interest, by following a flexible asset allocation strategy that
contemplates increased ownership of equity securities during periods when
stock market conditions appear favorable, and increased ownership of short and
long term debt instruments during periods when stock market conditions are
less favorable.
- - The primary objective of the "Value Series" is short and long-term capital
appreciation. Current income is only a secondary objective. The Series invests
primarily in equity securities and selects stocks based on the concept of
fundamental value.
- - The objectives of the "Growth & Income Series" are capital appreciation and
current income which such Series seeks by investing primarily in equity
securities that provide an income component and the potential for growth.
- - The objective of the "S&P 500 Index Series" is to replicate the total return
of the Standard & Poor's 500 Composite Stock Price Index primarily through
investments in equity securities.
- - The primary objective of the "Blue Chip Stock Series" is long-term growth of
capital. Current income is a secondary objective, and many of the stocks in
this Series' portfolio are expected to pay dividends.
- - The objective of the "International Stock Series" is capital appreciation by
investing primarily in the equity securities of non-United States companies.
- - The objective of the "Mid Cap Stock Series" is total investment returns
(including capital appreciation and income) that consistently outperform the
Standard & Poor's 400 MidCap Index. The Series attempts to maintain a
diversified holding in common stocks of medium capitalization companies with a
market value between $200 million and $5 billion.
- - The objective of the "Small Cap Value Series" is capital appreciation. The
Series invests primarily in common stocks of small companies that are out of
favor with markets or that have not yet been discovered by the broader
investment community and are therefore believed to be undervalued.
- - 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.
- - The objective of the "Large Cap Growth Series" is long-term growth of capital.
The Series invests primarily in the equity securities of a limited number of
large, carefully selected, high quality United States companies whose
securities are believed likely to achieve superior earnings growth.
- - 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 objective of the "Aggressive Growth Series" is maximum long-term capital
appreciation by investing primarily in equity securities of small and medium
sized companies that are early in their life cycles but which have the
potential to become major enterprises and of more established companies that
have the potential for above-average capital growth.
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, 1998 with the Securities and Exchange
Commission (the "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. The Commission maintains a World Wide Web site that contains
reports and information regarding issuers that file electronically with the
Commission. The address of such site is "http://www.sec.gov." SHARES IN 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Financial Highlights........................................ 2
Performance Information..................................... 7
Organization and Classification............................. 8
Investment Objectives and Policies; Risk Considerations..... 8
- Money Market Series................................... 8
- U.S. Government Securities Series..................... 9
- Diversified Income Series............................. 10
- Global Bond Series.................................... 10
- High Yield Series..................................... 11
- Global Asset Allocation Series........................ 12
- Asset Allocation Series............................... 12
- Value Series.......................................... 13
- Growth & Income Series................................ 13
- S&P 500 Index Series.................................. 13
- Blue Chip Stock Series................................ 14
- International Stock Series............................ 15
- Mid Cap Stock Series.................................. 16
- Small Cap Value Series................................ 16
- Global Growth Series.................................. 17
- Large Cap Growth Series............................... 18
- Growth Stock Series................................... 18
- Aggressive Growth Series.............................. 18
- Investment Policies, Restrictions, and Risks
Applicable to More Than One Series.................. 19
- General Risks to Consider............................. 25
<CAPTION>
PAGE
<S> <C>
Management.................................................. 26
- Board of Directors.................................... 26
- The Investment Adviser/Transfer Agent/Dividend Agent.. 26
- The Underwriter....................................... 26
- Portfolio Management.................................. 26
- The Sub-Advisers...................................... 27
- Fees and Expenses..................................... 28
- Brokerage Allocation.................................. 28
The Separate Accounts and the Contracts..................... 29
- Periodic Reports...................................... 29
General Information......................................... 29
- Voting Privileges..................................... 29
- Year 2000............................................. 29
Dividends and Capital Gains Distributions................... 29
Taxation.................................................... 29
Purchase and Redemption of Shares........................... 29
- Generally............................................. 29
- Offering Price........................................ 29
- Transfers Among Subaccounts........................... 30
- Redemption............................................ 30
Appendix.................................................... 30
- Commercial Paper Listings............................. 30
- Corporate Bond Ratings................................ 31
- Preferred Stock Ratings............................... 32
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The following audited financial highlights should be read in conjunction with
the financial statements of the applicable Series and the independent auditors'
report of KPMG Peat Marwick LLP found in Fortis Series' 1997 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. Information is not
presented for Large Cap Growth Series, Mid Cap Stock Series and Small Cap Value
Series, because they had not commenced operations during the years presented.
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
MONEY MARKET SERIES 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
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Net asset value, beginning
of period................ $10.94 $10.83 $10.63 $10.23 $10.21 $10.15 $10.19 $9.92 $9.65 $9.98
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Operations:
Investment income --
net.................... .58 .57 .60 .41 .28 .36 .62 .78 .77 .76
Net realized and
unrealized gains
(losses) on
investments............ -- -- -- (.01) .02 .06 (.02) .28 .27 (.29)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations..... .58 .57 .60 .40 .30 .42 .60 1.06 1.04 .47
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Distribution to
shareholders:
From investment income
-- net................. (.49) (.46) (.40) -- (.28) (.36) (.64) (.79) (.77) (.80)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period................... $11.03 $10.94 $10.83 $10.63 $10.23 $10.21 $10.15 $10.19 $9.92 $9.65
- -----------------------------------------------------------------------------------------------------------------------------------
Total return(@)........... 5.34% 5.17% 5.71% 3.92% 2.77% 3.36% 5.91% 7.87% 9.42% 6.78%
Net assets at end of
period (000s omitted).... $57,009 $61,906 $41,807 $44,833 $28,682 $27,528 $10,737 $8,897 $2,868 $1,939
Ratio of expenses to
average daily net
assets................... .38% .38% .40% .40% .44% .46% .55% .60% .60% .60%
Ratio of net investment
income to average daily
net assets............... 5.19% 5.14% 5.44% 3.96% 2.74% 3.51% 5.74% 7.75% 8.03% 7.71%
Portfolio turnover rate... N/A* N/A* N/A* N/A* N/A* N/A* N/A* 58% 19% 79%
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<FN>
*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.
@These are the Series' total returns during the period, including reinvestment
of all dividend and capital gains distributions.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT YEAR ENDED DECEMBER 31,
SECURITIES SERIES 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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Net asset value,
beginning of
period............ $10.57 $11.16 $9.40 $10.94 $10.73 $10.77 $9.80 $9.48 $9.04 $9.46
- -----------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income
-- net.......... .80 .67 .70 .71 .74 .78 .77 .76 .76 .85
Net realized and
unrealized gains
(losses) on
investments..... .12 (.51) 1.06 (1.54) .46 .15 .98 .31 .45 (.42)
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Total from
operations........ .92 .16 1.76 (.83) 1.20 .93 1.75 1.07 1.21 .43
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Distribution to
shareholders:
From investment
income -- net... (.81) (.75) -- (.71) (.74) (.78) (.78) (.75) (.77) (.85)
From net realized
gains........... -- -- -- -- (.24) (.19) -- -- -- --
Excess
distributions of
net realized
gains........... -- -- -- -- (.01) -- -- -- -- --
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Total distributions
to shareholders... (.81) (.75) -- (.71) (.99) (.97) (.78) (.75) (.77) (.85)
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Net asset value,
end of period..... $10.68 $10.57 $11.16 $9.40 $10.94 $10.73 $10.77 $9.80 $9.48 $9.04
- -----------------------------------------------------------------------------------------------------------------------------------
Total return(@).... 9.08% 2.21% 18.78% (6.44)% 9.45% 6.14% 14.36% 7.93% 13.14% 6.36%
Net assets at end
of period (000s
omitted).......... $142,070 $161,678 $182,687 $172,656 $235,588 $132,683 $49,751 $10,750 $2,520 $1,959
Ratio of expenses
to average daily
net assets........ .54% .53% .53% .53% .52% .57% .64% .76% .75% .75%
Ratio of net
investment income
to average daily
net assets........ 6.03% 6.17% 6.78% 6.87% 6.49% 7.10% 7.57% 7.90% 8.55% 8.68%
Portfolio turnover
rate.............. 148% 176% 115% 187% 141% 135% 77% 17% 23% 83%
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</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED INCOME YEAR ENDED DECEMBER 31,
SERIES 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of
period.............. $11.70 $12.20 $10.40 $11.93 $11.34 $11.22 $10.40 $10.26 $9.85 $10.02
- -----------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income
-- net............ .91 .82 .88 .87 .87 .82 .81 .88 .87 .58
Net realized and
unrealized gains
(losses) on
investments....... .26 (.40) .92 (1.53) 1.03 .33 .87 .13 .40 (.17)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from
operations.......... 1.17 .42 1.80 (.66) 1.90 1.15 1.68 1.01 1.27 .41
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Distribution to
shareholders:
From investment
income -- net..... (.89) (.91) -- (.87) (.87) (.81) (.86) (.87) (.86) (.58)
From net realized
gains............. -- -- -- -- (.43) (.21) -- -- -- --
Excess
distributions of
net realized
gains............. -- (.01) -- -- (.01) (.01) -- -- -- --
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Total distributions
to shareholders..... (.89) (.92) -- (.87) (1.31) (1.03) (.86) (.87) (.86) (.58)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period........... $11.98 $11.70 $12.20 $10.40 $11.93 $11.34 $11.22 $10.40 $10.26 $9.85
- -----------------------------------------------------------------------------------------------------------------------------------
Total return(@)...... 10.44% 4.15% 17.26% (5.22)% 12.76% 7.08% 14.68% 8.87% 12.30% 3.90%
Net assets at end of
period (000s
omitted)............ $105,200 $105,831 $109,120 $98,314 $92,589 $28,490 $8,503 $4,945 $3,528 $2,579
Ratio of expenses to
average daily net
assets.............. .55% .55% .55% .55% .57% .67% .75% .75% .75% .75%**
Ratio of net
investment income to
average daily net
assets.............. 7.11% 6.86% 7.78% 7.59% 7.15% 7.08% 7.42% 8.27% 8.65% 8.50%**
Portfolio turnover
rate................ 166% 171% 139% 142% 125% 83% 25% 35% 46% 45%
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<FN>
*Period from May 2, 1988 to December 31, 1988.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
GLOBAL BOND SERIES 1997 1996 1995*
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net asset value, beginning of period............ $11.11 $11.30 $10.00
- --------------------------------------------------------------------------------
Operations:
Investment income -- net...................... .46 .57 .54
Net realized and unrealized gains (losses) on
investments.................................. (.45) (.13) 1.52
- --------------------------------------------------------------------------------
Total from operations........................... .01 .44 2.06
- --------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net................. (.37) (.43) (.54)
From net realized gains....................... (.10) (.20) (.22)
- --------------------------------------------------------------------------------
Total distribution to shareholders.............. (.47) (.63) (.76)
- --------------------------------------------------------------------------------
Net asset value, end of period.................. $10.65 $11.11 $11.30
- --------------------------------------------------------------------------------
Total return(@)................................. .14% 3.32% 19.14%
Net assets at end of period (000s omitted)...... $20,692 $20,228 $13,187
Ratio of expenses to average daily net assets... 1.10% 1.02% 1.28%**
Ratio of net investment income to average daily
net assets..................................... 4.41% 5.07% 5.01%**
Portfolio turnover rate......................... 168% 129% 184%
- --------------------------------------------------------------------------------
<FN>
*The Series commenced operations on January 3, 1995. The Series' inception was
December 14, 1994, when it was initially capitalized. However, the Series'
shares did not become effectively registered under the Securities Act of 1933
until January 3, 1995. Information is not presented for the period from
December 14, 1994, through January 3, 1995, 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.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
HIGH YIELD SERIES 1997 1996 1995 1994*
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Net asset value, beginning of period......... $9.83 $9.74 $9.47 $10.00
- ------------------------------------------------------------------------------------------
Operations:
Investment income -- net................... .96 1.04 1.15 .71
Net realized and unrealized gains (losses)
on investments............................ -- .13 .30 (.53)
- ------------------------------------------------------------------------------------------
Total from operations........................ .96 1.17 1.45 .18
- ------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net.............. (.02) (1.03) (1.14) (.71)
Excess distributions of net realized
gains..................................... -- (.05) (.04) --
- ------------------------------------------------------------------------------------------
Total distributions to shareholders.......... (.02) (1.08) (1.18) (.71)
- ------------------------------------------------------------------------------------------
Net asset value, end of period............... $10.77 $9.83 $9.74 $9.47
- ------------------------------------------------------------------------------------------
Total return(@).............................. 9.76% 10.52% 12.73% (.75)%
Net assets at end of period (000s omitted)... $59,228 $42,578 $28,129 $13,706
Ratio of expenses to average daily net
assets...................................... .62% .63% .63% .75%**
Ratio of net investment income to average
daily net assets............................ 10.31% 10.22% 11.30% 10.44%**
Portfolio turnover rate...................... 353% 235% 130% 20%
- ------------------------------------------------------------------------------------------
<FN>
*For the Period May 2, 1994 (commencement of operations) to December 31, 1994.
The Series' inception was April 26, 1994, when it was initially capitalized.
However, the Series' shares did not become effectively registered under the
Securities Act of 1933 until May 2, 1994. Information is not presented for the
period from April 26, 1994, through May 2, 1994, as the Series' shares were
not registered during that period.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
GLOBAL ASSET ALLOCATION SERIES 1997 1996 1995*
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net asset value, beginning of period............ $12.34 $11.42 $10.00
- --------------------------------------------------------------------------------
Operations:
Investment income -- net...................... .28 .36 .35
Net realized and unrealized gains (losses) on
investments.................................. 1.39 1.19 1.55
- --------------------------------------------------------------------------------
Total from operations........................... 1.67 1.55 1.90
- --------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net................. (.26) (.38) (.34)
From net realized gains....................... (.46) (.25) (.14)
- --------------------------------------------------------------------------------
Total distributions to shareholders............. (.72) (.63) (.48)
- --------------------------------------------------------------------------------
Net asset value, end of period.................. $13.29 $12.34 $11.42
- --------------------------------------------------------------------------------
Total return(@)................................. 13.51% 12.72% 17.47%
Net assets at end of period (000s omitted)...... $52,482 $37,307 $20,080
Ratio of expenses to average daily net assets... 1.16% 1.20% 1.28%**
Ratio of net investment income to average daily
net assets..................................... 2.42% 3.01% 3.26%**
Portfolio turnover rate......................... 51% 46% 44%
Average commission rate paid***................. $ .0360 $ .0412 N/A
- --------------------------------------------------------------------------------
<FN>
*The Series commenced operations on January 3, 1995. The Series' inception was
December 14, 1994, when it was initially capitalized. However, the Series'
shares did not become effectively registered under the Securities Act of 1933
until January 3, 1995. Information is not presented for the period from
December 14, 1994, through January 3, 1995, as the Series' shares were not
registered during that period.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
ASSET ALLOCATION SERIES 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $16.99 $15.90 $13.56 $14.14 $13.28 $12.81 $10.37 $10.59 $8.86 $9.11
- -----------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net... .59 .61 .65 .56 .52 .62 .59 .57 .49 .52
Net realized and unrealized
gains (losses) on
investments............... 2.82 1.38 2.35 (.58) .92 .47 2.43 (.20) 1.73 (.24)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations........ 3.41 1.99 3.00 (.02) 1.44 1.09 3.02 .37 2.22 .28
- -----------------------------------------------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income --
net....................... (.59) (.61) (.64) (.56) (.52) (.62) (.58) (.59) (.49) (.53)
From net realized gains.... (2.19) (.28) (.02) -- (.06) -- -- -- -- --
Excess distributions of net
realized gains............ -- (.01) -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders................ (2.78) (.90) (.66) (.56) (.58) (.62) (.58) (.59) (.49) (.53)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset of value, end of
period...................... $17.62 $16.99 $15.90 $13.56 $14.14 $13.28 $12.81 $10.37 $10.59 $8.86
- -----------------------------------------------------------------------------------------------------------------------------------
Total return(@).............. 20.24% 12.50% 21.97% (.31)% 9.79% 6.95% 27.65% 2.01% 23.75% 3.71%
Net assets at end of period
(000s omitted).............. $482,280 $397,712 $341,511 $260,593 $204,603 $89,076 $31,821 $13,153 $5,531 $2,485
Ratio of expenses to average
daily net assets............ .53% .54% .55% .56% .56% .60% .70% .85% .75% .75%
Ratio of net investment
income to average daily net
assets...................... 3.16% 3.66% 4.25% 4.05% 3.72% 4.78% 5.04% 5.40% 5.35% 5.82%
Portfolio turnover rate...... 113% 115% 98% 73% 74% 54% 42% 75% 47% 79%
Average commission rate
paid***..................... $ .0677 $ .0748 N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
- ------------------------------
**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. For the Global Asset
Allocation Series, the comparability of this information may be affected by
the fact that commission rates per share vary significantly among foreign
countries.
@These are the Series' total returns during the period, including reinvestment
of all dividend and capital gains distributions.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
VALUE SERIES 1997 1996*
<S> <C> <C>
- -----------------------------------------------------------------------
Net asset value, beginning of period.............. $11.38 $10.27
- -----------------------------------------------------------------------
Operations:
Investment income -- net........................ .12 .14
Net realized and unrealized gain (loss) on
investments.................................... 2.75 1.10
- -----------------------------------------------------------------------
Total from operations............................. 2.87 1.24
- -----------------------------------------------------------------------
Distributions to shareholders:
From investment income -- net................... (.13) (.13)
From net realized gains......................... (.70) --
- -----------------------------------------------------------------------
Total distributions to shareholders............... (.83) (.13)
- -----------------------------------------------------------------------
Net asset value, end of period.................... $13.42 $11.38
- -----------------------------------------------------------------------
Total return(@)................................... 25.24% 11.49%
Net assets at end of period (000s omitted)........ $55,058 $13,951
Ratio of expenses to average daily net assets..... .83% .87%**
Ratio of net investment income to average daily
net assets....................................... 1.41% 1.72%**
Portfolio turnover rate........................... 121% 36%
Average commission rate paid***................... $ .0606 $ .0556
- -----------------------------------------------------------------------
<FN>
*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 that period.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
GROWTH & INCOME SERIES 1997 1996 1995 1994*
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period........ $15.16 $12.83 $10.07 $10.00
- -------------------------------------------------------------------------------------------
Operations:
Investment income -- net.................. .40 .34 .33 .21
Net realized and unrealized gains (losses)
on investments........................... 3.80 2.54 2.76 .07
- -------------------------------------------------------------------------------------------
Total from operations....................... 4.20 2.88 3.09 .28
- -------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net............. (.39) (.34) (.33) (.21)
From net realized gains................... (.21) (.21) -- --
- -------------------------------------------------------------------------------------------
Total distributions to shareholders......... (.60) (.55) (.33) (.21)
- -------------------------------------------------------------------------------------------
Net asset of value, end of period........... $18.76 $15.16 $12.83 $10.07
- -------------------------------------------------------------------------------------------
Total return(@)............................. 27.69% 21.51% 29.70% 1.74%
Net assets at end of period (000s
omitted)................................... $244,970 $134,932 $59,533 $16,276
Ratio of expenses to average daily net
assets..................................... .70% .76% .80% .86%**
Ratio of net investment income to average
daily net assets........................... 2.63% 2.38% 2.86% 3.12%**
Portfolio turnover rate..................... 11% 20% 17% 2%
Average commission rate paid***............. $ .0710 $ .0688 N/A N/A
- -------------------------------------------------------------------------------------------
<FN>
*For the period May 2, 1994 (commencement of operations) to December 31, 1994.
The Series' inception was April 26, 1994, when it was initially capitalized.
However, the Series' shares did not become effectively registered under the
Securities Act of 1933 until May 2, 1994. Information is not presented for the
period from April 26, 1994, through May 2, 1994, as the Series' shares were
not registered during that period.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
S&P 500 INDEX SERIES 1997 1996*
<S> <C> <C>
- -----------------------------------------------------------------------
Net asset value, beginning of period.............. $11.47 $10.09
- -----------------------------------------------------------------------
Operations:
Investment income -- net........................ .12 .10
Net realized and unrealized gain (loss) on
investments.................................... 3.58 1.37
- -----------------------------------------------------------------------
Total from operations............................. 3.70 1.47
- -----------------------------------------------------------------------
Distributions to shareholders:
From investment income -- net................... (.12) (.09)
From net realized gains......................... (.12) --
- -----------------------------------------------------------------------
Total distributions to shareholders............... (.24) (.09)
- -----------------------------------------------------------------------
Net asset value, end of period.................... $14.93 $11.47
- -----------------------------------------------------------------------
Total return(@)................................... 32.32% 14.29%
Net assets at end of period (000s omitted)........ $109,572 $21,979
Ratio of expenses to average daily net assets..... .51% .79%**
Ratio of net investment income to average daily
net assets....................................... 1.41% 1.47%**
Portfolio turnover rate........................... 5% 6%
Average commission rate paid***................... $ .0458 $ .0477
- -----------------------------------------------------------------------
<FN>
*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 for the period, divided by the total number of
related shares purchased and sold.
@These are the Series total returns during the period, including reinvestment
of all dividend and capital gains distributions.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
BLUE CHIP STOCK SERIES 1997 1996*
<S> <C> <C>
- -----------------------------------------------------------------------
Net asset value, beginning of period.............. $11.67 $10.07
- -----------------------------------------------------------------------
Operations:
Investment income -- net........................ .07 .07
Net realized and unrealized gain (loss) on
investments.................................... 3.08 1.60
- -----------------------------------------------------------------------
Total from operations............................. 3.15 1.67
- -----------------------------------------------------------------------
Distributions to shareholders:
From investment income -- net................... (.06) (.07)
- -----------------------------------------------------------------------
Net asset value, end of period.................... $14.76 $11.67
- -----------------------------------------------------------------------
Total return(@)................................... 27.00% 16.24%
Net assets at end of period (000s omitted)........ $78,729 $17,606
Ratio of expenses to average daily net assets..... 1.02% 1.13%**
Ratio of net investment income to average daily
net assets....................................... .75% .82%**
Portfolio turnover rate........................... 24% 17%
Average commission rate paid***................... $ .0346 $ .0329
- -----------------------------------------------------------------------
<FN>
*For the period May 1, 1996 (commencement of operations) to December 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.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
INTERNATIONAL STOCK SERIES 1997 1996 1995*
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net asset value, beginning of period............ $12.44 $11.27 $10.00
- --------------------------------------------------------------------------------
Operations:
Investment income -- net...................... .13 .20 .14
Net realized and unrealized gains (losses) on
investments.................................. 1.35 1.48 1.38
- --------------------------------------------------------------------------------
Total from operations........................... 1.48 1.68 1.52
- --------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net................. (.15) (.21) (.09)
From net realized gains....................... (.41) (.30) (.16)
- --------------------------------------------------------------------------------
Total distributions to shareholders............. (.56) (.51) (.25)
- --------------------------------------------------------------------------------
Net asset value, end of period.................. $13.36 $12.44 $11.27
- --------------------------------------------------------------------------------
Total return(@)................................. 11.99% 14.02% 14.35%
Net assets at end of period (000s omitted)...... $79,142 $52,331 $21,327
Ratio of expenses to average daily net assets... 1.08% 1.15% 1.14%**
Ratio of net investment income to average daily
net assets..................................... 1.10% 1.71% 1.41%**
Portfolio turnover rate......................... 30% 27% 39%
Average commission rate paid***................. $ .0256 $ .0363 N/A
- --------------------------------------------------------------------------------
<FN>
*The Series commenced operations on January 3, 1995. The Series' inception was
December 14, 1994, when it was initially capitalized. However, the Series'
shares did not become effectively registered under the Securities Act of 1933
until January 3, 1995. Information is not presented for the period from
December 14, 1994, through January 3, 1995, as the Series' shares were not
registered during that period.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
GLOBAL GROWTH SERIES 1997 1996 1995 1994 1993 1992*
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period.............. $19.00 $15.97 $12.31 $12.77 $10.86 $9.82
- -------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net........................ .02 .03 .09 .10 .06 .05
Net realized and unrealized gains (losses) on
investments.................................... 1.27 3.03 3.66 (.46) 1.91 1.04
- -------------------------------------------------------------------------------------------------------------------------
Total from operations............................. 1.29 3.06 3.75 (.36) 1.97 1.09
- -------------------------------------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net................... -- (.03) (.09) (.10) (.06) (.05)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period.................... $20.29 $19.00 $15.97 $12.31 $12.77 $10.86
- -------------------------------------------------------------------------------------------------------------------------
Total return(@)................................... 6.82% 19.10% 30.49% (2.98)% 17.92% 10.88%
Net assets at end of period (000s omitted)........ $353,255 $319,831 $207,913 $144,647 $75,882 $11,091
Ratio of expenses to average daily net assets..... .79% .79% .80% .81% 1.02% 1.22%**
Ratio of net investment income to average daily
net assets....................................... .12% .15% .64% .82% .53% .73%**
Portfolio turnover rate........................... 35% 14% 29% 20% 19% 21%
Average commission rate paid***................... $ .0260 $ .0295 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
<FN>
*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. 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.
***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. For Global Growth the
comparability of this information may be affected by the fact that commission
rates per share vary significantly among foreign countries.
@These are the Series' total returns during the period, including reinvestment
of all dividend and capital gains distributions.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
GROWTH STOCK SERIES 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period...................... $32.59 $28.09 $22.11 $22.92 $21.15 $20.68 $13.57 $14.26 $10.59 $10.42
- -----------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net... .12 .12 .13 .18 .09 .18 .22 .38 .26 .29
Net realized and unrealized
gains (losses) on
investments............... 3.93 4.50 5.98 (.81) 1.77 .47 7.11 (.69) 3.67 .16
- -----------------------------------------------------------------------------------------------------------------------------------
Total from operations........ 4.05 4.62 6.11 (.63) 1.86 .65 7.33 (.31) 3.93 .45
- -----------------------------------------------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income --
net....................... -- (.12) (.13) (.18) (.09) (.18) (.22) (.38) (.26) (.28)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of
period...................... $36.64 $32.59 $28.09 $22.11 $22.92 $21.15 $20.68 $13.57 $14.26 $10.59
- -----------------------------------------------------------------------------------------------------------------------------------
Total return(@).............. 12.42% 16.41% 27.66% (2.82)% 8.78% 2.94% 53.50% (3.10)% 36.46% 4.49%
Net assets at end of period
(000s omitted).............. $707,155 $661,217 $530,945 $377,483 $304,293 $188,172 $100,690 $25,623 $8,632 $3,023
Ratio of expenses to average
daily net assets............ .66% .67% .67% .68% .69% .76% .81% 1.01% 1.00% 1.00%
Ratio of net investment
income to average daily net
assets...................... .33% .39% .51% .81% .46% .92% 1.28% 2.72% 2.03% 2.76%
Portfolio turnover rate...... 19% 30% 20% 19% 26% 24% 31% 50% 40% 85%
Average commission rate
paid***..................... $ .0659 $ .0728 N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
AGGRESSIVE GROWTH SERIES 1997 1996 1995 1994*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period......... $13.62 $12.68 $9.80 $10.03
- --------------------------------------------------------------------------------------------------------
Operations:
Investment income -- net................... .03 .03 .07 .08
Net realized and unrealized gains (losses)
on investments............................ .16 .94 2.88 (.23)
- --------------------------------------------------------------------------------------------------------
Total from operations........................ .19 .97 2.95 (.15)
- --------------------------------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net.............. -- (.03) (.07) (.08)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period............... $13.81 $13.62 $12.68 $9.80
- --------------------------------------------------------------------------------------------------------
Total return(@).............................. 1.43% 7.64% 29.89% (1.89)%
Net assets at end of period (000s omitted)... $122,455 $ 96,931 $ 46,943 $ 13,526
Ratio of expenses to average daily net
assets...................................... .76% .78% .81% .88%**
Ratio of net investment income to average
daily net assets............................ .24% .22% .58% 1.24%**
Portfolio turnover rate...................... 25% 22% 21% 5%
Average commission rate paid***.............. $ .0616 $ .0692 N/A N/A
- --------------------------------------------------------------------------------------------------------
<FN>
*For the period May 2, 1994 (commencement of operations) to December 31, 1994.
The Series' inception was April 26, 1994, when it was initially capitalized.
However, the Series' shares did not become effectively registered under the
Securities Act of 1933 until May 2, 1994. Information is not presented for
the period from April 26, 1994, through May 2, 1994, as the Series' shares
were not registered during that 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. For International Stock
Series, the comparability of this information may be affected by the fact
that commission rates per share vary significantly among foreign countries.
@These are the Series' total returns during the period, including reinvestment
of all dividend and capital gains distributions.
</TABLE>
PERFORMANCE INFORMATION
The Series may advertise their "cumulative total return" and "average annual
total return" and may compare such figures to recognized indices. Some Series
may advertise their "yield" and Money Market Series may advertise its "yield"
and "effective yield." Any advertisement of a Series' performance will be
accompanied by performance of the Separate Account being advertised. (See "The
Separate Accounts and the Contracts.") All yield and total return quotations are
based upon historical earnings and are not intended to indicate future
performance. The return on and principal value of an investment in a Series will
fluctuate, so that when redeemed the investment may be worth more or less than
its original cost.
Yield calculations will be based upon a 30-day period stated in the
advertisement and will be calculated by dividing the net investment income per
share (as defined under Securities and Exchange Commission rules and
regulations) earned during the advertised period by the offering price per share
on the last day of the period. The result will then be "annualized" using a
formula that provides for semi-annual compounding of income.
Average annual total return is the average annual compounded rate of return on a
hypothetical $1,000 investment made at the beginning of the advertised period.
Cumulative total return is calculated by subtracting a hypothetical $1,000
payment from the redeemable value of such payment at the end of the advertised
period, dividing such difference by $1,000 and multiplying the quotient by 100.
In calculating average annual and cumulative total return, all dividends and
distributions are assumed to be reinvested.
Comparative performance information also may be used from time to time in
advertising. Advertisements may compare the Series' performance to that of
various unmanaged market indices, or may include performance data compiled by
outside organizations such as Lipper Analytical Services, Inc.,
CDA/Wiesenberger, other entities or organizations or publications which track
the performance of investment companies.
For additional information regarding comparative performance information and the
calculation of yield, average annual total return and cumulative total return,
see "Performance" in the Statement of Additional Information.
7
<PAGE>
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." Fortis
Series currently consists of eighteen separate investment portfolios (each a
"Series") as set forth on the cover page of this Prospectus. Each Series is, for
investment purposes, 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.
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. These risks are discussed below under sections describing
each Series, as well as under the section "General Risks to Consider." In
addition, no Series is intended to be a complete investment program, therefore
it may serve to diversify an investor's portfolio.
Fortis Advisers, Inc. ("Advisers") is the investment adviser for each Series. As
noted below, Advisers has retained a sub-adviser for eight Series. In selecting
equity securities for the domestic equity Series for which Advisers does not use
a sub-adviser, Advisers uses two distinct equity investment philosophies.
Specifically, Asset Allocation Series, Growth Stock Series and Aggressive Growth
Series use a "growth" philosophy and Value Series uses a "value" philosophy.
Growth & Income Series may at times use either or both philosophies. Under both
philosophies, Advisers 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.
In managing "value" portfolios, Advisers invests based on a concept of
fundamental value, seeking to identify companies whose shares appear inexpensive
relative to anticipated profit and dividend growth. The primary emphasis is
placed on companies expected to experience a significant acceleration in
earnings over the next three to five years. The prices of these stocks typically
do not reflect such improvement. Often a stock is "out of favor" and priced low
relative to the company's earnings, cash flow and book value. A second source of
"value" stocks are companies expected to sustain their historic rate of growth
but which are selling at a low price to earnings ratio in relation to this
anticipated growth.
Any investment restriction or limitation which involves a maximum percentage of
securities or assets, except a Series' borrowing policy and policy with respect
to investing in illiquid securities, shall not be considered to be exceeded
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 any 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 a Series. To the extent the ratings may
change as a result of changes in the rating organizations or the rating systems,
each Series will attempt to use comparable ratings as standards for investments
in accordance with the investment policies contained in this Prospectus and in
the Statement of Additional Information. The ratings of Standard & Poor's
Ratings Services and Moody's Investors Service, Inc. are described in the
Appendix attached hereto.
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 various Series.
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 commercial paper and other debt
securities.
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 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.
8
<PAGE>
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 "U.S. Government Securities Series" below.
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
"Investment Policies, Restrictions, and Risks Applicable to More Than One
Series--Investment in Foreign Securities" for a discussion of certain risks
connected with investing in foreign securities.
4. Obligations of: (a) 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.
U.S. GOVERNMENT SECURITIES SERIES
The investment objective of U.S. Government Securities Series is to maximize
total return (from income and market value change), while providing shareholders
with a high level of current income consistent with prudent investment risk.
In pursuing its objective, U.S. Government Securities Series' assets will be
invested in the following manner:
At least 65% of the Series' total assets will be invested in securities issued,
guaranteed, insured, or collateralized by the United States government, its
agencies, or instrumentalities (whether or not backed by the "full faith and
credit" pledge of the United States government), and in repurchase agreements
pertaining to such securities. Securities issued or guaranteed as to principal
and interest by the United States government include a variety of securities,
which differ in their interest rates, maturities, and dates of issuance, and
include U.S. Treasury inflation-adjusted protection securities. The value of
such inflation-protection securities is adjusted for inflation and periodic
interest payments are in amounts equal to a fixed percentage of the inflation
adjusted value of the principal.
In addition to Treasury obligations, U.S. Government Securities Series may
invest in the following: (1) obligations of United States government agencies
and instrumentalities which are secured by the full faith and credit of the
United States Treasury, such as Government National Mortgage Association
pass-through certificates; (2) obligations which are secured by the right of the
issuer to borrow from the Treasury, such as securities issued by the Federal
Financing Bank or the United States Postal Service; and (3) obligations which
are supported by the credit of the government agency or instrumentality itself,
such as securities of the Federal Home Loan Bank or the Federal National
Mortgage Association. U.S. Government Securities Series will invest in
securities which are not backed by the full faith and credit of the United
States Treasury only when the credit risk with respect to the instrumentality or
agency issuing such securities does not make the securities, in the judgment of
Advisers, unsuitable investments for the Series.
There is no percentage limitation on U.S. Government Securities Series' purchase
of mortgage-related securities issued, guaranteed, insured, or collateralized by
the United States government, its agencies, or instrumentalities, except for
limitations that may be imposed from time to time by the Internal Revenue Code.
The Series may also invest in mortgage-related securities issued and insured by
private organizations if such securities fall within the investment restrictions
for marketable straight debt securities set forth below. Types of
mortgage-related securities include "pass-through" securities, modified
pass-through securities, participation certificates, and collateralized mortgage
obligations.
Up to 35% of U.S. Government Securities Series' total assets may consist of:
(1) Marketable non-convertible debt securities which are rated at the time of
purchase within the three highest grades assigned by Moody's Investors Service
("Moody's") (Aaa, Aa or A) or Standard & Poor's Ratings Services ("S&P") (AAA,
AA or A), or comparably rated by another nationally recognized rating agency;
see the Appendix to this Prospectus for a discussion of S&P and Moody's ratings;
9
<PAGE>
(2) Marketable 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 the U.S. Government
Securities Series' total assets);
(3) Obligations of, or guaranteed by, U.S. banks, which obligations, although
not rated as a matter of policy by either Moody's or S&P, are considered by
Advisers to have investment quality comparable to securities which may be
purchased under item (1) above (such securities not to exceed 25% of the U.S.
Government Securities Series' total assets);
(4) Commercial paper obligations rated Prime-1 by Moody's or A-1 by S&P, or
comparably rated by another nationally recognized rating agency. See the
Appendix to this Prospectus for a discussion of S&P and Moody's ratings; and
(5) Cash, other non-securities assets such as accrued interest, receivables
from investment securities sold, prepaid expenses, as well as other high quality
short term interest bearing debt securities not discussed above.
Market prices of the securities in which U.S. Government Securities Series
invests will fluctuate and will tend to vary inversely with changes in
prevailing interest rates. If interest rates increase from the time a security
is purchased, such security, if sold, might be sold at a price less than its
purchase cost. Conversely, if interest rates decline from the time a security is
purchased, such security, if sold, might be sold at a price greater than its
purchase cost.
DIVERSIFIED INCOME SERIES
The objective of Diversified Income Series is to maximize total return from
income and market value change by investing primarily in a diversified portfolio
of government securities and investment grade corporate bonds. Diversified
Income Series will pursue its objective by investing, under normal
circumstances, at least 70% of its total assets in (a) investment grade
corporate fixed income securities, which are generally considered to be those
fixed income securities rated within one of the four highest grades assigned by
Moody's (Aaa, Aa, A and Baa) or by S&P (AAA, AA, A and BBB), or comparably rated
by another nationally recognized rating agency; (b) securities issued,
guaranteed or insured by the United States Government or its agencies or
instrumentalities; (c) mortgage-related securities in which the U.S. Government
Securities Series may invest; (d) repurchase agreements pertaining to such
securities; (e) commercial paper of companies having, at the time of purchase,
an issue of outstanding debt securities rated Baa or above by Moody's or BBB or
above by S&P, or comparably rated by another nationally recognized rating
agency, or commercial paper rated P-1 or P-2 by Moody's or A-1 or A-2 by S&P, or
comparably rated by another nationally recognized rating agency; and (f) cash
and income producing cash equivalents.
Additionally, under normal circumstances, up to 30% of Diversified Income
Series' total assets may be invested in any combination of (a) common and
preferred stocks and convertible securities; (b) dollar denominated foreign
securities (provided that such investments in foreign securities will be limited
to 10% of the total assets of Diversified Income Series); and (c) non-investment
grade bonds (sometimes referred to as "junk bonds") and non-rated corporate
bonds. The lowest eligible rating category in which the Series will invest is
Caa as determined by Moody's and CCC as determined by S&P, or comparably rated
by another nationally recognized rating agency, except that up to 10% of the
assets of the Diversified Income Series may be invested in nonperforming
securities rated lower than these categories or which are unrated. See "High
Yield Series--Risks of Transactions in High-Yielding Securities."
The table below shows the weighted average percentages of Diversified Income
Series' long-term bond investments during the fiscal year ended December 31,
1997, represented by (1) bonds rated by a nationally recognized statistical
rating organization, separated into each rating category, and (2) all unrated
bonds as a group.
<TABLE>
<CAPTION>
STANDARD & POOR'S RATING PERCENT OF TOTAL
(OR EQUIVALENT) INVESTMENTS
- -------------------------------------------------- ------------------
<S> <C>
AAA............................................... 35.9%
AA................................................ 6.3%
A................................................. 14.5%
BBB............................................... 24.6%
BB................................................ 4.1%
B................................................. 11.8%
CCC............................................... 0.5%
CC................................................ 0%
C................................................. 0%
D................................................. 0.3%
All unrated bonds as a group...................... 2.0%
-----
100.0%
-----
-----
</TABLE>
For an explanation of investment quality ratings assigned by Moody's and S&P,
see the Appendix.
GLOBAL BOND SERIES
The investment objective of Global Bond Series is total return from current
income and capital appreciation. Global Bond Series invests its assets in a
global portfolio principally consisting of high quality fixed-income securities
of governmental and corporate issuers and supranational organizations, which
securities have varying maturities and are denominated in various currencies,
including the U.S. dollar. The Series may invest in any region of the world,
including the United States. As discussed below under "Investment Policies,
Restrictions, and Risks Applicable to More Than One Series--Foreign Currency
Forward Exchange Contracts," the Global Bond Series may engage in
hedging/cross-hedging transactions; typically however Global Bond Series will be
invested in the same number of currencies as countries in which it is invested.
It is the present intention of the Series' sub-adviser, Mercury Asset Management
International Ltd. ("Mercury International") to invest the Global Bond Series'
assets principally in fixed-income securities of companies within, or
governments of, the United States, Continental Europe, the United Kingdom,
Canada, the Pacific Basin and in such other areas and countries as Mercury
International may determine from time to time, including countries that are
considered emerging market countries at the time of investment. At all times at
least 80% of the Series' assets will be invested in developed countries.
Developed countries include Canada, the United Kingdom, France, Germany,
Australia, New Zealand, Austria, Belgium, Denmark, Finland, Ireland, Italy,
Japan, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland and the
United States. For a description of the risks associated with investing in
foreign securities, see "Investment Policies, Restrictions, and Risks Applicable
to More Than One Series--Investment in Foreign Securities."
In pursuing its investment objective, Global Bond Series invests in a broad
range of fixed-income securities. Under normal market conditions, Mercury
International anticipates that the Series will be invested primarily in fixed-
income securities issued or guaranteed by (a) governments and their agencies and
instrumentalities, (b) government-related issuers, and (c) supranational
organizations (such as the World Bank, The European Economic Community, The
Asian Development Bank and The European Coal and Steel Community). The Series
also invests in corporate fixed-income securities issued by foreign or U.S.
companies; certificates of
10
<PAGE>
deposit and bankers' acceptances issued or guaranteed by, or time deposits
maintained at, banks (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks); and commercial paper issued by foreign or
U.S. companies. Under normal conditions, at least 90% of Global Bond Series'
assets will be invested in high quality securities, I.E., securities that are
rated AA or better by S&P or Aa or better by Moody's or comparably rated by
another nationally recognized rating agency, or, if unrated, are determined by
Mercury International to be of comparable quality. At no time will the Series
invest in securities that are rated below "A" or, if unrated, are determined by
Mercury International to be of comparable quality. See the Appendix attached
hereto for a description of the ratings of fixed-income securities and
commercial paper.
When, in Mercury International's judgment, business or financial conditions
warrant, Global Bond Series may assume a temporary defensive position and invest
without limit in high quality short-term debt securities or hold its assets in
cash. See "Investment Policies, Restrictions, and Risks Applicable to More Than
One Series--Short-Term Money Market Instruments." During those intervals when
the Series has assumed a temporary defensive position, the Series will not be
pursuing its investment objective.
The maturities of investments held by the Global Bond Series are not subject to
any prescribed limits. A longer average maturity is generally associated with a
higher level of volatility in the market value of a fixed-income security. The
maturity of a security measures only the time until final payment is due; it
takes no account of the pattern of the security's cash flows over time,
including how cash flow is affected by prepayments and by changes in interest
rates. The average duration of Global Bond Series will vary depending on
anticipated market conditions. The Series' average duration is a measure of the
price sensitivity of its investment portfolio, including expected cash flow,
redemptions and mortgage prepayments under a wide range of interest rate
conditions. In computing the duration of the Series' investment portfolio,
Mercury International will estimate the duration of obligations that are subject
to prepayment or redemption by the issuer taking into account the influence of
interest rates. The Series' average duration generally will be shorter than its
average maturity. Under normal market conditions, Mercury International
anticipates that the average weighted duration of the Series will be in the
range of two to eight years.
HIGH YIELD SERIES
The investment objective of High Yield Series is to maximize total return from
income and market value change by investing primarily in a diversified portfolio
of high-yield, high-risk, fixed-income securities (sometimes referred to as
"junk bonds"). Under normal circumstances, High Yield Series will invest at
least 65% of its total assets in non-investment grade (as defined below) fixed
income securities, convertible securities, options on debt securities, interest
rate futures contracts and options thereon, common and preferred stocks, and
other equity securities when these types of instruments are consistent with High
Yield Series' investment objective. High Yield Series' remaining assets may be
held in cash or cash equivalents or invested in investment grade fixed income
instruments.
The higher yields that High Yield Series seeks are usually available from
non-investment grade securities--those rated lower than Baa3 by Moody's or lower
than BBB- by S&P, or comparably rated by another nationally recognized rating
agency, and unrated securities of similar quality. This is an aggressive
approach to income investing and is subject to greater risk than investing in
higher quality securities. The High Yield Series may invest without limitation
in any "eligible" rating category. The lowest eligible rating category in which
High Yield Series will invest is Caa as determined by Moody's and CCC as
determined by S&P, or comparably rated by another nationally recognized rating
agency, except that up to 10% of the Series' total assets may be invested in
"non-performing" securities rated lower than these categories. Securities in the
Caa/CCC rating category are considered to be of poor standing and are
predominantly speculative. Lower ratings may reflect a greater possibility that
the financial condition of the issuer, or adverse changes in general economic
conditions, or both, may impair the ability of the issuer to make payments of
interest and principal. Additionally, investments in securities rated Caa or CCC
involve significant risk exposure to adverse conditions. Such securities may be
in default or there may be present elements of danger with respect to the
payment of principal or interest. Non-performing securities are highly
speculative. For a discussion of Moody's and S&P ratings, see the Appendix.
The prices and yields of non-investment grade securities generally fluctuate
more than investment grade securities, and such prices may decline significantly
in periods of general economic difficulty or rising interest rates. Advisers
reserves the right to adopt a defensive approach by temporarily investing
without limitation in cash, investment grade debt securities, commercial paper,
and/or in obligations of banks or the United States government.
In considering investments for High Yield Series, Advisers will attempt to
identify high-yielding securities of issuer companies whose financial condition
has improved or is expected to improve in the future. Advisers will not rely
exclusively on ratings assigned by Moody's and S&P in this process, but, in
appropriate circumstances, may perform its own credit analysis as well.
Advisers' analysis focuses on relative values, based on such factors as interest
or dividend coverage, asset coverage, earnings prospects, and the experience and
managerial strength of the issuer companies.
Because High Yield Series invests primarily in non-investment grade securities,
investors should carefully consider their ability to assume the risks involved
before making an investment.
For a discussion of payment-in-kind debentures ("PIKs"), in which High Yield
Series may invest, see "Investment Policies, Restrictions, and Risks Applicable
to More Than One Series."
The table below shows the weighted average percentages of High Yield Series'
long-term bond investments during the fiscal year ended December 31, 1997,
represented by (1) bonds rated by a nationally recognized statistical rating
organization, separated into each rating category, and (2) all unrated bonds as
a group.
<TABLE>
<CAPTION>
STANDARD & POOR'S RATING PERCENT OF TOTAL
(OR EQUIVALENT) INVESTMENTS
- -------------------------------------------------- ------------------
<S> <C>
AAA............................................... 0.3%
AA................................................ 0%
A................................................. 1.0%
BBB............................................... 0.3%
BB................................................ 17.9%
B................................................. 64.0%
CCC............................................... 7.1%
CC................................................ 0%
C................................................. 0.5%
D................................................. 3.3%
All unrated bonds as a group...................... 5.6%
-----
100.0%
-----
-----
</TABLE>
For an explaination of investment quality ratings assigned by Moody's and S&P,
see the Appendix.
RISKS OF TRANSACTIONS IN HIGH-YIELDING SECURITIES. Participation in high-
yielding securities transactions generally involves greater returns in the
11
<PAGE>
form of higher average yields. However, participation in such transactions
involves greater risks, often related to sensitivity to interest rates, economic
changes, solvency, and relative liquidity in the secondary trading market.
Yields on high yield securities will fluctuate over time. The prices of high-
yielding securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to adverse economic
changes or individual issuer developments. During an economic downturn or
substantial period of rising interest rates highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a security
held by High Yield Series defaulted, the Series may incur additional expenses to
seek recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of high-yielding
securities and High Yield Series' net asset value. Furthermore, in the case of
high-yielding securities structured as zero coupon or PIKs, their market prices
are affected to a greater extent by interest rate changes and thereby tend to be
more volatile than securities which pay interest periodically and in cash.
High-yielding securities present risks based on payment expectations. For
example, high-yielding securities may contain redemption or call provisions. If
an issuer exercises these provisions in a declining interest rate market, High
Yield Series would have to replace the security with a lower yielding security,
resulting in a decreased return for investors. Conversely, a high-yielding
security's value will decrease in a rising interest rate market, as will the
value of the Series' assets. If High Yield Series experiences unexpected net
redemptions, this may force it to sell its securities (including, but not
limited to, high yielding securities), without regard to their investment
merits, thereby decreasing the asset base upon which the Series' expenses can be
spread and possibly reducing the rate of return.
To the extent that there is no established secondary market, there may be thin
trading of high-yielding securities. This may adversely affect the ability of
Fortis Series' Board of Directors to accurately value high-yielding securities
and the High Yield Series' assets and the Series' ability to dispose of the
securities. Securities valuation becomes more difficult and judgment plays a
greater role in valuation because there is less reliable, objective data
available. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of high-yielding
securities, especially in a thinly traded market. Illiquid or restricted
high-yielding securities purchased by the Series may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
Certain risks are associated with applying credit ratings as a method for
evaluating high-yielding securities. For example, credit ratings evaluate the
safety of principal and interest payments, not market value risk of high-
yielding securities. Since credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events, Advisers continuously monitors the
issuers of high-yielding securities held by High Yield Series to determine if
the issuers will have sufficient cash flow and profits to meet required
principal and interest payments and to assure the securities' liquidity so the
Series can meet redemption requests. The achievement of the Series' investment
objective may be more dependent upon Advisers' own credit analysis than is the
case for higher quality bonds.
GLOBAL ASSET ALLOCATION SERIES
The objective of Global Asset Allocation Series is maximum total return on
invested capital, to be derived primarily from capital appreciation, dividends
and interest. The Series attempts to achieve its objective by following a
flexible asset allocation strategy that contemplates increased ownership of
equity securities during periods when stock market conditions appear favorable
and increased ownership of short and long-term fixed-income securities during
periods when stock market conditions are less favorable. To achieve this goal,
the composition of Global Asset Allocation Series will vary with prevailing
economic conditions. The Series' neutral allocation is approximately 60% in
equity securities (including fixed income securities convertible into equity
securities) and approximately 40% in fixed-income securities (including money
market securities). Under normal conditions, either allocation may increase to
75% or decrease to 25%, although the Series may have all of its assets invested
in either equity or fixed-income securities.
EQUITY INVESTMENTS. The approach of the Series' sub-adviser, Morgan Stanley
Asset Management Limited ("Morgan Stanley"), is oriented to individual stock
selection and is value driven. In selecting stocks for the Series, Morgan
Stanley initially identifies those stocks that it believes to be undervalued in
relation to the issuer's assets, cash flow, earnings and, where appropriate,
revenues, and then evaluates the future value of such stocks by applying a
dividend discount model to the information obtained from its in-depth study of
the issuer. Morgan Stanley utilizes the research of a number of sources,
including its affiliate in Geneva, Switzerland, Morgan Stanley Capital
International, and applies a number of proprietary screening criteria to
identify those securities that it believes to be undervalued. The holdings are
regularly reviewed and subjected to fundamental analysis to determine whether
they continue to conform to Morgan Stanley's value criteria. Securities that no
longer conform to such value criteria are sold.
Morgan Stanley intends to invest in the common stocks of issuers located
throughout the world, including issuers based in the United States as well as
emerging markets. Common stocks for this purpose include securities convertible
into common stocks and securities having common stock characteristics, such as
rights and warrants to purchase common stocks. The Series may also invest in
American Depositary Receipts, European Depositary Receipts or other types of
depositary receipts. See "Investment Policies, Restrictions, and Risks
Applicable to More Than One Series-- Depositary Receipts." Securities in
emerging markets may not be as liquid as those in developed markets and may pose
greater risks. For a description of the risks associated with investing in
foreign securities see "Investment Policies, Restrictions, and Risks Applicable
to More Than One Series-- Investment in Foreign Securities." Although Morgan
Stanley intends to invest primarily in securities listed on stock exchanges, it
will also invest in securities traded in over-the-counter markets.
FIXED-INCOME INVESTMENTS. Fixed-income investments include United States
government securities, foreign government securities, securities of
supranational entities, Eurobonds and corporate bonds with varying maturities
denominated in various currencies and money market instruments. See "Investment
Policies, Restrictions, and Risks Applicable to More Than One Series--Short Term
Money Market Instruments." In evaluating fixed-income securities, Morgan Stanley
evaluates the currency, market and individual features of the securities being
considered for investment. The Series seeks to minimize investment risk by
investing in fixed-income securities rated A or better by S&P or Moody's or
comparably rated by another nationally recognized rating agency, or, if unrated,
are determined to be of comparable quality by Morgan Stanley.
ASSET ALLOCATION SERIES
The objective of Asset Allocation Series is maximum total return on invested
capital, to be derived primarily from capital appreciation, dividends, and
interest. The Series attempts to achieve its objective by following a flexible
asset allocation strategy that contemplates increased ownership of equity
securities during periods when stock market conditions appear favorable and
increased ownership of short and long-term
12
<PAGE>
fixed income instruments during periods when stock market conditions are less
favorable. To achieve this goal, the composition of Asset Allocation Series will
vary with prevailing economic conditions and may consist of any of the types of
investments in which the Money Market Series, U.S. Government Securities Series,
Diversified Income Series, and Growth Stock Series are permitted to invest.
Depending upon prevailing economic and market conditions, Asset Allocation
Series may at any given time be primarily comprised of equity securities
(including debt securities convertible into equity securities) or short-term
money market securities or investment grade bonds and other debt securities, or
any combination thereof.
Fixed income securities in which Asset Allocation Series may invest include the
investment grade and non-investment grade bonds (sometimes referred to as "junk
bonds") in which the Diversified Income Series and High Yield Series may invest.
For risks connected with such investments, see "High Yield Series--Risks of
Transactions in High-Yielding Securities."
Asset Allocation Series may invest up to 20% of its total assets in foreign
securities (provided that no more than 15% of its total assets may be invested
in foreign securities that are not traded on national foreign securities
exchanges or traded in the United States). 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 "Investment Policies, Restrictions, and Risks Applicable to More Than One
Series--Investment in Foreign Securities."
Unlike shareholders of the other Series, a shareholder of Asset Allocation
Series confers substantially more investment discretion on Advisers, enabling
Advisers to invest in a wider variety of investment securities.
The table below shows the weighted average percentages of Asset Allocation
Series' long-term bond investments during the fiscal year ended December 31,
1997, represented by (1) bonds rated by a nationally recognized statistical
rating organization, separated into each rating category, and (2) all unrated
bonds as a group.
<TABLE>
<CAPTION>
STANDARD & POOR'S RATING PERCENT OF TOTAL
(OR EQUIVALENT) INVESTMENTS
- -------------------------------------------------- ------------------
<S> <C>
AAA............................................... 55.6%
AA................................................ 4.5%
A................................................. 9.8%
BBB............................................... 15.3%
BB................................................ 3.0%
B................................................. 10.4%
CCC............................................... 0.4%
CC................................................ 0%
C................................................. 0%
D................................................. 0.2%
All unrated bonds as a group...................... 0.8%
-----
100.0%
-----
-----
</TABLE>
For an explanation of investment quality ratings assigned by Moody's and S&P,
see the Appendix.
VALUE SERIES
Value Series' primary investment objective is short and long-term capital
appreciation. Current income is only a secondary objective. The Series invests
primarily in equity securities and selects stocks based on the value philosophy.
In seeking to attain its investment objective, Value Series will invest
primarily in common stocks or securities convertible into common stocks.
Occasionally, however, limited amounts may be invested in other types of
securities (such as nonconvertible preferred and debt securities). In periods
when a more defensive position is deemed warranted, Value 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. Value Series may invest in repurchase agreements
and in both listed and unlisted securities.
Value Series may also invest up to 10% of its total assets 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 other
investment practices and techniques of the Series, see "Investment Policies,
Restrictions and Risks Applicable to More Than One Series."
GROWTH & INCOME SERIES
The investment objectives of Growth & Income Series are capital appreciation and
current income. It seeks to achieve this objective by investing primarily in
equity securities that provide an income component and the potential for growth.
Growth & Income Series will pursue its investment objectives by investing in a
broadly diversified portfolio of securities, with an emphasis on securities of
companies that have a history of dividend payments. Companies will be selected
on the basis of their prospects for long-term growth and continued dividend
payments. Occasionally, however, limited amounts may be invested in other types
of securities (such as nonconvertible preferred stock and fixed income
securities). In periods when a more defensive position is deemed warranted,
Growth & Income 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
& Income Series may invest in repurchase agreements and in both listed and
unlisted securities.
Growth & Income Series may also invest up to 10% of its total assets 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 "Investment Policies,
Restrictions, and Risks Applicable to More Than One Series-- Investment in
Foreign Securities."
S&P 500 INDEX SERIES
The investment objective of S&P 500 Index Series 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 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
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 Rating Services ("Standard & Poor's"), a division of The McGraw-Hill
Companies, Inc., 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, 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
13
<PAGE>
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 S&P 500 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 Series seeks to replicate the S&P 500 Index using such
sampling techniques, a close correlation between the Series' performance and the
performance of the Index is anticipated in both rising and falling markets. The
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
Series and Index performance. It is anticipated that the correlation of the
Series' performance to that of the Index will increase as the size of the Series
increases. The Series' ability to achieve significant correlation between 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
Series shares. Advisers and the sub-adviser, The Dreyfus Corporation, monitor
this correlation and report periodically to the Board of Directors of Fortis
Series. Should the Series fail to achieve an appropriate level of correlation,
the Board will consider alternative arrangements.
Under normal circumstances, the Series invests at least 95% of its total assets
in the common stocks included in the S&P 500 Index. To maintain liquidity, the
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 Series may
enter into futures contracts and options to a limited extent. For further
information on these instruments and investment techniques, see "Investment
Policies, Restrictions and Risks Applicable to More Than One Series" and 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 Series is
not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard &
Poor's makes no representation regarding the advisability of investing in the
Series. Standard & Poor's makes no representation or warranty, express or
implied, to the owners of the Series or any member of the public regarding the
advisability of investing in securities generally or in the 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 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 Series or the timing of the issuance or sale of the Series or
in the determination or calculation of the equation by which the 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 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 OF MERCHANTABILITY
OR 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.
BLUE CHIP STOCK SERIES
Blue Chip Stock Series' primary investment objective is to provide long-term
growth of capital. Current income is a secondary objective, and many of the
stocks in the Series' portfolio are expected to pay dividends.
The Series will invest at least 65% of total assets in the common stocks of
large and medium-sized blue chip companies, as defined by T. Rowe Price, the
sub-adviser to the Series. These companies will be well established in their
industries and have the potential for above-average growth in earnings.
Most of the assets will be invested in U.S. common stocks. However, the Series
may also purchase other types of securities, for example, foreign securities,
preferred stocks, convertible stocks and bonds, and warrants, when considered
consistent with the Series' investment objectives. The Series may also engage in
a variety of investment management practices, such as buying and selling futures
and options. Investments in convertible securities, preferred stocks and fixed
income securities are limited to 25% of total assets.
STOCK SELECTION. In applying a "blue chip" investment approach, T. Rowe Price
analysts evaluate the growth prospects of companies and the industries in which
they operate. This approach seeks to identify companies with strong market
franchises in industries that appear to be strategically poised for long-term
growth. Its investment approach reflects T. Rowe Price's belief that the
combination of solid company fundamentals (with emphasis on the potential for
above-average growth in earnings) along with a positive outlook for the overall
industry will ultimately reward investors with a higher stock price. While
primary emphasis is placed on a company's prospects for future growth, the
Series will not purchase securities that, in T. Rowe Price's opinion, are
overvalued considering the underlying business fundamentals. In the search for
capital appreciation, the Series looks for stocks attractively priced relative
to their anticipated long-term value.
The Series will generally take the following into consideration when selecting
stocks:
- LEADING MARKET POSITIONS. Blue chip companies often have leading
market positions that are expected to be maintained or enhanced over time.
Strong positions, particularly in growing industries, can give a company
pricing flexibility as well as the potential for good unit sales. These
factors, in turn, can lead to higher earnings growth and greater share price
appreciation.
- SEASONED MANAGEMENT TEAMS. Seasoned management teams with a
track record of providing superior financial results are important for a
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company's long-term growth prospects. T. Rowe Price's analysts will evaluate
the depth and breadth of a company's management experience.
- STRONG FINANCIAL FUNDAMENTALS. Companies should demonstrate
faster earnings growth than their competitors and the market in general;
high profit margins relative to competitors; strong cash flow; a healthy
balance sheet with relatively low debt; and a high return on equity with a
comparatively low dividend payout ratio.
TYPES OF PORTFOLIO SECURITIES. In seeking to meet its investment objective, the
Series may invest in any type of security or instrument (including certain
potentially high risk derivatives) whose investment characteristics are
consistent with the Series' investment program. These and some of the other
investment techniques the Series may use are described below.
- PREFERRED STOCKS. While most preferred stocks pay a dividend, the
Series may purchase preferred stock where the issuer has omitted, or is in
danger of omitting, payment of its dividend. Such investments would be made
primarily for their capital appreciation potential.
- FOREIGN SECURITIES. The Series may invest up to 20% of its total
assets (excluding reserves) in foreign securities. These include
nondollar-denominated securities traded outside of the U.S. and
dollar-denominated securities traded in the U.S. (such as ADRs). See
"Investment Policies, Restrictions and Risks Applicable to More Than One
Series--Investment in Foreign Securities." The Series may invest in
securities from emerging markets, which have greater risks than foreign
securities in general. See "Investment Policies, Restrictions, and Risks
Applicable to More Than One Series--Emerging Markets."
- FIXED-INCOME SECURITIES. The Series may invest in fixed income
securities of any type without regard to quality or rating. Such securities
would be purchased in companies which meet the investment criteria for the
Series.
However, the Series will not purchase a non-investment grade fixed income
security (junk bond) if immediately after such purchase the Series would
have more than 5% of its total assets invested in such securities. For
further information on "high yield" (junk) bonds, including the risks of
such investments, see "Investment Objectives and Policies--High Yield
Series."
- HYBRID INSTRUMENTS. These instruments (a type of potentially high-
risk derivative) can combine the characteristics of securities, futures and
options. For example, the principal amount, redemption or conversion terms
of a security could be related to the market price of some commodity,
currency or securities index. Such securities may bear interest or pay
dividends at below market (or even relatively nominal) rates. Under certain
conditions, the redemption value of such an investment could be zero. The
Series may invest up to 10% of its total assets in hybrid instruments.
The Series may employ the following types of management practices:
- CASH POSITION. The Series will hold a certain portion of its assets in
U.S. and foreign dollar-denominated money market securities, including
repurchase agreements, in the two highest rating categories, maturing in one
year or less. For temporary, defensive purposes, the Series may invest
without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new
investments, and serves as a short-term defense during periods of unusual
market volatility.
- FUTURES AND OPTIONS. The Series may buy and sell futures and
options contracts for any number of reasons, including: to manage its
exposure to changes in securities prices and foreign currencies; as an
efficient means of adjusting its overall exposure to certain markets; to
enhance income; and to protect the value of portfolio securities. The Series
may purchase, sell or write call and put options on securities, financial
indices, and foreign currencies. See "Futures Contracts and Options on
Futures Contracts" and "Options" under the caption "Investment Policies,
Restrictions, and Risks Applicable to More Than One Series."
- OPERATING POLICIES. Futures: Initial margin deposits and premiums
on options used for non-hedging purposes will not equal more than 5% of the
Series' net assets. Options on securities: The total market value of
securities against which the Series has written call or put options may not
exceed 25% of its total assets. The Series will not commit more than 5% of
its total assets to premiums when purchasing call or put options.
- MANAGING FOREIGN CURRENCY RISK. Investors in foreign securities
may "hedge" their exposure to potentially unfavorable currency changes by
purchasing a contract to exchange one currency for another on some future
date at a specified exchange rate. In certain circumstances, a "proxy
currency" may be substituted for the currency in which the investment is
denominated, a strategy known as "proxy hedging." Although foreign currency
transactions will be used primarily to protect the Series' foreign
securities from adverse currency movements relative to the dollar, they
involve the risk that anticipated currency movements will not occur and the
Series' total return could be reduced. See "Foreign Currency Forward
Exchange Contracts" and "Options on Foreign Currencies" under the caption
"Investment Policies, Restrictions, and Risks Applicable to More Than One
Series."
INTERNATIONAL STOCK SERIES
The investment objective of International Stock Series is to seek capital
appreciation by investing primarily (at least 65% of total assets under normal
market conditions) in the equity securities of non-United States companies
(I.E., incorporated or organized outside the United States). However, the Series
may have substantial investments in American Depositary Receipts (see
"Investment Policies, Restrictions, and Risks Applicable to More Than One
Series--Depositary Receipts") and in convertible bonds and other convertible
securities. The Series may invest up to 20% of the value of its total assets in
fixed income securities and short-term money market instruments. See "Investment
Policies, Restrictions, and Risks Applicable to More Than One Series--Short-Term
Money Market Instruments." International Stock Series' fixed income investments
will be limited to those rated A or better by S&P or Moody's or comparably rated
by another nationally recognized rating agency, or, if unrated, determined by
the Series' sub-adviser, Lazard Asset Management ("Lazard"), a division of
Lazard Freres & Co. LLC, to be of comparable quality. See the Appendix attached
hereto for a description of the ratings of fixed income securities.
It is the present intention of Lazard to invest the Series' assets in companies
based in Continental Europe, the United Kingdom, the Pacific Basin and in such
other areas and countries as Lazard may determine from time to time. The
percentage of International Stock Series' assets invested in particular
geographic sectors may shift from time to time in accordance with the judgment
of Lazard. For a description of the risks associated with investing in foreign
securities see "Investment Policies, Restrictions, and Risks Applicable to More
Than One Series--Investment in Foreign Securities."
In selecting investments for the Series, Lazard attempts to ascertain
inexpensive securities world-wide through traditional measures of value,
including low price to earnings ratio, high yield, unrecognized assets,
potential for management change and/or the potential to improve profitability.
In addition, Lazard seeks to identify companies that it believes are
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financially productive and undervalued in those markets. Lazard focuses on
individual stock selection (a "bottom-up" approach) rather than on forecasting
stock market trends (a "top-down" approach).
Lazard recognizes that some of the best opportunities are in securities not
generally followed by investment professionals. Thus, Lazard relies on its
research capability and also maintains a dialogue with foreign brokers and with
the management of foreign companies in an effort to gather the type of "local
knowledge" that it believes is critical to successful investment abroad. To this
end, Lazard communicates with Lazard Freres Gestion Banque in Paris, Lazard
Asset Management Ltd. in London and Lazard Japan Asset Management K.K. in Tokyo
(independent but affiliated entities) for information concerning current
business trends, as well as for a better understanding of the management of
local businesses. The information supplied by these affiliates of Lazard will be
limited to statistical and factual information, advice regarding economic
factors and trends or advice as to occasional transactions in specific
securities.
When, in the judgment of Lazard, business or financial conditions warrant, the
International Stock Series may assume a temporary defensive position and invest
without limit in the equity securities of U.S. companies or short-term money
market instruments or hold its assets in cash. See "Investment Policies,
Restrictions, and Risks Applicable to More Than One Series-- Short-Term Money
Market Instruments." During those intervals when International Stock Series has
assumed a temporary defensive position, the Series will not be pursuing its
investment objective.
MID CAP STOCK SERIES
Mid Cap Stock Series seeks total investment returns (capital appreciation and
income) that consistently outperform the Standard & Poor's 400 MidCap Index
("S&P MidCap").
The Series attempts to maintain a diversified holding in common stocks of medium
capitalization companies that have a market value between $200 million and $5
billion. The Series' sub-adviser, The Dreyfus Corporation ("Dreyfus"), believes
that many medium-sized companies are in fast-growing industries, offer superior
earnings growth potential and are characterized by strong balance sheets and
high returns on equity. Mid Cap Stock Series may also hold investments in large
and small capitalization companies, including emerging and cyclical growth
companies.
Common stocks are selected by the sub-adviser so that, in the aggregate, the
investment characteristics and risk profile of Mid Cap Stock Series are similar
to that of the S&P MidCap. While it may maintain aggregate investment
characteristics similar to the S&P MidCap, the Series seeks to invest in common
stocks of companies that, in the aggregate, will provide a higher total return
than the S&P MidCap. The Series is not an index fund and its investments are not
limited to securities of issuers included in the S&P MidCap.
Dreyfus utilizes computer techniques to track and, if possible, outperform the
S&P MidCap. Dreyfus employs valuation models designed to identify common stocks
of companies that are undervalued in order to construct a portfolio that
resembles the S&P MidCap but is weighted toward the stocks that Dreyfus believes
are most attractive.
Under normal circumstances, at least 65% of the Series' total assets will be
invested in common stocks. The Series may also invest in: (1) obligations issued
or guaranteed as to interest and principal by the U.S. government, its agencies
and instrumentalities; (2) instruments of U.S. and foreign banks, including
certificates of deposit, banker's acceptances and time deposits, and may include
Eurodollar certificates of deposit, Yankee certificates of deposit and
Eurodollar time deposits; (3) corporate obligations rated at least Baa by
Moody's or BBB by S&P or, if unrated, of comparable quality as determined by
Dreyfus; (4) Eurodollar bonds and notes; (5) securities of foreign companies
evidenced by American Depository Receipts; (6) repurchase agreements; (7)
when-issued transactions; and (8) commercial paper. The Series may also utilize
securities lending and reverse repurchase agreements, and may enter into options
and futures contracts for hedging purposes, subject to certain limitations.
The S&P MidCap is composed of 400 domestic common stocks chosen by Standard &
Poor's for market size, liquidity and industry group representation. It is a
market-weighted index (stock price times shares outstanding), with each stock
affecting the S&P MidCap in proportion to its market value. The inclusion of a
stock in the S&P MidCap does not imply that S&P believes the stock to be an
attractive or appropriate investment, nor is S&P in any way affiliated with the
Series. The S&P MidCap was created by S&P to capture the performance of the
stocks that fall in the medium capitalization range. S&P screened the
medium-capitalization stocks candidacy population using the following criteria:
level of trading activity, or liquidity; market value; industry group
representation; and the level of controlling interest. A limited percentage of
the S&P MidCap may include Canadian securities. No other foreign securities are
eligible for inclusion.
The Series may purchase and sell various financial instruments, including
financial futures contracts (such as index futures contracts) and options (such
as options on U.S. or foreign securities or indices of such securities). These
instruments may be used, for example, to preserve a return or spread, or to
facilitate or substitute for the sale or purchase of securities. The Series'
ability to use these instruments may be limited by market conditions, regulatory
limits and tax considerations. See "Futures Contracts and Options on Futures
Contracts" and "Options" under the caption "Investment Policies, Restrictions,
and Risks Applicable to More Than One Series." The Series may not purchase put
or call options that are traded on a national stock exchange in an amount
exceeding 5% of its net assets.
The Series will not invest more than 15% of the value of its net assets in
illiquid securities, including time deposits and repurchase agreements having
maturities longer than seven (7) days. Securities that have readily available
market quotations are not deemed illiquid for purposes of this limitation
(irrespective of any legal or contractual restrictions on resale). See the
Statement of Additional Information for further discussion of restricted and
illiquid securities.
SMALL CAP VALUE SERIES
The objective of Small Cap Value Series is capital appreciation. Small Cap Value
Series may be appropriate for investors willing to make a long-term investment
commitment that involves above-average risk. The sub-adviser of Small Cap Value
Series is Berger Associates, Inc. ("Berger Associates") which has contracted
with Perkins, Wolf, McDonnell & Company (the "Manager") to provide day-to-day
investment management for the Series.
Small Cap Value Series seeks to achieve its objective by investing primarily in
common stocks of small companies that are out of favor with markets or that have
not yet been discovered by the broader investment community and are therefore
believed to be undervalued. The Manager generally looks for companies with a low
price relative to their assets, earnings, cash flow or business franchise;
products and services that give them a competitive advantage; and quality
balance sheets and strong management.
Small Cap Value Series primarily invests in common stocks of small companies,
both domestic and foreign, and other securities with equity features, such as
convertible securities, preferred stocks, warrants and rights. Under normal
circumstances, Small Cap Value Series will invest at least 65% of its assets in
equity securities of companies with market capitalizations of less than $1
billion at the time of initial purchase. Market capitalization is defined as
total current market value of a company's outstanding common stock. The Series
may also invest in common stocks of companies with
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market capitalizations in excess of $1 billion, equity securities other than
common stocks, government securities, short-term investments or other securities
described below, if the Manager believes these are likely to be best suited to
achieve the Series' objective. In addition, Small Cap Value Series may invest in
certain securities with unique risks, such as special situations and foreign
securities.
Small Cap Value Series' net asset value may be more volatile than that of funds
primarily invested in stocks of larger companies. Smaller companies may pose
greater risk due to narrow product lines, limited financial resources, less
depth in management or a limited trading market for their stocks. However, the
Manager's philosophy is to weigh a security's downside risk before considering
its upside potential, which may help provide an element of capital preservation.
The Series' investments are often focused in a small number of business sectors.
Small Cap Value Series may increase its investment in government securities and
other short-term, interest-bearing securities without limitation when the
Manager believes market conditions warrant a temporary defensive position,
during which period it may be more difficult for the Series to achieve its
investment objective.
SPECIAL SITUATIONS. Small Cap Value Series may invest in special situations,
that is, in common stocks of companies that have recently experienced or are
anticipated to experience a significant change in structure, management,
products or services. Examples of special situations are companies being
reorganized or merged, companies having unusual new products, or which enjoy
particular tax advantages, or companies that are run by new management or may be
probable takeover candidates. The opportunity to invest in special situations,
however, is limited and depends in part on the market's assessment of these
issuers and their circumstances. In addition, stocks of companies in special
situations may be more volatile, since the market value of these stocks may
decline if an anticipated event or benefit does not materialize.
UNSEASONED ISSUERS. Small Cap Value Series may invest in securities of
unseasoned issuers. Unseasoned issuers are companies with a record of less than
three years' continuous operation, including the operations of any predecessors
and parents. Investment decisions for these securities may place a greater
emphasis on current or planned product lines and the reputation and experience
of the company's management and less emphasis on fundamental valuation factors
than would be the case for more mature growth companies. In addition, many
unseasoned issuers may be small companies and involve the risks and price
volatility associated with smaller companies.
FOREIGN SECURITIES. Small Cap Value Series may invest in both domestic and
foreign securities. In selecting investments in foreign securities, the Series
will consider the political and economic conditions in a country, the prospect
for changes in the value of its currency and the liquidity of an investment in
that country's securities markets. See "Investment Policies, Restrictions and
Risks Applicable to More Than One Series--Investment in Foreign Securities."
HEDGING TRANSACTIONS. Small Cap Value Series is authorized to make limited use
of certain types of put and call options, but only for the purpose of hedging,
that is, protecting against the risk of market movements that may adversely
affect the value of the Series' securities or the price of securities that the
Series is considering purchasing. Although a hedging transaction may, for
example, partially protect the Series from a decline in the value of a
particular security or its portfolio generally, hedging may also limit the
Series' opportunity to profit from favorable price movements, and the cost of
the transaction will reduce the potential return on the security or the
portfolio. No more than 5% of Small Cap Value Series' net assets at the time of
purchase may be utilized as premiums for options.
Small Cap Value Series may write covered call options, but only up to 10% of the
Series' net assets. A call option is considered covered if the Series already
owns the security on which the option is written, or, in the case of an option
written on a securities index, if the Series owns a portfolio of securities
believed likely to substantially replicate movement of the index. See
"Investment Objectives and Policies--Options" in the Statement of Additional
Information for additional detail concerning options and the risks of such
transactions.
GLOBAL GROWTH SERIES
The primary investment objective of Global Growth Series is long-term capital
appreciation. Current income through the receipt of income such as interest or
dividends from investments is an incidental objective. Global Growth Series
seeks its objectives primarily by investing in a global portfolio of equity
securities, allocated among diverse international markets. The 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 "Investment Policies, Restrictions,
and Risks Applicable to More Than One Series--Investment in Foreign Securities."
The Series may invest in any kind of equity security including common stocks,
preferred stocks and warrants.
The Series is not required to maintain any particular geographic or currency mix
of its investments, nor is it required to maintain any particular proportion of
equity securities, bonds, or other securities in its portfolio. However, in view
of its investment objectives, the Series currently expects to invest its assets
primarily in equity securities. Under normal market conditions Global Growth
Series invests approximately 55% to 65% of its total assets in 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 "Investment
Policies, Restrictions, and Risks Applicable to More Than One Series--Investment
in Foreign Securities."
Global Growth Series may invest up to 45% of its equity securities in emerging
growth companies and in global emerging markets. For a discussion of emerging
growth companies and global emerging markets, see "Aggressive Growth Series" and
"Investment Policies, Restrictions, and Risks Applicable to More Than One
Series--Emerging Markets," respectively. Global Growth Series has no minimum
size requirements for the emerging growth companies in which it will invest.
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.
Global Growth Series may invest without limit in investment grade fixed income
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 Series may invest all of its assets
in high quality debt securities of U.S. and non-U.S. issuers, 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. High quality debt securities are securities
rated within one of the two highest ratings
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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.
The debt obligations in which the Series may invest include a variety of
government bonds and corporate debt obligations. Global Growth Series expects
that a large portion of its debt investments will be high quality, as defined
above, government or corporate bonds. Government bonds which the Series may
purchase include debt obligations issued or guaranteed by the U.S. government or
foreign governments (including foreign states, provinces, or municipalities) or
their agencies, authorities or instrumentalities and also includes 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 which the Series may purchase include
corporate bonds and debt obligations convertible into equity securities or
having attached warrants or rights to purchase equity securities. The Series may
also 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). No more than 5% of the 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.
The Series may also use forward currency contracts and options and futures
strategies which involve certain investment risks and transaction costs. See
"Investment Policies, Restrictions, and Risks Applicable to More Than One
Series."
LARGE CAP GROWTH SERIES
The investment objective of Large Cap Growth Series is long-term growth of
capital. The Series invests predominantly in equity securities of a limited
number of large, carefully selected, high-quality U.S. companies that are judged
likely to achieve superior earnings growth. Normally, about 40 companies will be
represented in Large Cap Growth Series' portfolio, with the 25 most highly
regarded of these companies usually constituting approximately 70% of the
Series' net assets. Large Cap Growth Series is thus atypical from most equity
funds in its focus on a relatively small number of intensively researched
companies and is designed for those seeking growth of capital with less
volatility over time than that associated with investment in smaller companies.
The Series normally invests at least 85% of its total assets in the equity
securities of U.S. companies. These are companies (i) organized under United
States law that have their principal office in the United States, and (ii) the
equity securities of which are traded principally in the United States.
The sub-adviser to Large Cap Growth Series is Alliance Capital Management L.P.
("Alliance"). Alliance relies heavily upon the fundamental analysis and research
of its large internal staff, which generally follows a primary research universe
of more than 600 companies that have strong management, superior industry
positions, excellent balance sheets and superior earnings growth prospects. An
emphasis is placed on identifying companies whose substantially above average
prospective earnings growth is not fully reflected in current market valuations.
In managing Large Cap Growth Series, Alliance seeks to utilize market volatility
judiciously (assuming no change in company fundamentals), striving to capitalize
on apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. The Series
normally will be fully invested and will not take significant cash positions for
market timing purposes. During market declines, while adding to positions in
favored stocks, the Series may become somewhat more aggressive, gradually
reducing the number of companies represented in its portfolio. Conversely, in
rising markets, while reducing or eliminating fully valued positions, Large Cap
Growth Series may become somewhat more conservative, gradually increasing the
number of companies represented in its portfolio. Alliance thus seeks to gain
positive returns in good markets while providing some measure of protection in
poor markets.
Alliance expects the average market capitalization of companies represented in
the Series' portfolio normally to be in the range, or in excess, of the average
market capitalization of companies comprising the S&P 500.
Large Cap Growth Series may also: (1) invest up to 20% of its net assets in
convertible securities of companies whose common stocks are eligible for
purchase; (2) invest up to 5% of its net assets in rights or warrants; (3)
invest up to 15% of its total assets in securities of foreign issuers whose
common stocks are eligible for purchase; (4) purchase and sell exchange-traded
index options and stock index futures contracts; and (5) write covered
exchange-traded call options on common stocks, unless as a result, the amount of
its securities subject to call options would exceed 15% of its total assets, and
purchase and sell exchange-traded call and put options on common stocks written
by others, but the total cost of all options held by the Series (including
exchange-traded index options) may not exceed 10% of its total assets. For
additional information on the use, risks and costs of these policies and
practices see "Investment Policies, Restrictions, and Risks Applicable to More
Than One Series" and "General Risks to Consider." Large Cap Growth Series will
not write put options.
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 the
Series in pursuing its objective. Growth Stock Series will generally invest in
mid cap companies representing a diversified cross section of U.S. industry. For
purposes of this Series, mid cap companies are those with a market
capitalization between $1 billion and $5 billion at the time of purchase.
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 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 also invest in repurchase agreements, listed and unlisted securities
and up to 10% of its total assets 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 "Investment Policies, Restrictions, and Risks Applicable
to More Than One Series-- Investment in Foreign Securities."
AGGRESSIVE GROWTH SERIES
The investment objective of Aggressive Growth Series is maximum long-term
capital appreciation. The Series attempts to achieve its objective by investing
primarily in equity securities of small and medium sized companies that are
early in their life cycles, but which have the potential to become major
enterprises ("emerging growth companies"), and in more established companies
that have the potential for above-average capital growth. Dividend and interest
income from securities is incidental to the Series' investment objective.
Aggressive Growth Series' policy is to invest, under normal circumstances, at
least 65% of its total assets in common stocks of emerging growth
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companies and equity securities of more established companies whose rates of
earnings growth are expected to accelerate because of special factors such as
new products, changes in consumer demand, basic changes in the economic
environment, or rejuvenated management. 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.
While Aggressive Growth Series will invest primarily in common stocks, it may,
to a limited extent, seek appreciation in other types of securities such as
convertible securities and warrants when relative values make such purchases
appear attractive. The Series may also write covered call and secured put
options and purchase call and put options on securities and stock indexes in an
effort to increase total return and for hedging purposes, and may purchase and
sell stock index futures contracts and options thereon for hedging purposes.
(See "Investment Policies, Restrictions, and Risks Applicable to More Than One
Series--Options, Futures, and Currency Strategies.")
The nature of investing in 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
Aggressive 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.
Aggressive Growth Series may also invest up to 10% of its total assets 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 "Investment
Policies, Restrictions, and Risks Applicable to More Than One Series--
Investment in Foreign Securities."
When Advisers considers a more defensive posture appropriate, the Series may
invest without limitation in commercial paper, obligations of banks or the
United States government and other high quality, short-term debt instruments.
INVESTMENT POLICIES, RESTRICTIONS, AND RISKS APPLICABLE TO MORE THAN ONE SERIES
EMERGING MARKETS. Subject to the restrictions set forth above, each of Global
Bond Series, Global Asset Allocation Series, Small Cap Value Series, Large Cap
Growth Series and International Stock Series may invest without limitation in
emerging market countries. Global Growth Series may invest up to 45% of its
equity securities in emerging market countries. High Yield Series may invest up
to 10% of its total assets in emerging market countries. Global Bond Series may
invest up to 20% of its total assets in emerging market countries. Many emerging
market countries have experienced substantial or, in some periods, extremely
high rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had and may continue to have adverse effects on the
economies and securities markets of certain of these countries. In an attempt to
control inflation, wage and price controls have been imposed in certain
countries. In many cases, emerging market countries are among the world's
largest debtors to commercial banks, foreign governments, international
financial organizations and other financial institutions. In recent years, the
governments of some of these countries have encountered difficulties in
servicing their external debt obligations, which has led to defaults on certain
obligations and the restructuring of certain indebtedness.
As used in this Prospectus, emerging markets are countries categorized as
emerging markets by the International Financial 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.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS. Global Bond Series, High Yield
Series, Global Asset Allocation Series, Value Series, Growth & Income Series,
Blue Chip Stock Series, International Stock Series, Mid Cap Stock Series, Small
Cap Value Series, Global Growth Series, Large Cap Growth Series and Aggressive
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 each Series invests. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date. The contract is individually negotiated and
privately traded by currency traders and their customers. Each 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 a 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 or any security that
is not considered restricted or illiquid in a segregated 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, only the Global Bond, Global Asset
Allocation and International Stock Series may 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 such 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. Certain of Global Bond
Series, High Yield Series, Global Asset Allocation Series, Value Series, Growth
& Income Series, Blue Chip Stock Series, International Stock Series, Mid Cap
Stock Series, Small Cap Value Series, Global Growth Series,
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Large Cap Growth Series and Aggressive 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 Bond Series, Global Asset Allocation Series, International Stock Series,
Mid Cap Stock Series and Global Growth Series may enter into futures contracts
for the purchase or sale for future delivery of fixed income securities, and
Blue Chip Stock Series, Small Cap Value Series, Global Growth Series and Large
Cap Growth Series may enter into futures contracts for the purchase or sale for
future delivery of equity securities. Global Bond Series, High Yield Series,
Global Asset Allocation Series, Blue Chip Stock Series, International Stock
Series and Global Growth Series may enter into interest rate futures contracts.
Global Bond Series, Global Asset Allocation Series, Value Series, Growth &
Income Series, S&P 500 Series, Blue Chip Stock Series, International Stock
Series, Small Cap Value Series, Large Cap Growth Series and Aggressive Growth
Series may enter into stock index futures contracts. Global Bond Series, High
Yield Series, Global Asset Allocation Series, Blue Chip Stock Series,
International Stock Series, Mid Cap Stock Series, Small Cap Value Series, Global
Growth Series, Large Cap Growth Series and Aggressive Growth 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, a 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 a Series
or adversely affect the prices of securities or foreign currencies that a Series
intends to purchase at a later date.
Global Bond Series, Global Asset Allocation Series and International Stock
Series may purchase and write "covered" put and call options to buy or sell
futures contracts. High Yield Series, Small Cap Value Series, Global Growth
Series and Aggressive 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. High Yield Series, Small Cap Value Series, Global Growth Series and
Aggressive Growth Series each 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 or any security that is not considered restricted or illiquid
equal in value to the amount such Series would be required to pay were the
option exercised.
Transactions in futures contracts, options on futures contracts, currency
contracts and certain options for hedging purposes involve certain risks. See
"General Risks to Consider--Options, Futures, and Currency Strategies."
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 Bond Series, High Yield Series, Global Asset
Allocation Series, Value Series, Growth & Income Series, Blue Chip Stock Series,
International Stock Series, Small Cap Value Series, Global Growth Series, Large
Cap Growth Series and Aggressive Growth Series may write call options and
purchase put and call options on equity and fixed income securities to hedge
against the risk of fluctuations in the prices of securities held by such Series
or which Advisers (or the sub-adviser, if applicable) intends to include in such
Series. Global Bond Series, Global Asset Allocation Series, Blue Chip Stock
Series and International Stock Series may also purchase, write or sell options
on securities or financial indices for other than hedging purposes, which
involves greater risk.
OPTIONS ON FOREIGN CURRENCIES. Global Bond Series, High Yield Series, Global
Asset Allocation Series, Blue Chip Stock Series, International Stock Series,
Global Growth Series and Aggressive 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. A 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 a 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 a 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 Bond Series, Global Asset Allocation Series and
International Stock Series will not enter into any 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 such Series would exceed 5% of the value of the total
assets of such Series. This restriction does not apply to securities purchased
on a when-issued, delayed delivery or forward commitment basis as described
under "Investment Policies, Restrictions, and Risks Applicable to More Than One
Series--Delayed Delivery Transactions."
High Yield Series, Value Series, Growth & Income Series, Global Growth Series
and Aggressive Growth Series have adopted two percentage restrictions on the use
of options, futures, and forward contracts. The first restriction is that each
such Series will not enter into any 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, each such 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.
FLOATING AND VARIABLE RATE INSTRUMENTS. Certain of the obligations that the
Series may purchase have a floating or variable rate of interest. Such
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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 (or the sub-adviser, if applicable) 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" below.
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, if applicable), 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.
See "Investment Objectives and Policies--Repurchase Agreements" in the Statement
of Additional Information.
RESTRICTED OR ILLIQUID SECURITIES. A policy of Money Market Series, U.S.
Government Securities Series, Diversified Income Series, Asset Allocation 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 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: restricted securities (both debt and equity) or in equity securities of any
issuer which are not readily marketable.
Global Growth Series may invest up to 10% of the value of its total assets 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.
A policy of each of the Global Bond Series, High Yield Series, Global Asset
Allocation Series, Value Series, Growth & Income Series, S&P 500 Index Series,
Blue Chip Stock Series, International Stock Series, Mid Cap Stock Series, Small
Cap Value Series, Large Cap Growth Series and Aggressive Growth Series is that
each Series may invest up to 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and Exchange
Commission rules and regulations.
REAL ESTATE OR REAL ESTATE INVESTMENT TRUSTS. Diversified Income Series, Asset
Allocation Series, Value Series, Growth & Income Series and Small Cap Value
Series may invest in real estate investment trusts ("REITs"), real estate
development and real estate operating companies and other real estate related
businesses. Growth & Income Series and Value Series currently intend to invest
the REIT portion of its portfolio primarily in equity REITs, which are trusts
that sell shares to investors and use the proceeds to invest in real estate or
interests in real estate. A REIT may focus on particular projects, such as
apartment complexes or shopping centers, or geographic regions, such as the
Southeastern United States, or both. Debt REITs invest in obligations secured by
mortgages on real property or interests in real property.
Value Series has also adopted a nonfundamental investment restriction that it
may invest up to 10% of its total assets in Real Estate Investment Trusts
(REITs) and will invest only in REITs that are publicly distributed.
The Series' investments in real estate securities may be subject to certain of
the same risks associated with the direct ownership of real estate. These risks
include: declines in the value of real estate; risks related to general and
local economic conditions; overbuilding and competition; increases in property
taxes and operating expenses; and variations in rental income. In addition,
REITs may not be diversified. REITs are subject to the possibility of failing to
qualify for tax-free pass-through of income under the Internal Revenue Code and
failing to maintain exemption from the 1940 Act. Also, REITs may be dependent
upon management skill and may be subject to the risks of obtaining adequate
financing for projects on favorable terms.
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 by Money Market Series, U.S. Government Securities
Series, Diversified Income Series, Asset Allocation Series, and Growth Stock
Series may not exceed 10% (5% for Large Cap Growth Series) of the value of the
total assets of each such Series.
Borrowings by Global Bond Series, High Yield Series, Global Asset Allocation
Series, Value Series, Growth & Income Series, S&P 500 Index Series, Blue Chip
Stock Series, International Stock Series, Mid Cap Stock Series, Small Cap Value
Series, Global Growth Series and Aggressive Growth Series through banks and
"roll" transactions will not exceed 33 1/3% of the total assets of each such
Series. As an operating policy, Blue Chip Stock Series may not transfer as
collateral any portfolio securities except as necessary in connection with
permissible borrowings or investments, and then such transfers may not exceed
25% of such Series' total assets. No additional investment securities may be
purchased by a Series whose outstanding borrowings, (including "roll"
transactions in the case of the Series in this paragraph) exceed 5% of the value
of such Series' total assets. If market fluctuations in the value of the
portfolio holdings of the Series in this paragraph or other factors cause the
ratio of such Series' total assets to outstanding borrowings to fall below 300%,
within three days (excluding Sundays and holidays) of such 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.
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ZERO COUPON OBLIGATIONS. U.S. Government Securities Series, Diversified Income
Series, Global Bond Series, High Yield Series, Global Asset Allocation Series,
Asset Allocation Series, International Stock Series and Global Growth Series may
invest in zero coupon obligations of the 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. These
Series may invest in either type of zero coupon obligation. The investment
policies and restrictions applicable to corporate and government securities in
the Series shall apply equally to the Series' investments in zero coupon
securities (including, for example, minimum corporate bond ratings).
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.
MUNICIPAL SECURITIES. U.S. Government Securities Series, Diversified Income
Series and Asset Allocation Series each may invest not more than 20% of their
total assets in municipal securities during periods when such securities appear
to offer more attractive returns than taxable securities.
PAYMENT-IN-KIND DEBENTURES. U.S. Government Securities Series, Diversified
Income Series, Global Bond Series, High Yield Series, Asset Allocation Series,
Global Asset Allocation Series and International Stock Series may invest in
debentures the interest on which may be paid in other securities rather than
cash ("PIKs"). Typically, during a specified term prior to the debenture's
maturity, the issuer of a PIK may provide for the option or the obligation to
make interest payments in debentures, common stock or other instruments (i.e.,
"in kind" rather than in cash). The type of instrument in which interest may or
will be paid would be known by Fortis Series at the time of the investment. The
investment restrictions regarding corporate bond quality are applicable to
investments in PIKs by such Series as well as to the securities which may
constitute interest payments on PIKs. While PIKs generate income for generally
accepted accounting standards purposes, they do not generate cash flow and thus
could cause such Series to be forced to liquidate securities at an inopportune
time in order to distribute cash, as required by the Internal Revenue Code.
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.
CMOS AND MULTI-CLASS PASS-THROUGH SECURITIES. U.S. Government Securities Series,
Diversified Income Series, Global Bond Series, High Yield Series, Global Asset
Allocation Series, Asset Allocation Series and International Stock Series may
invest in CMOs. CMOs are debt instruments issued by special purpose entities
which are secured by pools of mortgage loans or other mortgage-backed
securities. Multi-class pass-through securities are interests in a trust
composed of mortgage loans or other mortgage-backed securities. Payments of
principal and interest on underlying collateral provide the funds to pay debt
service on the CMO or make scheduled distributions on the multi-class
pass-through security. Multi-class pass-through securities, CMOs, and classes
thereof (including those discussed below) are examples of the types of financial
instruments commonly referred to as derivatives.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specified coupon
rate and has a stated maturity or final distribution date. Principal prepayments
on collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturities or final distribution dates. Interest is paid or
accrues on all classes of a CMO on a monthly, quarterly or semiannual basis. The
principal and interest on the underlying mortgages may be allocated among the
several classes of a series of a CMO in many ways. In a common structure,
payments of principal, including any principal prepayments, on the underlying
mortgages are applied according to scheduled cash flow priorities to classes of
the series of a CMO.
There are many classes of CMOs. IOs entitle the holder to receive distributions
consisting solely or primarily of all or a portion of the interest in an
underlying pool of mortgage loans or mortgage-backed securities ("Mortgage
Assets"). POs entitle the holder to receive distributions consisting solely or
primarily of all or a portion of the principal of the underlying pool
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of Mortgage Assets. In addition, there are inverse floaters, which have a coupon
rate that moves in the reverse direction to an applicable index, and accrual (or
"Z") bonds, which are described below.
As to IOs, POs, inverse floaters, and accrual bonds, not more than 5% of the net
assets of each of the U.S. Government Securities Series, Diversified Income
Series, Global Bond Series, High Yield Series, Global Asset Allocation Series,
Asset Allocation Series and International Stock Series will be invested in any
of these items at any one time and no more than 10% of the net assets of the
Series will be invested in all such obligations at any one time. Not more than
5% of the Global Growth Series' net assets collectively will be invested in such
obligations at any time.
Inverse floating CMOs are typically more volatile than fixed or adjustable rate
tranches of CMOs. Investments in inverse floating CMOs would be purchased by the
Series to attempt to protect against a reduction in the income earned on the
Series investments due to a decline in interest rates. The Series would be
adversely affected by the purchase of such CMOs in the event of an increase in
interest rates since the coupon rate thereon will decrease as interest rates
increase, and, like other mortgage-backed securities, the value will decrease as
interest rates increase.
The cash flows and yields on IO and PO classes are extremely sensitive to the
rate of principal payment (including prepayments) on the Mortgage Assets. For
example, a rapid or slow rate of principal payments may have a material adverse
effect on the yield to maturity of IOs or POs, respectively. If the underlying
Mortgage Assets experience greater than anticipated prepayments of principal,
the holder of an IO may incur substantial losses, even if the IO class is rated
AAA. Conversely, if the underlying Mortgage Assets experience is slower than
anticipated prepayments of principal, the yield and market value for the holder
of a PO will be affected more severely than would be the case with a traditional
Mortgage Backed Security.
However, if interest rates were expected to rise, the value of an IO might
increase and may partially offset other bond value declines, and if rates were
expected to fall, the inclusion of POs could balance lower reinvestment rates.
An accrual of "Z" bond holder is not entitled to receive cash payments until one
or more other classes of the CMO have been paid in full from payments on the
mortgage loans underlying the CMO. During the period in which cash payments are
not being made on the Z tranche, interest accrues on the Z tranche at a stated
rate, and this accrued interest is added to the amount of principal which is due
to the holder of the Z tranche. After the other classes have been paid in full,
cash payments are made on the Z tranche until its principal (including
previously accrued interest which was added to principal, as described above)
and accrued interest at the stated rate have been paid in full. Generally, the
date upon which cash payments begin to be made on a Z tranche depends on the
rate at which the mortgage loans underlying the CMO are prepaid, with a faster
prepayment rate resulting in an earlier commencement of cash payments on the Z
tranche. Like a zero coupon bond, during its accrual period the Z tranche of a
CMO has the advantage of eliminating the risk of reinvesting interest payments
at lower rates during a period of declining market interest rates. At the same
time, however, and also like a zero coupon bond, the market value of a Z tranche
can be expected to fluctuate more widely with changes in market interest rates
than would the market value of a tranche which pays interest currently. Changes
in market interest rates also can be expected to influence prepayment rates on
the mortgage loans underlying the CMO of which a Z tranche is a part. As noted
above, such changes in prepayment rates will affect the date at which cash
payments begin to be made on a Z tranche, and therefore also will influence its
market value.
SHORT-TERM TRADING. Money Market Series, U.S. Government Securities Series and
Asset Allocation Series intend to use short-term trading of their securities as
a means of managing their portfolios to achieve their 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 the 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).
Short-term trading techniques will be used principally in connection with higher
quality, nonconvertible debt securities, which are often better suited for
short-term trading because the market in such securities is generally of greater
depth and offers greater liquidity than the market in debt securities of lower
quality.
Each of Money Market Series, U.S. Government Securities Series and Asset
Allocation 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.
DELAYED DELIVERY TRANSACTIONS. All Series except Money Market Series and Growth
Stock 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 above 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.
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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 a 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. As to each Series, 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).
SECURITIES LENDING. Global Bond Series, High Yield Series, Global Asset
Allocation Series, Value Series, Growth & Income Series, S&P 500 Index Series,
Blue Chip Stock Series, International Stock Series, Mid Cap Stock Series, Small
Cap Value Series, Global Growth Series, Large Cap Growth Series and Aggressive
Growth Series are authorized to make loans of their portfolio securities to
broker-dealers or to other institutional investors. The borrower must maintain
with such Series' custodian collateral consisting of cash, U.S. government
securities, or other liquid, high-grade fixed income securities equal to at
least 100% of the value of the borrowed securities, plus any accrued interest.
Such 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, such Series will limit their loans of portfolio securities to an
aggregate of 33 1/3% (except for Global Growth Series, with a 30% limit) of the
value of its total assets, measured at the time any such loan is made. As
described in this Prospectus and the Statement of Additional Information, a
certain percentage of a Series' assets will generally be invested in a described
fashion. These percentage calculations will exclude collateral received by a
Series in connection with securities lending.
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") (or the sub-adviser, if there is one for the Series)
to be of good standing and will not be made unless, in the judgment of Advisers
(or the sub-adviser), the consideration to be earned from such loans would
justify the risk.
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
Advisers (or the sub-adviser, if applicable) 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.
INVESTMENT IN FOREIGN SECURITIES. Investing in securities issued by foreign
governments and corporations or entities involves considerations and possible
risks not typically associated with investing in obligations issued by the U.S.
government and domestic corporations. The values of foreign investments are
affected by changes in currency rates or exchange control regulations,
application of foreign tax laws, including withholding taxes, changes in tax
laws, governmental administration or economic or monetary policy (in the United
States or abroad) or changed circumstances in dealings between nations. Costs
are incurred in connection with conversions between various currencies. In
addition, foreign brokerage commissions are generally higher than in the United
States, and foreign securities markets may be less liquid, more volatile and
less subject to governmental supervision than in the United States. Investments
in foreign countries could be affected by other factors not present in the
United States, including seizure, expropriation, confiscatory taxation, risk of
war, lack of uniform accounting and auditing standards and potential
difficulties in enforcing contractual obligations, and could be subject to
extended settlement periods.
DEPOSITARY RECEIPTS. The Series which may invest in foreign securities 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 that evidence ownership of underlying securities issued by
a foreign corporation. Generally, ADRs in registered form are designed for use
in the United States securities markets. For purposes of the Series' investment
policies, the Series' 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.
PORTFOLIO TURNOVER. The portfolio turnover rate for a 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. The portfolio turnover rates are set forth in
the Financial Highlights section.
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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 may involve greater risks and volatility than
the equity securities of larger, more mature companies due to some of these
companies potentially having limited product lines, reduced market liquidity for
the trading of their shares, limited financial resources and less depth in
management than more established companies. Smaller companies also may be less
significant factors within their industries and may have difficulty withstanding
competition from larger companies. Therefore, the Small Cap Value Series,
Aggressive Growth Series and other Series that invest in smaller-capitalization
companies are not intended as a complete or balanced investment vehicle but
rather as an investment for persons who are in a financial position to assume
greater risk and share price volatility. Realizing the full potential of these
types of companies frequently takes time.
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 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-Related 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 (or a sub-adviser) 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.
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 applicable
sub-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 a 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; and 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. See "Taxation." In addition, when a
Series enters into an over-the-counter contract with a counterparty, the Series
will assume counterparty credit risk, that is, the risk that the counterparty
will fail to perform its obligations, in which case the Series could be worse
off
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than if the contract had not been entered into. Additional detail concerning the
use of options and the risks of such investments can be found in the Statement
of Additional Information.
MORTGAGE-RELATED 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-related 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-related
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-related
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-related 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 other than the S&P 500 Index Series (which
utilizes a passive investment approach as described under "S&P 500 Index
Series") are actively managed by Advisers and, in seven Series, by the
sub-advisers as well. The performance of these Series therefore will reflect in
part the ability of Advisers (or the sub-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 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 UNDERWRITER
Fortis Investors, Inc. ("Investors"), a subsidiary of Advisers, is Fortis
Series' underwriter. Investors' address is that of Fortis Series.
PORTFOLIO MANAGEMENT
Money Market Series has been managed by Howard G. Hudson, Robert C. Lindberg,
Maroun M. Hayek and David C. Greenzang since 1995.
U.S. Government Securities has been managed by Messrs. Hudson and Hayek and
Christopher J. Woods since 1995 and Christopher J. Pagano since 1996.
Diversified Income Series has been managed by Messrs. Hudson, Hayek and Woods
and Charles J. Dudley since 1995 and Mr. Pagano since 1996.
High Yield Series has been managed by Messrs. Hudson, Dudley, Lindberg and Hayek
since 1995.
Asset Allocation Series has been managed by Messrs. Hudson, Dudley, Hayek and
Woods since 1995, and Mr. Pagano and Charles L. Mehlhouse since 1996.
Value Series has been managed by Nicholas L.M. DePeyster since its inception.
Growth & Income Series has been managed by Mr. Mehlhouse since 1996.
Global Growth Series has been managed since its inception by James S. Byrd who
has primary responsibility for day-to-day management of the Series. Diane M.
Gotham has participated in management of the Series since the date of this
prospectus.
Growth Stock Series has been managed by Michael J. Romanowski since March 1998.
Aggressive Growth Series has been managed since its inception by Keith R.
Thomson.
Mr. Hudson, Executive Vice President and Head of Fixed Income Investments of
Advisers, has been managing debt securities for Fortis, Inc. since 1991. Mr.
Hudson performs a supervisory function in the management of the fixed income
Series, including the fixed-income portion of the Asset Allocation Series. The
portfolio managers supervised by Mr. Hudson have primary responsibility for
these Series' investments in particular types of securities. Specifically, these
individuals and their areas of responsibility are as follows: Mr. Dudley,
non-investment grade securities; Mr. Hayek, corporate bonds; Mr. Lindberg,
municipal securities; Mr. Woods, mortgage-related securities and structured
products; Mr. Pagano, treasury securities; and Mr. Greenzang, money market
instruments.
Mr. Dudley has been a Vice President of Advisers since 1995, prior to which he
was a Senior Vice President for SunAmerica Asset Management, New York, NY.
Mr. Lindberg, a Vice President of Advisers, has been managing debt securities
for Advisers since 1993.
Mr. Hayek, a Vice President of Advisers since 1995, has been managing debt
securities for Fortis, Inc. since 1987.
Mr. Woods, a Vice President of Advisers since 1995, has been managing debt
securities for Fortis, Inc. since 1993.
Mr. Pagano, a Vice President of Advisers since 1996, has been managing debt
securities for Advisers since 1996. Prior to joining Advisers, Mr. Pagano was a
Government Strategist for Merrill Lynch, New York, N.Y.
Mr. Greenzang, a Money Market Portfolio officer, has been involved in management
of debt securities for Fortis, Inc. since 1992.
Lucinda S. Mezey, Executive Vice President and Head of Equity Investments of
Advisers, has worked for Advisers since October 1997. From 1995 to October 1997,
she was Chief Investment Officer, Alex Brown Capital Advisory and Trust Co.,
Baltimore, MD and from 1970 to 1995 she was employed by PNC Bank, Philadelphia,
PA with her last position being Senior
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Vice President and Head of Equity Investments. Ms. Mezey performs a supervisory
function in the management of the equity Series, including the equity portion of
the Asset Allocation Series.
Mr. Byrd is an Executive Vice President and Mr. Thomson is a Vice President of
Advisers. Messrs. Byrd and Thomson have managed portfolios for Advisers for more
than five years.
Ms. Gotham has been a Vice President of Advisers since 1998. She was a
securities analyst for Advisers from 1994 to 1998 and a systems engineer for
International Business Machines ("IBM") Minneapolis, MN from 1981 to 1993.
Mr. Mehlhouse, a Vice President of Advisers, has managed portfolios for Advisers
since 1996. Prior to that, Mr. Mehlhouse was a portfolio manager for Marshall &
Isley Bank Corp., Milwaukee, Wisconsin, since 1993.
Mr. DePeyster, a Vice President of Advisers since 1995, has managed portfolios
for Advisers since 1991.
Mr. Romanowski, a Vice President of Advisers since 1998, was a portfolio manager
for Value Line, New York, NY from October 1995 to March 1998, prior to which he
was a securities analyst for Conning & Co. in Hartford, CT from 1992 to 1995.
THE SUB-ADVISERS
Global Bond Series, Global Asset Allocation Series, S&P 500 Index Series, Blue
Chip Stock Series, International Stock Series, Mid Cap Stock Series, Small Cap
Value Series and Large Cap Growth Series each have a sub-investment adviser. For
its services, each sub-adviser is paid a fee by the Adviser.
Each Series has retained a sub-adviser under an investment sub-advisory
agreement (collectively referred to as the "Sub-Advisory Agreements") to provide
investment advice and, in general, to conduct the management investment program
of each Series, subject to the general control of Advisers and the Board of
Directors of Fortis Series. Pursuant to the Sub-Advisory Agreements, each
sub-adviser will regularly provide its respective Series with investment
research, advice and supervision and furnish continuously an investment program
for such Series consistent with its investment objectives and policies,
including the purchase, retention and disposition of securities.
The sub-adviser of each Series 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-advisers.
Brokerage services provided by affiliates of the sub-advisers are performed in
conformity with Rule 17e-1 under the 1940 Act and procedures adopted by the
Board of Directors of Fortis Series.
GLOBAL BOND SERIES. Mercury Asset Management International Ltd. ("Mercury
International"), 33 King William Street, London, EC4R 9AS, England, is the
sub-adviser of the Global Bond Series. Mercury International is registered as an
investment adviser with the Commission. It is a wholly owned subsidiary of
Mercury Asset Management Group Ltd. ("Mercury"), whose ultimate parent is
Merrill Lynch & Co., Inc. The Merrill Lynch group manages in excess of $488
billion of investments on behalf of clients. Mercury International manages in
excess of $6.5 billion of investments.
The Global Product Strategy Committee of the Fixed Interest Division of Mercury
International has primary portfolio management responsibility for the Global
Bond Series. Each of the four members of the Strategy Committee is an officer or
director of Mercury International.
GLOBAL ASSET ALLOCATION SERIES. Morgan Stanley Asset Management Limited ("Morgan
Stanley"), 25 Cabot Square, Canary Wharf, London, E14 4QA, England, is the
sub-adviser of the Global Asset Allocation Series. Morgan Stanley, which is
registered as an investment adviser with the Commission, is a wholly owned
subsidiary of Morgan Stanley Dean Witter & Co., a global financial services firm
that maintains major market positions in each of its three primary
businesses--securities, asset management and credit services. Morgan Stanley
provides a broad range of portfolio management services to customers in the
United States and abroad and as of December 31, 1997, together with its
affiliated institutional investment managers, managed investments totaling
approximately $146 billion.
Portfolio responsibility for the Global Asset Allocation Series is split between
Morgan Stanley's equity team led by Frances Campion and a team of fixed income
portfolio managers with respect to fixed income securities. Frances Campion
joined Morgan Stanley in 1990 and her responsibilities include the day-to-day
management of the global equity product. Ms. Campion has eleven years global
investment experience and is a Managing Director of Morgan Stanley. The
investment strategy and allocation of the fixed income portion is set by a team
of portfolio managers, the primary members of which are David Germany, Michael
Kushma and David Stanley. David Germany joined Morgan Stanley in 1997 and is a
Managing Director. He has 18 years investment experience and was previously a
partner and portfolio manager at Miller Anderson & Sherrerd, LLP, an investment
advisory firm which was acquired by Morgan Stanley and its affiliates in 1996.
Michael Kushma joined Morgan Stanley & Co. Incorporated in 1987, became a
Principal in 1996, and moved to Morgan Stanley in 1998. David Stanley joined
Morgan Stanley in 1994 and became a Vice President in 1997. He was previously
employed by Aetna Capital Management International, where he had sole
responsibility for managing all European and global fixed income bond funds.
INTERNATIONAL STOCK SERIES. Lazard Asset Management ("Lazard"), 30 Rockefeller
Plaza, New York, New York 10020, is the sub-adviser of the International Stock
Series. Lazard is a division of Lazard Freres & Co. LLC, a New York limited
liability company founded in 1848, which is registered as an investment adviser
with the Commission and is a member of the New York, American and Midwest Stock
Exchanges. Lazard Freres & Co. LLC, provides its clients with a wide variety of
investment banking, brokerage and related services.
Lazard provides investment management services to client discretionary accounts
with assets as of December 31, 1997 totaling approximately $53 billion. Its
clients are both individuals and institutions, some of whose accounts have
investment policies similar to those of the Series.
John R. Reinsberg, a managing director of Lazard, has primary portfolio
management responsibility for the International Stock Series. Mr. Reinsberg has
been primarily responsible for the investment of the assets of the Lazard
International Equity Portfolio of The Lazard Funds, Inc. since 1992. In
addition, Herbert W. Gullquist, a managing director and the Chief Investment
Officer of Lazard Freres since 1982, has overall responsibility for managing the
Series.
S&P 500 INDEX SERIES AND MID CAP STOCK SERIES. The Dreyfus Corporation
("Dreyfus"), 200 Park Avenue, New York, New York 10166, is the sub-adviser to
the S&P 500 Index Series and the Mid Cap Stock 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
27
<PAGE>
("Mellon"). As of March 31, 1998, Dreyfus managed or administered approximately
$100 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 more than $104 billion in assets as of
December 31, 1997, including approximately $30 billion in proprietary mutual
fund assets. As of December 31, 1997, Mellon, through various subsidiaries,
provided non-investment services, such as custodial or administration services,
for more than $1.532 trillion in assets, including approximately $60 billion in
mutual fund assets.
Steven A. Falci has been primarily responsible for the day-to-day management of
Mid Cap Stock Series since its inception. He has been employed by the Mellon
organization since 1994, prior to which he was Managing Director--Pension
Investments for NYNEX Corporation for more than five years before that time.
BLUE CHIP STOCK SERIES. T. Rowe Price Associates, Inc. ("T. Rowe Price"), 100
East Pratt Street, Baltimore, MD 21202, is the sub-adviser of the Blue Chip
Stock Series. T. Rowe Price was founded in 1937, and it and its affiliates
managed over $126 billion for over 6 million individual and institutional
investor accounts as of December 31, 1997. Some of T. Rowe Price's accounts have
investment policies similar to those of the Series.
The Series has an investment advisory committee composed of the following
members: Larry J. Puglia, chairman, Brian W.H. Berghuis, Thomas H. Broadus, Jr.,
Thomas J. Huber, Robert W. Smith and William J. Stromberg. Mr. Puglia has the
day-to-day responsibilities of managing the Series and has been managing
investments since joining T. Rowe Price in 1990.
SMALL CAP VALUE SERIES. Berger Associates, Inc. ("Berger Associates"), 210
University Boulevard, Denver, Colorado 80206, the sub-adviser of the Small Cap
Value Series, has entered into an agreement with Perkins, Wolf, McDonnell &
Company (the "Manager") to provide the day-to-day investment management for the
Series under which Berger Associates will pay the manager an amount equal to .25
of 1% of the average daily net assets of the Series.
Robert H. Perkins has been primarily responsible for the day-to-day management
of Small Cap Value Series since its inception. Mr. Perkins is President and a
Director of the Manager and has been an investment manager since 1970.
LARGE CAP GROWTH SERIES. Alliance Capital Management L.P. ("Alliance"), a
Delaware limited partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, is the sub-adviser of the Large Cap Growth
Series. Alliance is an international investment manager supervising client
accounts with assets as of December 31, 1997 totaling more than $218 billion (of
which approximately $85 billion represented the assets of investment companies).
Alliance's clients are primarily major corporate employee benefit funds, public
employee retirement systems, investment companies, foundations and endowment
funds. The 54 registered investment companies managed by Alliance comprising 116
separate investment portfolios currently have over two million shareholders. As
of December 31, 1997, Alliance was an investment manager of employee benefit
plan assets for 31 of the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), which is a wholly-owned subsidiary of The Equitable
Companies Incorporated, a holding company controlled by AXA-UAP, a French
insurance holding company.
James G. Reilly, a Senior Vice President of Alliance, has been primarily
responsible for the day-to-day management of Large Cap Growth Series since its
inception. Mr. Reilly joined Alliance in 1984 and has been a portfolio manager
on the U.S. Large Cap team since 1988. Mr. Reilly has 14 years investment
experience.
FEES AND EXPENSES
Each Series pays certain operating and management expenses which are calculated
as a percentage of the Series' average daily net assets. Included in these
expenses are investment advisory fees which are paid by each Series pursuant to
an Investment Advisory and Management Agreement between Fortis Series and
Advisers. Advisers has entered into Investment Sub-Advisory Agreements on behalf
of certain Series. For their services, the Sub-Advisers are paid a fee by the
Adviser. For the fiscal year ending December 31, 1997, the ratio of total
operating expenses to average daily net assets, the advisory fee as a percentage
of average daily net assets and the sub-advisory fee as a percentage of average
daily assets for each Series is listed below.
<TABLE>
<CAPTION>
TOTAL OPERATING ADVISORY SUB-ADVISORY
EXPENSE FEE FEE
----------------- ----------- -------------
<S> <C> <C> <C>
Money Market Series 0.38% 0.30% --
U.S. Government Securities Series 0.54% 0.47% --
Diversified Income Series 0.55% 0.47% --
Global Bond Series 1.10% 0.75% 0.35%
High Yield Series 0.62% 0.50% --
Global Asset Allocation Series 1.16% 0.90% 0.50%
Asset Allocation Series 0.53% 0.48% --
Value Series 0.83% 0.70% --
Growth & Income Series 0.70% 0.65% --
S&P 500 Series 0.51% 0.40% 0.17%
Blue Chip Stock Series 1.02% 0.90% 0.50%
International Stock Series 1.08% 0.85% 0.45%
Mid Cap Stock Series* 1.10% 0.90% 0.50%
Small Cap Value Series* 1.10% 0.90% 0.50%
Global Growth Series 0.79% 0.70% --
Large Cap Growth Series* 1.10% 0.90% 0.50%
Growth Stock Series 0.66% 0.61% --
Aggressive Growth Series 0.76% 0.69% --
</TABLE>
- --------------------------
* Total operating expenses are based on estimated amounts for the current
fiscal year since the Series had not commenced operations as of December 31,
1997.
BROKERAGE ALLOCATION
Advisers may consider sales of shares of Fortis Series, and of other funds
advised or administered by Advisers or a sub-adviser may be considered, 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.
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<PAGE>
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.
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.
GENERAL INFORMATION
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.
YEAR 2000
Like other mutual funds, financial and business organizations around the world,
Fortis Series could be adversely affected if the computer systems used by it,
Advisers and other service providers and entities with computer systems that are
linked to Fortis Series records do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 issue." The Series and Advisers and its
affiliates are taking steps that they believe are reasonably designed to address
the Year 2000 issue with respect to the computer systems they use and to obtain
satisfactory assurances that comparable steps are being taken by each of the
Series' other major service providers. However, there can be no assurance that
these steps will be sufficient to avoid any adverse impact on the Series.
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 value of each 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.
Investors, Advisers and Fortis Series each reserve the right to reject any
purchase order.
OFFERING PRICE
The offering prices of each 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
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<PAGE>
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 close of regular trading 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 non-sub-advised Series after 2:00 P.M. Central
Time--and purchases and sales by the sub-advised Series--normally are not
recorded until the following business 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 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. 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. 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. These transfers have the effect of changing a
Contract owners' participation in the various Series. Transfers between
subaccounts are not taxable under current Federal income tax law.
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 contact First
Fortis' office: P.O. Box 3209, Syracuse, New York 13220.
APPENDIX
COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS SERVICES. 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
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<PAGE>
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
Note: Standard & Poor's Corporation ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories. Moody's Investors Service, Inc. applies numerical
modifiers 1, 2 and 3 in each generic rating classification from "Aa" to "B." The
modifier "1" indicates that the applicable company ranks in the higher end of
its generic rating category; the modifier "2" indicates a mid-range ranking; and
the modifier "3" indicates that the applicable company ranks in the lower end of
its generic rating category.
STANDARD & POOR'S RATINGS SERVICES. 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 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.
"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.
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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 RATINGS
Note: Standard & Poor's Corporation ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories. Moody's Investors Service, Inc. applies numerical
modifiers 1, 2 and 3 in each generic rating classification from "Aa" to "B." The
modifier "1" indicates that the applicable company ranks in the higher end of
its generic rating category; the modifier "2" indicates a mid-range ranking; and
the modifier "3" indicates that the applicable company ranks in the lower end of
its generic rating category.
STANDARD & POOR'S RATINGS SERVICES. 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.
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[LOGO]
FORTIS FINANCIAL GROUP
P.O. BOX 64284
ST. PAUL, MN 55164
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 3794
MINNEAPOLIS, MN
PROSPECTUS
MAY 1, 1998
FORTIS
SERIES FUND, INC.
<PAGE>
FORTIS SERIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1998
This Statement of Additional Information is NOT a prospectus, but should be read
in conjunction with the Fortis Series Fund, Inc. ("Fortis Series") Prospectus
dated May 1, 1998. A copy of that prospectus may be obtained from Fortis Series,
P.O. Box 64582, St. Paul, Minnesota 55164.
No broker-dealer, sales representative, or other person has been authorized to
give any information or to make any representations other than those contained
in this Statement of Additional Information, and if given or made, such
information or representations must not be relied upon as having been authorized
by Fortis Benefits Insurance Company ("Fortis Benefits"), First Fortis Life
Insurance Company ("First Fortis"), Fortis Series, or Fortis Investors, Inc.
("Investors"). This Statement of Additional Information does not constitute an
offer or solicitation by anyone in any state in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation.
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TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
ORGANIZATION AND CLASSIFICATION................... 35
INVESTMENT OBJECTIVES AND POLICIES................ 35
- General..................................... 35
- Certificates of Deposit and Bankers'
Acceptances................................. 35
- Mortgage-Related Securities................. 35
- Securities of Foreign Companies............. 37
- Repurchase Agreements....................... 37
- Reverse Repurchase Agreements............... 38
- Extendible Notes............................ 38
- Delayed Delivery Transactions............... 38
- Dollar Rolls................................ 38
- Lending of Portfolio Securities............. 38
- Options..................................... 39
- Futures Contracts and Options on
Futures Contracts........................... 39
- Foreign Currency Forward
Exchange Contracts.......................... 40
- Segregated Accounts......................... 40
- Restricted and Illiquid Securities.......... 40
- Securities of Other Investment Companies.... 40
- Warrants or Rights.......................... 40
- Short Sales Against the Box................. 40
- U.S. Treasury Inflation-Protection
Securities................................... 40
- Investment Restrictions..................... 41
- Risk Factors................................ 47
DIRECTORS AND EXECUTIVE OFFICERS.................. 49
<CAPTION>
PAGE
<S> <C>
INVESTMENT ADVISORY AND OTHER SERVICES............ 51
- General..................................... 51
- Control and Management of Advisers and
Investors................................... 51
- Investment Advisory and Management
Agreement................................... 51
- Sub-Advisory Agreements..................... 52
- Expenses.................................... 53
PORTFOLIO TRANSACTIONS AND ALLOCATION OF
BROKERAGE........................................ 53
CAPITAL STOCK..................................... 55
COMPUTATION OF NET ASSET VALUE AND PRICING........ 56
REDEMPTION........................................ 56
TAXATION.......................................... 56
UNDERWRITER....................................... 57
PERFORMANCE....................................... 57
SYSTEMATIC WITHDRAWAL............................. 59
FINANCIAL STATEMENTS.............................. 60
CUSTODIAN AND COUNSEL............................. 60
LIMITATION OF DIRECTOR LIABILITY.................. 60
ADDITIONAL INFORMATION............................ 60
APPENDIX--DESCRIPTION OF FUTURES, OPTIONS AND
FORWARD CONTRACTS................................ 61
INDEPENDENT AUDITORS' REPORT (Mid Cap Stock
Series, Small Cap Value Series and Large Cap
Growth Series)
- Statements of Assets and Liabilities
- Notes to Financial Statement
</TABLE>
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ORGANIZATION AND CLASSIFICATION
An investment company is an arrangement by which a number of persons invest in a
company that in turn invests in securities of other companies. Fortis Series
operates as an "open-end" investment company and generally must redeem an
investor's shares upon request. Fortis Series is currently made up of eighteen
separate series (the "Series"). Because the Series, except Global Bond Fund
Series, are diversified, they offer investors an opportunity to minimize their
risk by spreading their investment over a number of issuers. However,
diversification cannot eliminate such risks.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
Each Series, except the Global Bond Series, operates as a diversified investment
company as defined under the Investment Company Act of 1940 (the "1940 Act"),
which means that it must meet the following requirements: at least 75% of the
value of its total assets will be represented by cash and cash items (including
receivables), Government securities, securities of other investment companies,
and other securities for the purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value of the
total assets of the Series and to not more than 10% of the outstanding voting
securities of such issuer.
Although Global Bond Series is classified as a nondiversified investment company
under the 1940 Act, Global Bond Series is still required to meet certain
diversification requirements in order to qualify as a "regulated investment
company" for federal income tax purposes under the Internal Revenue Code of
1986, as amended (the "Code"). To so qualify, the Global Bond Series must
diversify its holdings so that, at the close of each quarter of its taxable
year, (a) at least 50% of the value of its total assets is represented by cash,
cash items, securities issued by the U.S. Government, its agencies and
instrumentalities, the securities of other regulated investment companies, and
other securities limited generally with respect to any one issuer to an amount
not more than 5% of the total assets of the Global Bond Series and not more than
10% of the outstanding voting securities of such issuer, and (b) not more than
25% of the value of its total assets is invested in the securities of any issuer
(other than securities issued by the U.S. Government, its agencies or
instrumentalities or the securities of other regulated investment companies), or
in two or more issuers that the Global Bond Series controls and that are engaged
in the same or similar trades or businesses.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES
As noted in the Prospectus, the Series may invest in certificates of deposits.
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
MORTGAGE-RELATED SECURITIES
Consistent with the investment objectives and policies of all but the Aggressive
Growth Series as set forth in the Prospectus, and the investment restrictions
set forth below, the Series may invest in certain types of mortgage-related
securities. 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. These securities provide a monthly
payment, which consists of both an interest and a principal payment, which is in
effect a "pass-through" of the monthly payment made by each individual borrower
on his or her residential mortgage loan, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying residential property,
refinancing or foreclosure, net of fees or costs which may be incurred. Some
certificates (such as those issued by the Government National Mortgage
Association) are described as "modified pass-through." These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, regardless of whether the mortgagor actually makes
the payment.
A major governmental guarantor of pass-through certificates is the Government
National Mortgage Association ("GNMA"). GNMA guarantees, with the full faith and
credit of the United States government, the timely payments of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages. Other governmental guarantors
(but not backed by the full faith and credit of the United States Government)
include the Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA purchases residential mortgages from a
list of approved seller/servicers which include state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers.
(i) GNMA CERTIFICATES. Certificates of the GNMA ("GNMA Certificates")
evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly as
payments of principal, including prepayments, on the mortgages in the
underlying pool are passed through to holders of the GNMA Certificates
representing interests in the pool, rather than returned in a lump sum at
maturity. "Modified pass-through" GNMA Certificates entitle the holder to
receive a share of all interest and principal payments paid or owed to
the mortgage pool, net of fees paid or due to the "issuer" and GNMA,
regardless of whether or not the mortgagor actually makes the payment.
(ii) GNMA GUARANTEE. The National Housing Act authorizes GNMA to
guarantee the timely payment of principal and interest on securities
backed by a pool of mortgages insured by the Federal Housing
Administration ("FHA") or the Farmers' Home Administration ("FmHA"), or
guaranteed by the Veterans Administration ("VA"). GNMA is also empowered
to borrow without limitation from the U.S. Treasury, if necessary, to
make any payments required under its guarantee.
(iii) LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate
is likely to be substantially less than the stated maturity of the
mortgages underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures will usually result in the return of
the greater part of principal investment long before the maturity of the
mortgages in the pool. Foreclosures impose no risk of loss of the
principal balance of a Certificate, because of the GNMA guarantee, but
foreclosure may impact the yield to shareholders because of the need to
reinvest proceeds of foreclosure.
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As prepayment rates of individual mortgage pools vary widely, it is not
possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA indicate that
the average life of single family dwelling mortgages with 25 to 30-year
maturities, the type of mortgages backing the vast majority of GNMA
Certificates, is approximately 12 years. Prepayments are likely to
increase in periods of falling interest rates. It is customary to treat
GNMA Certificates as 30-year mortgage-backed securities which prepay
fully in the twelfth year.
(iv) YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
interest of GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the certificates, by
the amount of the fees paid to GNMA and the issuer.
The coupon rate by itself, however, does not indicate the yield which
will be earned on GNMA Certificates. First, GNMA Certificates may be
issued at a premium or discount, rather than at par, and, after issuance,
GNMA Certificates may trade in the secondary market at a premium or
discount. Second, interest is earned monthly, rather than semi-annually
as with traditional bonds; monthly compounding raises the effective yield
earned. Finally, the actual yield of a GNMA Certificate is influenced by
the prepayment experience of the mortgage pool underlying it. For
example, if interest rates decline, prepayments may occur faster than had
been originally projected and the yield to maturity and investment income
would be reduced.
(v) FHLMC SECURITIES. "FHLMC" is a federally chartered corporation
created in 1970 through enactment of Title III of the Emergency Home
Finance Act of 1970. Its purpose is to promote development of a
nationwide secondary market in conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made or owed on the
underlying pool. The FHLMC guarantees timely payment of interest on PCs
and the ultimate payment of principal. Like GNMA Certificates, PCs are
assumed to be prepaid fully in their twelfth year.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a
year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years.
(vi) FNMA SECURITIES. "FNMA" is a federally chartered and privately owned
corporation which was established in 1938 to create a secondary market in
mortgages insured by the FHA. It was originally established as a
government agency and was transformed into a private corporation in 1968.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all interest and
principal payments made or owed on the underlying pool. FNMA guarantees
timely payment of interest on FNMA certificates and the full return of
principal. Like GNMA Certificates, FNMA Certificates are assumed to be
prepaid fully in their twelfth year.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the pass-through certificates. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
governmental pools because there are no direct or indirect governmental
guarantees of payments in the former pools. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool, and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers,
and the mortgage poolers.
Fortis Series expects that governmental or private entities may create mortgage
loan pools offering pass-through investments in addition to those described
above. As new types of pass-through securities are developed and offered to
investors, the Series may, consistent with their investment objectives, policies
and restrictions, consider making investments in such new types of securities.
Other types of mortgage-related securities include debt securities which are
secured, directly or indirectly, by mortgages on commercial real estate or
residential rental properties, or by first liens on residential manufactured
homes (as defined in section 603(6) of the National Manufactured Housing
Construction and Safety Standards Act of 1974), whether such manufactured homes
are considered real or personal property under the laws of the states in which
they are located.
Securities in this investment category include, among others, standard
mortgage-related bonds and newer collateralized mortgage obligations (CMOs).
Mortgage-related bonds are secured by pools of mortgages, but, unlike
pass-through securities, payments to bondholders are not determined by payments
on the mortgages. The bonds consist of a single class, with interest payable
monthly and principal payable on the stated date of maturity. CMO's have
characteristics of both pass-through securities and mortgage-related bonds.
CMO's are secured by pools of mortgages, typically in the form of "guaranteed"
pass-through certificates such as GNMA, FNMA, or FHLMC securities. The payments
on the collateral securities determine the payments to the bondholders, but
there is not a direct "pass-through" of payments. CMO's are structured into
multiple classes, each bearing a different date of maturity. Monthly payments of
principal received from the pool of underlying mortgages, including prepayments,
is first returned to investors holding the shortest maturity class. Investors
holding the longest maturity classes receive principal only after the shorter
maturity classes have been retired.
CMO's are issued by entities that operate under orders from the Securities and
Exchange Commission (the SEC) exempting such issuers from the provisions of the
1940 Act. Until recently, the staff of the SEC had taken the position that such
issuers were investment companies and that, accordingly, an investment by an
investment company (such as the Series) in the securities of such issuers was
subject to limitations imposed by Section 12 of the 1940 Act. However, in
reliance on a recent SEC staff interpretation, the Series may invest in
securities issued by certain "exempted issuers" without regard to the
limitations of Section 12 of the 1940 Act. In its interpretation, the SEC staff
defined "exempted issuers" as unmanaged, fixed asset issuers that (a) invest
primarily in mortgage-backed securities, (b) do not issue redeemable securities
as defined in Section 2(a)(32) of the 1940 Act, (c) operate under general
exemptive orders exempting them from "all provisions of the [1940] Act" and (d)
are not registered or regulated under the 1940 Act as investment companies.
There are many classes of CMOs. There are IOs, which entitle the holder to
receive distributions consisting solely or primarily of all or a portion of the
interest in Mortgage Assets. There are also "POs," which entitle the holder to
receive distributions consisting solely or primarily of all or a portion of the
principal of the underlying pool of Mortgage Assets. In addition, there
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are "inverse floaters," which have a coupon rate that moves in the reverse
direction to an applicable index, and accrual (or "Z") bonds, which are
described below.
As to IOs, POs, inverse floaters, and accrual bonds, not more than 5% of the net
assets of each of U.S. Government Securities Series, Diversified Income Series,
Global Bond Series, High Yield Series, Global Asset Allocation Series, Asset
Allocation Series and International Stock Series will be invested in any one of
these items at any one time, and no more than 10% of the net assets of each of
such series will be invested in all such obligations at any one time. Not more
than 5% of the Global Growth Series' net assets collectively will be invested in
such obligations at any time.
Inverse floating CMOs are typically more volatile than fixed or adjustable rate
tranches of CMOs. Investments in inverse floating CMOs would be purchased by the
Series to attempt to protect against a reduction in the income earned on the
Series' investments due to a decline in interest rates. The Series would be
adversely affected by the purchase of such CMOs in the event of an increase in
interest rates since the coupon rate thereon will decrease as interest rates
increase, and, like other mortgage-backed securities, the value will decrease as
interest rates increase.
The cash flows and yields on IO and PO classes are extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
pool of mortgage loans or mortgage-backed securities ("Mortgage Assets"). For
example, a rapid or slow rate of principal payments may have a material adverse
effect on the yield to maturity of IOs or POs, respectively. If the underlying
Mortgage Assets experience greater than anticipated prepayments of principal,
the holder of an IO may incur substantial losses, even if the IO class is rated
AAA. Conversely, if the underlying Mortgage Assets experience slower than
anticipated prepayments of principal, the yield and market value for the holder
of a PO will be affected more severely than would be the case with a traditional
Mortgage Backed Security.
However, if interest rates were expected to rise, the value of an IO might
increase and may partially offset other bond value declines, and if rates were
expected to fall, the inclusion of POs could balance lower reinvestment rates.
An accrual or "Z" bond holder is not entitled to receive cash payments until one
or more other classes of the CMO have been paid in full from payments on the
mortgage loans underlying the CMO. During the period in which cash payments are
not being made on the Z tranche, interest accrues on the Z tranche at a stated
rate, and this accrued interest is added to the amount of principal which is due
to the holder of the Z tranche. After the other classes have been paid in full,
cash payments are made on the Z tranche until its principal (including
previously accrued interest which was added to principal, as described above)
and accrued interest at the stated rate have been paid in full. Generally, the
date upon which cash payments begin to be made on a Z tranche depends on the
rate at which the mortgage loans underlying the CMO are prepaid, with a faster
prepayment rate resulting in an earlier commencement of cash payments on the Z
tranche. Like a zero coupon bond, during its accrual period the Z tranche of a
CMO has the advantage of eliminating the risk of reinvesting interest payments
at lower rates during a period of declining market interest rates. At the same
time, however, and also like a zero coupon bond, the market value of a Z tranche
can be expected to fluctuate more widely with changes in market interest rates
than would the market value of a tranche which pays interest currently. Changes
in market interest rates also can be expected to influence prepayment rates on
the mortgage loans underlying the CMO of which a Z tranche is a part. As noted
above, such changes in prepayment rates will affect the date at which cash
payments begin to be made on a Z tranche, and therefore also will influence its
market value.
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 by the issuer 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
Fortis Series. Because investments in mortgage-related securities are interest
sensitive, the ability of the issuer to reinvest or to reinvest favorably in
underlying mortgages may be limited by government regulation or tax policy. For
example, action by the Board of Governors of the Federal Reserve System to limit
the growth of the nation's money supply may cause interest rates to rise and
thereby reduce the volume of new residential mortgages. Additionally, although
mortgages and mortgage-related securities are generally supported by some form
of government or private guarantees and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligations.
SECURITIES OF FOREIGN COMPANIES
In certain countries, governmental restrictions and other limitations on
investment may affect the maximum percentage of equity ownership in any one
company. In addition, in some instances only special classes of securities may
be purchased by foreigners, and the market prices, liquidity, and rights with
respect to those securities may vary from shares owned by nationals. Money
Market Series, U.S. Government Securities Series and Asset Allocation Series
each may invest in securities of, or guaranteed by, the Government of Canada, a
Province of Canada, or any instrumentality or political subdivision thereof in
an amount not exceeding 25% of the value of its total assets. Money Market
Series and Asset Allocation Series each may invest up to an additional 15% and
20%, respectively of its total assets in securities of foreign companies (which
does not include domestic branches of foreign banks and foreign branches of
domestic banks), provided that no more than 15% of Asset Allocation Series'
total assets may be invested in foreign securities that are not traded on
national foreign securities exchanges or traded in the United States. However,
these Series each 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. High Yield Series,
Value Series, Growth & Income Series, Growth Stock Series, and Aggressive Growth
Series each may invest up to 10% of its total assets in securities of foreign
governments and companies. The Small Cap Value Series may invest in foreign
securities without limitation.
Investing in foreign securities may result in greater risk than that incurred by
investing in domestic securities. See "Risk Factors."
REPURCHASE AGREEMENTS
Each Series may invest in repurchase agreements. A repurchase agreement is an
instrument under which securities are purchased from a bank or securities dealer
with an agreement by the seller to repurchase the securities at a mutually
agreed upon date, interest rate, and price. Generally, repurchase agreements are
of short duration, usually less than a week, but on occasion for longer periods.
Each Series investment in repurchase agreements with a maturity of more than
seven days is subject to the Series' limitations regarding restricted and
illiquid securities. In investing in repurchase agreements, a Series' risk is
limited to the ability of such bank or securities dealer to pay the agreed upon
amount at the maturity of the repurchase agreement. In the opinion of
management, such risk is not material; if the other party defaults, the
underlying security constitutes collateral for the obligation to pay--although
the Series may incur certain delays in obtaining direct ownership of the
collateral, plus costs in liquidating the collateral. In the event a bank or
securities dealer defaults on the
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repurchase agreement, management believes that, barring extraordinary
circumstances, the Series will be entitled to sell the underlying securities or
otherwise receive adequate protection (as defined in the federal Bankruptcy
Code) for its interest in such securities. To the extent that proceeds from any
sale upon a default were less than the repurchase price, the Series could suffer
a loss. If the Series owns underlying securities following a default on the
repurchase agreement, the Series will be subject to risk associated with changes
in the market value of such securities. The Series' custodian will hold the
securities underlying any repurchase agreement or such securities may be part of
the Federal Reserve Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
of the repurchase agreement (including any accrued interest), the Series will
promptly receive additional collateral (so the total collateral is in an amount
at least equal to the repurchase price plus accrued interest). The Board of
Directors of Fortis Series (the "Board of Directors") evaluates the
creditworthiness of issuers which are securities dealers.
U.S. Government Securities Series will only execute repurchase agreements in
which the underlying security meets the criteria of the Series' investment
policies. U.S. Government Securities Series will limit transactions involving
repurchase agreements to domestic commercial banks and/or recognized dealers in
United States government securities believed by Advisers to present minimum
credit risks.
REVERSE REPURCHASE AGREEMENTS
S&P 500 Index Series, Blue Chip Stock Series and Mid Cap Stock Series each may
enter into reverse repurchase agreements to meet redemption requests where the
liquidation of portfolio securities is deemed by such Series to be inconvenient
or disadvantageous, although Blue Chip Stock Series does not currently intend to
make such investments. Reverse repurchase agreements are ordinary repurchase
agreements in which a Series is the seller of, rather than the investor in,
securities, and agrees to repurchase them at an agreed upon time and price. Use
of a reverse repurchase agreement may be preferable to a regular sale and later
repurchase of the securities because it avoids certain market risks and
transaction costs. A reverse repurchase agreement may be viewed as a type of
borrowing by the Series.
EXTENDIBLE NOTES
Money Market Series, Global Bond Series, Global Asset Allocation Series and
Asset Allocation Series each are permitted to invest up to 25% of the value of
its total assets in extendible notes. An extendible note is a debt arrangement
under which the holder, at its option, may require the issuer, typically a
financial or an industrial concern, to repurchase the note for a predetermined
fixed price at one or more times prior to the ultimate maturity date of the
note. Typically, an extendible note is issued at an interest rate that can be
adjusted at fixed times throughout its term. At the same times as the interest
rate is adjusted by the issuer, the holder of the note is typically given the
option to "put" the note back to the issuer at a predetermined price, e.g., at
100% of the outstanding principal amount plus unpaid accrued interest, if the
extended interest rate is undesirable to the holder. This option to put the note
back to the issuer, i.e., to require the issuer to repurchase the note, provides
the holder with an optional maturity date that is shorter than the actual
maturity date of the note.
Extendible notes are typically issued with maturity dates in excess of 13 months
from the date of issuance. If such extendible notes provide for an optional
maturity date of 13 months or less, however, then such notes are deemed by these
Series to have been issued for the shorter optional maturity date. Accordingly,
investment in such extendible notes would not be in contravention of the
investment policy of the Series not to invest in securities having a maturity
date in excess of 13 months from the date of acquisition. Investment in
extendible notes is not expected to have a material impact on the effective
portfolio maturity of these Series.
An investment in an extendible note is liquid, and the note may be resold to
another investor prior to its optional maturity date at its market value. The
market value of an extendible note with a given optional maturity date is
determined and fluctuates in a similar manner to the market value of a fixed
maturity note with a maturity equivalent to the optional maturity of the
extendible note. Compared to fixed-term notes of the same issuer, however,
extendible notes with equivalent optional maturities generally yield higher
returns without a material increase in risk to the Series buying them.
The creditworthiness of the issuers of the extendible notes is monitored and
rated by Moody's and by S&P, and investments by these Series in such extendible
notes are restricted to notes with the same investment ratings as are acceptable
to the Series with respect to other forms of investment. The creditworthiness of
such issuers is also monitored by Advisers (as well as the sub-adviser for
Global Bond Series and Global Asset Allocation Series).
DELAYED DELIVERY TRANSACTIONS
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.
DOLLAR ROLLS
In connection with their ability to purchase securities on a when-issued or
forward commitment basis, each Series other than Money Market Series and Growth
Stock Series may enter into "dollar rolls" in which a Series sells securities
for delivery in the current month and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date. Each Series gives up the right
to receive principal and interest paid on the securities sold. However, each
Series would benefit to the extent of any difference between the price received
for the securities sold and the lower forward price for the future purchase plus
any fee income received. Unless such benefits exceed the income and capital
appreciation that would have been realized on the securities sold as part of the
dollar roll, the use of this technique will diminish the investment performance
of each Series compared with what such performance would have been without the
use of dollar rolls. Each Series will hold and maintain in a segregated account
until the settlement date cash or any security that is not considered restricted
or illiquid in an amount equal to the value of the when-issued or forward
commitment securities. The benefits derived from the use of dollar rolls may
depend, among other things, upon Adviser's (or the sub-adviser's) ability to
predict interest rates correctly. There is no assurance that dollar rolls can be
successfully employed. In addition, the use of dollar rolls by a Series while
remaining substantially fully invested increases the amount of each Series'
assets that are subject to market risk to an amount that is greater than each
Series' net asset value, which could result in increased volatility of the price
of each Series' shares.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, Global Bond Series, High
Yield Series, Global Asset Allocation Series, Value Series, Growth & Income
Series, S&P 500 Index Series, Blue Chip Stock Series,
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International Stock Series, Mid Cap Stock Series, Small Cap Value Series, Global
Growth Series, Large Cap Growth Series and Aggressive Growth Series, may lend
their portfolio securities (principally to broker-dealers) where such loans are
callable at any time and are continuously secured by collateral (cash, U.S.
government securities, certificates of deposit, or other high-grade, short-term
obligations or interest-bearing cash equivalents) equal to no less than the
market value, determined daily, of the securities loaned. Such Series will
receive amounts equal to dividends or interest on the securities loaned. These
Series will also earn income for having made the loan. Such Series will limit
such lending to not more than 33 1/3% of the value of each such Series' total
assets and Global Growth Series will limit such lending to not more than 30% of
the value of its total assets (for each such Series, including the amount lent
as well as the collateral securing such loans). Where voting or consent rights
with respect to loaned securities pass to the borrower, management will follow
the policy of calling the loan, in whole or in part as may be appropriate, to
permit the exercise of such voting or consent rights if the issues involved have
a material effect on such Series investment in the securities loaned. Apart from
lending its securities, investing in repurchase agreements, and acquiring debt
securities, as described in the Prospectus and Statement of Additional
Information, these Series will not make loans to other persons.
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
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.
OPTIONS
As provided below, in order to protect against declines in the value of Series
securities or increases in the costs of securities to be acquired and in order
to increase the gross income of Global Growth Series, the Series may enter into
transactions in options on a variety of instruments and indices. The types of
instruments to be purchased and sold are further described in the Appendix of
this Statement of Additional Information, which should be read in conjunction
with the following sections.
OPTIONS ON SECURITIES. Global Bond Series, High Yield Series, Global Asset
Allocation Series, Value Series, Growth & Income Series, Blue Chip Stock Series,
International Stock Series, Global Growth Series and Aggressive Growth Series
may write (sell) covered call and covered put options and purchase call and put
options on securities (provided that International Stock Series and Aggressive
Growth Series will write and purchase options only on equity securities and
Global Bond Series and High Yield Series will write and purchase options only on
debt securities). Where such Series write an option which expires unexercised or
is closed out by such Series at a profit, it will retain all or a portion of the
premium received for the option, which will increase its gross income and will
offset in part the reduced value of any such Series' security underlying the
option, or the increased cost of such Series' securities to be acquired. In
contrast, however, if the price of the underlying security moves adversely to
such Series' position, the option may be exercised and such Series will be
required to purchase or sell the underlying security at a disadvantageous price,
which may only be partially offset by the amount of the premium, if at all. Such
Series may also write combinations of put and call options on the same security,
known as "straddles." Such transactions can generate additional premium income
but also present increased risk.
Such Series may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the prices
of securities that such Series wants to purchase at a later date. In the event
that the expected market fluctuations occur, such Series may be able to offset
the resulting adverse effect on its portfolio, in whole or in part, through the
options purchased. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized by such Series upon
exercise or liquidation of the option, and, unless the price of the underlying
security changes sufficiently, the option may expire without value to such
Series.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS. Global Bond Series, High Yield Series, Global Asset
Allocation Series, Blue Chip Stock Series, International Stock Series, Mid Cap
Stock Series and Global Growth Series may enter into interest rate futures
contracts. Global Bond Series, Global Asset Allocation Series, Value Series,
Growth & Income Series, S&P 500 Index Series, Blue Chip Stock Series,
International Stock Series, Mid Cap Stock Series, Small Cap Value Series, Global
Growth Series, Large Cap Growth Series and Aggressive Growth Series may enter
into stock index futures contracts for hedging purposes. Global Bond Series,
High Yield Series, Global Asset Allocation Series, Blue Chip Stock Series,
International Stock Series, Mid Cap Stock Series, Small Cap Value Series, Global
Growth Series, Large Cap Growth Series and Aggressive Growth Series may also
enter into foreign currency futures contracts. (Unless otherwise specified,
interest rate futures contracts, stock index futures contracts and foreign
currency futures contracts are collectively referred to as "Futures Contracts.")
Purchases or sales of stock index futures contracts are used to attempt to
protect current or intended stock investments from broad fluctuations in stock
prices. Interest rate and foreign currency futures contracts are purchased or
sold to attempt to hedge against the effects of interest or exchange rate
changes on a Series' current or intended investments in fixed income or foreign
securities. In the event that an anticipated decrease in the value of a Series'
securities occurs as a result of a general stock market decline, a general
increase in interest rates, or a decline in the dollar value of foreign
currencies in which portfolio securities are denominated, the adverse effects of
such changes may be offset, in whole or in part, by gains on the sale of Futures
Contracts. Conversely, the increased cost of a Series' securities to be
acquired, caused by a general rise in the stock market, a general decline in
interest rates, or a rise in the dollar value of foreign currencies, may be
offset, in whole or in part, by gains on Futures Contracts purchased by such
Series. The Series will incur brokerage fees when it purchases and sells Futures
Contracts, and it will be required to make and maintain margin deposits.
OPTIONS ON FUTURES CONTRACTS. Global Bond Series, High Yield Series, Global
Asset Allocation Series, Blue Chip Stock Series, Mid Cap Stock Series and Global
Growth Series, may purchase and write options to buy or sell interest rate
futures contracts. In addition, the Global Asset Allocation Series, Value
Series, Growth & Income Series, Blue Chip Stock Series, International Stock
Series, Mid Cap Stock Series, Global Growth Series and Aggressive Growth Series,
may purchase and write options on stock index futures contracts. Global Bond
Series, High Yield Series, Global Asset Allocation Series, Blue Chip Stock
Series, International Stock Series, Mid Cap Stock Series, Global Growth Series
and Aggressive Growth Series may purchase and write options on foreign currency
futures contracts. (Unless otherwise specified, options on interest rate futures
contracts, options on stock index futures contracts, and options on foreign
currency futures contracts are collectively referred to as "Options on Futures
Contracts.") Such investment strategies will be used as a hedge and not for
speculation.
Put and call Options on Futures Contracts may be traded by the Global Bond
Series, High Yield Series, Global Asset Allocation Series, Value Series, Growth
& Income Series, Blue Chip Stock Series, International Stock Series, Global
Growth Series and Aggressive Growth Series in order to protect against declines
in the values of such Series securities or against increases in the cost of
securities to be acquired. Purchases of Options on
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Futures Contracts may present less risk in hedging than the purchase or sale of
the underlying Futures Contracts since the potential loss is limited to the
amount of the premium plus related transaction costs. The writing of such
options, however, does not present less risk than the trading of futures
contracts and will constitute only a partial hedge, up to the amount of the
premium received, and, if an option is exercised, these Series may suffer a loss
on the transaction.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS
For a discussion of foreign currency forward exchange contracts, see "Investment
Policies, Restrictions, and Risks Applicable to More Than One Series--Foreign
Currency Forward Exchange Contracts" in the Prospectus.
OPTIONS ON FOREIGN CURRENCIES. Global Bond Series, High Yield Series, Global
Asset Allocation Series, Blue Chip Stock Series, International Stock Series, Mid
Cap Stock Series, Global Growth Series and Aggressive Growth Series may purchase
and write put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of foreign portfolio securities
and against increases in the dollar cost of foreign securities to be acquired.
As in the case of other types of options, however, the writing of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received, and these Series could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although, in the event of rate movements
adverse to such Series' position, it may forfeit the entire amount of the
premium plus related transaction costs. As in the case of foreign currency
forward exchange contracts, certain options on foreign currencies are traded
over-the-counter and involve risks which may not be present in the case of
exchange-traded instruments.
SEGREGATED ACCOUNTS
To comply with the 1940 Act, a Series engaging in certain transactions involving
options, futures, reverse repurchase agreements, delayed delivery and forward
contracts on foreign currencies will "cover" its positions by establishing a
segregated account. These segregated accounts will be established and maintained
with the Fortis Series' custodian and will contain only liquid assets such as
cash, or any security that is not considered restricted or illiquid.
RESTRICTED AND ILLIQUID SECURITIES
The Series' policies and limitations regarding investments in restricted and
illiquid securities are set forth in the Prospectus and in "--Investment
Restrictions" below.
A security is considered illiquid if it cannot be sold in the ordinary course of
business within seven days at approximately the price at which it is valued.
Illiquid securities may offer a higher yield than securities which are more
readily marketable, but they may not always be marketable on advantageous terms.
The sale of illiquid securities often requires more time and results in higher
brokerage charges or dealer discounts and other selling expenses than does the
sale of securities eligible for trading on national securities exchanges or in
the over-the-counter markets. A Series may be restricted in its ability to sell
such securities at a time when Advisers or a sub-adviser deems it advisable to
do so. In addition, in order to meet redemption requests, a Series may have to
sell other assets, rather than such illiquid securities, at a time which is not
advantageous.
Restricted securities are securities which were originally sold in private
placements and which have not been registered under the Securities Act of 1933
(the "1933 Act"). Such securities generally have been considered illiquid, since
they may be resold only subject to statutory restrictions and delays or if
registered under the 1933 Act. In 1990, however, the SEC adopted Rule 144A under
the 1933 Act, which provides a safe harbor exemption from the registration
requirements of the 1933 Act for resales of restricted securities to "qualified
institutional buyers," as defined in the rule. The result of this rule has been
the development of a more liquid and efficient institutional resale market for
restricted securities. Thus, restricted securities are no longer necessarily
illiquid. Some Series may therefore invest in Rule 144A securities and treat
them as liquid when they have been determined to be liquid by the Board of
Directors or its delegate subject to the oversight of and pursuant to procedures
adopted by the Board of Directors. Under these procedures, factors taken into
account in determining the liquidity of a security include (a) the frequency of
trades and quotes for the security; (b) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; (c)
dealer undertakings to make a market in the security; and (d) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). Similar determinations may be made with respect to commercial paper
issued in reliance on the so-called "private placement" exemption from
registration under Section 4(2) of the 1933 Act and interest-only and
principal-only classes of mortgage-related securities issued by the U.S.
government or its agencies or instrumentalities.
SECURITIES OF OTHER INVESTMENT COMPANIES
Some Series may purchase the securities of open-end or closed-end investment
companies if such purchases are in compliance with the 1940 Act. If a Series
invests in securities of other investment companies, the return on any such
investments will be reduced by the operating expenses, including investment
advisory and administrative fees, of such investment companies. (Such Series
indirectly absorbs its pro rata share of the other investment companies'
expenses.) However, Advisers believes that at times the return and liquidity
features of these securities will be more beneficial than other types of
securities.
WARRANTS OR RIGHTS
Warrants or rights may be acquired (no more than 5% of net assets, valued at the
lower of cost or market) by Global Asset Allocation Series, S&P 500 Index
Series, Blue Chip Stock Series, International Stock Series, Mid Cap Stock
Series, Small Cap Value Series, Global Growth Series and Large Cap Growth Series
in connection with other securities or separately. Warrants provide such Series
with the right to purchase at a later date other securities of the issuer.
Warrants or rights acquired by such Series in units or attached to securities
will be deemed to be without value for purpose of this restriction.
SHORT SALES AGAINST THE BOX
Each of Global Bond Series, High Yield Series, Global Asset Allocation Series,
Value Series, Growth & Income Series, S&P 500 Index Series, International Stock
Series, Mid Cap Stock Series, Global Growth Series and Aggressive Growth Series
may sell a security to the extent such Series contemporaneously owns or has the
right to obtain securities identical to those sold short without payment of any
additional consideration. Such a short sale is referred to as a short sale
"against the box." The aggregate market value of the underlying securities
subject to all outstanding short sales may not exceed 5% of the net assets of
the Series.
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U.S. TREASURY INFLATION-PROTECTION SECURITIES
Each Series may invest in U.S. Treasury inflation-protection securities.
Inflation-protection securities are new types of marketable book-entry
securities issued by the United States Department of Treasury ("Treasury") with
a nominal return linked to the inflation rate in prices. Inflation-protection
securities are auctioned and issued on a quarterly basis on the 15th of January,
April, July, and October. Initially, they will be issued as 10-year notes, with
other maturities added thereafter. The index used to measure inflation will be
the non-seasonally adjusted U.S. City Average All Items Consumer Price Index for
All Urban Consumers ("CPI-U").
The value of the principal will be adjusted for inflation, and every six months
the security will pay interest, which will be an amount equal to a fixed
percentage of the inflation-adjusted value of the principal. The final payment
of principal of the security will not be less than the original par amount of
the security at issuance.
The principal of the inflation-protection security will be indexed to the non-
seasonally adjusted CPI-U. To calculate the inflation-adjusted principal value
for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of the reference CPI applicable to such date to the
reference CPI applicable to the original issue date. Semiannual coupon interest
is determined by multiplying the inflation-adjusted principal amount by one-half
of the stated rate of interest on each interest payment date.
Inflation-adjusted principal or the original par amount, whichever is larger,
will be paid on the maturity date as specified in the applicable offering
announcement. If at maturity the inflation-adjusted principal is less than the
original principal value of the security, an additional amount will be paid at
maturity so that the additional amount plus the inflation-adjusted principal
equals the original principal amount. Some inflation-protection securities may
be stripped into principal and interest components. In the case of a stripped
security, the holder of the stripped principal would receive this additional
amount. The final interest payment, however, will be based on the final
inflation-adjusted principal value, not the original par amount.
The reference CPI for the first day of any calendar month is the CPI-U for the
third preceding calendar month. (For example, the reference CPI for December 1
is the CPI-U reported for September of the same year, which is released in
October.) The reference CPI for any other day of the month is calculated by a
linear interpolation between the reference CPI applicable to the first day of
the month and the reference CPI applicable to the first day of the following
month.
Any revisions the Bureau of Labor Statistics (or successor agency) makes to any
CPI-U number that has been previously released will not be used in calculations
of the value of outstanding inflation-protection securities. In the case that
the CPI-U for a particular month is not reported by the last day of the
following month, the Treasury will announce an index number based on the last
year-over-year CPI-U inflation rate available. Any calculations of the
Treasury's payment obligations on the inflation-protection security that need
that month's CPI-U number will be based on the index number that the Treasury
has announced. If the CPI-U is rebased to a different year, the Treasury will
continue to use the CPI-U series based on the base reference period in effect
when the security was first issued as long as that series continues to be
published. If the CPI-U is discontinued during the period the
inflation-protection security is outstanding, the Treasury will, in consultation
with the Bureau of Labor Statistics (or successor agency), determine an
appropriate substitute index and methodology for linking the discontinued series
with the new price index series. Determinations of the Secretary of the Treasury
in this regard are final.
Inflation-protection securities will be held and transferred in either of two
book-entry systems: the commercial book-entry system (TRADES) and TREASURY
DIRECT. The securities will be maintained and transferred at their original par
amount, i.e., not at their inflation-adjusted value. STRIPS components will be
maintained and transferred in TRADES at their value based on the original par
amount of the fully constituted security.
INVESTMENT RESTRICTIONS
Certain investment restrictions are fundamental to the operation of the Series
and may not be changed except with the approval of the holders of a majority of
the outstanding shares of the Series affected. For this purpose, "majority of
the outstanding voting securities" means the lesser of (i) 67% of the
outstanding shares of the affected Series present at the meeting of shareholders
if more than 50% of the outstanding shares of the affected Series are present in
person or by proxy, or (ii) more than 50% of the outstanding shares of the
affected Series. For a discussion of contract owner voting privileges, see the
accompanying Prospectus pertaining to the Contract.
INVESTMENT RESTRICTIONS OF MONEY MARKET SERIES, U.S. GOVERNMENT SECURITIES
SERIES, DIVERSIFIED INCOME SERIES, ASSET ALLOCATION SERIES AND GROWTH STOCK
SERIES. As a result of the following fundamental investment restrictions, except
as otherwise noted below, Money Market Series, U.S. Government Securities
Series, Diversified Income Series, Asset Allocation Series and Growth Stock
Series will not:
(1) Purchase securities on margin or otherwise borrow money or issue senior
securities, except that U.S. Government Securities Series, Diversified Income
Series and Asset Allocation Series, in accordance with their investment
objectives and policies, may purchase securities on a when-issued and delayed
delivery basis, within the limitations set forth in the Prospectus and Statement
of Additional Information. Fortis Series may also obtain such short-term credit
as it needs for the clearance of securities transactions, and may borrow from a
bank, for the account of Money Market Series, U.S. Government Securities Series,
Diversified Income Series, Asset Allocation Series and Growth Stock Series, as a
temporary measure to facilitate redemptions (but not for leveraging or
investment) in an amount that does not exceed 10% of the value of such Series'
total assets. Investment securities will not be purchased for a Series while
outstanding bank borrowings exceed 5% of the value of such Series' total assets.
(2) Write, purchase or sell puts, calls or combinations thereof.
(3) Mortgage, pledge or hypothecate its assets, except in an amount not
exceeding 10% of the value of its total assets to secure temporary or emergency
borrowing.
(4) Invest in commodities or commodity contracts.
(5) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, Fortis
Series may be deemed an underwriter under applicable laws.
(6) Participate on a joint, or a joint and several, basis in any securities
trading account.
(7) Invest in real estate, except a Series may invest in securities issued by
companies owning real estate or interests therein.
(8) Makes loans to other persons. Repurchase agreements and the purchase of
publicly traded debt obligations are not considered to be "loans" for this
purpose and may be entered into or purchased by a Series in accordance with its
investment objectives and policies.
(9) Concentrate its investments in any particular industry, except that (i)
it may invest up to 25% of the value of its total assets in any
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particular industry, and (ii) there is no limitation with respect to investments
in obligations issued or guaranteed by the United States Government or its
agencies and instrumentalities, or obligations of domestic commercial banks. As
to utility companies, gas, electric, water and telephone companies will be
considered as separate industries. As to finance companies, the following
categories will be considered as separate industries: (a) captive automobile
finance, such as General Motors Acceptance Corp. and Ford Motor Credit Corp.;
(b) captive equipment finance companies, such as Honeywell Finance Corporation
and General Electric Credit Corp.; (c) captive retail finance companies, such as
Macy Credit Corp. and Sears Roebuck Acceptance Corp.; (d) consumer loan
companies, such as Beneficial Finance Corporation and Household Finance
Corporation; (e) diversified finance companies such as CIT Financial Corp.,
Commercial Credit Corporation and Borg Warner Acceptance Corp.; and (f) captive
oil finance companies, such as Shell Credit, Inc., Mobil Oil Credit Corp. and
Texaco Financial Services, Inc. [For purposes of this restriction, securities of
each foreign government will be considered a separate "industry".]
(10) Purchase from or sell to any officer, director, or employee of Fortis
Series, or its adviser or underwriter, or any of their officers or directors,
any securities other than shares of Fortis Series' common stock.
(11) Make short sales, except for sales "against the box." While a short sale
is made by selling a security the Series does not own, a short sale is "against
the box" to the extent that the Series contemporaneously owns or has the right
to obtain securities identical to those sold short at no added cost.
(12) Invest more than 5% of the value of its assets in restricted securities.
The following non-fundamental investment restrictions may be changed by the
Board of Directors without shareholder approval. Money Market Series, U.S.
Government Securities Series, Diversified Income Series, Asset Allocation Series
and Growth Stock Series will not:
(1) Purchase securities of open-end or closed-end investment companies except
in compliance with the 1940 Act.
(2) Invest in a company for the purposes of exercising control or management.
(3) Buy or sell foreign exchange, except as incidental to the purchase or
sale of permissible foreign investments.
(4) Investment in securities which would expose such Series to liabilities
exceeding the amount invested.
(5) Invest in interests (including partnership interests) in oil, gas, or
other mineral exploration or development programs, except it may purchase or
sell securities issued by corporations engaging in oil, gas, or other mineral
exploration or development business.
(6) Invest more than an aggregate of 10% of their total assets in restricted
securities (both debt and equity) or in equity securities which are not readily
marketable.
INVESTMENT RESTRICTIONS OF HIGH YIELD SERIES, VALUE SERIES, GROWTH & INCOME
SERIES AND AGGRESSIVE GROWTH SERIES. As a result of the following fundamental
investment restrictions, except as otherwise noted below, High Yield Series,
Value Series, Growth & Income Series and Aggressive Growth Series will not:
(1) Concentrate its investments in any particular industry, except that (i)
it may invest up to 25% of the value of its total assets in any particular
industry, and (ii) there is no limitation with respect to investments in
obligations issued or guaranteed by the United States Government or its agencies
and instrumentalities, or obligations of domestic commercial banks. As to
utility companies, gas, electric, water and telephone companies will be
considered as separate industries. As to finance companies, the following
categories will be considered as separate industries: (a) captive automobile
finance, such as General Motors Acceptance Corp. and Ford Motor Credit Corp.;
(b) captive equipment finance companies, such as Honeywell Finance Corporation
and General Electric Credit Corp.; (c) captive retail finance companies, such as
Macy Credit Corp. and Sears Roebuck Acceptance Corp.; (d) consumer loan
companies, such as Beneficial Finance Corporation and Household Finance
Corporation; (e) diversified finance companies such as CIT Financial Corp.,
Commercial Credit Corporation and Borg Warner Acceptance Corp.; and (f) captive
oil finance companies, such as Shell Credit, Inc., Mobil Oil Credit Corp. and
Texaco Financial Services, Inc.
(2) Purchase or sell physical commodities (such as grains, livestock, etc.)
or futures or options contracts thereon. However, it may purchase or sell any
forms of financial instruments or contracts that might be deemed commodities.
(3) Invest directly in real estate or interests in real estate; however, the
Series may invest in interests in real estate investment trusts, debt securities
secured by real estate or interests therein, or debt or equity securities issued
by companies which invest in real estate or interests therein.
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as security for
indebtedness, any securities owned or held by the Series, provided that this
restriction shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
(5) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, the
Series may be deemed an underwriter under applicable laws.
(6) Purchase securities on margin, except that the Series, in accordance with
its investment objectives and policies, may purchase securities on a
when-issued, delayed delivery or forward commitment basis. The Series may also
obtain such short-term credit as it needs for the clearance of securities
transactions and may make margin deposits in connection with futures contracts.
(7) Make short sales, except for sales "against the box."
(8) Make loans to other persons, except: (i) each Series may lend its
portfolio securities in an amount not to exceed 33 1/3% of the value of its
total assets if such loans are secured by collateral equal to at least the
market value of the securities lent, provided that such collateral shall be
limited to cash, securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, certificates of deposit or other high-grade,
short-term obligations or interest-bearing cash equivalents; and (ii) it may
purchase debt securities through private placements (restricted securities) in
accordance with the Series' investment objectives and policies.
(9) Issue senior securities (as defined in the 1940 Act) other than as set
forth in restriction #10 below and except to the extent that using options and
futures contracts or purchasing or selling securities on a when issued, delayed
delivery or forward commitment basis (including the entering into of roll
transactions) may be deemed to constitute issuing a senior security.
(10) Borrow money except from banks for temporary or emergency purposes not in
excess of 33 1/3% of the value of the Series' total assets. The Series will not
purchase securities while borrowings (including "roll" transactions) in excess
of 5% of total assets are outstanding. In the event that the asset coverage for
the Series' borrowings falls below 300%, the Series will reduce, within three
days (excluding Sundays and holidays), the amount of its borrowings in order to
provide for 300% asset coverage.
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The following non-fundamental investment restrictions may be changed by the
Board of Directors without shareholder approval. High Yield Series, Value
Series, Growth & Income Series and Aggressive Growth Series will not:
(1) Purchase securities of open-end or closed-end investment companies except
in compliance with the 1940 Act.
(2) Invest in a company for the purposes of exercising control or management.
(3) Invest in interests (including partnership interests or leases) in oil,
gas, or other mineral exploration or development programs, except the Series may
purchase or sell securities issued by corporations engaging in oil, gas, or
other mineral exploration or development business.
(4) Invest more than 15% of their net assets in illiquid securities.
(5) Enter into any options, futures, or forward contract transactions if
immediately thereafter (a) the amount of premiums paid for all options, initial
margin deposits on all futures contracts and/or options on futures contracts,
and collateral deposited with respect to forward contracts held by or entered
into by the Series would exceed 5% of the value of the total assets of the
Series or (b) the Series' assets covering, subject to, or committed to all
options, futures, and forward contracts would exceed 20% of the value of the
total assets of the Series. (This restriction does not apply to securities
purchased on a when-issued, delayed delivery, or forward commitment basis.)
(6) Invest in real estate limited partnership interests.
(7) Purchase the securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any issuer to be
held by the Series.
INVESTMENT RESTRICTIONS OF GLOBAL GROWTH SERIES. As a result of the following
fundamental investment restrictions, Global Growth Series will not:
(1) Concentrate its investments, that is, invest 25% or more of its total
assets in any particular industry.
(2) Buy or sell commodities or commodity contracts, including futures
contracts, other than within the limitations set forth in the Prospectus and
Statement of Additional Information.
(3) Purchase or sell real estate or other interests in real estate, or
interests in real estate investment trusts; however, Global Growth Series may
invest in debt securities secured by real estate or interests therein or issued
by corporations which invest in real estate or interests.
(4) Mortgage, pledge, hypothecate, or in any manner transfer, as security for
indebtedness, any securities owned or held by Global Growth Series, provided
that this restriction shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements in
connection with permissible activities.
(5) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, Global
Growth Series may be deemed an underwriter under applicable laws and except that
Global Growth Series may invest up to 10% of the value of its assets in
portfolio 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 (such securities are referred to herein
as "restricted securities").
(6) Purchase securities on margin, except that Global Growth Series, in
accordance with its investment objectives and policies, may purchase securities
on a when-issued, delayed delivery or forward commitment basis, within the
limitations set forth in the Prospectus and Statement of Additional Information.
Global Growth Series may also obtain such short-term credit as it needs for the
clearance of securities transactions and may make margin deposits in connection
with futures contracts.
(7) Make short sales, except for sales "against the box."
(8) Make loans to other persons, except that it may purchase readily
marketable bonds, debentures, or other debt securities, whether or not publicly
distributed, enter into repurchase agreements, and make 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.
(9) Issue senior securities, except that Global Growth Series may purchase
securities on a when-issued, delayed delivery or forward commitment basis and
enter into roll transactions and other transactions within the limitations set
forth in the Prospectus and Statement of Additional Information which may be
deemed to constitute borrowing.
(10) Borrow money except from banks for temporary or emergency purposes not in
excess of 33 1/3% of the value of the Series' total assets. Global Growth Series
will not purchase securities while borrowings (including "roll" transactions) in
excess of 5% of total assets are outstanding. In the event that the asset
coverage for the Series' borrowings falls below 300%, Global Growth Series will
reduce, within three days (excluding Sundays and holidays), the amount of its
borrowings in order to provide for 300% asset coverage.
The following non-fundamental investment restrictions may be changed by the
Board of Directors without shareholder approval. Global Growth Series will not:
(1) Purchase securities of open-end or closed-end investment companies except
in compliance with the 1940 Act.
(2) Invest in a company for the purposes of exercising control or management.
(3) Invest in interests (including partnership interests or leases) in oil,
gas, or other mineral exploration or development programs, except the Global
Growth Series may purchase or sell securities issued by corporations engaging in
oil, gas, or other mineral exploration or development business.
(4) Purchase or retain the securities of any issuer if those officers and
directors of Fortis Series or its investment adviser owning (including
beneficial ownership) individually more than 1/2 of 1% of the securities of such
issuer together own (including beneficial ownership) more than 5% of the
securities of such issuer.
(5) Invest more than an aggregate of 10% of the value of its total assets in
(a) restricted securities (both debt and equity) or in debt or 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; provided further that the Series will not invest more than 5% of its
total assets in restricted securities.
(6) Enter into any options, futures, or forward contract transactions if
immediately thereafter (a) the amount of premiums paid for all options, initial
margin deposits on all futures contracts and/or options on futures contracts,
and collateral deposited with respect to forward contracts held by or entered
into by the Series would exceed 5% of the value of the total assets of the
Series or (b) the Series' assets covering, subject to, or committed to all
options, futures, and forward contracts would exceed 20% of the value of the
total assets of the Series. (This restriction does not apply to securities
purchased on a when-issued, delayed delivery, or forward commitment basis.)
(7) Invest in real estate limited partnership interests.
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(8) Purchase the securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any issuer to be
held by the Series.
(9) Borrow money in excess of 10% of its total assets, except as a temporary
or emergency measure. ("Roll" transactions will not be considered borrowing for
purposes of this restriction).
(10) Will not invest more than 5% of its net assets in warrants, valued at the
lower of cost or market.
INVESTMENT RESTRICTIONS OF GLOBAL BOND SERIES, GLOBAL ASSET ALLOCATION SERIES
AND INTERNATIONAL STOCK SERIES. As a result of the following fundamental
investment restrictions, Global Bond Series, Global Asset Allocation Series and
International Stock Series, will not:
(1) Concentrate its investments in any particular industry, except that (i) a
Series may invest up to 25% of the value of its total assets in any particular
industry, and (ii) there is no limitation with respect to investments in
obligations issued or guaranteed by the United States government or its agencies
and instrumentalities, or obligations of domestic commercial banks. As to
utility companies, gas, electric, water and telephone companies will be
considered as separate industries. As to finance companies, the following
categories will be considered as separate industries: (a) captive automobile
finance, such as General Motors Acceptance Corp. and Ford Motor Credit Corp.;
(b) captive equipment finance companies, such as Honeywell Finance Corporation
and General Electric Credit Corp.; (c) captive retail finance companies, such as
Macy Credit Corp. and Sears Roebuck Acceptance Corp.; (d) consumer loan
companies, such as Beneficial Finance Corporation and Household Finance
Corporation; (e) diversified finance companies, such as CIT Financial Corp.,
Commercial Credit Corporation and Borg Warner Acceptance Corp.; and (f) captive
oil finance companies, such as Shell Credit, Inc., Mobil Oil Credit Corp. and
Texaco Financial Services, Inc. [For purposes of this restriction, securities of
each foreign government or agency thereof will be considered separate
"industries".]
(2) Purchase or sell physical commodities (such as grains, livestock, et
cetera) or futures or options contracts thereon; however, a Series may purchase
or sell any forms of financial instruments or contracts that might be deemed
commodities.
(3) Invest directly in real estate or interests in real estate; however, a
Series may invest in interests in real estate investment trusts, debt securities
secured by real estate or interests therein, or debt or equity securities issued
by companies that invest in real estate or interests therein.
(4) Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, a
Series may be deemed an underwriter under applicable laws.
(5) Purchase securities on margin or otherwise borrow money, except that a
Series, in accordance with its investment objectives and policies, may purchase
securities on a when-issued, delayed delivery or forward commitment basis, and
may make margin deposits in connection with dealing in commodities or options
thereon. A Series also may obtain such short-term credit as it needs for the
clearance of securities transactions, and may borrow from a bank an amount that
does not exceed 33 1/3% of the value of a Series' total assets. A Series will
not purchase investment securities while outstanding bank borrowings (including
"roll" transactions) in excess of 5% of its total assets are outstanding. In the
event that the asset coverage for a Series' borrowings falls below 300%, such
Series will reduce, within three days (excluding Sundays and holidays), the
amount of its borrowings in order to provide for 300% asset coverage.
(6) Make loans to other persons, except that a Series may lend its portfolio
securities in an amount not to exceed 33 1/3% of the value of its total assets
(including the amount lent as well as the collateral securing such loans), if
such loans are secured by collateral at least equal to the market value of the
securities lent, provided that such collateral shall be limited to cash,
government securities, certificates of deposit or other high-grade, short-term
obligations or interest-bearing cash equivalents (including repurchase
agreements pertaining to such securities or obligations). Loans shall not be
deemed to include repurchase agreements or the purchase or acquisition of a
portion of an issue of notes, bonds, debentures or other debt securities,
whether or not such purchase or acquisition is made upon the original issuance
of the securities.
(7) Issue senior securities (as defined in the 1940 Act) other than as set
forth in restriction 5 concerning borrowing and except to the extent that using
options and futures contracts or purchasing or selling securities on a
when-issued, delayed delivery or forward commitment basis (including the
entering into of roll transactions) may be deemed to constitute issuing a senior
security.
The following non-fundamental investment restrictions may be changed by the
Board of Directors without shareholder approval. Global Bond Series, Global
Asset Allocation Series and International Stock Series will not:
(1) Purchase securities of open-end or closed-end investment companies except
in compliance with the 1940 Act.
(2) Invest in a company for the purposes of exercising control or management.
(3) Invest in interests (including partnership interests or leases) in oil,
gas or other mineral exploration or development programs, except it may purchase
or sell securities issued by corporations engaging in oil, gas or other mineral
exploration or development business.
(4) Invest more than 15% of their net assets in illiquid securities.
(5) Enter into any 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 such Series would exceed 5% of the value of the total assets of such
Series. (This restriction does not apply to securities purchased on a
when-issued, delayed delivery or forward commitment basis.)
(6) Make short sales, except for sales "against the box" and except for
foreign currency forward exchange contracts for hedging or cross-hedging
purposes.
(7) Mortgage, pledge or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and except for collateral arrangements
in connection with permissible activities.
(8) Purchase the securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of any issuer to be
held by the Series.
(9) Global Asset Allocation Series and International Stock Series will not
invest more than 5% of their net assets in warrants, valued at the lower of cost
or market.
(10) Global Asset Allocation Series and International Stock Series will not
invest more than 5% of their net assets in warrants, valued at the lower of cost
or market.
INVESTMENT RESTRICTIONS OF S&P 500 INDEX SERIES AND MID CAP STOCK SERIES. As a
result of the following fundamental investment restrictions, S&P 500 Index
Series and Mid Cap Stock Series will not:
(1) Purchase any securities which would cause more than 25% of the value of
the Series' total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government
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securities, and state or municipal governments and their political subdivisions,
are not considered members of any industry. In addition, this limitation does
not apply to investments in domestic banks, including U.S. branches of foreign
banks and foreign branches of U.S. banks).
(2) Borrow money or issue senior securities as defined in the 1940 Act except
that a Series may borrow money in an amount not exceeding one-third of the
Series' total assets at the time of such borrowings. The purchase or sale of
futures contracts and related options shall not be considered to involve the
borrowing of money or issuance of senior securities.
(3) Make loans or lend securities, if as a result thereof more than one-third
of the Series' total assets would be subject to all such loans. For purposes of
this limitation debt instruments and repurchase agreements shall not be treated
as loans.
(4) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Series from
investing in securities or other instruments backed by real estate, including
mortgage loans, or securities of companies that engage in real estate business
or invest or deal in real estate or interests therein).
(5) Underwrite securities issued by any other person, except to the extent
that the purchase of securities and later disposition of such securities in
accordance with the Series' investment program may be deemed an underwriting.
(6) Purchase or sell commodities except that the Series may enter into
futures contracts and related options, forward currency contracts and other
similar instruments.
The following non-fundamental investment restrictions may be changed by the
Board of Directors without shareholder approval. S&P 500 Index Series and Mid
Cap Stock Series will not:
(1) Sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short, and
provided that transactions in futures contracts are not deemed to constitute
selling short.
(2) Purchase securities on margin, except that the Series may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that margin payments in connection with futures contracts and options
on futures contracts shall not constitute purchasing securities on margin.
(3) Purchase oil, gas or mineral leases.
(4) Invest more than 15% of their net assets in illiquid securities.
(5) Purchase securities of open-end or closed-end investment companies except
in compliance with the 1940 Act.
(6) Purchase any security while borrowings representing more than 5% of the
Series' total assets are outstanding.
(7) Purchase puts, calls, straddles, spreads and any combination thereof if
by reason thereof the value of its aggregate investment in such classes of
securities would exceed 5% of its total assets except that: (a) this limitation
shall not apply to standby commitments, and (b) this limitation shall not apply
to the Series' transactions in futures contracts and related options.
(8) Invest more than 25% of the value of its total assets, at the time of
such purchase, in domestic banks, including U.S. branches of foreign banks and
foreign branches of U.S. banks.
(9) Invest in a company for the purposes of exercising control or management.
(10) Invest more than 5% of their net assets in warrants, valued at the lower
of cost or market.
Each of S&P 500 Index Series and Mid Cap Stock Series engages, except as noted,
in the following practices in furtherance of its investment objective:
LOANS OF PORTFOLIO SECURITIES. The Series have authority to lend portfolio
securities provided (1) the loan is secured continuously by collateral
consisting of U.S. Government securities or cash or cash equivalents adjusted
daily to make a market value at least equal to the current market value of these
securities loaned; (2) the Series may at any time call the loan and regain the
securities loaned; (3) the Series will receive any interest or dividends paid on
the loaned securities; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the Series. In
addition, it is anticipated that the Series may share with the borrower some of
the income received on the collateral for the loan or that it will be paid a
premium for the loan. In determining whether to lend securities, the Series
considers all relevant factors and circumstances including the creditworthiness
of the borrower.
FUTURES CONTRACTS AND OPTIONS. For the purpose of creating market exposure for
uncommitted cash balances, reducing transaction costs associated with
rebalancing the Series, facilitating trading or seeking higher investment
returns when a futures contract is priced more attractively than the underlying
security or the index of the Series, the Series may enter into futures
contracts, options, and options on futures contracts with respect to securities
in which the Series may invest and indices comprised of such securities.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND OPTIONS. The Series will not
enter into futures contracts to the extent that its outstanding obligations
under these contracts would exceed 10% of the Series' total assets. To the
extent that the Series enters into futures contracts and options on futures
positions that are not for bona fide hedging purposes (as defined by the
Commodity Futures Trading Commission), the aggregate initial margin and premiums
on these positions (excluding the amount by which options are "in-the-money")
may not exceed 5% of the Series' net assets.
Transactions using options and futures contracts (other than options that the
Series has purchased) expose the Series to an obligation to another party. The
Series will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options or futures
contracts or (2) cash, receivables and short-term debt securities with a value
sufficient at all times to cover its potential obligations not covered as
provided in (1) above. The Series will comply with SEC guidelines regarding
cover for these instruments and, if the guidelines so require, set aside cash,
U.S. Government securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.
All options purchased or written by the Series must be listed on a national
securities or futures exchange or traded in the over-the-counter ("OTC") market.
The Series will not purchase or write OTC options if, as a result of such
transaction, the sum of (i) the market value of outstanding OTC options
purchased by the Series, (ii) the market value of the underlying securities
covered by outstanding OTC call options written by the Series, and (iii) the
market value of all other assets of the Series that are illiquid or are not
otherwise readily marketable, would exceed 15% of the net assets of the Series,
taken at market value. However, if an OTC option is sold by the Series to a
primary U.S. Government securities dealer recognized by the Federal Reserve Bank
of New York and the Series has the unconditional contractual right to repurchase
such OTC option from the dealer at a predetermined price, then the Series will
treat as illiquid such amount of the underlying securities as is equal to the
repurchase price less the
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amount by which the option is "in-the-money" (the difference between current
market value of the underlying security and the option's strike price). The
repurchase price with primary dealers is typically a formula price which is
generally based on a multiple of the premium received for the option plus the
amount by which the option is "in-the-money."
The Series may write only covered options. A call option is covered if the
Series owns the underlying security or a call option on the same security with a
lower strike price. A put option is covered if the Series segregates cash and/or
short-term debt securities in an amount necessary to pay the strike price of the
option or purchases a put option on the same underlying security with a higher
strike price.
The Series will not purchase puts, calls, straddles, spreads or any combination
thereof, if as a result of such purchase the value of the Series' aggregate
investment in such securities would exceed 5% of the Series' total assets.
INVESTMENT RESTRICTIONS OF BLUE CHIP STOCK SERIES AND SMALL CAP VALUE SERIES. As
a result of the following fundamental investment restrictions, Blue Chip Stock
Series and Small Cap Value Series will not:
(1) Borrow money except that the Series may (i) borrow for non-leveraging,
temporary or emergency purposes and (ii) engage in reverse repurchase agreements
and make other investments or engage in other transactions, which may involve a
borrowing, in a manner consistent with the Series' investment objective and
program, provided that the combination of (i) and (ii) shall not exceed 33 1/3%
of the value of the Series' total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by law.
Any borrowings which come to exceed this amount will be reduced in accordance
with applicable laws. The Series may borrow from banks or other persons to the
extent permitted by applicable law.
(2) Purchase or sell physical commodities; except that it may enter into
futures contracts and options thereon.
(3) Purchase the securities of any issuer if, as a result, more than 25% of
the value of the Series' total assets would be invested in the securities of
issuers having their principal business activities in the same industry.
(4) Make loans, although the Series may (i) lend portfolio securities
provided that no such loan may be made if, as a result, the aggregate of such
loans would exceed 33 1/3% of the value of the Series' total assets; (ii)
purchase money market securities and enter into repurchase agreements; and (iii)
acquire publicly-distributed or privately-placed debt securities and purchase
debt.
(5) Purchase a security if, as a result, with respect to 75% of the value of
its total assets, more than 5% of the value of the Series' total assets would be
invested in the securities of a single issuer, except securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
(6) Purchase a security if, as a result, with respect to 75% of the value of
the Series' total assets, more than 10% of the outstanding voting securities of
any issuer would be held by the Series (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities).
(7) Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Series from
investing in securities or other instruments backed by real estate or in
securities of companies engaged in the real estate business).
(8) Issue senior securities except in compliance with the 1940 Act.
(9) Underwrite securities issued by other persons, except to the extent that
the Series may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
The following notes should be read in connection with the above-described
fundamental policies. The notes are not fundamental policies.
With respect to investment restriction (2), the Series do not consider currency
contracts or hybrid investments to be commodities.
For purposes of investment restriction (3), U.S., state or local governments, or
related agencies or instrumentalities, are not considered an industry.
Industries are determined by reference to the classifications of industries set
forth in the Series' semi-annual and annual reports.
For purposes of investment restriction (4), the Series will consider the
acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
The following non-fundamental investment restrictions may be changed by the
Board of Directors without shareholder approval. Blue Chip Stock Series and
Small Cap Value Series will not:
(1) Purchase additional securities when money borrowed exceeds 5% of its
total assets.
(2) Invest in companies for the purpose of exercising management or control.
(3) Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona fide
hedging, the aggregate initial margin and premiums on such options would exceed
5% of the Series' net asset value.
(4) Invest more than 15% of their net assets in illiquid securities.
(5) Purchase securities of open-end or closed-end investment companies except
in compliance with the 1940 Act.
(6) Purchase securities on margin, except (i) for use of short-term credit
necessary for clearance of purchases of portfolio securities and (ii) it may
make margin deposits in connection with futures contracts or other permissible
investments.
(7) Mortgage, pledge, hypothecate or, in any manner, transfer any security
owned by the Series as security for indebtedness except as may be necessary in
connection with permissible borrowings or investments and then such mortgaging,
pledging or hypothecating may not exceed 25% of the Series' total assets at the
time of borrowing or investment.
(8) Purchase participations or other direct interests in or enter into leases
with respect to, oil, gas, or other mineral exploration or development programs,
except that Blue Chip Stock Series may invest up to 5% of its total assets in
such programs.
(9) Invest in puts, calls, straddles, spreads, or any combination thereof,
except to the extent permitted by the Prospectus and Statement of Additional
Information.
(10) Invest more than 5% of their net assets in warrants, valued at the lower
of cost or market.
INVESTMENT RESTRICTIONS OF LARGE CAP GROWTH SERIES. As a result of the following
fundamental investment restrictions, the Large Cap Growth Series will not:
(1) Purchase more than 10% of the outstanding voting securities of any one
issuer.
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(2) Invest 25% or more of the value of its total assets in the same industry
except that this restriction does not apply to securities issued or guaranteed
by the United States Government, its agencies and instrumentalities.
(3) Borrow money or issue senior securities except for temporary or emergency
purposes in an amount not exceeding 5% of the value of its total assets at the
time the borrowing is made.
(4) Pledge, mortgage, hypothecate or otherwise encumber any of its assets
except in connection with the writing of call options and except to secure
permitted borrowings.
(5) Make loans except through the purchase of debt obligations, lending
portfolio securities and entering into repurchase agreements.
(6) Write put options.
(7) (a) Purchase or sell real estate except that it may purchase and sell
securities of companies that deal in real estate or interests therein; (b)
purchase or sell commodities or commodity contracts (other than stock index
futures contracts), (c) make short sales of securities or purchase securities on
margin except for such short-term credits as may be necessary for the clearance
of transactions, or (d) act as an underwriter of securities, except that the
Large Cap Growth Series may acquire restricted securities or securities in
private placements under circumstances in which, if such securities were sold,
the Large Cap Growth Series might be deemed to be an underwriter within the
meaning of the Securities Act of 1933.
The following non-fundamental investment policies and restrictions may be
changed by the Board of Directors without shareholder approval. Large Cap Growth
Series will not:
(1) Invest more than 20% of the value of its total assets in convertible
securities.
(2) Invest more than 5% of the value of its total assets in rights or
warrants that entitle the holder to buy equity securities.
(3) Invest more than 15% of the value of its total assets in securities of
foreign issuers.
(4) Invest more than 15% of its net assets in illiquid securities.
(5) Sell a call option written by it if, as a result of the sale, the
aggregate of the Series' portfolio securities subject to outstanding call
options (valued at the lower of the option price or market value of such
securities) would exceed 15% of the value of the Series' total assets.
(6) Invest more than 10% of its total assets in put and call options
(including options on market indices).
(7) Purchase or sell options on stock index futures contracts.
(8) Purchase or sell a stock index future if, immediately thereafter, more
than 30% of its total assets would be hedged by stock index futures.
(9) Participate on a joint, or joint and several, basis in any securities
trading account.
(10) Invest in companies for the purpose of exercising control.
(11) Invest in interests in oil, gas or other mineral exploration or
development programs, except that it may purchase and sell securities in
companies that deal in oil, gas or other mineral exploration or development
programs.
(12) Purchase securities of open-end or closed-end investment companies except
in compliance with the 1940 Act.
(13) Will not invest more than 5% of its net assets in warrants, valued at the
lower of cost or market.
Except for each Series' policy with respect to borrowing and investing in
illiquid securities, any investment restriction or limitation, fundamental or
otherwise, which involves a maximum percentage of securities or assets shall not
be considered to be exceeded unless an excess over the percentage occurs
immediately after an acquisition of securities or utilization of assets, and
such excess results therefrom.
The insurance laws and regulations of various states could impose additional
restrictions on the investments of the various Series. One such restriction
currently prohibits the Separate Accounts from acquiring the voting securities
of any issuer if, as a result of the acquisition, the Separate Accounts and
Fortis Benefits, in the aggregate, will own more than 10% of the total issued
and outstanding voting securities of the issuer. Another restriction currently
prohibits the underlying Series of the Separate Accounts from acquiring the
securities of any issuer, other than securities issued or guaranteed as to
principal and interest by the United States Government, if immediately after
such acquisition, the value of the investment together with prior investments in
the security would exceed 10% of the value of the underlying Series of the
Separate Accounts' total assets.
RISK FACTORS
RISKS OF TRANSACTIONS IN HIGH-YIELDING SECURITIES. Participation in lower-rated
securities transactions generally involves greater returns in the form of higher
average yields. However, participation in such transactions involves greater
risks, often related to sensitivity to interest rates, economic changes,
solvency, and relative liquidity in the secondary trading market.
Yields on high yield securities will fluctuate over time. The prices of high-
yielding securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to adverse economic
changes or individual corporate developments. Also, during an economic downturn
or substantial period of rising interest rates highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a security
held by the Diversified Income Series, High Yield Series, or Asset Allocation
Series defaulted, such Series may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high-yielding securities and such
Series' asset value. Furthermore, in the case of high-yielding securities
structured as zero coupon or payment in kind securities ("PIKs"), their market
prices are affected to a greater extent by interest rate changes and thereby
tend to be more volatile than securities which pay interest periodically and in
cash.
High-yielding securities present risks based on payment expectations. For
example, high-yielding securities may contain redemption or call provisions. If
an issuer exercises these provisions in a declining interest rate market, these
Series likely would have to replace the security with a lower-yielding security,
resulting in a decreased return for investors. Conversely, a high-yielding
security's value will decrease in a rising interest rate market, as will the
value of such Series' assets. If such Series experience unexpected net
redemptions, this may force them to sell their high-yielding securities, without
regard to their investment merits, thereby decreasing the asset base upon which
the Series' expenses can be spread and possibly reducing the rate of return.
To the extent that there is no established secondary market, there may be thin
trading of high-yielding securities. This may adversely affect the ability of
the Board of Directors to accurately value high-yielding securities and such
Series' assets and such Series' ability to dispose of the securities. Securities
valuation becomes more difficult and judgment plays a greater
47
<PAGE>
role in valuation because there is less reliable, objective data available.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high-yielding securities,
especially in a thinly traded market. Illiquid or restricted high-yielding
securities purchased by such Series may involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.
New laws and proposed new laws could have an adverse impact on the market for
such securities. As examples, recent legislation requires federally-insured
savings and loan associations to divest their investments in high-yielding
securities and pending proposals are designed to limit the use, or tax and other
advantages of high-yielding securities. The new legislation and the proposals,
if enacted, could have an adverse effect on these Series' net asset value and
investment practices, with the extent of the impact depending upon the
composition of such Series at that time.
Certain risks are associated with applying credit ratings as a method for
evaluating high-yielding securities. For example, credit ratings evaluate the
safety of principal and interest payments, not market value risk of high-
yielding securities. Since credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events, Advisers continuously monitors the
issuers of high-yielding securities held by these Series to determine if the
issuers will have sufficient cash flow and profits to meet required principal
and interest payments, and to assure the securities' liquidity so such Series
can meet redemption requests. The achievement of the investment objective of
such Series may be more dependent upon Advisers' own credit analysis than is the
case for higher quality bonds. Also, these Series may retain a portfolio
security whose rating has been changed if the security otherwise meets the
Series' investment objectives and investment criteria.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investing in securities of non-U.S.
companies may entail additional risks due to the potential political and
economic instability of certain countries and risks of expropriation,
nationalization, confiscation, or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of such
expropriation, nationalization, or other confiscation, by any country, the
Series could lose its entire investment in any such country. Certain countries
prohibit or impose substantial restrictions on investments in their capital
markets, particularly their equity markets, by foreign entities such as the
Series. As illustrations, certain countries require governmental approval prior
to investments by foreign persons, or limit the amount of investment by foreign
persons in a particular company, or limit the investment by foreign persons to
only a specific class of securities of a company that may have less advantageous
terms than securities of the company available for purchase by nationals.
Moreover, the national policies of certain countries may restrict investment
opportunities in issuers or industries deemed sensitive to national interests.
In addition, some countries require governmental approval for the repatriation
of investment income, capital, or the proceeds of securities sales by foreign
investors. A Series, particularly Global Bond Series, Global Asset Allocation
Series, International Stock Series and Global Growth Series, could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation, as well as by the application to it of other restrictions on
investments.
Foreign companies are not generally subject to uniform accounting, auditing, and
financial reporting standards or to other regulatory requirements comparable to
those applicable to U.S. companies. Most of the securities held by the Global
Bond Series, Global Asset Allocation Series, Global Growth Series, and
International Stock Series will not be registered with the SEC or regulators of
any foreign country, nor will the issuers thereof be subject to the SEC's
reporting requirements. Thus, there will be less available information
concerning foreign issuers of securities held by the Series than is available
concerning U.S. issuers. In instances where the financial statements of an
issuer are not deemed to reflect accurately the financial situation of the
issuer, the Series will take appropriate steps to evaluate the proposed
investment, which may include on-site inspection of the issuer, interviews with
its management and consultations with accountants, bankers, and other
specialists.
Because Global Bond Series, Global Asset Allocation Series, International Stock
Series and Global Growth Series will each invest at least a majority of its
total assets in the securities of foreign issuers which are denominated in
foreign currencies, the strength or weakness of the U.S. dollar against such
foreign currencies may account for part of the Series' investment performance. A
decline in the value of any particular currency against the U.S. dollar will
cause a decline in the U.S. dollar value of the Series' holdings of securities
denominated in such currency and, therefore, will cause an overall decline in
the Series' net asset value and any net investment income and capital gains to
be distributed in U.S. dollars to shareholders of such Series.
The rate of exchange between the U.S. dollar and other currencies is determined
by several factors including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the pace of business activity in certain other countries, and the U.S.,
and other economic and financial conditions affecting the world economy.
Although Global Bond Series, Global Asset Allocation Series, International Stock
Series and Global Growth Series each values its assets daily in terms of U.S.
dollars, each such Series does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. These Series will do so from time
to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Series at one rate, while offering a lesser
rate of exchange should the Series desire to sell that currency to the dealer.
Securities of many foreign issuers may be less liquid and their prices more
volatile than securities of comparable U.S. issuers. In addition, foreign
securities exchanges and brokers are generally subject to less governmental
supervision and regulation than in the U.S., and foreign securities exchange
transactions are usually subject to fixed commissions, which are generally
higher than negotiated commissions on U.S. transactions. In addition, foreign
securities exchange transactions may be subject to difficulties associated with
the settlement of such transactions. Delays in settlement could result in
temporary periods when assets of the Series are uninvested and no return is
earned thereon. The inability of the Series to make intended security purchases
due to settlement problems could cause the Series to miss attractive
opportunities. Inability to dispose of a portfolio security due to settlement
problems either could result in losses to the Series due to subsequent declines
in value of the portfolio security or, if the Series has entered into a contract
to sell the security, could result in possible liability to the purchaser. The
Series will consider such difficulties when determining the allocation of the
Series' assets, although the Series does not believe that such difficulties will
have a material adverse effect on the portfolio trading activities.
The Series' net investment income from foreign issuers may be subject to
non-U.S. withholding taxes, thereby reducing the Series' net investment income.
See "Taxation" in the Prospectus.
RISKS OF INVESTING IN ILLIQUID SECURITIES. The sale of restricted or illiquid
securities often requires more time and results in higher brokerage charges
48
<PAGE>
or dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities often sell at a price lower than similar
securities that are not subject to restrictions on resale.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD
CONTRACTS. Although Global Bond Series, High Yield Series, Global Asset
Allocation Series, International Stock Series, Mid Cap Stock Series, Small Cap
Value Series, Global Growth Series, Large Cap Growth Series and Aggressive
Growth Series may enter into transactions in Futures Contracts, Options on
Futures Contracts, Currency Contracts, and certain options solely for hedging
purposes, their use does involve certain risks. For example, a lack of
correlation between the index or instrument underlying an option or futures
contract and the assets being hedged or unexpected adverse price movements,
could render such Series' hedging strategy unsuccessful and could result in
losses. These Series also may enter into transactions in options on securities
and indexes of securities for other than hedging purposes, which involves
greater risk. In addition, there can be no assurance that a liquid secondary
market will exist for any contract purchased or sold, such Series may be
required to maintain a position until exercise or expiration, which could result
in losses.
Transactions in options, Futures Contracts, Options on Futures Contracts, and
Currency Contracts may be entered into on United States exchanges regulated by
the SEC or the Commodity Futures Trading Commission, as well as in the
over-the-counter market and on foreign exchanges. In addition, the securities
underlying options and Futures Contracts may include domestic as well as foreign
securities. Investors should recognize that transactions involving foreign
securities or foreign currencies, and transactions entered into in foreign
countries, may involve considerations and risks not typically associated with
investing in U.S. markets.
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses, principal occupations, and other affiliations of directors
and executive officers of Fortis Series are given below. All positions have been
held at least five years unless otherwise stated.
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE FORTIS SERIES PRINCIPAL OCCUPATION AND AFFILIATIONS DURING PAST 5 YEARS
- ------------------------------ --- --------------- ------------------------------------------------------------
<S> <C> <C> <C>
Richard W. Cutting 66 Director Certified public accountant and financial consultant.
137 Chapin Parkway
Buffalo, New York
Allen R. Freedman* 57 Director Chairman and Chief Executive Officer of Fortis, Inc.; a
One Chase Manhattan Plaza Managing Director of Fortis International, N. V.
New York, New York
Dr. Robert M. Gavin 57 Director President, Cranbrook Education Community, Bloomfield Hills,
380 Lone Pine Road MI. Prior to July 1996, President, Macalester College, St.
Bloomfield Hills, MI Paul, MN.
Jean L. King 53 Director President, Communi-King, a communications consulting firm.
12 Evergreen Lane
St. Paul, Minnesota
Dean C. Kopperud* 45 President and Chief Executive Officer and a Director of Advisers,
500 Bielenberg Drive Director President and a Director of Investors, President of Fortis
Woodbury, Minnesota Financial Group, a Director of Fortis Benefits Insurance
Company and a Senior Vice President of Time Insurance
Company.
Edward M. Mahoney 67 Director Retired. Prior to December 1994, Chairman, Chief Executive
2760 Pheasant Road Officer and a Director of Advisers and Investors, Senior
Excelsior, Minnesota Vice President and a Director of Fortis Benefits Insurance
Company, and Senior Vice President of Time Insurance
Company.
Robb L. Prince 56 Director Financial and Employee Benefit Consultant. Prior to July
5108 Duggan Plaza 1995, Vice President and Treasurer, Jostens, Inc., a
Edina, Minnesota producer of products and services for the youth, education,
sports award, and recognition markets.
Leonard J. Santow 61 Director Principal, Griggs & Santow, Incorporated, economic and
75 Wall Street financial consultants.
21st Floor
New York, New York
Joseph M. Wikler 56 Director Investment consultant and private investor. Prior to 1994,
12520 Davan Drive Director of Research, Chief Investment Officer, Principal
Silver Spring, Maryland and a Director, The Rothschild Co., Baltimore, MD.
Gary N. Yalen 55 Vice President President and Chief Investment Officer of Advisers (since
One Chase Manhattan Plaza 1995), a Director of Advisers and Senior Vice President,
New York, New York Investments, Fortis, Inc. Prior to 1996, President and Chief
Investment Officer, Fortis Asset Management, a former
division of Fortis, Inc.
Howard G. Hudson 60 Vice President Executive Vice President and Head of Fixed Income
One Chase Manhattan Plaza Investments of Advisers since 1995. Prior to 1996, Senior
New York, New York Vice President, Fixed Income, Fortis Asset Management.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE FORTIS SERIES PRINCIPAL OCCUPATION AND AFFILIATIONS DURING PAST 5 YEARS
- ------------------------------ --- --------------- ------------------------------------------------------------
<S> <C> <C> <C>
Lucinda S. Mezey 50 Vice President Executive Vice President and Head of Equity Investments of
One Chase Manhattan Plaza Advisers since October 1997. From 1995 to October 1997,
New York, New York Chief Investment Officer, Alex Brown Capital Advisory and
Trust Co., Baltimore, MD and prior to 1995, Senior Vice
President and Head of Equity Investments, PNC Bank,
Philadelphia, PA.
James S. Byrd 46 Vice President Executive Vice President and a Director of Advisers. Prior
5500 Wayzata Boulevard to 1995, Vice President of Advisers and of Investors.
Golden Valley, Minnesota
Nicholas L. M. de Peyster 31 Vice President Vice President of Advisers since August 1995. Prior to 1996,
One Chase Manhattan Plaza Vice President, Equities, Fortis Asset Management.
New York, New York
Charles J. Dudley 38 Vice President Vice President of Advisers and Fortis Asset Management since
One Chase Manhattan Plaza 1995. Prior to 1995, Senior Vice President, Sun America
New York, New York Asset Management, Los Angeles, CA.
Maroun M. Hayek 49 Vice President Vice President of Advisers since 1995. Prior to 1996, Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management.
New York, New York
Robert C. Lindberg 45 Vice President Vice President of Advisers.
One Chase Manhattan Plaza
New York, New York
Charles L. Mehlhouse 55 Vice President Vice President of Advisers. Prior to March 1996, Portfolio
One Chase Manhattan Plaza Manager, Marshall & Ilsley Bank Corporation, Milwaukee, WI.
New York, New York
Kevin J. Michels 46 Vice President Vice President of Advisers since 1995. Prior to 1996, Vice
One Chase Manhattan Plaza President, Administration, Fortis Asset Management.
New York, New York
Christopher J. Pagano 34 Vice President Vice President of Advisers since 1996. Prior to March 1996,
One Chase Manhattan Plaza Government Strategist, Merrill Lynch, New York, NY.
New York, New York
Michael J. Romanowski 47 Vice President Vice President of Advisers since March 1998. From October
One Chase Manhattan Plaza 1995 to March 1998, Portfolio Manager, Value Line, New York,
New York, New York NY and prior to October 1995, securities analyst, Conning &
Co., Hartford, CT.
Christopher J. Woods 37 Vice President Vice President of Advisers since 1995. Prior to 1996, Vice
One Chase Manhattan Plaza President, Fixed Income, Fortis Asset Management.
New York, New York
Robert W. Beltz, Jr. 48 Vice President Vice President--Securities Operations of Advisers and
500 Bielenberg Drive Investors.
Woodbury, Minnesota
Peggy L. Ettestad 40 Vice President Senior Vice President, Operations of Advisers since March
500 Bielenberg Drive 1997. Prior to March 1997, Vice President, G.E. Capital
Woodbury, MN Fleet Services, Minneapolis, MN.
Dickson W. Lewis 48 Vice President Senior Vice President, Marketing and Sales of Advisers since
500 Bielenberg Drive July 1997. From 1993 to July 1997, President and Chief
Woodbury, Minnesota Executive Officer, Hedstrom/Blessing, Inc., Minneapolis, MN.
Tamara L. Fagely 39 Vice President Vice President of Advisers and Investors.
500 Bielenberg Drive and Treasurer
Woodbury, Minnesota
David A. Peterson 55 Vice President Vice President and Assistant General Counsel, Fortis
500 Bielenberg Drive Benefits Insurance Company.
Woodbury, Minnesota
Scott R. Plummer 38 Vice President Vice President, Associate General Counsel and Assistant
500 Bielenberg Drive Secretary of Advisers. Prior to September 1993, Attorney,
Woodbury, Minnesota Zelle & Larson, Minneapolis, MN.
Rhonda J. Schwartz 39 Vice President Since January 1996, Senior Vice President and General
500 Bielenberg Drive Counsel of Advisers, Senior Vice President and General
Woodbury, Minnesota Counsel, Life and Investment Products, Fortis Benefits
Insurance Company and Vice President and General Counsel,
Life and Investment Products, Time Insurance Company. From
1993 to January 1996, Vice President and General Counsel,
Fortis, Inc.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS AGE FORTIS SERIES PRINCIPAL OCCUPATION AND AFFILIATIONS DURING PAST 5 YEARS
- ------------------------------ --- --------------- ------------------------------------------------------------
<S> <C> <C> <C>
Melinda S. Urion 45 Vice President Since December 1997, Senior Vice President and Chief
500 Bielenberg Drive Financial Officer of Advisers. Prior to December 1997,
Woodbury, Minnesota Senior Vice President of Finance and Chief Financial
Officer, American Express Financial Corporation; prior to
March 1995, Corporate Controller, American Express Financial
Corporation and prior to 1994, Controller and Treasurer, IDS
Life Insurance Company, Minneapolis, MN.
Michael J. Radmer 52 Secretary Partner, Dorsey & Whitney LLP, the Fund's General Counsel.
220 South Sixth Street
Minneapolis, Minnesota
</TABLE>
- ------------------------------------------------
*Mr. Kopperud is an "interested person" (as defined under the 1940 Act) of
Fortis Series, Advisers and Investors primarily because he is an officer and a
director of each. Mr. Freedman is an "interested person" of Fortis Series,
Advisers and Investors because he is Chairman and Chief Executive Officer of
Fortis, Inc. ("Fortis"), the parent company of Advisers and indirect parent
company of Investors.
- ------------------------------------------------
Each director who is not affiliated with Advisers or Investors receives fees of
$700 per month, $100 per meeting attended and $100 per committee meeting
attended (and reimbursement of travel expenses to attend meetings.) The
following table sets forth the compensation received by each director during the
fiscal year ended December 31, 1997, as well as the total compensation received
by each director from Fortis Series and all other open-end investment companies
managed by Advisers during the fiscal year ended December 31, 1997. Neither Mr.
Freedman, who is an officer of the parent company of Advisers, nor Mr. Kopperud,
who is an officer of Advisers and Investors, received any such compensation and
they are not included in the table. No executive officer of Fortis Series
received compensation from Fortis Series during the fiscal year ended December
31, 1997.
<TABLE>
<CAPTION>
COMPENSATION TOTAL COMPENSATION
FROM FORTIS FROM FUND COMPLEX
DIRECTOR SERIES PAID TO DIRECTOR*
<S> <C> <C>
- ------------------------------------------------------------------
Richard W. Cutting $ 9,000 $ 31,200
Dr. Robert M. Gavin 9,000 31,200
Jean L. King 9,734 32,200
Edward M. Mahoney 9,000 31,200
Robb L. Prince 9,834 33,200
Leonard J. Santow 8,900 30,200
Joseph M. Wikler 9,000 31,200
</TABLE>
- --------------------------
*The Fund Complex consists of 10 registered investment companies managed by
Advisers. All of the above officers and directors also are officers and/or
directors of each such open-end and closed-end investment company.
As of March 31, 1998, less than 1% of the outstanding shares of Fortis Series
were attributable to Contracts owned of record or beneficially by the directors
and executive officers as a group; the directors and executive officers
otherwise do not own any of the outstanding shares of Fortis Series. Directors
Kopperud, Mahoney, Prince and Gavin are members of the Executive Committee of
the Board of Directors. While the Executive Committee is authorized to act in
the intervals between regular board meetings with full capacity and authority of
the full Board of Directors, except as limited by law, it is expected that the
Committee will meet at least twice a year.
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL
Fortis Advisers, Inc. ("Advisers") has been the investment adviser and manager
of Fortis Series since Fortis Series began business in 1986. Fortis Investors,
Inc. ("Investors") acts as Fortis Series' underwriter. Both act as such pursuant
to written agreements periodically approved by the directors or shareholders of
Fortis Series. The address of both Advisers and Investors is P.O. Box 64284, St.
Paul, MN 55164.
As of March 31, 1998, Advisers managed thirty-one investment company portfolios
with combined net assets over $6 billion.
CONTROL AND MANAGEMENT OF ADVISERS AND INVESTORS
Fortis owns 100% of the outstanding voting securities of Advisers, and Advisers
owns all of the outstanding voting securities of Investors.
Fortis, located in New York, New York, is a wholly owned subsidiary of AMEV/VSB
1990 N.V. ("AMEV/VSB 1990").
AMEV/VSB 1990 is a corporation organized under the laws of The Netherlands to
serve as the holding company for all U.S. operations and is owned 50% by Fortis
AMEV and 50% by Fortis AG ("Group AG"). AMEV/VSB 1990 owns a group of companies
active in insurance, banking and financial services, and real estate development
in The Netherlands, the United States, Western Europe, Australia, and New
Zealand.
Fortis AMEV is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. N.V. AMEV and Group AG
own a group of companies (of which AMEV/VSB 1990 is one) active in insurance,
banking and financial services, and real estate development in The Netherlands,
Belgium, the United States, Western Europe and the Pacific Rim.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Advisers acts as investment adviser and manager of each of the Series under
separate Investment Advisory and Management Agreements. These agreements are
individually referred to as an "Agreement" and collectively referred to as
"Agreements." The Agreements will terminate automatically
51
<PAGE>
in the event of their assignment. In addition, the Agreements are terminable at
any time, without penalty, by the Board of Directors or, with respect to any
particular Series, by vote of a majority of the outstanding voting securities of
the applicable Series, on not more than 60 days' written notice to Advisers, and
by Advisers on 60 days' notice to Fortis Series. Unless sooner terminated, each
Agreement shall continue in effect for more than two years after its execution
only so long as such continuance is specifically approved at least annually by
either the Board of Directors or, with respect to any particular Series, by vote
of a majority of the outstandingvoting securities of the applicable Series,
provided that in either event such continuance is also approved by the vote of a
majority of the directors who are not parties to such Agreement, or interested
persons of such parties, cast in person at a meeting called for the purpose of
voting on such approval.
The Agreements collectively provide for an investment advisory and management
fee calculated as described in the following table.
<TABLE>
<CAPTION>
ANNUAL
INVESTMENT
ADVISORY AND
SERIES AVERAGE NET ASSETS MANAGEMENT FEE
- ---------------------------- ---------------------------- ----------------
<S> <C> <C>
Money Market Series For the first $500 million .30%
For assets over $500 million .25%
U.S. Government Securities For the first $50 million .50%
Series For assets over $50 million .45%
Diversified Income Series For the first $50 million .50%
For assets over $50 million .45%
Global Bond Series For the first $100 million .75%
For assets over $100 million .65%
High Yield Series For the first $250 million .50%
For assets over $250 million .45%
Global Asset Allocation For the first $100 million .90%
Series For assets over $100 million .85%
Asset Allocation Series For the first $250 million .50%
For assets over $250 million .45%
Value Series For the first $100 million .70%
For assets over $100 million .60%
Growth & Income Series For the first $100 million .70%
For assets over $100 million .60%
S&P 500 Index Series All levels of assets .40%
Blue Chip Stock Series For the first $100 million .90%
For assets over $100 million .85%
International Stock Series For the first $100 million .85%
For assets over $100 million .80%
Mid Cap Stock Series For the first $100 million .90%
For the next $150 million .85%
For assets over $250 million .80%
Small Cap Value Series For the first $50 million .90%
For assets over $50 million .85%
Global Growth Series For the first $500 million .70%
For assets over $500 million .60%
Large Cap Growth Series For the first $100 million .90%
For the next $100 million .85%
For assets over $200 million .80%
Growth Stock Series For the first $100 million .70%
For assets over $100 million .60%
Aggressive Growth Series For the first $100 million .70%
For assets over $100 million .60%
</TABLE>
During the fiscal years ended December 31, 1995, 1996 and 1997, the Series paid
the following investment advisory and management fees to Advisers.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
SERIES 1995 1996 1997
- -------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Money Market.......................... $ 122,669 $ 157,756 $ 191,433
U.S. Government Securities............ 809,341 786,612 687,529
Diversified Income.................... 486,523 503,938 488,855
Global Bond(2)........................ 72,526 131,386 149,694
High Yield............................ 105,511 171,148 258,195
Global Asset Allocation(2)............ 107,500 258,678 406,583
Asset Allocation...................... 1,484,851 1,794,647 2,102,625
Value(1).............................. * 32,997 230,143
Growth & Income....................... 247,814 660,575 1,250,461
S&P 500 Index(1)...................... * 34,900 251,081
Blue Chip Stock(1).................... * 66,780 407,113
International Stock(2)................ 102,257 317,951 571,117
Mid Cap Stock......................... * * *
Small Cap Value....................... * * *
Global Growth......................... 1,210,019 1,888,142 2,416,410
Large Cap Growth...................... * * *
Growth Stock.......................... 2,873,197 3,734,829 4,268,503
Aggressive Growth..................... 197,016 535,835 735,430
</TABLE>
- --------------------------
* Not in existence during this period.
(1) Inception date: May 1, 1996.
(2) Inception date: January 3, 1995.
Advisers, at its own expense, furnishes suitable office space, facilities,
equipment, administrative services, and clerical and other personnel as may be
required for the management of the affairs and business of Fortis Series, and
acts as Fortis Series' registrar, transfer agent, and dividend disbursing agent.
Fortis Series pays all its expenses which are not expressly assumed by Advisers
or Investors. These expenses include, among others, the investment advisory and
management fee, the fees and expenses of directors and officers of Fortis Series
who are not "affiliated persons" of Advisers, interest expenses, taxes,
brokerage fees and commissions, fees and expenses of registering and qualifying
Fortis Series and its shares for distribution under Federal securities laws,
expenses of preparing prospectuses and of printing and distributing prospectuses
annually to existing Contract owners, custodian charges, auditing and legal
expenses, insurance expenses, association membership dues, and the expense of
reports to shareholders and Contract owners, shareholders' meetings, and proxy
solicitations. Fortis Series is also liable for such nonrecurring expenses as
may arise, including litigation to which it may be a party. Fortis Series may
have an obligation to indemnify its directors and officers with respect to such
litigation.
SUB-ADVISORY AGREEMENTS
Global Bond Series, Global Asset Allocation Series, S&P 500 Index Series, Blue
Chip Stock Series, International Stock Series, Mid Cap Stock Series, Small Cap
Value Series and Large Cap Growth Series have retained sub-advisers under
investment sub-advisory agreements and for Small Cap Value Series the
sub-adviser has entered into a sub-management agreement with a manager (such
agreements are collectively referred to as the "Sub-Advisory Agreements"). Each
Sub-Advisory Agreement will terminate automatically upon the termination of the
Investment Advisory and Management Agreement between Fortis Series and Advisers,
and in the event of its assignment. In addition, the Sub-Advisory Agreements are
terminable at any time, without penalty, by the Board of Directors, by Advisers
or by a vote of the majority of the applicable Series' outstanding voting
securities on 60 days' written notice to such Series' sub-adviser and by a
sub-adviser on 60 days' written notice to Advisers. Unless sooner terminated,
the Sub-Advisory Agreements shall continue in effect from year to year if
approved at least annually by the Board of Directors of Fortis Series or by a
vote of a
52
<PAGE>
majority of the outstanding voting securities of the applicable Series, provided
that in either event such continuance is also approved by the vote of a majority
of the directors who are not interested persons of any party to the Sub-Advisory
Agreements, cast in person at a meeting called for the purpose of voting on such
approval.
For their services, the sub-advisers receive a fee from Advisers (such amounts
are payable out of the advisory fees received by Advisers for the same period
and are not in addition to such amounts). From its advisory fee, Advisers pays
fees to each of the sub-advisers calculated as described below:
<TABLE>
<CAPTION>
ANNUAL SUB-
SERIES SUB-ADVISER AVERAGE NET ASSETS ADVISORY FEE
- -------------------------- -------------- ---------------------------- -------------
<S> <C> <C> <C>
Global Bond Series Mercury For the first $100 million .350%
For assets over $100 million .225%
Global Asset Allocation Morgan Stanley For the first $100 million .500%
Series For assets over $100 million .400%
S&P 500 Index Series Dreyfus All levels of assets .170%
Blue Chip Stock Series T. Rowe Price For the first $100,000,000 .500%
For assets over $100,000,000 .450%
International Stock Series Lazard For the first $100 million .450%
For assets over $100 million .375%
Mid Cap Stock Series Dreyfus For the first $100 million .500%
For the next $150 million .450%
For assets over $250 million .400%
Small Cap Value Series Berger For the first $50 million .500%
Associates For assets over $50 million .450%
Large Cap Growth Series Alliance For the first $100 million .500%
For the next $100 million .450%
For assets over $200 million .400%
</TABLE>
For the Small Cap Value Series, Berger Associates pays Perkins, Wolf, McDonnell
& Company (the "Manager") an amount equal to .25 of 1% of the Series' first $50
million of average daily net assets and .225 of 1% of the Series' net assets in
excess of $50 million.
During the fiscal year ended December 31, 1997, Advisers paid advisory fees to
the sub-advisers of Global Bond Series, Global Asset Allocation Series, S&P 500
Index Series, Blue Chip Stock Series and International Stock Series in the
amount $69,898, $225,590, $105,647, $209,455 and $302,356, respectively. During
the fiscal year ended December 31, 1996, Advisers paid advisory fees to the
sub-advisers of Global Bond Series, Global Asset Allocation Series, S&P 500
Index Series, Blue Chip Stock Series and International Stock Series in the
amount $61,272, $144,079, $14,834, $37,202 and $168,327, respectively. During
the fiscal year ended December 31, 1995, Advisers paid advisory fees to the
sub-advisers of Global Bond Series, Global Asset Allocation Series and
International Stock Series in the amount of $33,984, $59,732 and $54,253,
respectively.
EXPENSES
Expenses that relate exclusively to a particular Series, such as custodian
charges and registration fees for shares, are charged to that Series. Other
expenses of Fortis Series are allocated between the Series in an equitable
manner as determined by officers of Fortis Series under the supervision of the
Board of Directors, usually on the basis of net assets or number of contract
holders.
Advisers bears the costs of acting as Fortis Series transfer agent, registrar,
and dividend agent. Investors has agreed to pay all expenses of distributing
Fortis Series' shares, including, but not limited to, costs of printing and
distributing prospectuses to new Contract owners. Pursuant to a separate
Distribution Agreement between Fortis Benefits and investors, Fortis Benefits
reimburses Investors for these costs and expenses with respect to variable life
insurance policies issued by Fortis Benefits or pays them on Investors' behalf.
Out of its advisory fee, but not in excess thereof, Advisers has agreed to
reimburse Mid Cap Stock Series, Small Cap Value Series and Large Cap Growth
Series for their expenses, until their net assets first reach $10 million, to
the extent that the expenses of the applicable Series (including the investment
advisory fees, but excluding interest, taxes, brokerage fees, and commissions)
exceed an amount equal, on an annual basis, to 1.25% of the average daily net
assets of the applicable Series. In addition to this expense reimbursement,
Advisers reserves the right, but shall not be obligated, to institute voluntary
expense reimbursement programs which, if instituted, shall be in such amounts
and based on such terms and conditions as Advisers, in its sole and absolute
discretion, determines. Furthermore, Advisers reserves the absolute right to
discontinue any of such reimbursement programs at any time without notice to
Fortis Series.
Although investment decisions for each Series are made independently from those
of the other Series or those of other funds or private accounts managed by
Advisers, sometimes the same security is suitable for more than one Series,
fund, or account. If and when two or more Series, funds, or accounts
simultaneously purchase or sell the same security, the transactions will be
allocated as to price and amount in accordance with arrangements equitable to
each Series, fund, or account. The simultaneous purchase or sale of the same
securities by a Series and another Series, fund, or account may have a
detrimental effect on the Series, as this may affect the price paid or received
by the Series or the size of the position obtainable by the Series.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Advisers, or if applicable, a sub-adviser, is responsible for decisions to buy
and sell securities for the Series, the selection of brokers and dealers to
effect the transactions and the negotiation of brokerage commissions, if any,
subject to Advisers' general control. Transactions on a stock exchange in equity
securities will be executed primarily through brokers that will receive a
commission paid by the Series. The Series which buy fixed income securities, on
the other hand, will not normally incur any brokerage commissions. Fixed income
securities, as well as equity securities traded in the over-the-counter market,
are generally traded on a "net" basis with dealers acting as principals for
their own accounts without a stated commission, although the price of the
security usually includes a profit to the dealer. In underwritten offerings,
securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. Certain of these securities may also be purchased
directly from an issuer, in which case neither commissions nor discounts are
paid.
In placing orders for securities transactions, the primary criterion for the
selection of a broker-dealer is the ability of the broker-dealer, in the opinion
of Advisers, to secure prompt execution of the transactions on favorable terms,
including the reasonableness of the commission and considering the state of the
market at the time. When consistent with these objectives, business may be
placed with broker-dealers who furnish investment research services to Advisers
or a sub-adviser. Such research services include advice, both directly and in
writing, as to the value of securities; the advisability of investing in,
purchasing, or selling securities; and the availability of securities, or
purchasers or sellers of securities; as well as analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts. This allows Advisers and the sub-advisers to
supplement their own investment
53
<PAGE>
research activities and to obtain the views and information of individuals and
research staffs of many different securities research firms prior to making
investment decisions for the Series. To the extent such commissions are directed
to these other broker-dealers who furnish research services, Advisers or a
sub-adviser receives a benefit, not capable of evaluation in dollar amounts,
without providing any direct monetary benefit to the Series from these
commissions. Most research services obtained by Advisers or a sub-adviser
generally benefit several or all of the investment companies and private
accounts which it manages, as opposed to solely benefiting one specific managed
fund or account. Normally, research services obtained through managed funds or
accounts investing in common stocks would primarily benefit the managed funds or
accounts which invest in common stock; similarly, services obtained from
transactions in fixed income securities would normally be of greater benefit to
the managed funds or accounts which invest in debt securities.
Neither Advisers nor any sub-adviser has entered into any formal or informal
agreements with any broker-dealers, nor does it maintain any "formula" which
must be followed in connection with the placement of Fortis Series transactions
in exchange for research services provided Advisers, except as noted below.
However, Advisers and each of the sub-advisers does maintain an informal list of
broker-dealers, which is used from time to time as a general guide in the
placement of Fortis Series business, in order to encourage certain
broker-dealers to provide Advisers with research services which Advisers
anticipates will be useful to it. Because the list is merely a general guide,
which is to be used only after the primary criterion for the selection of
broker-dealers (discussed above) has been met, substantial deviations from the
list are permissible and may be expected to occur. Advisers (or the
sub-advisers) will authorize Fortis Series to pay an amount of commission for
effecting a securities transaction in excess of the amount of commission another
broker-dealer would have charged only if Advisers (or the sub-advisers)
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or
Advisers' overall responsibilities with respect to the accounts as to which
Advisers (or the sub-advisers) exercises investment discretion. Generally,
Fortis Series pays higher commissions than the lowest rates available. Morgan
Stanley has agreements in place with several broker-dealers that relate to
equity trades directed by Morgan Stanley. Berger Associates has informal
agreements in place with several broker-dealers that relate to equity trades
directed by Berger Associates. Under these agreements, the brokers pay for
services which assist the investment manager (Morgan Stanley and Berger
Associates) in making investment decisions. The brokers are obligated to achieve
best execution and the commission rates charged by the brokers are comparable to
those charged by brokers with which there is no such agreement.
Under the 1940 Act, no Series may purchase portfolio securities from any
underwriting syndicate of which an affiliate of the Adviser or a sub-adviser is
a member, except under certain limited conditions set forth in Rule 10f-3 under
the 1940 Act. The Rule sets forth requirements relating to, among other things,
the terms of an issue of securities purchased by a Series, the amount of
securities that may be purchased in any one issue, and the assets of a Series
that may be invested in a particular issue. In addition, purchases of securities
made pursuant to the terms of the Rule must be approved at least quarterly by
the Board of Directors of Fortis Series, including a majority of the members
thereof who are not interested persons of Fortis Series.
Portfolio transactions may be effected through affiliates of the sub-advisers.
Prior to executing any such transactions, the Board of Directors of Fortis
Series will adopt policies incorporating the standards of Rule 17e-1 under the
1940 Act, which requires that the commissions paid to affiliates must be
reasonable and fair compared to the commissions, fees or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time.
The Rule also contains review requirements and requires that reports be
furnished to the Board of Directors and that records be maintained in connection
with such reviews.
Some Series paid brokerage commissions during the periods and in the amounts
listed below:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
SERIES ENDED 12/31/95 ENDED 12/31/96 ENDED 12/31/97
- -------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Global Asset Allocation $ 26,471(2) $ 29,730 $ 47,973
Asset Allocation 110,945 216,651 311,739
Value Series * 20,397(1) 119,158
Growth & Income 73,615 112,773 114,941
S&P 500 Index * 19,233(1) 60,463
Blue Chip Stock * 12,981(1) 46,609
International Stock 79,654(2) 126,800 145,900
Global Growth 236,023 272,063 485,715
Growth Stock 179,941 323,731 311,310
Aggressive Growth 12,832 50,376 47,456
</TABLE>
- --------------------------
* Not in existence during this period.
(1) Inception date: May 1, 1996.
(2) Inception date: January 3, 1995.
Mid Cap Stock Series, Small Cap Value Series and Large Cap Growth Series had not
commenced operations as of December 31, 1997.
Money Market Series, U.S. Government Securities Series, Diversified Income
Series, Global Bond Series and High Yield Series did not pay any brokerage
commissions for the fiscal years ended December 31, 1995, 1996 or 1997.
From time to time the Series may acquire the securities of their regular brokers
or dealers or of the parent of those brokers or dealers. The Series which held
such securities at year end and the amount of each are listed below. No other
Series purchased securities of its regular broker or dealers or parent companies
of such brokers or dealers during the 1997 fiscal year. Mid Cap Stock Series,
Small Cap Value Series and Large Cap Growth Series had not commenced operations
as of December 31, 1997.
<TABLE>
<CAPTION>
VALUE OF
SECURITIES OWNED
AT END OF PERIOD
SERIES/NAME OF ISSUER ($)
- --------------------------------------------------------- -----------------
<S> <C>
Money Market Series
American General Finance Corp.......................... $ 2,655,112
Beneficial Corp........................................ 2,882,020
CIT Group Holdings, Inc................................ 2,669,754
Commercial Credit Co................................... 2,693,644
Ford Motor Credit Co................................... 2,890,200
IBM Credit Corp........................................ 2,980,077
Merrill Lynch, Pierce, Fenner & Smith Inc.............. 2,623,725
U.S. Bank National Association......................... 1,678,000
U.S. Government Securities Series
U.S. Bank National Association......................... 482,000
Diversified Income Series
Bear Stearns & Co...................................... 1,519,285
Donaldson, Lufkin & Jenrette Sec....................... 4,270,709
J.P. Morgan & Co., Inc................................. 917,719
Lehman Brothers, Inc................................... 2,864,028
Merrill Lynch, Pierce, Fenner & Smith.................. 2,403,666
Morgan Stanley & Co., Inc.............................. 894,132
Salomon Brothers, Inc.................................. 507,098
U.S. Bank National Association......................... 2,137,000
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
VALUE OF
SECURITIES OWNED
AT END OF PERIOD
SERIES/NAME OF ISSUER ($)
- --------------------------------------------------------- -----------------
Global Bond Series
<S> <C>
U.S. Bank National Association......................... $ 872
High Yield Series
U.S. Bank National Association......................... 1,944,000
Global Asset Allocation Series
U.S. Bank National Association......................... 3,495,087
Asset Allocation Series
Bear Stearns & Co...................................... 1,519,286
Donaldson, Lufkin & Jenrette Sec....................... 9,971,999
J.P. Morgan & Co., Inc................................. 4,580,567
Lehman Brothers, Inc................................... 4,949,948
Merrill Lynch, Pierce, Fenner & Smith.................. 3,795,085
Morgan Stanley & Co., Inc.............................. 2,675,954
Salomon Brothers, Inc.................................. 2,028,392
U.S. Bank National Association......................... 13,157,000
Value Series
Chase Manhattan Corp................................... 865,050
U.S. Bancorp........................................... 1,074,600
U.S. Bank National Association......................... 1,536,000
Growth & Income Series
Chase Manhattan Corp................................... 1,752,000
U.S. Bancorp........................................... 1,183,179
U.S. Bank National Association......................... 8,070,000
<CAPTION>
VALUE OF
SECURITIES OWNED
AT END OF PERIOD
SERIES/NAME OF ISSUER ($)
- --------------------------------------------------------- -----------------
<S> <C>
S&P 500 Index Series
Chase Manhattan Corp................................... $ 635,100
First Chicago Capital Markets, Inc..................... 342,350
Merrill Lynch, Pierce, Fenner & Smith.................. 320,925
Morgan Stanley & Co., Inc.............................. 473,887
Nationsbank Corp....................................... 597,300
U.S. Bancorp........................................... 375,774
Blue Chip Stock Series
Chase Manhattan Corp................................... 766,500
Morgan Stanley, Dean Witter, Discover & Co............. 206,938
Nationsbank Corp....................................... 443,931
U.S. Bancorp........................................... 716,400
International Stock Series
U.S. Bank National Association......................... 1,728,576
Global Growth Series
U.S. Bank National Association......................... 14,016,000
Growth Stock Series
U.S. Bank National Association......................... 33,255,595
Aggressive Growth Series
U.S. Bank National Association......................... 5,223,000
</TABLE>
Fortis Advisers, Inc. has developed written trade allocation procedures for its
management of the securities trading activities of its clients. Advisers manages
multiple portfolios, both public (mutual funds) and private. The purpose of the
trade allocation procedures is to treat the portfolios fairly and reasonably in
situations where the amount of a security that is available is insufficient to
satisfy the volume or price requirements of each portfolio that is interested in
purchasing that security.
Generally, when the amount of securities available in a public offering or the
secondary market is insufficient to satisfy the requirements for the interested
portfolios, the procedures require a pro rata allocation based upon the amounts
initially requested by each portfolio manager. In allocating trades made on
combined basis, Advisers seeks to achieve the average price of the securities
for each participating portfolio.
Because a pro rata allocation may not always adequately accommodate all facts
and circumstances, the procedures provide for exceptions to allocate trades on a
basis other than pro rata. Examples of where adjustments may be made include:
(i) the cash position of the portfolios involved in the transaction; and (ii)
the relative importance of the security to a portfolio in seeking to achieve its
investment objective.
- --------------------------------------------------------------------------------
CAPITAL STOCK
Fortis Series' shares have a par value of $.01 per share and equal rights to
share in dividends and assets. The shares possess no preemptive or conversion
rights. On December 31, 1997, no person to Fortis Series' knowledge owned
beneficially as much as 5% of the outstanding Shares of any Series.
Fortis Series currently has eighteen Series, each constituting a separate series
of shares. Under Fortis Series' Articles of Incorporation, the Board of
Directors is authorized to create new series in addition to those already
existing without the approval of the shareholders of Fortis Series. Each share
of stock will have a pro-rata interest in the assets of the Series to which the
stock of that series relates and will have no interest in the assets of any
other Series. In the event of liquidation, each share of a Series would have the
same rights to dividends and assets as every other share of that Series.
Each share of a Series has one vote (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the Series' shares. On
some issues, such as the election of directors, all shares of Fortis Series vote
together as one series. Cumulative voting is not authorized. This means that the
holders of more than 50% of the shares voting for the election of directors can
elect 100% of the directors if they choose to do so, and, in such event, the
holders of the remaining shares will be unable to elect any directors.
On an issue affecting only a particular Series, the shares of the affected
Series vote as a separate series. An example of such an issue would be a
fundamental investment restriction pertaining to only one Series.
Fortis Series is not required under Minnesota law to hold annual or periodically
scheduled regular meetings of shareholders. Minnesota corporation law provides
for the Board of Directors to convene shareholder meetings when it deems
appropriate. In addition, if a regular meeting of shareholders has not been held
during the immediately preceding fifteen months, a shareholder or shareholders
holding three percent or more of the voting shares of Fortis Series may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or the chief financial officer of Fortis Series. Within ninety
days after receipt of the demand, a regular meeting of shareholders must be held
at Fortis Series' expense. Additionally, the 1940 Act requires shareholder votes
for all amendments to fundamental investment policies and restrictions and for
all investment advisory contracts and amendments thereto.
55
<PAGE>
COMPUTATION OF NET ASSET VALUE AND PRICING
On December 31, 1997, each Series' net asset value per share was calculated as
shown below. Mid Cap Stock Series, Small Cap Value Series and Large Cap Growth
Series had not commenced operations as of that date.
<TABLE>
<S> <C>
MONEY MARKET SERIES
Net Assets ($57,009,235)
- ---------------------------- = Net Asset Value Per Share ($11.03)
Shares Outstanding (5,168,568)
U.S. GOVERNMENT SECURITIES SERIES
Net Assets ($142,069,864)
- ---------------------------- = Net Asset Value Per Share ($10.68)
Shares Outstanding (13,301,888)
DIVERSIFIED INCOME SERIES
Net Assets ($105,199,940)
- ---------------------------- = Net Asset Value Per Share ($11.98)
Shares Outstanding (8,778,784)
GLOBAL BOND SERIES
Net Assets ($20,691,969)
- ---------------------------- = Net Asset Value Per Share ($10.65)
Shares Outstanding (1,943,330)
HIGH YIELD SERIES
Net Assets ($59,228,440)
- ---------------------------- = Net Asset Value Per Share ($10.77)
Shares Outstanding (5,499,676)
ASSET ALLOCATION SERIES
Net Assets ($482,280,029)
- ---------------------------- = Net Asset Value Per Share ($17.62)
Shares Outstanding (27,372,975)
GLOBAL ASSET ALLOCATION SERIES
Net Assets ($52,482,392)
- ---------------------------- = Net Asset Value Per Share ($13.29)
Shares Outstanding (3,949,879)
VALUE SERIES
Net Assets ($55,057,902)
- ---------------------------- = Net Asset Value Per Share ($13.42)
Shares Outstanding (4,102,492)
GROWTH & INCOME SERIES
Net Assets ($244,970,367)
- ---------------------------- = Net Asset Value Per Share ($18.76)
Shares Outstanding (13,061,059)
S&P 500 INDEX SERIES
Net Assets ($109,571,767)
- ---------------------------- = Net Asset Value Per Share ($14.93)
Shares Outstanding (7,339,084)
BLUE CHIP STOCK SERIES
Net Assets ($78,728,607)
- ---------------------------- = Net Asset Value Per Share ($14.76)
Shares Outstanding (5,335,633)
GLOBAL GROWTH SERIES
Net Assets ($353,254,570)
- ---------------------------- = Net Asset Value Per Share ($20.29)
Shares Outstanding (17,409,548)
GROWTH STOCK SERIES
Net Assets ($707,154,786)
- ---------------------------- = Net Asset Value Per Share ($36.64)
Shares Outstanding (19,300,472)
INTERNATIONAL STOCK SERIES
Net Assets ($79,142,428)
- ---------------------------- = Net Asset Value Per Share ($13.36)
Shares Outstanding (5,923,626)
AGGRESSIVE GROWTH SERIES
Net Assets ($122,455,160)
- ---------------------------- = Net Asset Value Per Share ($13.81)
Shares Outstanding (8,864,746)
</TABLE>
The primary close of trading currently is 3:00 P.M. (Central Time), but this
time may be changed. The offering price for purchase orders received in the
office of Fortis Series after the beginning of each day the New York Stock
Exchange (the "Exchange") is open for trading is based on net asset value
determined as of the close of regular trading (currently 3:00 P.M. Central Time)
on the Exchange that day; the price in effect for orders received after such
close is based on the net asset value as of such close of the Exchange on the
next day the Exchange is open for trading.
Generally, the net asset value of each Series' shares is determined on each day
on which the Exchange is open for business. The Exchange is not open for
business on the following holidays (nor on the nearest Monday or Friday if the
holiday falls on a weekend): New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. Additionally, net asset value need not be
determined (i) on days on which changes in the value of the portfolio securities
will not materially affect the current net asset value of the Series' shares; or
(ii) on days during which no such Series' shares are tendered for redemption and
no orders to purchase or sell such Series' shares are received by Fortis Series.
REDEMPTION
The right of the Separate Account to redeem shares or to receive payment with
respect to any redemption may be suspended only for any period during which
trading on the Exchange is restricted as determined by the Securities and
Exchange Commission or when such Exchange is closed (other than customary
weekend or holiday closings), for any period during which an emergency exists as
defined by the Securities and Exchange Commission as a result of which disposal
of a Series' securities or determination of the net asset value of each Series
is not reasonably practicable, and for such other periods as the Securities and
Exchange Commission may by order permit for the protection of shareholders of
each Series.
Redemption of shares, or payment, may be suspended at times (a) when the
Exchange is closed for other than customary weekend or holiday closings, (b)
when trading on said Exchange is restricted, (c) when an emergency exists, as a
result of which disposal by Fortis Series of securities owned by it is not
reasonably practicable, or it is not reasonably practicable for Fortis Series
fairly to determine the value of its net assets, or during any other period when
the Securities and Exchange Commission, by order, so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist.
TAXATION
The Series have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). As long as each Series so qualifies, the Series is not taxed on the
income it distributes to the shareholders. Generally, in order to qualify as a
regulated investment company, a Series must derive at least 90 percent of its
gross income from dividends, interest, and gains from the sale or other
disposition of stock or securities or other income derived with
56
<PAGE>
respect to its investing in such stock or securities. Being qualified as a
regulated investment company does not mean that the Internal Revenue Service
supervises Fortis Series or approves its policies.
Under the Code, each Series will generally be treated as a separate entity for
federal tax purposes. Therefore, each Series will be treated separately in
determining whether it qualifies as a regulated investment company and in
determining the net ordinary income (or loss), net realized capital gains (or
losses) and distributions necessary to relieve each Series of any federal income
tax liability.
Pursuant to the Code, each Series will be subject to a nondeductible excise tax
for each calendar year equal to 4 percent of the excess, if any, of the amount
required to be distributed over the amount distributed. However, the excise tax
does not apply to any income on which a Series pays income tax. In order to
avoid the imposition of this excise tax, each Series generally must declare
dividends by the end of a calendar year representing 98 percent of the Series'
ordinary income for the calendar year and 98 percent of its capital gain net
income (both long-term and short-term capital gains) for the twelve-month period
ending October 31 of the calendar year.
The Code imposes certain diversification requirements on the investments of
segregated asset accounts underlying variable annuity and life insurance
contracts. Treasury Regulations interpret those requirements. Under the Code and
the Regulations, if a variable contract is based in part or in whole on a
segregated asset account that fails to meet the diversification standards, the
variable contract will not be treated as an annuity or life insurance contract
for federal income tax purposes. As a consequence, the income on the contract
for any taxable year, whether or not distributed, will be treated as ordinary
income received by the Contract owner during such year.
As a general rule, each Series may invest not more than 55% of the value of its
total assets in the securities of a single issuer, not more than 70% of the
value of its total assets in the securities of any two issuers, not more than
80% of the value of its total assets in the securities of any three issuers, and
not more than 90% of the value of its total assets in the securities of any four
issuers. Under the Code and the Regulations, for purposes of the diversification
tests, the securities of each agency or instrumentality of the U.S. government
are considered the securities of a separate issuer. Each Series intends to
satisfy either the diversification test described above or an alternative
diversification test provided by the Code, so that the variable contracts
invested in each Series will be treated as variable contracts under the Code and
the income earned with respect to the contracts will not be currently taxable to
the Contract owners.
If a Series invests in zero coupon obligations upon their issuance, such
obligations will have original issue discount in the hands of such Series.
Generally, original issue discount equals the difference between the "stated
redemption price at maturity" of the obligation and its "issue price" as those
terms are defined in the Code. If a Series acquires an already issued zero
coupon bond from another holder, the bond will have original issue discount in
the Series' hands, equal to the difference between the "adjusted issue price" of
the bond at the time the Series acquires it (that is, the original issue price
of the bond plus the amount of original issue discount accrued to date) and its
stated redemption price at maturity. In each case, a Series is required to
accrue as ordinary interest income a portion of such original issue discount
even though such Series receives no cash currently as interest payments on the
obligation. Similarly, in the case of PIKs, Series are required to recognize
interest income in the amount of the fair market value of the securities
received as interest payments on the PIKs, even though they receive no cash.
Because each Series is required to distribute substantially all of its net
investment income (including accrued original issue discount and interest income
attributable to PIKs) in order to be taxed as a regulated investment company, a
Series having such income may be required to distribute an amount greater than
the total cash income the Series actually receives. Accordingly, in order to
make the required distribution, the Series may be required to borrow or
liquidate securities.
For Federal income tax purposes the Series had the following capital loss
carryovers at December 31, 1997, which, if not offset by subsequent capital
gains, will expire in 1998 through 2005. It is unlikely the Board of Directors
will authorize a distribution of any net realized gains until the available
capital loss carryovers have been offset or expired.
<TABLE>
<S> <C>
Money Market Series..................... $ 81,339
U.S. Government Securities Series....... 15,568,683
Diversified Income Series............... 9,476,925
Blue Chip Stock Series.................. 310,339
Global Growth Series.................... 923,213
Aggressive Growth Series................ 15,743,221
</TABLE>
UNDERWRITER
Investors has entered into an Underwriting Agreement for the sale and
distribution of the Series' shares. This Underwriting Agreement may be
terminated by Fortis Series or Investors at any time by the giving of 60 days'
written notice, and terminates automatically in the event of its assignment.
Unless sooner terminated, the Underwriting Agreement shall continue in effect
for more than two years after its execution only so long as such continuance is
also approved by the vote of a majority of the directors who are not parties to
such Underwriting Agreement, or interested persons of such parties, cast in
person at a meeting called for the purpose of voting on such approval.
The Underwriting Agreement requires Investors to pay all promotional expenses in
connection with the distribution of the Fortis Series' shares, including
printing and distributing prospectuses and shareholder reports to new Policy
owners and the costs of sales literature. Pursuant to a separate distribution
agreement between Fortis Benefits and Investors, Fortis Benefits reimburses
Investors for these expenses or pays them on Investors' behalf, to the extent
they involve shares issued to fund variable life insurance policies issued by
Fortis Benefits.
In the Underwriting Agreement, Investors undertakes to indemnify Fortis Series
against all costs of litigation and other legal proceedings, and against any
liability incurred by or imposed upon Fortis Series in any way arising out of or
in connection with the sale or distribution of the Fortis Series' shares, except
to the extent that such liability is the result of information which was
obtainable by Investors only from persons affiliated with Fortis Series but not
with Investors.
PERFORMANCE
The Series may refer to or advertise average annual total return and cumulative
return. Certain Series may provide yield calculations. All such yield and total
return quotations are based on historical earnings and are not intended to
indicate future performance. The return on and principal value of an investment
in any Series will fluctuate, so that shares when redeemed may be worth more or
less than their original cost. Mid Cap Stock Series, Small Cap Value Series and
Large Cap Growth Series had not commenced operations as of December 31, 1997,
and no information for such series is provided.
57
<PAGE>
Cumulative total return is computed by finding the cumulative compounded rate of
return over the period indicated in the advertisement that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
<TABLE>
<S> <C> <C> <C> <C> <C>
ERV-P
CTR = ( ---- ) 100
P
</TABLE>
<TABLE>
<S> <C> <C>
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period; and
P = initial payment of $1,000
</TABLE>
This calculation assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
The Series' cumulative total returns from date of inception (ten years for Money
Market, U.S. Government Securities, Asset Allocation and Growth Stock) to
December 31, 1997 were:
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
SINCE
SERIES INCEPTION
- ---------------------------------------- --------
<S> <C>
Money Market............................ 72.58 %
U.S. Government Securities.............. 113.80 %
Diversified Income...................... 124.85 %(1)
Global Bond............................. 23.27 %(2)
High Yield.............................. 35.72 %(5)
Global Asset Allocation................. 50.31 %(2)
Asset Allocation........................ 222.77 %
Value................................... 39.62 %(4)
Growth & Income......................... 104.75 %(3)
S&P 500 Index........................... 51.23 %(4)
Blue Chip Stock......................... 47.63 %(4)
International Stock..................... 46.01 %(2)
Global Growth........................... 110.59 %(5)
Growth Stock............................ 285.67 %
Aggressive Growth....................... 39.13 %(3)
</TABLE>
- --------------------------
(1)Inception date: May 2, 1988.
(2)Inception date: January 3, 1995.
(3)Inception date: May 2, 1994.
(4)Inception date: May 1, 1996.
(5)Inception date: May 1, 1992.
Average annual total return figures are computed by finding the average annual
compounded rates of return over the periods indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
<TABLE>
<S> <C>
n
P(1+T) = ERV
</TABLE>
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period.
</TABLE>
This calculation assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
The Series' average annual total returns for one year, five years and ten years
(since inception if less than ten years) for the period ending December 31, 1997
were:
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
10 YEARS/
SINCE
SERIES 1 YEAR 5 YEARS INCEPTION
- ---------------------------------------- -------- -------- ---------
<S> <C> <C> <C>
Money Market............................ 5.34 % 4.58 % 5.61%
U.S. Government Securities.............. 9.08 % 6.28 % 7.89%
Diversified Income...................... 10.44 % 7.59 % 8.74%(1)
Global Bond............................. 0.14 % N/A 7.24%(2)
High Yield.............................. 9.76 % N/A 8.68%(3)
Global Asset Allocation................. 13.51 % N/A 14.58%(2)
Asset Allocation........................ 20.24 % 12.55 % 12.43%
Value................................... 25.24 % N/A 22.14%(4)
Growth & Income......................... 27.69 % N/A 21.57%(3)
S&P 500 Index........................... 32.32 % N/A 28.13%(4)
Blue Chip Stock......................... 27.00 % N/A 26.30%(4)
International Stock..................... 11.99 % N/A 13.47%(2)
Global Growth........................... 6.82 % 13.69 % 14.04%(5)
Growth Stock............................ 12.42 % 12.05 % 14.45%
Aggressive Growth....................... 1.43 % N/A 9.42%(3)
</TABLE>
- --------------------------
(1)Inception date: May 2, 1988.
(2)Inception date: January 3, 1995.
(3)Inception date: May 2, 1994.
(4)Inception date: May 1, 1996.
(5)Inception date: May 1, 1992.
Yield is computed by dividing the net investment income per share (as defined
under Securities and Exchange Commission rules and regulations) earned during
the computation period by the maximum offering price per share on the last day
of the period, according to the following formula:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(a-b)
YIELD = 2 [ --- +1 ] to the power of 6 -1
cd
</TABLE>
<TABLE>
<S> <C> <C>
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends; and
d = the maximum offering price per share on the last
day of the period.
</TABLE>
Current yield (calculated over a seven-day period) is a percentage computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical preexisting account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting figure carried
to at least the nearest hundredth of one percent. Effective yield (calculated
over a seven-day period) is computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical preexisting account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of
58
<PAGE>
the account at the beginning of the base period to obtain the base period
return, and then compounding the base period return by adding 1, raising the sum
to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula:
<TABLE>
<S> <C> <C> <C> <C>
Effective Yield = [ (Base Period Return +1) 365/7 ] -1
</TABLE>
The Series also may quote annual yield figures, calculated similarly to the
above methods.
Current yield information is useful in reviewing performance, but because
current yield will fluctuate, such information may not provide a basis for
comparison with bank deposits or other investments which pay a fixed yield for a
stated period of time and may be insured and the current yield is not
necessarily representative of future results.
As noted in the Prospectus, Fortis Series may advertise the Series' relative
performance as compiled by outside organizations or refer to publications which
have mentioned its performance.
Fortis Series may from time to time compare the Series with the following:
(1) The Salomon Brothers Non-U.S. Dollars Indices, which are measures of
the total return performance of high-quality non-U.S. dollar denominated
securities in major sectors of the worldwide bond markets.
(2) The Shearson Lehman Government/Corporate Bond Index, which is a
comprehensive measure of all public obligations of the U.S. Treasury (excluding
flower bonds and foreign targeted issues), a publicly issued debt of agencies of
the U.S. Government (excluding mortgage-backed securities), and all public,
fixed rate, nonconvertible investment grade domestic corporate debt rated at
least Baa by Moody's or BBB by S&P, or, in the case of nonrated bonds. BBB by
Fitch Investors Service (excluding Collateralized Mortgage Obligations).
(3) Average of Savings Accounts, which is a measure of all kinds of savings
deposits, including longer-term certificates (based on figures supplied by the
U.S. League of Savings Institutions). Savings accounts offer a guaranteed rate
of return on principal, but no opportunity for capital growth. During a portion
of the period, the maximum rates paid on some savings deposits were fixed by
law.
(4) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g., food,
clothing, shelter, fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
(5) Bear Stearns Foreign Bond Index, which provides simple average returns
for individual countries and GNP-weighted index, beginning in 1975. The returns
are broken down by local market and currency.
(6) Ibbottson Associates International Bond Index, which provides a
detailed breakdown of local market and currency returns since 1960.
(7) Standard & Poor's 500 Index ("S&P 500") which is a widely recognized
index composed of the capitalization-weighted average of the price of 500 of the
largest publicly traded stocks in the United States.
(8) Salomon Brothers Broad Investment Grade Index which is a widely used
index composed of U.S. domestic government, corporate and mortgage-backed fixed
income securities.
(9) Dow Jones Industrial Average.
(10) Financial News Composite Index.
(11) Morgan Stanley Capital International World Indices, including, among
others, the Morgan Stanley Capital International Europe, Australia, Far East
Index ("EAFE Index"). The EAFE Index is an unmanaged index of more than 1,600
companies of Europe, Australia, and the Far East (approximately 22 countries).
Indices prepared by the research departments of such financial organizations as
Salomon Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith, Inc.; Bear
Stearns & Co., Inc.; Morgan Stanley; and Ibbottson Associates may be used, as
well as information provided by the Federal Reserve Board.
Fortis Series may refer to the rating services listed below.
RATINGS SERVICE
Lipper Analytical Services, Inc.
CDA/Wiesenberger
Morningstar Publications, Inc.
Johnson's Charts
SYSTEMATIC WITHDRAWAL
CONVENIENT INCOME
If you are over 59 1/2 years old, your Fortis variable annuity can be a source
of income. For qualified plans or IRAs, you can use a systematic withdrawal plan
to satisfy the minimum distribution requirement when you turn age 70 1/2.
YOU CAN HAVE MONTHLY INCOME
- Directly deposited to a Fortis Money Fund account for convenient check
writing.*
- Electronically deposited directly to a checking, money market* or
brokerage account.
- Sent directly in the form of a check.
- Conveniently forwarded to another address to pay disability insurance,
life insurance, long-term care premiums, mortgage, etc.
CHOOSE YOUR STRATEGY:
- -EARNINGS ONLY--withdraw any profits, leave your principal intact.
- Principal never touched to provide income.
- Amount varies with the performance of the investments you choose.
- -SPECIFY EXACT DOLLAR AMOUNT:
- Ideal for paying planned expenses or supplementing your income.
- Any additional earnings continue to grow tax deferred.
HOW TO GET STARTED
Your registered representative can help you decide what systematic withdrawal
plan is right for you. Complete the Systematic Withdrawal section of the
Variable Annuity Service Request Form (#97212.)
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<PAGE>
[LOGO]
- --------------------------
* A money market fund is neither insured nor guaranteed by the U.S. Government.
While a stable net asset value is a goal of the fund, it is not a guarantee.
Withdrawals from an annuity are subject to tax and may be subject to an early
withdrawal charge. The IRS charges a 10% tax penalty on most withdrawals prior
to owner age 59 1/2.
Subaccount unit values fluctuate. When units are redeemed, their value may be
worth more or less than their original cost.
Opportunity and Masters are two separate annuities with distinct features and
charges. This material must be preceded or accompanied by a Masters or
Opportunity annuity brochure.
For more complete information about Fortis annuities including charges and
expenses, send for a prospectus from Fortis Investors, Inc. P.O. Box 64284, St.
Paul, MN 55164. Read it carefully before you invest.
This investment is not FDIC insured, is not an obligation of, nor guaranteed by
any bank or financial institution, and involves investment risks, including
possible loss of principal.
FINANCIAL STATEMENTS
The audited financial statements as of December 31, 1997, as set forth in Fortis
Series' 1997 Annual Report to Shareholders, are incorporated herein by
reference. The audited financial statements are provided in reliance on the
report of KPMG Peat Marwick LLP, 4200 Norwest Center, Minneapolis, MN 55402,
independent auditors of Fortis Series, and given on the authority of such firm
as experts in accounting and auditing.
CUSTODIAN AND COUNSEL
U.S. Bank National Association, 601 Second Avenue South, Minneapolis MN 55480
acts as custodian of Fortis Series' assets and portfolio securities. Dorsey &
Whitney LLP, 220 South Sixth Street, Minneapolis, MN 55402, is the independent
General Counsel for Fortis Series.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director of Fortis Series owes certain fiduciary
duties to Fortis Series and to its shareholders. Minnesota law provides that a
director "shall discharge the duties of the position of director in good faith,
in a manner the director reasonably believes to be in the best interests of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director of a
Minnesota corporation include, therefore, both a duty of "loyalty" (to act in
good faith and act in a manner reasonably believed to be in the best interests
of the corporation) and a duty of "care" (to act with the care an ordinarily
prudent person in a like position would exercise under similar circumstances).
Minnesota law authorizes corporations to eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of the fiduciary duty of "care." Minnesota law does not,
however, permit a corporation to eliminate or limit the liability of a director
(i) for any breach of the director's duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation of
Minnesota law or for violation of certain provisions of Minnesota securities
laws, or (iv) for any transaction from which the director derived an improper
personal benefit. The Articles of Incorporation of Fortis Series limit the
liability of directors to the fullest extent permitted by Minnesota statutes,
except to the extent that such a liability cannot be limited as provided in the
1940 Act (which act prohibits any provisions which purport to limit the
liability of directors arising from such directors' willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a director. It
only authorizes a corporation to eliminate monetary liability for violations of
that duty. Minnesota law, further, does not permit elimination or limitation of
liability of "officers" to the corporation for breach of their duties as
officers (including the liability of directors who serve as officers for breach
of their duties as officers). Minnesota law does not permit elimination or
limitation of the availability of equitable relief, such as injunctive or
rescissionary relief. Further, Minnesota law does not permit elimination or
limitation of a director's liability under the Securities Act of 1933 or the
Securities Exchange Act of 1934, and it is uncertain whether and to what extent
the elimination of monetary liability would extend to violations of duties
imposed on directors by the 1940 Act and the rules and regulations adopted under
such Act.
ADDITIONAL INFORMATION
Fortis Series has filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement under the Securities Act of 1933, as
amended, with respect to the common stock offered hereby. The Prospectus and
this Statement of Additional Information do not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with Rules and Regulations of the Commission. The Registration
Statement may be inspected at the principal office of the Commission at 450
Fifth Street, N.W., Washington, D.C., and copies thereof may be obtained from
the Commission at prescribed rates.
60
<PAGE>
APPENDIX
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
OPTIONS ON SECURITIES
An option on a security provides the purchaser, or "holder," with the right, but
not the obligation, to purchase, in the case of a "call" option, or sell, in the
case of a "put" option, the security or securities underlying the option, for a
fixed exercise price up to a stated expiration date or, in the case of certain
options, on such date. The holder pays a nonrefundable purchase price for the
option, known as the "premium." The maximum amount of risk the purchaser of the
option assumes is equal to the premium plus related transaction costs, although
this entire amount may be lost. The risk of the seller, or "writer," however, is
potentially unlimited, unless the option is "covered." A call option written by
the Series is "covered" if the Series owns the underlying security covered by
the call or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Series
holds a call on the same security and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Series in cash and
high grade government securities in a segregated account with its custodian. A
put option written by the Series is "covered" if the Series maintains cash and
high grade government securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same security
and in the same principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.
If the writer's obligation is not so covered, it is subject to the risk of the
full change in value of the underlying security from the time the option is
written until exercise.
Upon exercise of the option, the holder is required to pay the purchase price of
the underlying security, in the case of a call option, or to deliver the
security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities and options on indexes of securities, discussed below, are
traded on national securities exchanges, such as the Chicago Board Options
Exchange and the New York Stock Exchange, which are regulated by the SEC. The
Options Clearing Corporation guarantees the performance of each party to an
exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on securities and options on indexes of securities only through a registered
broker-dealer which is a member of the exchange on which the option is traded.
In addition, options on securities and options on indexes of securities may be
traded on exchanges located outside the United States and over-the-counter
through financial institutions dealing in such options as well as the underlying
instruments. The particular risks of transactions on foreign exchanges and
over-the-counter transactions are set forth more fully in the Statement of
Additional Information.
OPTIONS ON STOCK INDEXES
In contrast to an option on a security, an option on a stock index provides the
holder with the right to make or receive a cash settlement upon exercise of the
option, rather than the right to purchase or sell a security. The amount of this
settlement is equal to (a) the amount, if any, by which the fixed exercise price
of the option exceeds (in the case of a call) or is below (in the case of a put)
the closing value of the underlying index on the date of exercise, multiplied by
(b) a fixed "index multiplier." The purchaser of the option receives this cash
settlement amount if the closing level of the stock index on the day of exercise
is greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The writer of the option is obligated, in return
for the premium received, to make delivery of this amount if the option is
exercised. As in the case of options on securities, the writer or holder may
liquidate positions in stock index options prior to exercise or expiration by
entering into closing transactions on the exchange on which such positions were
established, subject to the availability of a liquid secondary market.
The Series will cover all options on stock indexes by owning securities whose
price changes, in the opinion of Advisers (or a sub-adviser, if applicable), are
expected to be similar to those of the index, or in such other manner as may be
in accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where the Series covers a call
option on a stock index through ownership of securities, such securities may not
match the composition of the index. In that event, the Series will not be fully
covered and could be subject to risk of loss in the event of adverse changes in
the value of the index. The Series will secure put options on stock indexes by
segregating assets equal to the option's exercise price, or in such other manner
as may be in accordance with the rules of the exchange on which the option is
traded and applicable laws and regulations.
The index underlying a stock option index may be a "broad-based" index, such as
the Standard & Poor's 500 Index or the New York Stock Exchange Composite Index,
the changes in value of which ordinarily will reflect movements in the stock
market in general. In contrast, certain options may be based upon narrower
market indexes, such as the Standard & Poor's 100 Index, or on indexes of
securities of particular industry groups, such as those of oil and gas or
technology companies. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks so included.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES, STOCK INDEXES AND FOREIGN
CURRENCIES
A Futures Contract is a bilateral agreement providing for the purchase and sale
of a specified type and amount of a financial instrument or foreign currency, or
for the making and acceptance of a cash settlement, at a stated time in the
future for a fixed price. By its terms, a Futures Contract provides for a
specified settlement date on which, in the case of the majority of interest rate
and foreign currency futures contracts, the fixed income securities or currency
underlying the contract are delivered by the seller and paid for by the
purchaser, or on which, in the case of stock index futures contracts and certain
interest rate and foreign currency futures contracts, the difference between the
price at which the contract was entered into and the contract's closing value is
settled between the purchaser and the seller in cash. Futures Contracts differ
from options in that they are bilateral agreements, with both the purchaser and
the seller equally obligated to complete the transaction. Futures Contracts call
for settlement only on the expiration date, and cannot be "exercised" at any
other time during their term.
The purchase or sale of a Futures Contract differs from the purchase or sale of
a security or the purchase of an option in that no purchase price is paid or
received. Instead, an amount of cash or cash equivalents, which varies but may
be as low as 5% or less of the value of the contract, must be deposited with the
broker as "initial margin." Subsequent payments to and from the broker, referred
to as "variation margin," are made on a daily basis as the value of the index or
instrument underlying the Futures Contract fluctuates, making positions in the
Futures Contracts more or less valuable, a process known as "marking to the
market."
U.S. Futures Contracts may be purchased or sold only on an exchange, known as a
"contract market," designated by the CFTC for the trading of such contract, and
only through a registered futures commission merchant which is a member of such
contract market. A commission must be paid on each completed purchase and sale
transaction. The contract market clearing house guarantees the performance of
each party to a Futures Contract, by in effect taking the opposite side of such
contract. At any time prior to the expiration of a Futures Contract, a trader
may elect to close out its position by taking an opposite position on the
contract market on which the position was entered into, subject to the
availability of a secondary market,
61
<PAGE>
which will operate to terminate the initial position. At that time, a final
determination of variation margin is made and any loss experienced by the trader
is required to be paid to the contract market clearing house while any profit
due to the trader must be delivered to it. Futures Contracts may also be traded
on foreign exchanges.
Interest rate Futures Contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities , and U.S. Treasury Bills. In addition, interest rate Futures
Contracts include contracts on indexes of municipal securities. Foreign currency
Futures Contracts currently are traded on the British pound, Canadian dollar,
Japanese yen, Swiss franc, West German mark, and on Eurodollar deposits.
A stock index or Eurodollar Futures Contract provides for the making and
acceptance of a cash settlement in much the same manner as the settlement of an
option on a stock index. The types of indexes underlying stock index futures
contracts are essentially the same as those underlying stock index options, as
described above. The index underlying a municipal bond index futures contract is
a broad-based index of municipal securities designed to reflect movements in the
municipal securities market as a whole. The index assigns weighted values to the
securities included in the index and its composition is changed periodically.
OPTIONS ON FUTURES CONTRACTS
An Option on a Futures Contract provides the holder with the right to enter into
a "long" position in the underlying Futures Contract, in the case of a call
option, or a "short" position in the underlying Futures Contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position, in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of Futures Contracts, such as payment of variation margin
deposits. In addition, the writer of an Option on a Futures Contract, unlike the
holder, is subject to initial and variation margin requirements on the option
position.
A position in an Option on a Futures Contract may be terminated by the purchaser
or the seller prior to expiration by affecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
Options on Futures Contracts that are written or purchased by the Series on
United States exchanges are traded on the same contract market as the underlying
Futures Contract and, like Futures Contracts, are subject to regulation by the
CFTC and the performance guarantee of the exchange clearing house. In addition,
Options on Futures Contracts may be traded on foreign exchanges.
An option, whether based on a Futures Contract, a stock index, or security,
becomes worthless to the holder when it expires. Upon exercise of an option, the
exchange or contract market clearing house assigns exercise notices on a random
basis to those of its members which have written options of the same series and
with the same expiration date. A brokerage firm receiving such notices then
assigns them on a random basis to those of its customers which have written
options of the same series and expiration date. A writer therefore has no
control over whether an option will be exercised against it, nor over the timing
of such exercise.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS
A foreign currency forward exchange contract (a "Forward Contract") is a
contractual obligation to purchase or sell a specific quantity of a given
foreign currency for a fixed exchange rate at a future date. Forward Contracts
are individually negotiated and are traded through the "interbank currency
market," an informal network of banks and brokerage firms which operates around
the clock and throughout the world. Transactions in the interbank market may be
executed only through financial institutions acting as market-makers in the
interbank market, or through brokers exercising purchases and sales through such
institutions. Market-makers in the interbank market generally act as principals
in taking the opposite side of their customers' positions in Forward Contracts,
and ordinarily charge a mark-up commission which may be included in the cost of
the Forward Contract. In addition, market-makers may require their customers to
deposit collateral upon entering into a Forward Contract, as security for the
customer's obligation to make or receive delivery of currency, and to deposit
additional collateral if exchange rates move adversely to the customer's
position. Such deposits may function in a manner similar to the margining of
Futures Contracts, described above.
Prior to the stated maturity date of a Forward Contract, it may be possible to
liquidate the transaction by entering into an offsetting contract. In order to
do so, however, a customer may be required to maintain both contracts as open
positions until maturity and to make or receive a settlement of the difference
owed to or from the market-maker or broker at that time.
OPTIONS ON FOREIGN CURRENCIES
Options on foreign currencies are traded in a manner substantially similar to
options on securities. In particular, an option on foreign currency provides the
holder with the right to purchase, in the case of a call option, or to sell, in
the case of a put option, a stated quantity of a particular currency for a fixed
price up to a stated expiration date or, in the case of certain options, on such
date. The writer of the option undertakes the obligation to deliver, in the case
of a call option, or to purchase, in the case of a put option, the quantity of
the currency called for in the option, upon exercise of the option by the
holder.
As in the case of other types of options, the holder of an option on foreign
currency is required to pay a one-time, nonrefundable premium, which represents
the cost of purchasing the option. The holder can lose the entire amount of this
premium, as well as related transaction costs, but not more than this amount.
The writer of the option, in contract, generally is required to make initial and
variation margin payments, similar to margin deposits required in the trading of
Futures Contracts and the writing of other types of options. The writer is
therefore subject to risk of loss beyond the amount originally invested and
above the value of the option at the time it is entered into.
Certain options on foreign currencies, like Currency Contracts, are traded
over-the-counter through financial institutions acting as market-makers in such
options and the underlying currencies. Such transactions therefore involve risks
not generally associated with exchange-traded instruments, which are discussed
below. Options on foreign currencies may also be traded on national securities
exchanges regulated by the SEC and on exchanges located in foreign countries.
Over-the-counter transactions can only be entered into with a financial
institution willing to take the opposite side, as principal, of the Series'
position, unless the institution acts as broker and is able to find another
counterparty willing to enter into the transaction with the Series. Where no
such counterparty is available, it will not be possible to enter into a desired
transaction. There also may be no liquid secondary market in the trading of
over-the-counter contracts, and the Series could be required to retain options
purchased or written until exercise, expiration or maturity. This in turn could
limit the Series' ability to profit from open positions or to reduce losses
experienced, and could result in greater losses.
Further, over-the-counter transactions are not subject to the guarantee of an
exchange clearing house, and the Series will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterparty. One or more of such institutions also may decide to discontinue
their role as market-makers in a particular currency or security, thereby
restricting the Series' ability to enter into desired hedging transactions. The
Series will enter into an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by Advisers.
96724 (REV. 5/98)
62
<PAGE>
[LETTERHEAD]
Independent Auditors' Report
The Shareholder and Board of Directors of
Fortis Series Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of Mid
Cap Stock Series, Small Cap Value Series and Large Cap Growth Series
(portfolios within Fortis Series Fund, Inc.) as of March 25, 1998. These
financial statements are the responsibility of the fund's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit of a financial statement includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statement. Our procedures included confirmation of cash owned with
the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of Mid Cap
Stock Series, Small Cap Value Series and Large Cap Growth Series as of
January 27, 1998, in conformity with generally accepted principles.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 25, 1998
[LOGO]
<PAGE>
FORTIS SERIES FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 25, 1998
<TABLE>
<CAPTION>
MID CAP SMALL CAP LARGE CAP
STOCK VALUE GROWTH
SERIES SERIES SERIES
------- --------- ---------
<S> <C> <C> <C>
Assets:
Cash on deposit with custodian $ 10 $ 10 $ 10
Deferred organization expenses (Note 1) 10,666 10,667 10,667
------- ------- -------
Total Assets 10,676 10,677 10,677
------- ------- -------
Liabilities:
Accrued expenses 10,666 10,667 10,667
------- ------- -------
Total Liabilities 10,666 10,667 10,667
------- ------- -------
Net Assets:
Net proceeds of capital stock, par
value $.01 per share-authorized
20,000,000,000 shares; outstanding
1; 1; 1 shares, respectively 10 10 10
------- ------- -------
Total Net Assets $ 10 $ 10 $ 10
------- ------- -------
------- ------- -------
Net Asset Value Per Share: $ 10.00 $ 10.00 $ 10.00
------- ------- -------
</TABLE>
See accompanying Notes to Financial Statement.
<PAGE>
FORTIS SERIES FUND, INC.
Notes to Financial Statement
1. Summary of Significant Accounting Policies:
The Series are separate diversified investment portfolios and series of
capital stock of Fortis Series Fund, Inc., an open-end management
investment company. The investment objectives of the Series are as
follows:
- The objective of the "Mid Cap Stock Series" is total investment
return (including capital appreciation and income) that consistently
outperforms the Standard & Poor's 400 Mid Cap Index. The Series
Fund attempts to maintain a diversified holding in common stocks of
medium capitalization companies with a market value between $200
million and $5 billion.
- The objective of the "Small Cap Value Series" is capital
appreciation. The Series invests primarily in common stocks of small
companies that are out of favor with markets or that have not yet
been discovered by the broader investment community and are therefore
believed to be undervalued.
- The objective of the "Large Cap Growth Series" is long-term growth
of capital. The Series invests primarily in the equity securities of
a limited number of large, carefully selected, high quality U.S.
companies whose securities are believed likely to achieve superior
earnings growth.
The Articles of Incorporation of Fortis Series Fund, Inc. permits the
Board of Directors to create additional portfolios in the future.
Shares of the Series will not be sold directly to the public, but sold
only to Fortis Benefits Insurance Company or First Fortis Life separate
accounts in connection with variable insurance contracts and policies.
The inception of the Portfolios was April 3, 1998, and the commencement
of operations is anticipated to be May 1, 1998.
Deferred Cost: Organizational costs are deferred and charged to income on
a 60-month straight line basis, beginning with the commencement of
operations.
2. Payment to Related Parties:
Fortis Advisers, Inc. is the investment adviser for each Series.
Investment advisory and management fees are based on each Series' average
daily net assets and decrease in reduced percentages as average daily net
assets increase. The following chart represents the annual fee
percentages:
<TABLE>
<CAPTION>
Annual
Investment
Advisory and
Series Average Net Assets Management Fee
-------------------- ---------------------------- --------------
<S> <C> <C>
Mid Cap Stock Series For the first $100 million .90%
For the next $150 million .85%
For assets over $250 million .80%
<PAGE>
Small Cap Value Series For the first $50 million .90%
For assets over $50 million .85%
Large Cap Growth Series For the first $100 million .90%
For the next $100 million .85%
For assets over $200 million .80%
</TABLE>
The three Series have retained sub-advisers under an investment
sub-advisory agreement to provide investment advice and, in general, to
conduct the management investment program of each portfolio, subject to
the general control of Fortis Advisers and the Board of Directors of the
Fortis Series Fund, Inc. Pursuant to the sub-advisory agreements, each
sub-adviser will regularly provide its respective portfolio with
investment research, advice and supervision and furnish continuously an
investment program for each portfolio consistent with its investment
objectives and policies, including the purchase, retention and
disposition of securities.
From its advisory fee, Fortis Advisers pays the following fees to each of
the sub-advisers:
<TABLE>
<CAPTION>
Annual Sub-
Series Sub-Adviser Average Net Assets Advisory Fee
----------------------- ----------- ---------------------------- ------------
<S> <C> <C> <C>
Mid Cap Stock Series Dreyfus For the first $100 million .50%
For the next $150 million .45%
For assets over $250 million .40%
Small Cap Value Series Berger For the first $50 million .50%
Associates For assets over $50 million .45%
Large Cap Growth Series Alliance For the first $100 million .50%
For the next $100 million .45%
For assets over $200 million .40%
</TABLE>
Legal fees incurred will be paid to a law firm which the secretary of the
Fund is a partner.
<PAGE>
PART C
Fortis Series Fund, Inc.
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements are incorporated by reference to the Registrant's
Annual Report previously filed with the Commission.
(b) Exhibits:
1.1 Amended and Restated Articles of Incorporation (1)
1.2 Certificate of Designation of Series G Common Shares, Series H Common
Shares and Series I Common Shares (1)
1.3 Certificate of Designation of Series J Common Shares, Series K Common
Shares and Series L Common Shares (1)
1.4 Certificate of Designation of Series M Common Shares, Series N Common
Shares and Series O Common Shares (2)
1.5 Certificate of Designation of Series P Common Shares, Series Q Common
Shares and Series R Common Shares (7)
2. Amended and Restated Bylaws (amended 3/19/98) (7)
3. Not applicable
4. Not applicable
5.1 Form of Investment Advisory and Management Agreement between the
Registrant and Fortis Advisers, Inc. (3)
5.2 Form of Investment Advisory and Management Agreement between the
Registrant and Fortis Advisers, Inc. (on behalf of High Yield Series,
Growth & Income Series and Aggressive Growth Series) (4)
5.3 Form of Investment Advisory and Management Agreement between the
Registrant and Fortis Advisers, Inc. (on behalf of International Stock
Series, Global Bond Series and Global Asset Allocation Series) (5)
5.4 Investment Advisory and Management Agreement between the Registrant
and Fortis Advisers, Inc. (on behalf of Small Cap Value Series, Mid
Cap Stock Series and Large Cap Growth Series) dated 4/2/98 (7)
5.5 Form of Investment Sub-Advisory and Management Agreement between
Fortis Advisers, Inc. and Lazard Freres Asset Management (on behalf of
International Stock Series) (5)
5.6 Form of Investment Sub-Advisory and Management Agreement between
Fortis Advisers, Inc. and Warburg Investment Management International
Ltd. (on behalf of Global Bond Series) (5)
5.7 Form of Investment Sub-Advisory and Management Agreement between
Fortis Advisers, Inc. and Morgan Stanley Asset Management Limited (on
behalf of Global Asset Allocation Series) (5)
1
<PAGE>
5.8 Form of Investment Advisory and Management Agreement between the
Registrant and Fortis Advisers, Inc. for Value Series, S&P 500 Index
Series and Blue Chip Stock Series (1)
5.9 Investment Sub-Advisory and Management Agreement between Fortis
Advisers, Inc. and The Dreyfus Corporation (on behalf of S&P 500 Index
Series) (2)
5.10 Investment Sub-Advisory and Management Agreement between Fortis
Advisers, Inc. and T. Rowe Price Associates, Inc. (on behalf of Blue
Chip Stock Series) (2)
5.11 Investment Sub-Advisory and Management Agreement between Fortis
Advisers, Inc. and The Dreyfus Corporation (on behalf of Mid Cap Stock
Series) dated 4/3/98 (7)
5.12 Investment Sub-Advisory and Management Agreement between Fortis
Advisers, Inc. and Berger Associates, Inc. (on behalf of Small Cap
Value Series) dated 4/2/98 (7)
5.13 Investment Sub-Advisory and Management Agreement between Fortis
Advisers, Inc. and Alliance Capital Management L.P. (on behalf of
Large Cap Growth Series) dated 4/2/98 (7)
5.14 Sub-Management Agreement between Berger Associates, Inc. and Perkins,
Wolf, McDonnell & Company (on behalf of Small Cap Value Series) dated
4/2/98 (7)
6.1 Form of Underwriting and Distribution Agreement (1)
6.2 Dealer Sales Agreement (3)
7. Not applicable
8.1 Custody Agreement (2)
8.2 Exhibit A amended 4/2/98 to Custody Agreement (7)
8.3 Custody Agreement for Global Growth Series, International Stock
Series, Global Bond Series, Global Assets Allocation Series and Blue
Chip Stock Series (2)
9. Not applicable
10.1 Opinion and Consent of Dorsey & Whitney LLP (3)
10.2 Opinion and Consent of Dorsey & Whitney LLP (4)
10.3 Opinion and Consent of Dorsey & Whitney LLP for Series J, Series K and
Series L Common Shares (5)
10.4 Opinion and Consent of Dorsey & Whitney LLP for Series M, Series N and
Series O Common Shares (2)
10.5 Opinion and Consent of Dorsey & Whitney LLP for Series P, Series Q and
Series R Common Shares (7)
11. Consent of KPMG Peat Marwick LLP (7)
12. Not applicable
13. Not applicable
14. Not applicable
15. Not applicable
16. Performance Quotation Computation Schedule (6)
18. Not applicable
- ----------------------
2
<PAGE>
(1) Incorporated by reference to Post-Effective Amendment No. 18 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in February 1996.
(2) Incorporated by reference to Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in April 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in October 1992.
(4) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in February 1994.
(5) Incorporated by reference to Post-Effective Amendment No. 14 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in October 1994.
(6) Incorporated by reference to Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on Form N-1A filed with the Commission
in March 1990.
(7) Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is directly or indirectly controlled by or under common control
with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of April 30, 1998, there were the following number of record holders of
Common Shares of each Series then outstanding:
Series A Growth Stock Series 3
Series B U.S. Government Securities Series 3
Series C Money Market Series 3
Series D Managed Series 3
Series E Income Series 3
Series F Global Growth Series 3
Series G High Yield Series 3
Series H Growth & Income Series 3
Series I Aggressive Growth Series 3
Series J International Stock Series 3
Series K Global Bond Series 3
Series L Global Asset Allocation Series 3
Series M Value Series 3
Series N S&P 500 Index Series 3
Series O Blue Chip Stock Series 3
Series P, Series Q and Series R had not commenced operations as of this date.
3
<PAGE>
ITEM 27. INDEMNIFICATION
Refer to Post-Effective Amendment No. 5 to the Registrant's Registration
Statement filed with the Commission in February 1988, which is incorporated
herein by reference.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information on the business of the Adviser is described in the Statement of
Additional Information. In addition to those listed in the Statement of
Additional Information:
<TABLE>
<CAPTION>
Other Business/Employment
Name Position with Adviser During Past Two Years
- ---- --------------------- -------------------------
<S> <C> <C>
Michael D. O'Connor Qualified Plan Officer Qualified Plan Officer of Fortis
Benefits Insurance Company
David C. Greenzang Money Market Portfolio Debt securities manager with
Officer Fortis, Inc.
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Fortis Advantage Portfolios, Inc.
Fortis Equity Portfolios, Inc.
Fortis Fiduciary Fund, Inc.
Fortis Income Portfolios, Inc.
Fortis Money Portfolios, Inc.
Fortis Securities, Inc.
Fortis Series Fund, Inc.
Fortis Tax-Free Portfolios, Inc.
Fortis Worldwide Portfolios, Inc.
Variable Account A of First Fortis Life Insurance Company
Variable Account C of Fortis Benefits Insurance Company
Variable Account D of Fortis Benefits Insurance Company
(b) In addition to those listed in the Statement of Additional Information:
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name/Address with Underwriter with Registrant
- -------------------------- --------------------------------- ---------------------
<S> <C> <C>
Carol M. Houghtby Vice President and Accounting Officer
500 Bielenberg Drive Treasurer
Woodbury, MN
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The physical possession of the accounts, books, and other documents
required to be maintained by Section 31(a) of the Investment Company Act of 1940
and
4
<PAGE>
Rules 3la-1 to 3la-3 promulgated thereunder is maintained by the Registrant at
Fortis Advisers, Inc., 500 Bielenberg Drive, Woodbury, MN 55125.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Each recipient of a prospectus of any series of the Registrant may request
the latest Annual Report of such series, and such Annual Report will be
furnished by the Registrant without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement on Form N-1A
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Woodbury and State of Minnesota on
April 30, 1998.
FORTIS SERIES FUND, INC.
(Registrant)
By /s/ Dean C. Kopperud
---------------------------
Dean C. Kopperud, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/ Dean C. Kopperud President (principal) April 30, 1998
- ---------------------------- executive officer)
Dean C. Kopperud
/s/ Tamara L. Fagely Treasurer (principal April 30, 1998
- ---------------------------- financial and
Tamara L. Fagely accounting officer)
Richard W. Cutting* Director
Allen R. Freedman* Director
Robert M. Gavin* Director
Jean L. King* Director
Edward M. Mahoney* Director
Robb L. Prince* Director
Leonard J. Santow* Director
Joseph M. Wikler* Director
*By /s/ Dean C. Kopperud April 30, 1998
---------------------------
Dean C. Kopperud, Attorney-in-Fact
(Pursuant to a Power of Attorney dated March 21, 1996)
<PAGE>
Exhibit 1.5(c)
CERTIFICATE OF DESIGNATION
OF
SERIES P COMMON SHARES,
SERIES Q COMMON SHARES,
AND
SERIES R COMMON SHARES
OF
FORTIS SERIES FUND, INC.
The undersigned duly elected Secretary of Fortis Series Fund, Inc., a
Minnesota corporation (the "Corporation"), hereby certifies that the following
is a true, complete and correct copy of resolutions duly adopted by a majority
of the directors of the Board of Directors of the Corporation on March 19, 1998.
DESIGNATION OF SERIES P COMMON SHARES,
SERIES Q COMMON SHARES,
AND SERIES R COMMON SHARES
WHEREAS, the total authorized number of shares of the Corporation is
20,000,000,000, all of which shares are common shares, $.01 par value per share,
as set forth in the Corporation's Articles of Incorporation, as amended; and
WHEREAS, of said total authorized shares, 2,000,000,000 shares have
been designated Series A Common Shares, 2,000,000,000 shares have been
designated Series B Common Shares, 2,000,000,000 shares have been designated
Series C Common Shares, 2,000,000,000 shares have been designated Series D
Common Shares, 500,000,000 shares have been designated Series E Common Shares,
1,500,000,000 shares have been designated Series F Common Shares, 1,000,000,000
shares have been designated as Series G Common Shares, 1,000,000,000 shares have
been designated Series H Common Shares, 1,000,000,000 shares have been
designated Series I Common Shares, 1,000,000,000 shares have been designated
Series J Common Shares, 1,000,000,000 shares have been designated Series K
Common Shares, 1,000,000,000 shares have been designated Series L Common Shares,
500,000,000 shares have been designated Series M Common Shares, 500,000,000
shares have been designated Series N Common Shares, and 500,000,000 shares have
been designated Series O Common Shares; and
WHEREAS, said Articles of Incorporation, as amended, set forth that
the balance of 2,500,000,000 authorized but unissued common shares may be issued
in such series with such designations, preferences and relative, participating,
optional or other special rights or qualifications, limitations or restrictions
thereof, as shall be stated or expressed in a resolution or resolutions
providing for the issue of any series of common shares as may be adopted from
time to time by the Board of Directors of the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that of the remaining 2,500,000,000
authorized but unissued common shares of the Corporation 500,000,000 be, and
hereby are, designated as Series P Common Shares, 500,000,000 be, and hereby
are, designated as Series Q Common Shares, and 500,000,000 be, and hereby are,
designated as Series R Common Shares, and each of said Series P
-1-
<PAGE>
Common Shares, Series Q Common Shares, and Series R Common Shares shall
represent interests in a separate and distinct portion of the Corporation's
assets and liabilities which shall take the form of a separate portfolio of
investment securities, cash, other assets and liabilities.
BE IT FURTHER RESOLVED, that Articles 5, 6 and 7 of the Articles of
Incorporation, as amended, of the Corporation setting forth the preferences and
relative, participating, optional or other special rights, and qualifications,
limitations and restrictions thereof, of and among each series of common shares
be, and they hereby are, adopted as the preferences and relative, participating,
optional and other rights, and the qualifications, limitations and restrictions
thereof, of and among the Series P Common Shares, Series Q Common Shares, and
Series R Common Shares and the other series of the Corporation designated
previously by the Corporation.
BE IT FURTHER RESOLVED, that the officers of the Corporation are
hereby authorized and directed to file with the office of the Secretary of State
of Minnesota, a Certificate of Designation setting forth the relative rights and
preferences of the Series P Common Shares, Series Q Common Shares, and Series R
Common Shares, as required by Subd. 3(b) of Section 401 of the Minnesota
Business Corporation Act.
BE IT FURTHER RESOLVED, that there is hereby authorized the issuance
of each of said Series P Common Shares, Series Q Common Shares, and Series R
Common Shares, provided that such shares shall be issued at a price no less than
their net asset value per share.
BE IT FURTHER RESOLVED, that upon receipt of the issuance price for
the shares authorized to be issued hereinabove, either in connection with the
original issues of the shares or the issue following the redemption of such
shares by the Corporation (and after filing pursuant to Minnesota Statutes,
Section 302A.401, Subd. 3(b), a statement with the Secretary of State of the
State of Minnesota setting forth the name of the Corporation and the text of the
relevant portions of these resolutions and certifying the adoption of such
portions of these resolutions and the date of adoption), the officers of the
Corporation are hereby authorized and directed to issue certificates
representing shares (or confirm purchases to investors and credit such purchases
to their accounts) of the Series P Common Shares, Series Q Common Shares, and
Series R Common Shares of the Corporation, and such shares are hereby declared
to be validly and legally issued, fully paid and nonassessable.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Designation on behalf of the Corporation this 13th day of April 1998.
/s/ Michael J. Radmer
----------------------------------
Michael J. Radmer, Secretary
-2-
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
FORTIS SERIES FUND, INC.
(as amended by the Board of Directors on March 19, 1998)
ARTICLE I
OFFICES, CORPORATE SEAL
Section 1.01. NAME. The name of the corporation is "Fortis Series
Fund, Inc." The name of the series represented by the corporation's Series A
Common Shares shall be "Growth Stock Series;" the name of the series represented
by the corporation's Series B Common Shares shall be "U.S. Government
Securities Series;" the name of the series represented by the corporation's
Series C Common Shares shall be "Money Market Series;" the name of the series
represented by the corporation's Series D Common Shares shall be "Asset
Allocation Series;" the name of the series represented by the corporation's
Series E Common Shares shall be "Diversified Income Series;" the name of the
series represented by the corporation's Series F Common Shares shall be "Global
Growth Series;" the name of the series represented by the corporation's Series G
Common Shares shall be "High Yield Series;" the name of the series represented
by the corporation's Series H Common Shares shall be "Growth & Income Series;"
the name of the series represented by the corporation's Series I Common Shares
shall be the "Aggressive Growth Series;" the name of the series represented by
the corporation's Series J Common Shares shall be "International Stock Series;"
the name of the series represented by the corporation's Series K Common Shares
shall be "Global Bond Series;"and the name of the series represented by the
corporation's Series L Common Shares shall be the "Global Asset Allocation
Series;" the name of the Series represented by the corporations's Series M
Common Shares shall be "Value Series;" the name of the series represented by the
corporation's Series N Common Shares shall be S&P 500 Index Series;" the name of
the series represented by the corporation's Series O Common Shares shall be
"Blue Chip Stock Series;" the name of the series represented by the
corporation's Series P Common Shares shall be "Small Cap Value Series;" the name
of the series represented by the corporation's Series Q Common Shares shall be
"Mid Cap Stock Series;" and the name of the series represented by the
corporation's Series R Common Shares shall be "Large Cap Growth Series."
Section 1.02. REGISTERED OFFICE. The registered office of the
corporation in Minnesota shall be that set forth in the Articles of
Incorporation or in the most recent amendment of the Articles of Incorporation
or resolution of the directors filed with the Secretary of State of Minnesota
changing the registered office.
Section 1.03. OTHER OFFICES. The corporation may have such other
offices and places of business, within or without the State of Minnesota, as the
directors shall, from time to time, determine.
-1-
<PAGE>
Section 1.04. CORPORATE SEAL. The corporate seal shall be circular
in form and shall have inscribed thereon the name of the corporation and the
word "Minnesota" and the words "Corporate Seal." The form of the seal shall be
subject to alteration by the Board of Directors and the seal may be used by
causing it or a facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or director of the corporation shall have authority to
affix the corporate seal of the corporation to any document requiring the same.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. PLACE AND TIME OF MEETINGS. Except as provided
otherwise by Minnesota Statutes Chapter 302A, meetings of the shareholders may
be held at any place, within or without the State of Minnesota, designated by
the directors and, in the absence of such designation, shall be held at the
registered office of the corporation in the State of Minnesota. The directors
shall designate the time of day for each meeting and, in the absence of such
designation, every meeting of shareholders shall be held at ten o'clock a.m.
Section 2.02. REGULAR MEETINGS. Annual meetings of shareholders are
not required by these Bylaws. Regular meetings shall be held only with such
frequency and at such times and places as provided in and required by law.
Section 2.03. SPECIAL MEETINGS. Special meetings of the shareholders
may be held at any time and for any purpose and may be called by the Chairman of
the Board, the President, and two or more directors, or by one or more
shareholders holding ten percent (10%) or more of the shares entitled to vote on
the matters to be presented to the meeting, except that a special meeting for
the purpose of considering any action directly or indirectly to facilitate or
effect a business combination, including any action to change or otherwise
affect the composition of the Board of Directors for that purpose, must be
called by 25% of the voting power of all shares entitled to vote.
Section 2.04. QUORUM; ADJOURNED MEETINGS. The holders of ten percent
(10%) of the shares outstanding and entitled to vote at the meeting shall
constitute a quorum for the transaction of business at any regular or special
shareholders' meeting. In case a quorum shall not be present at a meeting,
those present in person or by proxy shall adjourn to such day as they shall, by
majority vote, agree upon without further notice other than by announcement at
the meeting at which such adjournment is taken. If a quorum is present, a
meeting may be adjourned from time to time without notice other than
announcement at the meeting. At adjourned meetings at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. If a quorum is present, the shareholders may
continue to transact business
-2-
<PAGE>
until adjournment notwithstanding the withdrawal of enough shareholders to leave
less than a quorum.
Section 2.05. VOTING. At each meeting of the shareholders, every
shareholder shall have the right to vote in person or by proxy. Each
shareholder, unless the Articles of Incorporation or applicable laws provide
otherwise, shall have one vote for each share having voting power registered in
his name on the books of the corporation. Upon the demand of any shareholder,
the vote upon any question before the meeting shall be by written ballot.
Except as otherwise specifically provided by these Bylaws or as required by
provisions of the Investment Company Act of 1940 or other applicable laws, all
questions shall be decided by a majority vote of the number of shares entitled
to vote and represented at the meeting at the time of the vote. If the
matter(s) to be presented at a regular or special meeting relates only to a
particular portfolio or portfolios of the corporation, then only the
shareholders of the series of stock issued by such portfolio or portfolios are
entitled to vote on such matter(s).
Section 2.06. VOTING - PROXIES. The right to vote by proxy shall
exist only if the instrument authorizing such proxy to act shall have been
executed in writing by the shareholder himself or by his attorney thereunto duly
authorized in writing. No proxy shall be voted after three years from its date
unless it provides for a longer period.
Section 2.07. CLOSING OF BOOKS. The Board of Directors may fix a
time, not exceeding sixty (60) days preceding the date of any meeting of
shareholders, as a record date for the determination of the shareholders
entitled to notice of, and to vote at, such meeting, notwithstanding any
transfer of shares on the books of the corporation after any record date so
fixed. If the Board of Directors fails to fix a record date for determination
of the shareholders entitled to notice of, and to vote at, any meeting of
shareholders, the record date shall be the thirtieth (30th) day preceding the
date of such meeting.
Section 2.08. NOTICE OF MEETINGS. The Secretary or an Assistant
Secretary shall mail to each shareholder, shown by the books of the corporation
to be a holder of record of voting shares, at his address as shown by the books
of the corporation, a notice setting out the time and date and place of each
regular meeting and each special meeting, which notice shall be mailed at least
ten (10) days prior thereto; except that notice of a meeting at which an
agreement of merger or consolidation is to be considered shall be mailed to all
shareholders of record, whether entitled to vote or not, at least two (2) weeks
prior thereto; and except that notice of a meeting at which a proposal to
dispose of all, or substantially all, of the property and assets of the
corporation is to be considered shall be mailed to all shareholders of record,
whether entitled to vote or not, at least ten (10) days prior thereto; and
except that notice of a meeting at which a proposal to dissolve the
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corporation or to amend the Articles of Incorporation is to be considered shall
be mailed to all shareholders of record, whether entitled to vote or not, at
least ten (10) days prior thereto. Every notice of any special meeting shall
state the purpose or purposes for which the meeting has been called, pursuant to
Section 2.03, and the business transacted at all special meetings shall be
confined to the purpose stated in the call.
Section 2.09. WAIVER OF NOTICE. Notice of any regular or special
meeting may be waived either before, at or after such meeting in writing signed
by each shareholder or representative thereof entitled to vote the shares so
represented.
ARTICLE III
DIRECTORS
Section 3.01. NUMBER, QUALIFICATIONS AND TERM OF OFFICE. Until the
first meeting of shareholders, or until the directors increase their number by
resolution, the number of directors shall be the number named in the Articles of
Incorporation. Thereafter, the number of directors shall be established by
resolution of the shareholders (subject to the authority of the Board of
Directors to increase the number of directors as permitted by law), but shall
not be less than the lesser of (i) the number of shareholders of record and
beneficially, or (ii) three (3). In the absence of such resolution, the number
of directors shall be the number last fixed by the shareholders or the Board of
Directors, or the Articles of Incorporation. Directors may but need not be
shareholders. Each of the directors shall hold office until the regular meeting
of shareholders next held after his election and until his successor shall have
been elected and shall qualify, or until he shall resign, or shall have been
removed as hereinafter provided.
Section 3.02. ELECTION OF DIRECTORS. Except as otherwise provided in
Section 3.11 and 3.12 hereof, the directors shall be elected at all regular
shareholders' meeting. Directors may be elected at a special shareholders'
meeting, provided that the notice of such meeting shall contain mention of such
purpose. At each shareholders' meeting for the election of directors, the
directors shall be elected by a plurality of the votes validly cast at such
election. The shareholders of each series of stock of the corporation shall be
entitled to vote for directors and shall have equal voting power.
Section 3.03. GENERAL POWERS.
(a) The property, affairs and business of the corporation shall be
managed by the Board of Directors, which may exercise all the powers of the
corporation except those powers vested solely in the shareholders of the
corporation by statute, the Articles of Incorporation, or these Bylaws, as
amended.
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(b) All acts done by any meeting of the Directors or by any person
acting as a director, so long as his successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the corporation.
Section 3.04. POWER TO DECLARE DIVIDENDS.
(a) The Board of Directors, from time to time as they may deem
advisable, may declare and pay dividends in cash or other property of the
corporation, out of any source available for dividends, to the shareholders of
each series of stock of the corporation according to their respective rights and
interests in the investment portfolio of the corporation issuing such series of
stock.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than
(i) each investment portfolio's accumulated and accrued
undistributed net income (determined in accordance with generally
accepted accounting practice and the rules and regulations of the
Securities and Exchange Commission then in effect) and not including
profits or losses realized upon the sale of securities or other
properties; or
(ii) each investment portfolio's net income so determined for the
current or preceding fiscal year.
Such statement shall adequately disclose the source or sources of such payment
and the basis of calculation, and shall be in such form as the Commission may
prescribe.
(c) Notwithstanding the above provisions of this Section 3.04, the
Board of Directors may at any time declare and distribute pro rata among the
shareholders of each series of stock a "stock dividend" out of each portfolio's
authorized but unissued shares of stock, including any shares previously
purchased by a portfolio of the corporation.
Section 3.05. ANNUAL MEETING. The Board of Directors .shall meet
annually at the registered office of the corporation, or at such other place
within or without the State of Minnesota as may be designated by the Board of
Directors, for the purpose of electing the officers of the corporation and for
the transaction of such other business as shall come before the meeting.
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Section 3.06. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held from time to time at such time and place within or
without the State of Minnesota as may be fixed by resolution adopted by a
majority of the whole Board of Directors.
Section 3.07. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President, or by any
two of the directors and shall be held from time to time at such time and place
as may be designated in the notice of such meeting.
Section 3.08. NOTICE OF MEETINGS. Unless otherwise required by
Statute, no notice need be given of any annual or regular meeting of the Board
of Directors.Notice of each special meeting of the Board of Directors shall be
given by the Secretary who shall give at least twenty-four (24) hours' notice
thereof to each director by mail, telephone, telegram or in person.
Section 3.09. WAIVER OF NOTICE. Notice of any meeting of the Board
of Directors may be waived either before, at, or after such meeting in writing
signed by each director. A director, by his attendance and participation in the
action taken at any meeting of the Board of Directors, shall be deemed to have
waived notice of such meeting.
Section 3.10. QUORUM. A majority of the whole Board of Directors
shall constitute a quorum for the transaction of business except that, when a
vacancy or vacancies exist, a majority of the remaining directors (provided such
majority consists of not less than the lesser of (i) the number of directors
required by Section 3.02, or (ii) two (2) directors) shall constitute a quorum.
Section 3.11. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies in
the Board of Directors of this corporation occurring by reason of death,
resignation or increase in the number of directors by the shareholders to the
minimum number required by Section 3.01 or by the Board pursuant to Section
3.01, shall be filled for the unexpired term by a majority of the remaining
directors of the Board although less than a quorum; newly created directorships
resulting from an increase in the authorized number of directors by action of
the Board of Directors as permitted by Section 3.01 may be filled by a
two-thirds (2/3) vote of the directors serving at the time of such increase; and
each person so elected shall be a director until his successor is elected by the
shareholders, who may make such election at their next regular meeting or at any
meeting duly called for that purpose; provided, however, that no vacancy can be
filled as provided above if prohibited by the provisions of the Investment
Company Act of 1940.
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Section 3.12. REMOVAL. Removal of directors shall be governed by the
provisions of Section 302A.233 of the Minnesota Statutes or other applicable
provisions of the Minnesota Statutes or successors thereto.
Section 3.13. EXECUTIVE COMMITTEE. The Board of Directors, by
unanimous affirmative action of the entire Board, may establish an Executive
Committee consisting of two (2) or more directors. Such Committee may meet at
stated times or on notice of all given by any of their own number. During the
intervals between meetings of the Board of Directors, such Committee shall
advise and aid the officers of the corporation in all matters concerning the
business and affairs of the corporation and, generally, perform such duties and
exercise such powers as may be directed or delegated by the Board of Directors
from time to time. The Board of Directors may, by unanimous affirmative action
of the entire Board, delegate to such Committee authority to exercise all the
powers of the Board of Directors, except the power to amend the Bylaws and to
take action on matters reserved to the entire Board by the Investment Company
Act of 1940, while the Board of Directors is not in session. Vacancies in the
membership of the Committee shall be filled by the Board of Directors at a
regular meeting or at a special meeting called for that purpose.
Section 3.14. OTHER COMMITTEES. The Board of Directors may establish
other committees from time to time making such regulations as it deems advisable
with respect to the membership, authority and procedures of such committees.
Section 3.15. WRITTEN ACTION. Any action which might be taken at a
meeting of the Board of Directors, or any duly constituted committee thereof,
may be taken without a meeting if done in writing and signed by a majority of
the directors or committee members.
Section 3.16. COMPENSATION. Directors who are not salaried officers
of this corporation shall receive such fixed sum per meeting attended or such
fixed annual sum as shall be determined, from time to time, by resolution of the
Board of Directors. All directors may receive their expenses, if any, of
attendance at meetings of the Board of Directors or any committee thereof.
Nothing herein contained shall be construed to preclude any director from
serving this corporation in any other capacity and receiving proper compensation
therefor.
ARTICLE IV
OFFICERS
Section 4.01. NUMBER. The officers of the corporation shall consist
of a Chairman of the Board (if one is elected by the Board), the President, one
or more Vice Presidents (if desired by the Board), a Secretary and one or more
Assistant
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Secretaries, a Treasurer and one or more Assistant Treasurers, and such other
officers and agents as may, from time to time, be elected by the Board of
Directors.
Section 4.02. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. At each
annual meeting of the Board of Directors, the Board shall elect, from within or
without their number, the President, the Secretary, the Treasurer and such other
officers as may be deemed advisable. Such officers shall hold office until the
next annual meeting of the directors or until their successors are elected and
qualified. The President and all other officers who may be directors shall
continue to hold office until the election and qualification of their
successors, notwithstanding an earlier termination of their directorship.
Section 4.03. RESIGNATION. Any officer may resign his office at any
time by delivering a written resignation to the Board of Directors, the
President, the Secretary, or any Assistant Secretary. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
Section 4.04. REMOVAL AND VACANCIES. Any officer may be removed from
his office by a majority of the whole Board of Directors, with or without cause.
Such removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.05. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one is elected, shall preside at all meetings of the shareholders and directors
and shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
Section 4.06. PRESIDENT. The President shall have general active
management of the business of the corporation. In the absence of the Chairman
of the Board, he shall preside at all meetings of the shareholders and
directors. He shall be the chief executive officer of the corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall be ex officio a member of all standing committees. He may
execute and deliver, in the name of the corporation, any deeds, mortgages,
bonds, contracts or other instruments pertaining to the business of the
corporation and, in general, shall perform all duties usually incident to the
office of President. He shall have such other duties as may, from time to time,
be prescribed by the Board of Directors.
Section 4.07. VICE PRESIDENT. Each Vice President shall have such
powers and shall perform such duties as may be specified in the Bylaws or
prescribed by the Board of Directors or by the President. In the event of
absence or disability of
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the President, Vice Presidents shall succeed to his power and duties in the
order designated by the Board of Directors.
Section 4.08. SECRETARY. The Secretary shall be secretary of, and
shall attend all, meetings of the shareholders and Board of Directors and shall
record all proceedings of such meetings in the minute book of the corporation.
He shall give proper notice of meetings of shareholders and directors. He shall
keep the seal of the corporation and shall affix the same to any instrument
requiring it and may, when necessary, attest the seal by his signature. He
shall perform such other duties as may, from time to time, be prescribed by the
Board of Directors or by the President.
Section 4.09. TREASURER. The Treasurer shall keep accurate accounts
of all moneys of the corporation received or disbursed. He shall deposit all
moneys, drafts and checks in the name of, and to the credit of, the corporation
in such banks and depositories as a majority of the whole Board of Directors
shall, from time to time, designate. He shall have power to endorse, for
deposit, all notes, checks and drafts received by the corporation. He shall
disburse the funds of the corporation, as ordered by the Board of Directors,
making proper vouchers therefor. He shall render to the President and the
directors, whenever required, an account of all his transactions as Treasurer
and of the financial condition of the corporation, and shall perform such other
duties as may, from time to time, be prescribed by the Board of Directors or by
the President.
Section 4.10. ASSISTANT SECRETARIES. At the request of the
Secretary, or in his absence or disability, any Assistant Secretary shall have
power to perform all the duties of the Secretary and, when so acting, shall have
all the powers of, and be subject to all restrictions upon, the Secretary. The
Assistant Secretaries shall perform such other duties as from time to time may
be assigned to them by the Board of Directors or the President.
Section 4.11. ASSISTANT TREASURERS. At the request of the Treasurer,
or in his absence or disability, any Assistant Treasurer shall have power to
perform all the duties of the Treasurer, and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the Treasurer. The
Assistant Treasurers shall perform such other duties as from time to time may be
assigned to them by the Board of Directors or the President.
Section 4.12. COMPENSATION. The officers of this corporation shall
receive such compensation for their services as may be determined, from time to
time, by resolution of the Board of Directors.
Section 4.13. SURETY BONDS. The Board of Directors may require any
officer or agent of the corporation to execute a bond (including, without
limitation,
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any bond required by the Investment Company Act of 1940 and the rules and
regulations of the Securities and Exchange Commission) to the corporation in
such sum and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his duties to the
corporation, including responsibility for negligence and for the accounting of
any of the corporation's property, funds or securities that may come into his
hands. In any such case, a new bond of like character shall be given at least
every six years, so that the date of the new bond shall not be more than six
years subsequent to the date of the bond immediately preceding.
ARTICLE V
SHARES AND THEIR TRANSFER AND REDEMPTION
Section 5.01. CERTIFICATES FOR SHARES.
(a) Every owner of shares of the corporation shall be entitled to a
certificate, to be in such form as shall be prescribed by the Board of
Directors, certifying the number of shares of the corporation owned by him. The
certificates for such shares shall be numbered in the order in which they shall
be issued and shall be signed, in the name of the corporation, by the President
or a Vice President and by the Treasurer, or by such officers as the Board of
Directors may designate. Such signatures may be facsimile if authorized by the
Board of Directors. Every certificate surrendered to the corporation for
exchange or transfer shall he canceled, and no new certificate or certificates
shall be issued in exchange for any existing certificate until such existing
certificate shall have been so canceled, except in cases provided for in Section
5.08.
(b) In case any officer, transfer agent or registrar who shall have
signed any such certificate, or whose facsimile signature has been placed
thereon, shall cease to be such an officer (because of death, resignation or
otherwise) before such certificate is issued, such certificate may be issued and
delivered by the corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 5.02. ISSUANCE OF SHARES. The Board of Directors is
authorized to cause to be issued shares of the corporation to the full amount
authorized by the Articles of Incorporation in such series and ln such amounts
as may be determined by the Board of Directors and as may be permitted by law.
No shares shall be allotted except in consideration of cash or of an amount
transferred from surplus to stated capital upon a share dividend. At the time
of such allotment of shares, the Board of Directors making such allotments shall
state, by resolution, their determination of the fair value to the corporation
in monetary terms of any consideration other than cash for which shares are
allotted. The amount of consideration to be received in cash, or otherwise,
shall not be less than the par value of the shares so allotted. No
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shares of stock issued by the corporation shall be issued, sold, or exchanged by
or on behalf of the corporation for any amount less than the net asset value per
share of the shares outstanding as determined pursuant to Article XI hereunder.
Section 5.03. REDEMPTION OF SHARES. Upon the demand of any
shareholder this corporation shall redeem any share of stock issued by it held
and owned by such shareholder at the net asset value thereof as determined
pursuant to Article XI hereunder. The Board of Directors may suspend the right
of redemption or postpone the date of payment during any period when: (a)
trading on the New York Stock Exchange is restricted or such Exchange is closed
for other than weekends or holidays; (b) the Securities and Exchange Commission
has by order permitted such suspension or (c) an emergency as defined by rules
of the Securities and Exchange Commission exists, making disposal of portfolio
securities or valuation of net assets of the corporation not reasonably
practicable.
Section 5.04. TRANSFER OF SHARES. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares or a duly executed assignment covering shares held
in unissued form. The corporation may treat, as the absolute owner of shares of
the corporation, the person or persons in whose name shares are registered on
the books of the corporation.
Section 5.05. REGISTERED SHAREHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by the laws of Minnesota.
Section 5.06. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the corporation, and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
Section 5.07. TRANSFER REGULATIONS. The shares of stock of the
corporation may be freely transferred, and the Board of Directors may from time
to time adopt rules and regulations with reference to the method of transfer of
the shares of stock of the corporation.
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Section 5.08. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES.
The holder of any stock of the corporation shall immediately notify the
corporation of any loss, theft, destruction or mutilation of any certificate
therefor, and the Board of Directors may, in its discretion, cause to be issued
to him a new certificate or certificates of stock upon the surrender of the
mutilated certificate or in case of loss, theft or destruction of the
certificate, upon satisfactory proof of such loss, theft or destruction, after
the owner of the lost, stolen or destroyed certificate, or his legal
representatives, gives to the corporation and to such registrar or transfer
agent as may be authorized or required to countersign such new certificate or
certificates a bond, in such sum as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be made
against them or any of them on account of or in connection with the alleged
loss, theft, or destruction of any such certificate.
ARTICLE VI
DIVIDENDS, SURPLUS, ETC.
Section 6.01. The corporation's net investment income will be
determined, and its dividends shall be declared and made payable at such time(s)
as the Board of Directors shall determine; dividends shall be payable to
shareholders of record as of the date of declaration
It shall be the policy of the corporation to qualify for and elect the
tax treatment applicable to regulated investment companies under the Internal
Revenue Code, so that the corporation will not be subjected to Federal income
tax on such part of its income or capital gains as it distributes to
shareholders.
ARTICLE VII
BOOKS AND RECORDS, AUDIT, FISCAL YEAR
Section 7.01. BOOKS AND RECORDS. The Board of Directors of the
corporation shall cause to be kept:
(1) a share register, giving the names and addresses of the
shareholders, the number and classes held by each, and the dates
on which the certificates therefor were issued;
(2) records of all proceedings of shareholders and directors; and
(3) such other records and books of account as shall be necessary and
appropriate to the conduct of the corporate business.
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Section 7.02. DOCUMENTS KEPT AT REGISTERED OFFICE. The Board of
Directors shall cause to be kept at the registered office of the corporation
originals or copies of:
(1) records of all proceedings of shareholders and directors
(2) Bylaws of the corporation and all amendments thereto; and
(3) reports made to any or all of the shareholders within the last
preceding three (3) years.
Section 7.03. AUDIT, ACCOUNTANT.
(a) The Board of Directors shall cause the records and books of
account of the corporation to be audited at least once in each fiscal year and
at such other times as it may deem necessary or appropriate.
(b) The corporation shall employ an independent certified public
accountant or firm of independent certified public accountants as its Accountant
to examine the accounts of the corporation and to sign and certify financial
statements filed by the corporation. The Accountant's certificates and reports
shall be addressed both to the Board of Directors and to the shareholders.
(c) Any vacancy occurring between regular meetings, due to the death,
resignation or otherwise of the Accountant, may be filled by the Board of
Directors.
Section 7.04. FISCAL YEAR. The fiscal year of the corporation shall
be determined by the Board of Directors.
ARTICLE VIII
INSPECTION OF BOOKS
Section 8.01. Every shareholder of the corporation and every holder
of a voting trust certificate shall have a right to examine, in person or by
agent or attorney, at any reasonable time or times, for any proper purpose, and
at the place or places where usually kept, the share register, books of account
and records of the proceedings of the shareholders and directors and to make
extracts therefrom.
ARTICLE IX
VOTING OF STOCK HELD
Section 9.01. Unless otherwise provided by resolution of the Board of
Directors, the President, any Vice President, the Secretary or the Treasurer,
may
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from time to time appoint an attorney or attorneys or agent or agents of the
corporation, in the name and on behalf of the corporation, to cast the votes
which the corporation may be entitled to cast as a stockholder or otherwise in
any other corporation or association, any of whose stock or securities may be
held by the corporation, at meetings of the holders of the stock or other
securities of any such other corporation or association, or to consent in
writing to any action by any such other corporation or association, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed on behalf
of the corporation and under its corporate seal, or otherwise, such written
proxies, consents, waivers, or other instruments as it may deem necessary or
proper in the circumstances; or any of such officers may themselves attend any
meeting of the holders of stock or other securities of any such corporation or
association and thereat vote or exercise any or all other powers of the
corporation as the holder of such stock or other securities of such other
corporation or association, or consent in writing to any action by any such
other corporation or association.
ARTICLE X
VALUATION OF NET ASSET VALUE
Section 10.01. The net asset value per share of each series of stock
issued by the portfolios of the corporation shall be determined in good faith by
or under supervision of the officers of the corporation as authorized by the
Board of Directors as often and on such days and at such time(s) as the Board of
Directors shall determine.
ARTICLE XI
CUSTODY OF ASSETS
Section 11.01. All securities and cash owned by this corporation
shall, as hereinafter provided, be held by or deposited with a bank or trust
company having (according to its last published report) not less than two
million dollars ($2,000,000) aggregate capital, surplus and undivided profits
(the "Custodian").
This corporation shall enter into a written contract with the
Custodian regarding the powers, duties and compensation of the Custodian with
respect to the cash and securities of this corporation held by the Custodian.
Said contract and all amendments thereto shall be approved by the Board of
Directors of this corporation. In the event of the Custodian's resignation or
termination, the corporation shall use its best efforts promptly to obtain a
successor Custodian and shall require that the cash and securities owned by this
corporation held by the Custodian be delivered directly to such successor
Custodian.
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ARTICLE XII
AMENDMENTS
Section 12.01. These Bylaws may be amended or altered by a vote of
the majority of the whole Board of Directors at any meeting provided that notice
of such proposed amendment shall have been given in the notice given to the
directors of such meeting. Such authority in the Board of Directors is subject
to the power of the shareholders to change or repeal such Bylaws by a majority
vote of the shareholders present or represented at any annual or special meeting
of shareholders called for such purpose. The Board of Directors shall not make
or alter any Bylaws fixing their qualifications, classifications, term of
office, or number, except that the Board of Directors may make or alter any
Bylaw to increase their number.
ARTICLE XIII
MISCELLANEOUS
Section 13.01. INTERPRETATION. When the context in which words are
used in these Bylaws indicates that such is the intent, singular words will
include the plural and vice versa, and masculine words will include the feminine
and neuter genders and vice versa.
Section 13.02. ARTICLE AND SECTION TITLES. The titles of Sections
and Articles in these Bylaws are for descriptive purposes only and will not
control or alter the meaning of any of these Bylaws as set forth in the text.
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INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
THIS AGREEMENT, made this 2nd day of April 1998, by and between Fortis
Series Fund, Inc., a Minnesota corporation (the "Fund") and Fortis Advisers,
Inc., a Minnesota corporation ("Advisers").
1. INVESTMENT ADVISORY AND MANAGEMENT SERVICES. The Fund hereby
engages Advisers, and Advisers hereby agrees to act, as investment adviser for,
and to manage the affairs, business and the investment of the assets of the
Small Cap Value Series, the Mid Cap Stock Series, and the Large Cap Growth
Series of the Fund. Each such Series is herein individually referred to as a
"Series," and the Series are herein collectively referred to as the "Series."
The investment of the assets of the Series shall at all times be
subject to the applicable provisions of the Articles of Incorporation and Bylaws
of the Fund and the current Registration Statement (including the Prospectus and
Statement of Additional Information) of the Series and shall conform to the
policies and restrictions of the Series as set forth in such Registration
Statement and any additional limitations as may be adopted from time to time by
the Board of Directors of the Fund and communicated to Advisers. Within the
framework of the investment policies, restrictions, and limitations of the
Series, Advisers shall have the sole and exclusive responsibility for the
management of the Series and the making and execution of all investment
decisions for the Series, provided:
Advisers may, at is option and expense, with respect to each of the Series,
appoint a sub-adviser which shall assume such responsibilities and
obligations of Advisers pursuant to this Investment Advisory and Management
Agreement as shall be delegated to the sub-adviser; provided, however, that
any discretionary investment decisions made by a sub-adviser on behalf of
any of the Series shall be subject to approval or ratification by Advisers,
and, not withstanding any
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<PAGE>
delegation of responsibilities and obligations to the sub-adviser, Advisers
shall retain the right, in its discretion, to make investment decisions for
the Series. Any appointment of a sub-adviser and assumption of
responsibilities and obligations of Advisers by such sub-adviser shall be
subject to approval by the Board of Directors of the Fund and, to the
extent (if any) required by law, by the shareholders of the Series. Any
appointment of a sub-adviser for the Series pursuant hereto shall in no way
limit or diminish Advisers' obligations and responsibilities under this
Investment Advisory and Management Agreement, and Advisers shall be
responsible for monitoring compliance by the sub-adviser(s) with the
investment policies, restrictions, and limitations of the Series, and will
also be responsible for ensuring that the Series are managed in a way so
that: (1) they meet the requirements of Subchapter M of the Internal
Revenue Code to be taxed as a regulated investment company; and (2) they
comply with the provisions of Section 817(h) of the Internal Revenue Code,
and the regulations promulgated thereunder.
Advisers shall report to the Board of Directors regularly at such times and in
such detail as the Board may from time to time determine to be appropriate, in
order to permit the Board to determine the adherence by each Series to the
investment policies, restrictions and limitations of such Series.
Advisers shall, at its own expense, furnish the Fund suitable office
space, and all necessary office facilities, equipment and personnel for
servicing the investments of the Fund. Advisers shall arrange, if required by
the Fund, for officers, employees or other affiliates of Advisers to serve
without compensation from the Fund as directors, officers, or employees of the
Fund if duly elected to such positions by the shareholders or directors of the
Fund.
Advisers shall create and maintain all reports, books and records
relating to its activities and obligations under this Agreement in such a manner
as will meet the obligations of the Fund under the Investment Company Act of
1940, applicable federal and state tax and insurance laws and regulations and
any other
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<PAGE>
law or regulation which may be or become applicable to the Fund. All such
reports, books and records shall be the property of the Fund. Furthermore, such
reports, books and records shall at all reasonable times be available for
copying and otherwise open to inspection and audit by the Securities and
Exchange Commission, banking and insurance regulators and other authorities and
regulators having authority over the Fund, and by officers and employees of, and
auditors employed by, the Fund. Advisers hereby further agrees that, upon the
termination of this Agreement, all reports, books and records pertaining to
Adviser's activities under this Agreement shall be promptly segregated and
returned to the Fund free from any claim or retention of rights by Advisers.
2. COMPENSATION FOR SERVICES. In payment for all services,
facilities, equipment and personnel, and for other costs of Advisers hereunder,
the fund shall pay to advisers a monthly fee for each Series, which fee shall be
paid to Advisers not later than the fifth business day of the month following
the month in which such services are rendered. Each such monthly fee shall be
at the rate or rates set forth below and shall be based on the average of the
net asset values of all of the issued and outstanding shares of the respective
Series as determined as of the close of each business day of the month pursuant
to the Article of Incorporation, Bylaws and currently effective Prospectus and
Statement of Additional Information of the Series. The following table sets
forth the fees on a monthly and annual basis:
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<PAGE>
<TABLE>
<CAPTION>
Equivalent
Monthly Annual Average Asset
Rate Rate Values of the Series
------------ ---------- ----------------------------------
<S> <C> <C> <C>
Small Cap Value Series 1/12 of .90% .90% On the first $50,000,000
1/12 of .85% .85% On average assets over $50,000,000
Mid Cap Stock Series 1/12 of .90% .90% On the first $100,000,000
1/12 of .85% .85% On the next $150,000,000
1/12 of .80% .80% On average assets over $250,000,000
Large Cap Growth Series 1/12 of .90% .90% On the first $100,000,000
1/12 of .85% .85% On the next $100,000,000
1/12 of .80% .80% On average assets over $200,000,000
</TABLE>
The fees shall be prorated for any fraction of a month at the
commencement or termination of this Agreement.
3. ALLOCATION OF EXPENSES.
(a) In addition to the fees described in Section 2 hereof, the Fund
shall pay all its expenses which are not assumed by Advisers, Fortis investors,
Inc. ("Investors") or any other person. These Fund expenses include, by way of
example, but not by way of limitation, the fees and expenses of directors and
officers of the Fund who are not "affiliated persons" of Advisers, interest
expenses, taxes, brokerage fees and commissions, fees and expenses of
registering and qualifying the Fund and its shares for distribution under
federal and state securities laws, expenses of preparing Prospectuses and of
printing and distributing Prospectuses and Statements of Additional Information
annually to existing shareholders and existing insurance contract owners,
custodian charges, auditing and legal expenses, insurance expenses, association
membership dues, and the expense of reports to shareholders, shareholders'
meetings, and proxy solicitations. Advisers shall bear the costs of acting as
the Fund's transfer agent, registrar, and dividend disbursing agent.
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<PAGE>
(b) Advisers (or Investors or Fortis Benefits Insurance Company or
First Fortis Life Insurance Company) shall bear all promotional expenses in
connection with the distribution of the Fund's shares, including paying for
prospectuses and shareholder reports for new shareholders and new insurance
contract owners, and the costs of sales literature.
4. LIMIT ON EXPENSES. Out of its advisory fee, but not in excess
thereof, Advisers shall reimburse the Fund for each Series' expenses from the
date of the initial public offering until the date a Series' aggregate net
assets first reach $10,000,000, to the extent that the aggregate expenses of the
Series (including the investment advisory and management fees for such Series
under paragraph 2 of this Agreement, but excluding interest, taxes, brokerage
fees and commissions) exceed an amount equal, on an annual basis, to the
following percentage of the average daily net assets of the Series:
Small Cap Value Series 1.25%
Mid Cap Stock Series 1.25%
Large Cap Growth Series 1.25%
5. FREEDOM TO DEAL WITH THIRD PARTIES. Advisers shall be free to
render services to others similar to those rendered under this Agreement or of a
different nature except as such services may conflict with the services to be
rendered or the duties to be assumed hereunder.
6. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT. This
Agreement shall be effective as to each Series on May 1, 1998. Wherever
referred to in this Agreement, the vote or approval of the holders of a majority
of the outstanding voting securities of a Series or of the Fund shall mean
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<PAGE>
the vote of 65% or more of such securities if the holders of more than 50% of
such securities are present in person or by proxy or the vote of more than 50%
of such securities, whichever is less.
Unless sooner terminated as hereinafter provided, this Agreement shall
continue in effect only so long as such continuance is specifically approved at
least annually (a) by the Board of Directors of the Fund, or, with respect to
particular Series, by the vote of the holders of a majority of the outstanding
voting securities of such Series, and (b) by a majority of the directors who are
not interested persons of Advisers or of the Fund cast in person at a meeting
called for the purpose of voting on such approval; provided that, if a majority
of the outstanding voting securities of any of the Series approves this
Agreement, this Agreement shall continue in effect with respect to such
approving Series whether or not the shareholders of any other Series of the Fund
approve this Agreement.
This Agreement may be terminated at any time without the payment of
any penalty by the vote of the Board of Directors of the fund, or by Advisers,
upon sixty (60) days' written notice to the other party. This Agreement may be
terminated with respect to a particular Series at any time without the payment
of any penalty by the vote of the holders of a majority of the outstanding
voting securities of such Series, upon sixty (60) days' written notice to
Advisers. Any termination may be made effective with respect to both the
investment advisory and management services provided for in this Agreement or
with respect to either of such kinds of services. This Agreement shall
automatically terminate in the event of its assignment.
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<PAGE>
7. AMENDMENTS TO AGREEMENT. No material amendment to this Agreement
shall be effective until approved by vote of the holders of majority of the
outstanding voting securities of the Series which have approved and are subject
to this Agreement. In addition, if a majority of the outstanding voting
securities of any Series of the Fund votes to amend this Agreement, such
amendment shall be effective with respect to such Series whether or not the
shareholders of any other Series vote to adopt such amendment.
8. NOTICES. Any notice under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Fund and Advisers have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.
FORTIS SERIES FUND, INC.
By: /s/ Dean C. Kopperud
----------------------------
Dean C. Kopperud
President
FORTIS ADVISERS, INC.
By: /s/ Dean C. Kopperud
----------------------------
Dean C. Kopperud
Chief Executive Officer
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<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
Agreement dated April 3, 1998 by and between Fortis Advisers, Inc., a
Minnesota Corporation (the "Manager") and The Dreyfus Corporation, a
corporation organized under the laws of New York (the "Sub-Adviser") whose
principal office is located at 200 Park Avenue, New York, NY 10166.
WHEREAS, the Manager serves as the investment adviser, manager, registrar,
transfer agent and dividend disbursing agent for Fortis Series Fund, Inc. (the
"Company"), an open-end, management investment company registered with the
Securities and Exchange Commission ("SEC") pursuant to the Investment Company
Act of 1940, as amended ("1940 Act"), that is comprised of a number of separate
series of investments that act as funding vehicles for various variable annuity
contracts and variable universal life insurance policies issued by Fortis
Benefits Insurance Company ("FBIC") and/or First Fortis Life Insurance Company
("First Fortis");
WHEREAS, the Manager desires to retain the Sub-Adviser to assist the
Manager in furnishing an investment program to one series of the Company, the
Mid Cap Stock Series (the "Portfolio");
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Manager and the Sub-Adviser agree as follows:
1. APPOINTMENT AND EXPENSES OF THE SUB-ADVISER. The Manager hereby
appoints the Sub-Adviser to serve as sub-adviser with respect to the assets of
the Portfolio and to perform the services hereinafter set forth and the
Sub-Adviser hereby accepts such appointment. The Sub-Adviser agrees, for the
compensation herein provided, to assume all obligations herein provided and bear
all its personnel and other expenses associated with the performance of its
services hereunder. The Company shall be responsible for the Portfolio's
administrative and other direct expenses, including, but not limited to:
(a) fees pursuant to any plan of distribution that the Portfolio may adopt;
(b) the Portfolio's brokerage and commission expenses, including all ordinary
and reasonable transaction costs; (c) fees and expenses of pricing services used
by the Company to determine the value of the Portfolio's holdings; (d) Federal,
state, local and foreign taxes, including issue and transfer taxes incurred by
or levied on the Portfolio; (e) interest charges on any Portfolio borrowings;
(f) the Company's organizational and offering expenses; (g) the cost of the
Company's personnel providing services to the Company; (h) fees and expenses of
registering the Company's shares under the appropriate Federal securities laws
and of qualifying the Company's shares under applicable state securities laws
and pursuant to any foreign laws; (i) expenses of printing and distributing
reports to the Company's shareholders, proxy materials, prospectuses and
distribution of dividends; (j) costs of the Company's shareholders' meetings and
proxy solicitation; (k) charges and expenses of the Company's custodian and
registrar, transfer agent and dividend disbursing agent; (l) compensation of the
Company's officers, directors and employees that are not "affiliated persons" or
<PAGE>
"interested persons" [as defined in Section 2(a) of the 1940 Act and the
rules, regulations and releases relating thereto] of the Sub-Adviser; (m) the
Company's legal and auditing expenses; (n) cost of certificates representing
shares of the Portfolio; (o) the Company's costs of stationery and supplies;
(p) the Company's insurance expenses; (q) the Company's association membership
dues; (r) travel expenses of officers and employees of the Sub-Adviser to the
extent such expenses relate to the attendance of such persons at meetings at
the request of the Board of Directors of the Company (except that a
representative of the Sub-Adviser will attend one Board meeting per year,
at the Sub-Adviser's own expense); and (s) travel expenses for attendance at
Board of Directors meetings by members of the Board of Directors of the
Company who are not "interested persons" or "affiliated persons" of the
Sub-Adviser. The Sub-Adviser shall for all purposes herein be deemed to be
an independent contractor and shall, except as expressly provided or
authorized (whether herein or otherwise), have no authority to act for or on
behalf of the Company in any way or otherwise be deemed an agent of the
Company.
2. DUTIES OF THE SUB-ADVISER. The Sub-Adviser will deal in good faith
and with due diligence and will use professional skill, care and judgment in the
performance of its duties under this Agreement. In so doing, the Sub-Adviser
shall formulate and implement a continuing program for the management of the
assets of the Portfolio. The Sub-Adviser shall amend and update such program
from time to time as financial and other economic conditions warrant. The
Sub-Adviser shall make all determinations with respect to the investment of the
assets of the Portfolio and shall take such steps as may be necessary to
implement the same, including the placement of purchase and sale orders on
behalf of the Portfolio. The Manager shall be responsible for the
administration of the investment activities of the Company and the Portfolio,
including compliance with the requirements of the 1940 Act, the Internal Revenue
Code of 1986, as amended, and all other applicable federal and state laws and
regulations, except for the investment management activities specifically
delegated to the Sub-Adviser pursuant to this Agreement.
3. POWERS OF THE SUB-ADVISER.
3.1 The Sub-Adviser's power to direct the investment and reinvestment
of the assets of the Portfolio shall be exercised in accordance with applicable
law, the Company's Articles of Incorporation and the investment objectives,
policies and restrictions set forth in the then-current Prospectus and Statement
of Additional Information (collectively the "Prospectus") relating to the
Portfolio contained in the Company's Registration Statement under the 1940 Act
and the Securities Act of 1933, as amended. The Company and/or the Manager may
also place additional limitations on the Sub-Adviser's investment decisions by
written notice to the Sub-Adviser. The Company agrees to provide promptly to
the Sub-Adviser a copy of the documents mentioned above and all changes made to
such documents. The Sub-Adviser shall not be bound by any changes to the
Company's Articles of Incorporation or the Prospectus relating to the Portfolio
until the Sub-Adviser has received actual written notice of any such change.
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<PAGE>
3.2 While the Sub-Adviser will have day-to-day responsibility for the
discretionary investment decisions to be made on behalf of the Portfolio, the
Sub-Adviser will be subject to oversight by the Manager. Such oversight,
however, shall not require prior approval of discretionary investment decisions
made by the Sub-Adviser except as may be required by applicable law, the
Portfolio's investment policies and restrictions and/or any limitations imposed
on the Sub-Adviser by the Company and/or the Manager pursuant to the preceding
paragraph. The Manager shall retain the right to instruct the Sub-Adviser to
effect any transactions necessary to ensure compliance with the Portfolio's
investment policies and restrictions as well as the requirements of Subchapter M
of the Internal Revenue Code and the provisions of Section 817(h) of the
Internal Revenue Code and the regulations promulgated thereunder.
3.3 In the event the Sub-Adviser's compliance with any amendment of
the Portfolio's investment objectives, policies and restrictions or other
limitations placed on the Sub-Adviser's investment decisions with respect to the
Portfolio would interfere with the completion of any transaction commenced on
behalf of the Portfolio prior to the Sub-Adviser's knowledge of such amendment,
the Sub-Adviser may complete such transaction unless doing so would violate any
applicable law, rule or regulation. In such an event, the Sub-Adviser will not
be responsible for any loss that may result from the completion of the
transaction.
3.4 Further, and except as may be qualified elsewhere in this
Agreement, the Sub-Adviser is hereby authorized, for and on behalf of the
Company, with respect to the Portfolio, in its discretion to:
(a) exercise any conversion and/or subscription rights available
in connection with any securities or other investments held in the
Portfolio;
(b) maintain all or part of the Portfolio's assets uninvested in
short-term income-producing instruments for such periods of time as shall
be deemed reasonable and prudent by the Sub-Adviser;
(c) instruct the Custodian, in accordance with the Custodian
Agreement, to deliver for cash received, securities or other cash and/or
securities instruments sold, exchanged, redeemed or otherwise disposed of
from the Portfolio, and to pay cash for securities or other cash and/or
securities instruments delivered to the Custodian and/or credited to the
Portfolio upon acquisition of the same for the Portfolio;
(d) determine how to vote all proxies received with respect to
securities held in the Portfolio and direct the Custodian as to the voting
of such proxies; and
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<PAGE>
(e) generally, perform any other act necessary to enable the
Sub-Adviser to carry out its obligations under this Agreement.
4. SELECTION OF BROKER-DEALERS. The Sub-Adviser shall select the brokers
and dealers through whom transactions on behalf of the Portfolio will be
executed and the markets on or in which such transactions will be executed and
shall place, in the name of the Portfolio or its nominee (or appropriate foreign
equivalent), all such orders. In selecting brokers and dealers to execute such
transactions, and in negotiating brokerage commissions, and in obtaining
research, statistical and other information from brokers and dealers in
connection with Portfolio transactions, the Sub-Adviser shall comply with the
description of the process contained in the Prospectus.
4.1 It is understood that certain other clients (including other
funds, portfolios and accounts) of the Sub-Adviser may have investment
objectives and policies similar to those of the Portfolio and that the
Sub-Adviser may, from time to time, make recommendations that result in the
purchase (or sale) of a particular security by its other clients and the
Portfolio during the same period of time. If transactions on behalf of more
than one client during the same period increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price or quantity. In such event, the Sub-Adviser shall allocate the
securities or investments to be purchased or sold, as well as the expenses
incurred in the transactions (including price) in a manner the Sub-Adviser
considers equitable and consistent with its obligations to the Portfolio and the
Sub-Adviser's other clients.
4.2 The Sub-Adviser agrees that it will only enter into transactions
that are covered by Section 10(f) or Section 17(e) of the 1940 Act if it has
(i) complied with Rule 10f-3 or Rule 17e-1 thereunder, respectively, or the
terms of an appropriate exemptive order issued to the Company by the SEC, and
(ii) has complied with the procedures adopted thereunder by the Board of
Directors of the Company which may, pursuant to authority granted by the
Company, be supplemented by interpretive guidelines of the Manager. Aside from
parties that are known or should be known by the Sub-Adviser, the Manager shall
promptly notify the Sub-Adviser of any additional parties with whom engaging in
a transaction for the Portfolio would result in a violation of the 1940 Act.
5. REPORTS AND INFORMATION TO BE PROVIDED BY THE SUB-ADVISER. The
Sub-Adviser shall furnish such information and reports relating to the
Portfolio, its holdings and transactions involving Portfolio securities as the
Manager and/or the Company may reasonably require to fulfill its or their legal
responsibilities or to meet regulatory requirements or discharge other duties
they may have. Among the subjects of the reports and information to be provided
by the Sub-Adviser are the following:
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<PAGE>
(a) Information reasonably required by the Manager to determine the
Company's and Portfolio's compliance with the 1940 Act, the Advisers Act,
the Internal Revenue Code, applicable federal and state securities and
insurance laws and other applicable laws and regulations or regulatory and
taxing authorities in the United States and other relevant countries;
(b) Information reasonably required by the Manager to meet the
accounting and operational requirements of the Portfolio. Specific
examples of the types of reports and information that will be needed by the
Manager and the Company are set forth in Exhibit A, attached hereto;
(c) Information reasonably required by the Manager to satisfy its
reporting obligations to the Company arising from the Investment Advisory
and Management Agreement between the Manager and the Company;
(d) Information reasonably requested by the Manager to determine the
Portfolio's compliance with Rule 17f-5 under the 1940 Act, relating to
foreign custodians and sub-custodians;
(e) Information reasonably required by the Manager to determine the
Sub-Adviser's compliance with Rule 17j-1 under the 1940 Act with respect to
the Sub-Adviser's activities on behalf of the Portfolio;
(f) Information reasonably required by the Manager to determine
compliance with Rule 10f-3 and Rule 17e-1 under the 1940 Act with respect
to the Sub-Adviser's (or its affiliates') activities on behalf of the
Portfolio; and
(g) Information reasonably necessary to respond to specific inquiries
from the Company's management and/or Board of Directors.
6. NON-EXCLUSIVE SERVICES, CONFLICTS OF INTEREST AND MATERIAL NONPUBLIC
INFORMATION. The Manager understands that the Sub-Adviser and its affiliates
may furnish investment management and advisory services to others, and that the
Sub-Adviser and its affiliates shall be at all times free, in their discretion,
to make recommendations to, and investments for, others which may or may not
correspond to investments made for the Portfolio. The Manager further
understands that the Sub-Adviser, its affiliates, and any officer, director,
stockholder, employee or any member of their families may or may not have an
interest in the securities whose purchase and sale the Sub-Adviser effects for
the Portfolio. Actions taken by the Sub-Adviser on behalf of the Portfolio may
be the same as, or different from, actions taken by the Sub-Adviser on its own
behalf or for others or from actions taken by the Sub-Adviser's affiliates,
officers, directors, partners, employees of the Sub-Adviser or its affiliates,
or the family members of such persons or other investors. The Sub-Adviser
represents that it has in effect a code of ethics that complies with Rule 17j-1
under the 1940 Act and has procedures in place that, taken together, provide
reasonable enforcement of the code's provisions. Similarly, the
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<PAGE>
Sub-Adviser represents that, with respect to the use of nonmaterial nonpublic
information, it has complied, and will continue to comply, with Section 204A of
the Investment Advisers Act of 1940, as amended ("Advisers Act") and any rules
thereunder.
7. DISCLOSURE OF INFORMATION AND CONFIDENTIALITY.
7.1 The Sub-Adviser, the Company and the Manager, either during or
after the termination of this Agreement, are authorized with respect to matters
arising out of this Agreement to make any disclosures and/or participate in any
conduct required by any applicable law, rule, regulation, self-regulating
organization, investment exchange or any other body having regulatory or
enforcement responsibility with respect to any investment business conducted by
the Sub-Adviser on behalf of the Portfolio.
7.2 Subject to the preceding paragraph, the Sub-Adviser agrees that
all information which has or will come into its possession or knowledge
concerning the Portfolio or its investments in connection with this Agreement
shall be held by the Sub-Adviser in confidence. The Sub-Adviser shall make no
use of such information other than for the performance of this Agreement, shall
disclose such information only to the directors, officers or employees of the
Sub-Adviser or its affiliated firms or of any third party appointed pursuant to
this Agreement requiring such information and shall not disclose such
information to any other person without the written consent of the Company;
provided, however, that to the extent the investments for the Portfolio are
similar to investments for other clients of the Sub-Adviser, the Sub-Adviser may
disclose such investments without direct reference to the Portfolio. The
Sub-Adviser may also include the name of the Portfolio in a representative
client list.
7.3 Subject to the preceding paragraph, the Company and the Manager
agree that all information which has or will come into their possession or
knowledge concerning the operations and procedures of the Sub-Adviser shall be
held by the Company and the Manager in confidence. The Company and the Manager
shall make no use of such information other than for the performance of this
Agreement, shall disclose such information only to their directors, officers or
employees or those of its affiliated firms and shall not disclose such
information to any other person without the written consent of the Sub-Adviser.
7.4 The Manager and the Company agree not to refer to the Sub-Adviser
or its affiliates in any advertisement or other document without prior consent
of the Sub-Adviser. Similarly, the Sub-Adviser and its affiliates shall not
refer to the Manager, the Company, the Portfolio, or other Fortis affiliates in
any advertisement or other document without the Manager's prior consent.
However, the Parties to this Agreement agree that they may reference one another
as necessary in regulatory and other legal filings. Further, the parties agree
that they will not
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<PAGE>
unreasonably withhold permission to use their names or otherwise reference them
in materials used to describe the Portfolio and/or the Company.
8. DEALINGS WITH THE CUSTODIAN. The Manager shall notify the Sub-Adviser
of the appointment of the custodian(s) ("Custodian") for all or any portion of
the Portfolio's assets, shall provide the Sub-Adviser with a true and complete
copy of each agreement with the Custodian that deals with the Portfolio's assets
("Custodian Agreements"), and shall provide the Sub-Adviser with the names of
persons authorized to act on behalf of the Custodian and such other information
as the Sub-Adviser shall reasonably require. The Sub-Adviser agrees to give
instructions in accordance with the terms of the applicable Custodian
Agreements. The Company agrees to provide promptly to the Sub-Adviser a copy of
all relevant Custodian Agreements, and all changes made to such documents.
9. DELEGATION OF THE SUB-ADVISER'S RESPONSIBILITIES. The Sub-Adviser may
not delegate its investment advisory responsibilities as Sub-Adviser to the
Portfolio. However, the Sub-Adviser may employ, retain or otherwise avail
itself of the services and facilities of persons and entities within its own
organization or any other organization for the purpose of providing the
Sub-Adviser, the Manager or the Portfolio with such information, advice or
assistance, including but not limited to advice regarding economic factors and
trends and advice as to transactions in specific securities, as the Sub-Adviser
may deem necessary, appropriate or convenient for the discharge of its
obligations hereunder or as may otherwise be helpful to the Manager or the
Portfolio, or in the discharge of the Sub-Adviser's overall responsibilities
with respect to the other accounts for which it serves as investment manager or
investment adviser. The Sub-Adviser's acquisition of information, advice or
assistance pursuant to this paragraph shall be at the Sub-Adviser's own expense
and shall not relieve the Sub-Adviser of any of its obligations under this
Agreement.
10. COMPENSATION. For the services to be rendered under this Agreement
and the facilities to be furnished, the Manager shall pay to the Sub-Adviser for
each fiscal year of the Company, a monthly management fee at the annual rate of
.50 of 1% of the Portfolio's first $100 million of average daily net assets; .45
of 1% of the Portfolio's next $150 million of average daily net assets; and .40
of 1% of the Portfolio's average daily net assets in excess of $250 million.
The monthly management fee shall be paid to the Sub-Adviser not later than the
tenth business day of the month following the month in which such services were
rendered and shall be based upon the average net asset values of all the issued
and outstanding shares of the Portfolio as determined as of the close of each
business day of the month pursuant to the Articles of Incorporation, Bylaws and
currently effective Prospectus of the Portfolio. Payments of the monthly
management fee will be accompanied by documentation that verifies the
calculation of such fee. If the management of the Portfolio by the Sub-Adviser
commences or terminates at any time other than the beginning or end of a month,
the management fee shall be prorated for that portion of such month during which
this Agreement was in force.
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11. REPRESENTATIONS OF THE SUB-ADVISER. The Sub-Adviser represents and
agrees that:
(a) The Sub-Adviser is registered as an "investment adviser" under
the Advisers Act and is currently in compliance in all material respects
and shall at all times continue to comply in all material respects with the
requirements imposed upon it by the Advisers Act, the 1940 Act, the
Internal Revenue Code, state securities laws and all applicable rules and
regulations thereunder as they relate to the services provided under this
Agreement. The Sub-Adviser will immediately notify the Manager if it
becomes aware of the occurrence of any event that would disqualify the
Sub-Adviser from serving as an investment adviser of an investment company
pursuant to Section 9 of the 1940 Act or any other applicable law or
regulation.
(b) The Sub-Adviser will maintain, keep current and accurate, and
preserve all records with respect to the Portfolio as are required of it
under the Advisers Act and the 1940 Act, in the manner provided by such
Acts and the rules thereunder. The Sub-Adviser agrees that such records
are the property of the Company, and following termination of this
Agreement will be surrendered to the Company promptly upon request except
to the extent that they are required to be retained by the Sub-Adviser
under applicable law. Further, such records shall be open to inspection by
the Company. The Sub-Adviser will also assure that the Company will have
the same access as the Sub-Adviser has to records relating to the Portfolio
that are held by relevant third parties. Such inspections will be at
reasonable times during business hours and only upon reasonable notice of
the Company's desire to make an inspection.
(c) The Sub-Adviser agrees to advise the Manager of any developments,
such as the reassignment of a portfolio manager, that would require
Prospectus disclosure and to provide any necessary information related to
such developments.
(d) The Sub-Adviser has provided the Manager and the Company with a
copy of its most recent and complete Form ADV and will promptly furnish
them with copies of any material amendments to the Form.
(e) If the Sub-Adviser's performance of its obligations under this
Agreement takes place in the United Kingdom, the Sub-Adviser shall be and
shall remain during the effectiveness of this Agreement, a member of the
Investment Management Regulatory Organization, Ltd. ("IMRO") and thereby
regulated in the conduct of Investment Business (as defined in IMRO's
rules) by the IMRO. The Company and the Manager will be treated as a
Non-Private Customer (as defined in IMRO's rules) of the Sub-Adviser.
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(f) The Sub-Adviser shall furnish the Manager with a certificate,
signed by a duly authorized officer of the Sub-Adviser that designates the
officers or employees of the Sub-Adviser having authority to act for and on
behalf of the Sub-Adviser in connection with this Agreement. The
Sub-Adviser agrees that, until such time as the Manager is otherwise
informed in writing by a duly authorized officer of the Sub-Adviser, the
Manager shall be authorized and entitled to rely on any notice,
instruction, request, order or other communication, given either in writing
or orally, and reasonably believed by the Manager in good faith to be given
by an authorized representative of the Sub-Adviser.
12. REPRESENTATIONS OF THE MANAGER. The Manager represents and agrees
that:
(a) The Manager is registered as an "investment adviser" under the
Advisers Act and has provided to the Sub-Adviser a copy of its most recent
and complete Form ADV, along with a copy of the Investment Advisory and
Management Agreement between the Manager and the Company and the current
Company Prospectus regarding the Portfolio. After any amendment to the
documents referenced in this paragraph, the Manager will promptly furnish a
copy of such amended document to the Sub-Adviser. In addition, the Manager
will provide the Sub-Adviser with notice of proposed changes in the
Prospectus and the opportunity to review and comment upon such changes
before they are finalized, wherever possible.
(b) The Manager and the Company are currently in material compliance
and shall at all times continue to be in material compliance with the
relevant requirements of the Advisers Act, the 1940 Act, all applicable
state securities and insurance laws, and the rules thereunder, as they
pertain to the Portfolio.
(c) The Manager shall furnish the Sub-Adviser with a certificate,
signed by a duly authorized officer of the Manager that designates the
officers or employees of the Manager having authority to act for and on
behalf of the Manager in connection with this Agreement. The Manager
agrees that, until such time as the Sub-Adviser is otherwise informed in
writing by a duly authorized officer of the Manager, the Sub-Adviser shall
be authorized and entitled to rely on any notice, instruction, request,
order or other communication, given either in writing or orally, and
reasonably believed by the Sub-Adviser in good faith to be given by an
authorized representative of the Manager.
13. LIABILITY, INDEMNIFICATION AND FORCE MAJEURE.
13.1 The Sub-Adviser, its affiliated firms or its or their employees,
officers, or directors will not be liable for any error of judgment or mistake
of law or
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for any loss suffered by the Portfolio, its shareholders, FBIC contract owners
or First Fortis contract owners in connection with the performance of their
duties under this Agreement, except for loss resulting from willful misfeasance,
bad faith or gross negligence on their part in the performance of their duties
or from reckless disregard by them of their duties under this Agreement.
13.2 The Manager shall indemnify the Sub-Adviser against all claims
which may be made against the Sub-Adviser in connection with the exercise of the
powers and discretion conferred upon it pursuant to this Agreement, including
reasonable attorneys' fees incurred in connection with any such claim, EXCEPT
insofar as such claims allege or are the result of the willful misfeasance, bad
faith or gross negligence of the Sub-Adviser or any of its affiliated firms or
its or their employees, officers or directors or its or their breach of this
Agreement or violation of applicable law. Conversely, the Sub-Adviser shall
indemnify the Manager and the Company against all claims alleging or resulting
from the willful misfeasance, bad faith or gross negligence of the Sub-Adviser
or any of its affiliated firms or its or their employees, officers or directors
or its or their breach of this Agreement or violation of applicable law,
including reasonable attorneys' fees incurred in connection with any such claim.
13.3 Neither party shall be held responsible for their nonperformance
of any of their obligations under this Agreement by reason of any cause beyond
their control, including any breakdown or failure of transmission, communication
or computer facilities, postal or other strikes or similar industrial action and
the failure of any relevant exchange, clearing house and/or broker for any
reason to perform its obligations.
14. TERM, RENEWAL AND TERMINATION.
14.1 This Agreement shall, with respect to the Portfolio, become
effective as of the date first above written and shall remain in force for two
years thereafter, and for successive annual periods thereafter but only so long
as each such continuance is specifically approved at least annually by (1) a
majority of the Directors of the Company who are not parties to this Agreement
or interested persons of any such parties (other than as Directors of the
Company), by vote cast in person at a meeting called for the purpose of voting
on such approval; or (2) a vote of the holders of a majority of the outstanding
voting securities (as defined in the 1940 Act) of such Portfolio. It shall be
the duty of the Directors of the Company to request and evaluate, and the duty
of the Manager and Sub-Adviser to furnish, such information as may be reasonably
necessary to evaluate the terms of this Agreement and any renewal hereof.
14.2 This Agreement may be terminated with respect to the Portfolio at
any time without the payment of any penalty by the Portfolio (1) by a vote of a
majority of the entire Board of Directors of the Company on sixty (60) days'
written notice to the Manager and the Sub-Adviser; (2) by vote of the holders of
a majority
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of the outstanding voting securities of such Portfolio (as defined in the 1940
Act); or (3) by the Sub-Adviser on 60 days' written notice to the Manager and
the Company.
14.3 This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in Section 2(a)(4) of the 1940 Act and the
rules thereunder.
14.4 On the effective date of any termination of this Agreement or as
close to such date as is reasonably possible, the Sub-Adviser shall provide the
Manager with a final report for the Portfolio which will include the fair market
value for each of the Portfolio's investments.
14.5 Upon the Manager's receipt or service of any notice given by or
to the Company concerning the termination of the Manager's appointment as the
investment adviser to the Company, the Manager shall immediately forward a copy
of such notice to the Sub-Adviser and the Sub-Adviser's appointment under this
Agreement shall terminate on the same date as the termination of the Manager's
appointment.
15. AMENDMENT. No material amendment to or modification of this Agreement
shall be effective unless and until it is set forth in a written amendment
signed by the Manager and the Sub-Adviser and approved by the Board of Directors
of the Company and, if required by the 1940 Act, by the vote of a majority of
the outstanding shares of the Portfolio, as defined in the 1940 Act.
16. AUTHORITY AND ENFORCEABILITY.
16.1 Each of the parties to this Agreement hereby represents that it
is duly authorized and empowered to execute, deliver, and perform this Agreement
and that such actions do not conflict with or violate any provision of law,
rule, regulation, other legal requirement, contract or other instrument to which
it is a party or to which it is subject and that this Agreement constitutes a
valid and binding obligation, inuring to the benefit of the Manager and the
Sub-Adviser and their respective successors, enforceable in accordance with its
terms.
16.2 If any provision of this Agreement shall be held or made invalid
or unenforceable by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby and any such invalid or
unenforceable provision shall be deemed to be replaced with a valid and
enforceable provision that most closely reflects the intention of the parties.
17. APPLICABLE LAW. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the State of Minnesota.
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18. NOTICES. All notices hereunder shall be in writing and shall be
delivered in person or by facsimile (followed by delivery in person) to the
parties at the addresses set forth below:
If to the Manager: Fortis Advisers, Inc.
500 Bielenberg Drive
St. Paul, MN 55125
Fax #: (612) 738-5262
Attn: Legal Department
If to the Sub-Adviser: The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
Fax #: (212) 922-6880
Attn: Deputy General Counsel
or such other name or address as may be given in writing to the other party.
Unless specifically provided elsewhere, notice given as provided above shall be
deemed to have been given, if by personal delivery, on the day of such delivery,
and if by facsimile and mail, on the date on which such facsimile is sent.
19. EXECUTION. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers.
Attest: FORTIS ADVISERS, INC.
/s/ John E. Hite By: /s/ Scott R. Plummer
- --------------------------- ----------------------------
John E. Hite Scott R. Plummer
Assistant Secretary Vice President
Attest: THE DREYFUS CORPORATION
/s/ Lawrence B. Stoller By: /s/ Lawrence S. Kash
- --------------------------- ----------------------------
Lawrence B. Stoller Lawrence S. Kash
Assistant General Counsel Vice Chairman
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EXHIBIT A
EXAMPLES OF THE ROUTINE ACCOUNTING AND OPERATIONAL
INFORMATION AND DOCUMENTATION REQUIREMENTS OF THE
PORTFOLIO TO BE SATISFIED BY THE SUB-ADVISER
The following information is to be provided to:
Fortis Series Fund, Inc.
ATTN: Fund Accounting
P.O. Box 64284
St. Paul, MN 55164
FAX: (612) 738-0996
PHONE: (612) 738-4510, 5517 or 5369
1. DOCUMENTATION OF TRADES. On a daily basis, via facsimile, a listing
of that day's executed trades and copies of the trade tickets for that day's
trades. At the end of each week, by mail, hard copies of documentation for that
week's executed trades. The signature or initials of the portfolio manager or
duly authorized officer or employee of the Sub-Adviser should be placed on the
trade tickets to validate the authenticity of the trading information. With
respect to trades for which no DTC affirmation is available, hard copies of
broker confirmations for such trades.
2. PORTFOLIO HOLDINGS. On a weekly basis, via facsimile and mail, a list
of the Portfolio's holdings. The list should include the following information,
for each of the Portfolio's holdings, where applicable: long description,
cusip/sedol number, maturity date, par/principal amounts, market value, market
price, coupon rate and bond rating.
3. SECURITY PRICING. On a daily basis, by telephone or facsimile:
(i) review with the Company's Fund Accounting Department (the "Department") the
prices of the Portfolio's securities, which shall be provided by the Department;
(ii) inform the Department of its agreement or disagreement with such prices;
(iii) provide the Department with the basis for any disagreement it may have
with respect to a particular security's price and its opinion (along with
outside broker quotes) as to what that security's price should be; and (iv) in
any instance where the pricing services utilized by the Department do not
provide a price for a security held by the Portfolio, provide the Department
with reasonable assistance in determining a price for such security.
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INVESTMENT SUB-ADVISORY AGREEMENT
Agreement dated April 2, 1998 by and between Fortis Advisers, Inc., a
Minnesota Corporation (the "Manager") and Berger Associates, Inc, a corporation
organized under the laws of the State of Delaware (the "Sub-Adviser") whose
principal office is located at 210 University Boulevard, Suite 900, Denver,
Colorado 80206.
WHEREAS, the Manager serves as the investment adviser, manager, registrar,
transfer agent and dividend disbursing agent for Fortis Series Fund, Inc. (the
"Company"), an open-end, management investment company registered with the
Securities and Exchange Commission ("SEC") pursuant to the Investment Company
Act of 1940, as amended ("1940 Act"), that is comprised of a number of separate
series of investments that act as funding vehicles for various variable annuity
contracts and variable universal life insurance policies issued by Fortis
Benefits Insurance Company ("FBIC") and/or First Fortis Life Insurance Company
("First Fortis");
WHEREAS, the Manager desires to retain the Sub-Adviser to assist the
Manager in furnishing an investment program to one series of the Company, the
Small Cap Value Series (the "Portfolio");
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Manager and the Sub-Adviser agree as follows:
1. APPOINTMENT AND EXPENSES OF THE SUB-ADVISER. The Manager hereby
appoints the Sub-Adviser to serve as sub-adviser with respect to the assets of
the Portfolio and to perform the services hereinafter set forth and the
Sub-Adviser hereby accepts such appointment. The Sub-Adviser agrees, for the
compensation herein provided, to assume all obligations herein provided and bear
all its personnel and other expenses associated with the performance of its
services hereunder. The Company shall be responsible for the Portfolio's
administrative, operational, business and other direct expenses, including, but
not limited to: (a) the fees of the Manager as the investment adviser (and, any
reimbursement of advisory fees required by any expense limitation provision
shall be the sole responsibility of the Manager); (b) fees pursuant to any plan
of distribution that the Portfolio may adopt; (c) the Portfolio's brokerage and
commission expenses, including all ordinary and reasonable transaction costs;
(d) fees and expenses of pricing services used by the Company to determine the
value of the Portfolio's holdings; (e) Federal, state, local and foreign taxes,
including issue and transfer taxes incurred by or levied on the Portfolio;
(f) interest charges on any Portfolio borrowings; (g) the Company's
organizational and offering expenses; (h) the cost of the Company's personnel
providing services to the Company; (i) fees and expenses of registering the
Company's shares under the appropriate Federal securities laws and of qualifying
the Company's shares under applicable state securities laws and pursuant to any
foreign laws; (j) expenses of printing and distributing reports to the Company's
shareholders, proxy materials, prospectuses and distribution of dividends;
(k) costs
<PAGE>
of the Company's shareholders' meetings and proxy solicitation; (l) charges and
expenses of the Company's custodian and registrar, transfer agent and dividend
disbursing agent; (m) compensation of the Company's officers, directors and
employees that are not "affiliated persons" or "interested persons" [as defined
in Section 2(a) of the 1940 Act and the rules, regulations and releases relating
thereto] of the Sub-Adviser; (n) the Company's legal and auditing expenses;
(o) cost of certificates representing shares of the Portfolio; (p) the Company's
costs of stationery and supplies; (q) the Company's insurance expenses; (r) the
Company's association membership dues; (s) travel expenses of officers and
employees of the Sub-Adviser to the extent such expenses relate to the
attendance of such persons at meetings at the request of the Board of Directors
of the Company (EXCEPT that a representative of the Sub-Adviser will attend one
Board meeting per year, at the Sub-Adviser's own expense); and (t) travel
expenses for attendance at Board of Directors meetings by members of the Board
of Directors of the Company who are not "interested persons" or "affiliated
persons" of the Sub-Adviser. The Sub-Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, except as expressly provided
or authorized (whether herein or otherwise), have no authority to act for or on
behalf of the Company in any way or otherwise be deemed an agent of the Company.
2. DUTIES OF THE SUB-ADVISER. The Sub-Adviser will deal in good faith
and with due diligence and will use professional skill, care and judgment in the
performance of its duties under this Agreement. In so doing, the Sub-Adviser
shall formulate and implement a continuing program for the management of the
assets of the Portfolio. The Sub-Adviser shall amend and update such program
from time to time as financial and other economic conditions warrant. The
Sub-Adviser shall make all determinations with respect to the investment of the
assets of the Portfolio and shall take such steps as may be necessary to
implement the same, including the placement of purchase and sale orders on
behalf of the Portfolio. The Manager shall be responsible for the
administration of the investment activities of the Company and the Portfolio,
including compliance with the requirements of the 1940 Act, except for the
investment management activities specifically delegated to the Sub-Adviser
pursuant to this Agreement.
3. POWERS OF THE SUB-ADVISER.
3.1 The Sub-Adviser's power to direct the investment and reinvestment
of the assets of the Portfolio shall be exercised in accordance with applicable
law, the Company's Articles of Incorporation and the investment objectives,
policies and restrictions set forth in the then-current Prospectus and Statement
of Additional Information (collectively the "Prospectus") relating to the
Portfolio contained in the Company's Registration Statement under the 1940 Act
and the Securities Act of 1933, as amended. The Company and/or the Manager may
also place additional limitations on the Sub-Adviser's investment decisions by
written notice to the Sub-Adviser. The Company agrees to provide to the
Sub-Adviser at or before the time they become effective a copy of the documents
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mentioned above and all changes made, or supplements, to such documents. In
addition, the Company shall provide (or cause the Custodian to provide) timely
information to the Sub-Adviser regarding such matters as the composition of
assets in the Portfolio, cash requirements and cash available for investment in
the Portfolios and all other information as may be reasonably necessary for the
Sub-Adviser to perform its responsibilities hereunder.
3.2 While the Sub-Adviser will have day-to-day responsibility for the
discretionary investment decisions to be made on behalf of the Portfolio, the
Sub-Adviser will be subject to oversight by the Manager. Such oversight,
however, shall not require prior approval of discretionary investment decisions
made by the Sub-Adviser except as may be required by applicable law, the
Portfolio's investment policies and restrictions and/or any limitations imposed
on the Sub-Adviser by the Company and/or the Manager pursuant to the preceding
paragraph. The Manager shall retain the right to instruct the Sub-Adviser to
effect any transactions necessary to ensure compliance with the Portfolio's
investment policies and restrictions as well as the requirements of Subchapter M
of the Internal Revenue Code and the provisions of Section 817(h) of the
Internal Revenue Code and the regulations promulgated thereunder.
3.3 In the event the Sub-Adviser's compliance with any amendment of
the Portfolio's investment objectives, policies and restrictions or other
limitations placed on the Sub-Adviser's investment decisions with respect to the
Portfolio would interfere with the completion of any transaction commenced on
behalf of the Portfolio prior to the Sub-Adviser's knowledge of such amendment,
the Sub-Adviser may complete such transaction unless doing so would violate any
applicable law, rule or regulation. In such an event, the Sub-Adviser will not
be responsible for any loss that may result from the completion of the
transaction.
3.4 Further, and except as may be qualified elsewhere in this
Agreement, the Sub-Adviser is hereby authorized, for and on behalf of the
Company, with respect to the Portfolio, in its discretion to:
(a) exercise any conversion and/or subscription rights available
in connection with any securities or other investments held in the
Portfolio;
(b) maintain all or part of the Portfolio's assets uninvested in
short-term income-producing instruments for such periods of time as shall
be deemed reasonable and prudent by the Sub-Adviser;
(c) instruct the Custodian, in accordance with the Custodian
Agreement, to deliver for cash received, securities or other cash and/or
securities instruments sold, exchanged, redeemed or otherwise disposed of
from the Portfolio, and to pay cash for securities or other cash and/or
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securities instruments delivered to the Custodian and/or credited to the
Portfolio upon acquisition of the same for the Portfolio;
(d) determine how to vote all proxies received with respect to
securities held in the Portfolio and direct the Custodian as to the voting
of such proxies; and
(e) generally, perform any other act necessary to enable the
Sub-Adviser to carry out its obligations under this Agreement.
4. SELECTION OF BROKER-DEALERS. The Sub-Adviser shall select the brokers
and dealers through whom transactions on behalf of the Portfolio will be
executed and the markets on or in which such transactions will be executed and
shall place, in the name of the Portfolio or its nominee (or appropriate foreign
equivalent), all such orders. In selecting brokers and dealers to execute such
transactions, and in negotiating brokerage commissions, and in obtaining
research, statistical and other information from brokers and dealers in
connection with Portfolio transactions, the Sub-Adviser shall comply with the
description of the process contained in the Prospectus. This notwithstanding,
when the Sub-Adviser places orders for the purchase or sale of Portfolio assets,
so long as the Sub-Adviser uses reasonable efforts in seeking the best execution
in selecting brokers to execute such orders, the Sub-Adviser is expressly
authorized to consider the fact that a broker has furnished, or has agreed to
furnish in the future, research, statistical or other information or services
permitted under Section 28(e) of the Securities and Exchange Act of 1934
("Services") provided by such broker that enhance the Sub-Adviser's investment
research and portfolio management capability generally. It is understood that
the Sub-Adviser may not use all Services in connection with the Portfolio.
Sub-Adviser will not be required or deemed to have the duty to obtain the lowest
brokerage commission rates available or to combine or arrange orders to obtain
the lowest brokerage commission rates available on transactions in the
Portfolio. If the amount of commission charged by a broker is reasonable in
relation to the value of the brokerage functions and the Services provided by
such broker to Sub-Adviser, Sub-Adviser may direct brokerage transactions to
such broker notwithstanding the fact that such broker charges a higher
commission than those that another broker might charge.
(a) It is understood that certain other clients (including other
funds, portfolios and accounts) of the Sub-Adviser may have investment
objectives and policies similar to those of the Portfolio and that the
Sub-Adviser may, from time to time, make recommendations that result in the
purchase (or sale) of a particular security by its other clients and the
Portfolio during the same period of time. If transactions on behalf of
more than one client during the same period increase the demand for
securities being purchased or the supply of securities being sold, there
may be an adverse effect on price or quantity. In such event, the
Sub-Adviser shall allocate the securities or investments to be purchased or
sold, as well as the expenses incurred in the
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transactions (including price) in a manner the Sub-Adviser considers
equitable and consistent with its obligations to the Portfolio and the
Sub-Adviser's other clients.
(b) The Sub-Adviser agrees that it will only enter into transactions
that are covered by Section 10(f) or Section 17(e) of the 1940 Act if it
has (i) complied with Rule 10f-3 or Rule 17e-1 thereunder, respectively, or
the terms of an appropriate exemptive order issued to the Company by the
SEC, and (ii) has complied with the procedures adopted thereunder by the
Board of Directors of the Company which may, pursuant to authority granted
by the Company, be supplemented by interpretive guidelines of the Manager.
Aside from parties that are known or should be known by the Sub-Adviser,
the Manager shall promptly notify the Sub-Adviser in writing of any
additional parties with whom engaging in a transaction for the Portfolio
would result in a violation of the 1940 Act.
5. REPORTS AND INFORMATION TO BE PROVIDED BY THE SUB-ADVISER. The
Sub-Adviser shall furnish such information and reports relating to the
Portfolio, its holdings and transactions involving Portfolio securities as the
Manager and/or the Company may reasonably require to fulfill its or their legal
responsibilities or to meet regulatory requirements or discharge other duties
they may have. Among the subjects of the reports and information to be provided
by the Sub-Adviser, to the extent such reports and information are not otherwise
available from the Portfolio's Custodian, are the following:
(a) Information required by the Manager to determine the Company's
and Portfolio's compliance with the 1940 Act, the Advisers Act, the
Internal Revenue Code, applicable federal and state securities and
insurance laws and other applicable laws and regulations or regulatory and
taxing authorities in the United States and other relevant countries;
(b) Information required by the Manager to meet the accounting and
operational requirements of the Portfolio. Specific examples of the types
of reports and information that will be needed by the Manager and the
Company are set forth in Exhibit A, attached hereto;
(c) Information required by the Manager to satisfy its reporting
obligations to the Company arising from the Investment Advisory and
Management Agreement between the Manager and the Company;
(d) Information reasonably requested by the Manager to determine the
Portfolio's compliance with Rule 17f-5 under the 1940 Act, relating to
foreign custodians and sub-custodians;
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(e) Information required by the Manager to determine the
Sub-Adviser's compliance with Rule 17j-1 under the 1940 Act with respect to
the Sub-Adviser's activities on behalf of the Portfolio;
(f) Information required by the Manager to determine compliance with
Rule 10f-3 and Rule 17e-1 under the 1940 Act with respect to the
Sub-Adviser's (or its affiliates') activities on behalf of the Portfolio;
and
(g) Information reasonably necessary to respond to specific inquiries
from the Company's management and/or Board of Directors.
6. NON-EXCLUSIVE SERVICES, CONFLICTS OF INTEREST AND MATERIAL NONPUBLIC
INFORMATION. The Manager understands that the Sub-Adviser and its affiliates
may furnish investment management and advisory services to others, and that the
Sub-Adviser and its affiliates shall be at all times free, in their discretion,
to make recommendations to, and investments for, others which may or may not
correspond to investments made for the Portfolio. The Manager further
understands that the Sub-Adviser, its affiliates, and any officer, director,
stockholder, employee or any member of their families may or may not have an
interest in the securities whose purchase and sale the Sub-Adviser effects for
the Portfolio. Actions taken by the Sub-Adviser on behalf of the Portfolio may
be the same as, or different from, actions taken by the Sub-Adviser on its own
behalf or for others or from actions taken by the Sub-Adviser's affiliates,
officers, directors, partners, employees of the Sub-Adviser or its affiliates,
or the family members of such persons or other investors. The Sub-Adviser
represents that it has in effect a code of ethics that complies with Rule 17j-1
under the 1940 Act and has procedures in place that, taken together, provide
reasonable enforcement of the code's provisions. Similarly, the Sub-Adviser
represents that, with respect to the use of nonmaterial nonpublic information,
it has complied, and will continue to comply, with Section 204A of the
Investment Advisers Act of 1940, as amended ("Advisers Act") and any rules
thereunder.
7. DISCLOSURE OF INFORMATION AND CONFIDENTIALITY.
7.1 The Sub-Adviser, the Company and the Manager, either during, or
after the termination of, this Agreement, are authorized with respect to matters
arising out of this Agreement to make any disclosures and/or participate in any
conduct required by any applicable law, rule, regulation, self-regulating
organization, investment exchange or any other body having regulatory or
enforcement responsibility with respect to any investment business conducted by
the Sub-Adviser on behalf of the Portfolio.
7.2 Subject to the preceding paragraph, the Sub-Adviser agrees that
all information which has or will come into its possession or knowledge
concerning the Portfolio or its investments in connection with this Agreement
shall be held by the Sub-Adviser in confidence. The Sub-Adviser shall make no
use of such
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information other than for the performance of this Agreement, shall disclose
such information only to the directors, officers or employees of the Sub-Adviser
or its affiliated firms or of any third party appointed pursuant to this
Agreement requiring such information and shall not disclose such information to
any other person without the written consent of the Company; provided, however,
that to the extent the investments for the Portfolio are similar to investments
for other clients of the Sub-Adviser, the Sub-Adviser may disclose such
investments without direct reference to the Portfolio. The Sub-Adviser may also
include the name of the Portfolio in a representative client list.
7.3 Subject to the preceding paragraph, the Company and the Manager
agree that all information which has or will come into their possession or
knowledge concerning the operations and procedures of the Sub-Adviser shall be
held by the Company and the Manager in confidence. The Company and the Manager
shall make no use of such information other than for the performance of this
Agreement, shall disclose such information only to their directors, officers or
employees or those of its affiliated firms requiring such information and shall
not disclose such information to any other person without the written consent of
the Sub-Adviser.
7.4 The Manager and the Company agree not to refer to Berger
Associates, Inc. or Perkins, Wolf, McDonnell & Company or their affiliates in
any advertisement or other document without prior consent of the Sub-Adviser.
Similarly, Berger Associates, Inc. and Perkins, Wolf, McDonnell & Company and
their affiliates shall not refer to the Manager, the Company, the Portfolio, or
other Fortis affiliates in any advertisement or other document without the
Manager's prior consent. However, the Parties to this Agreement agree that they
may reference one another as necessary in regulatory and other legal filings.
Further, the parties agree that they will not unreasonably withhold permission
to use their names or otherwise reference them in materials used to describe the
Portfolio and/or the Company.
8. DEALINGS WITH THE CUSTODIAN. The Manager shall notify the Sub-Adviser
of the appointment of the custodian(s) ("Custodian") for all or any portion of
the Portfolio's assets, shall provide the Sub-Adviser with a true and complete
copy of each agreement with the Custodian that deals with the Portfolio's assets
("Custodian Agreements"), and shall provide the Sub-Adviser with the names of
persons authorized to act on behalf of the Custodian and such other information
as the Sub-Adviser shall reasonably require. The Sub-Adviser agrees to give
instructions in accordance with the terms of the applicable Custodian
Agreements. The Company agrees to provide promptly to the Sub-Adviser a copy of
all relevant Custodian Agreements, and all changes made to such documents, at or
before the time they become effective.
9. DELEGATION OF THE SUB-ADVISER'S RESPONSIBILITIES. Notwithstanding
anything herein to the contrary, Sub-Adviser may delegate any or all of its
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investment management duties and responsibilities under this Agreement to
Perkins, Wolf, McDonnell & Company. No delegation pursuant to this provision
shall relieve Sub-Adviser of its duties or responsibilities thereunder, and
Sub-Adviser shall appropriately oversee, monitor and evaluate the activities of
any party appointed hereunder for the Portfolio. The Sub-Adviser (or such
delegatee) may employ, retain or otherwise avail itself of the services and
facilities of persons and entities within its own organization or any other
organization for the purpose of providing the Sub-Adviser (or such delegatee),
the Manager or the Portfolio with such information, advice or assistance,
including but not limited to advice regarding economic factors and trends and
advice as to transactions in specific securities, as the Sub-Adviser (or such
delegatee's) may deem necessary, appropriate or convenient for the discharge of
its obligations hereunder or as may otherwise be helpful to the Manager or the
Portfolio, or in the discharge of the Sub-Adviser's (or such delegatee's)
overall responsibilities with respect to the other accounts for which it serves
as investment manager or investment adviser. The Sub-Adviser's (or such
delegatee's) acquisition of information, advice or assistance pursuant to this
paragraph shall be at the Sub-Adviser's (or such delegatee's) own expense and
shall not relieve the Sub-Adviser (or such delegatee) of any of its obligations
under this Agreement.
10. COMPENSATION. For the services to be rendered under this Agreement
and the facilities to be furnished, the Manager shall pay to the Sub-Adviser for
each fiscal year of the Company, a monthly management fee at the annual rate of
.50 of 1% of the Portfolio's first $50 million of average daily net assets and
.45 of 1% of the Portfolio's average daily net assets in excess of $50 million.
The monthly management fee shall be paid to the Sub-Adviser not later than the
tenth business day of the month following the month in which such services were
rendered and shall be based upon the average net asset values of all the issued
and outstanding shares of the Portfolio as determined as of the close of each
business day of the month pursuant to the Articles of Incorporation, Bylaws and
currently effective Prospectus of the Portfolio. Payments of the monthly
management fee will be accompanied by documentation that verifies the
calculation of such fee. If the management of the Portfolio by the Sub-Adviser
commences or terminates at any time other than the beginning or end of a month,
the management fee shall be prorated for that portion of such month during which
this Agreement was in force.
11. REPRESENTATIONS OF THE SUB-ADVISER. The Sub-Adviser represents and
agrees that:
(a) The Sub-Adviser is registered as an "investment adviser" under
the Advisers Act and is currently in compliance in all material respects
and shall at all times continue to comply in all material respects with the
requirements imposed upon it by the Advisers Act, the 1940 Act, the
Internal Revenue Code, state securities laws and all applicable rules and
regulations thereunder as they relate to the services provided under this
Agreement. The Sub-Adviser will immediately notify the Manager if it
becomes aware of the
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occurrence of any event that would disqualify the Sub-Adviser from serving
as an investment adviser of an investment company pursuant to Section 9 of
the 1940 Act or any other applicable law or regulation.
(b) The Sub-Adviser will maintain, keep current and accurate, and
preserve all records with respect to the Portfolio as are required of it
under the Advisers Act and the 1940 Act, in the manner provided by such
Acts and the rules thereunder. The Sub-Adviser agrees that such records
are the property of the Company, and following termination of this
Agreement will be surrendered to the Company promptly upon request except
to the extent that they are required to be retained by the Sub-Adviser
under applicable law. Further, such records shall be open to inspection by
the Company. The Sub-Adviser will also assure that the Company will have
the same access as the Sub-Adviser has to records relating to the Portfolio
that are held by relevant third parties. Such inspections will be at
reasonable times during business hours and only upon reasonable notice of
the Company's desire to make an inspection.
(c) The Sub-Adviser agrees to advise the Manager of any developments,
such as the reassignment of a portfolio manager, that would require
Prospectus disclosure and to provide any necessary information related to
such developments.
(d) The Sub-Adviser has provided the Manager and the Company with a
copy of its most recent and complete Form ADV and will promptly furnish
them with copies of any material amendments to the Form.
(e) If the Sub-Adviser's performance of its obligations under this
Agreement takes place in the United Kingdom, the Sub-Adviser shall be and
shall remain during the effectiveness of this Agreement, a member of the
Investment Management Regulatory Organization, Ltd. ("IMRO") and thereby
regulated in the conduct of Investment Business (as defined in IMRO's
rules) by the IMRO. The Company and the Manager will be treated as a
Non-Private Customer (as defined in IMRO's rules) of the Sub-Adviser.
(f) The Sub-Adviser shall furnish the Manager with a certificate,
signed by a duly authorized officer of the Sub-Adviser that designates the
officers or employees of the Sub-Adviser having authority to act for and on
behalf of the Sub-Adviser in connection with this Agreement. The
Sub-Adviser agrees that, until such time as the Manager is otherwise
informed in writing by a duly authorized officer of the Sub-Adviser, the
Manager shall be authorized and entitled to rely on any notice,
instruction, request, order or other communication, given either in writing
or orally, and reasonably believed by the Manager in good faith to be given
by an authorized representative of the Sub-Adviser.
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12. REPRESENTATIONS OF THE MANAGER. The Manager represents and agrees
that:
(a) The Manager is registered as an "investment adviser" under the
Advisers Act and has provided to the Sub-Adviser a copy of its most recent
and complete Form ADV, along with a copy of the Investment Advisory and
Management Agreement between the Manager and the Company and the current
Company Prospectus regarding the Portfolio. After any amendment to the
documents referenced in this paragraph, the Manager will promptly furnish a
copy of such amended document to the Sub-Adviser. In addition, the Manager
will provide the Sub-Adviser with notice of proposed changes in the
Prospectus and the opportunity to review and comment upon such changes
before they are finalized, wherever possible.
(b) The Manager and the Company are currently in material compliance
and shall at all times continue to be in material compliance with the
relevant requirements of the Advisers Act, the 1940 Act, all applicable
state securities and insurance laws, and the rules thereunder, as they
pertain to the Portfolio.
(c) The Manager shall furnish the Sub-Adviser with a certificate,
signed by a duly authorized officer of the Manager that designates the
officers or employees of the Manager having authority to act for and on
behalf of the Manager in connection with this Agreement. The Manager
agrees that, until such time as the Sub-Adviser is otherwise informed in
writing by a duly authorized officer of the Manager, the Sub-Adviser shall
be authorized and entitled to rely on any notice, instruction, request,
order or other communication, given either in writing or orally, and
reasonably believed by the Sub-Adviser in good faith to be given by an
authorized representative of the Manager.
13. LIABILITY, INDEMNIFICATION AND FORCE MAJEURE.
13.1 The Sub-Adviser, its affiliated firms or its or their employees,
officers, or directors will not be liable for any error of judgment or mistake
of law or for any loss suffered by the Portfolio, its shareholders, FBIC
contract owners or First Fortis contract owners in connection with the
performance of their duties under this Agreement, except for loss resulting from
willful misfeasance, bad faith or gross negligence on their part in the
performance of their duties or from reckless disregard by them of their duties
under this Agreement.
13.2 The Manager shall indemnify the Sub-Adviser against all claims
which may be made against the Sub-Adviser in connection with the exercise of the
powers and discretion conferred upon it pursuant to this Agreement, EXCEPT
insofar as such claims are the result of the willful misfeasance, bad faith or
gross negligence of the Sub-Adviser or any of its affiliated firms or its or
their employees, officers or
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directors or its or their material breach of this Agreement or violation of
applicable law. Conversely, the Sub-Adviser shall indemnify the Manager and the
Company against all claims resulting from the willful misfeasance, bad faith or
gross negligence of the Sub-Adviser or any of its affiliated firms or its or
their employees, officers or directors or its or their material breach of this
Agreement or violation of applicable law.
13.3 Neither party shall be held responsible for their non-performance
of any of their obligations under this Agreement by reason of any cause beyond
their control, including any breakdown or failure of transmission, communication
or computer facilities, postal or other strikes or similar industrial action and
the failure of any relevant exchange, clearing house and/or broker for any
reason to perform its obligations.
14. TERM, RENEWAL AND TERMINATION.
14.1 This Agreement shall, with respect to the Portfolio, become
effective as of the date first above written and shall remain in force for two
years thereafter, and for successive annual periods thereafter but only so long
as each such continuance is specifically approved at least annually by (1) a
majority of the Directors of the Company who are not parties to this Agreement
or interested persons of any such parties (other than as Directors of the
Company), by vote cast in person at a meeting called for the purpose of voting
on such approval; or (2) a vote of the holders of a majority of the outstanding
voting securities (as defined in the 1940 Act) of such Portfolio. It shall be
the duty of the Directors of the Company to request and evaluate, and the duty
of the Manager and Sub-Adviser to furnish, such information as may be reasonably
necessary to evaluate the terms of this Agreement and any renewal hereof.
14.2 This Agreement may be terminated with respect to the Portfolio at
any time without the payment of any penalty by the Portfolio (1) by a vote of a
majority of the entire Board of Directors of the Company on sixty (60) days'
written notice to the Manager and the Sub-Adviser; (2) by vote of the holders of
a majority of the outstanding voting securities of such Portfolio (as defined in
the 1940 Act); or (3) by the Sub-Adviser on 60 days' written notice to the
Manager and the Company.
14.3 This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in Section 2(a)(4) of the 1940 Act and the
rules thereunder.
14.4 On the effective date of any termination of this Agreement or as
close to such date as is reasonably possible, the Sub-Adviser shall provide the
Manager with a final report for the Portfolio.
14.5 Upon the Manager's receipt or service of any notice given by or
to the Company concerning the termination of the Manager's appointment as the
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investment adviser to the Company, the Manager shall immediately forward a copy
of such notice to the Sub-Adviser and the Sub-Adviser's appointment under this
Agreement shall terminate on the same date as the termination of the Manager's
appointment.
15. AMENDMENT. No amendment to or modification of this Agreement shall be
effective unless and until it is set forth in a written amendment signed by the
Manager and the Sub-Adviser and if so required approved by the vote of a
majority of the outstanding shares of the Portfolio, as defined in the 1940 Act.
16. AUTHORITY AND ENFORCEABILITY.
16.1 Each of the parties to this Agreement hereby represents that it
is duly authorized and empowered to execute, deliver, and perform this Agreement
and that such actions do not conflict with or violate any provision of law,
rule, regulation, other legal requirement, contract or other instrument to which
it is a party or to which it is subject and that this Agreement constitutes a
valid and binding obligation, inuring to the benefit of the Manager and the
Sub-Adviser and their respective successors, enforceable in accordance with its
terms.
16.2 If any provision of this Agreement shall be held or made invalid
or unenforceable by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby and any such invalid or
unenforceable provision shall be deemed to be replaced with a valid and
enforceable provision that most closely reflects the intention of the parties.
17. APPLICABLE LAW. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the State of Minnesota.
18. NOTICES. All notices hereunder shall be in writing and shall be
delivered in person or by facsimile (followed by delivery in person) to the
parties at the addresses set forth below:
If to the Manager: Fortis Advisers, Inc.
500 Bielenberg Drive
St. Paul, MN 55125
Fax #: (612) 738-5262
Attn: Legal Department
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If to the Sub-Adviser: Berger Associates, Inc.
210 University Boulevard - Suite 900
Denver, Colorado 80206
Attention: Kevin Fay
Fax #: (303) 322-0369
or such other name or address as may be given in writing to the other party.
Unless specifically provided elsewhere, notice given as provided above shall be
deemed to have been given, if by personal delivery, on the day of such delivery,
and if by facsimile and mail, on the date on which such facsimile is sent.
19. EXECUTION. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers.
Attest: FORTIS ADVISERS, INC.
/s/ John E. Hite By: /s/ Scott R. Plummer
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John E. Hite Scott R. Plummer
2nd Vice President Vice President
Attest: BERGER ASSOCIATES INC.
/s/ K. R. Fay By: /s/ Gerard M. Lavin
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K. R. Fay Gerard M. Lavin
Senior Vice President and Secretary President
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EXHIBIT A
EXAMPLES OF THE ROUTINE ACCOUNTING AND OPERATIONAL
INFORMATION AND DOCUMENTATION REQUIREMENTS
OF THE PORTFOLIO TO BE SATISFIED BY THE SUB-ADVISER
The following information is to be provided to:
Fortis Series Fund, Inc.
ATTN: Fund Accounting
P.O. Box 64284
St. Paul, MN 55164
FAX: (612) 738-0996
PHONE: (612) 738-4510, 5517 or 5369
1. DOCUMENTATION OF TRADES. On a trade date plus one basis, via facsimile, a
listing of that day's executed trades and copies of the trade tickets for those
trades. At the end of each week, by mail, hard copies of documentation for that
week's executed trades. The signature or initials of the portfolio manager or
duly authorized officer or employee of the Sub-Adviser should be placed on the
trade tickets to validate the authenticity of the trading information. On a
weekly basis, with respect to trades for which no DTC affirmation is available,
hard copies of broker confirmations for such trades.
2. PORTFOLIO HOLDINGS. On a monthly basis, via facsimile, a list of the
Portfolio's holdings. The list should include the following information, for
each of the Portfolio's holdings, where applicable: long description,
cusip/sedol number, maturity date, par/principal amounts, market value, market
price, coupon rate and bond rating.
3. SECURITY PRICING. On a daily basis, by telephone or facsimile:
(i) upon request by the Company, review with the Company's Fund Accounting
Department (the "Department") the prices of the Portfolio's securities, which
shall be provided by the Department; (ii) inform the Department any material
disagreement with such prices; (iii) provide the Department with the basis for
any disagreement it may have with respect to a particular security's price and
its opinion (along with outside broker quotes) as to what that security's price
should be; and (iv) in any instance where the pricing services utilized by the
Department do not provide a price for a security held by the Portfolio, provide
the Department with the reasonable assistance necessary for them to determine a
price for such security.
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INVESTMENT SUB-ADVISORY AGREEMENT
Agreement dated April 2, 1998 by and between Fortis Advisers, Inc., a
Minnesota Corporation (the "Manager") and Alliance Capital Management L.P., a
limited partnership organized under the laws of Delaware (the "Sub-Adviser")
whose principal office is located at 1345 Avenue of the Americas, New York, New
York 10105.
WHEREAS, the Manager serves as the investment adviser, manager, registrar,
transfer agent and dividend disbursing agent for Fortis Series Fund, Inc. (the
"Company"), an open-end, management investment company registered with the
Securities and Exchange Commission ("SEC") pursuant to the Investment Company
Act of 1940, as amended ("1940 Act"), that is comprised of a number of separate
series of investments that act as funding vehicles for various variable annuity
contracts and variable universal life insurance policies issued by Fortis
Benefits Insurance Company ("FBIC") and/or First Fortis Life Insurance Company
("First Fortis");
WHEREAS, the Manager desires to retain the Sub-Adviser to assist the
Manager in furnishing an investment program to one series of the Company, the
Large Cap Growth Series (the "Portfolio");
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Manager and the Sub-Adviser agree as follows:
1. APPOINTMENT AND EXPENSES OF THE SUB-ADVISER. The Manager hereby
appoints the Sub-Adviser to serve as sub-adviser with respect to the assets of
the Portfolio and to perform the services hereinafter set forth and the
Sub-Adviser hereby accepts such appointment. The Sub-Adviser agrees, for the
compensation herein provided, to assume all obligations herein provided and bear
all its personnel and other expenses associated with the performance of its
services hereunder. The Company shall be responsible for the Portfolio's
administrative and other direct expenses, including, but not limited to:
(a) fees pursuant to any plan of distribution that the Portfolio may adopt;
(b) the Portfolio's brokerage and commission expenses, including all ordinary
and reasonable transaction costs; (c) fees and expenses of pricing services used
by the Company to determine the value of the Portfolio's holdings; (d) Federal,
state, local and foreign taxes, including issue and transfer taxes incurred by
or levied on the Portfolio; (e) interest charges on any Portfolio borrowings;
(f) the Company's organizational and offering expenses; (g) the cost of the
Company's personnel providing services to the Company; (h) fees and expenses of
registering the Company's shares under the appropriate Federal securities laws
and of qualifying the Company's shares under applicable state securities laws
and pursuant to any foreign laws; (i) expenses of printing and distributing
reports to the Company's shareholders, proxy materials, prospectuses and
distribution of dividends; (j) costs of the Company's shareholders' meetings and
proxy solicitation; (k) charges and expenses of the Company's custodian and
registrar, transfer agent and dividend disbursing agent; (l) compensation of the
<PAGE>
Company's officers, directors and employees that are not "affiliated persons" or
"interested persons" [as defined in Section 2(a) of the 1940 Act and the rules,
regulations and releases relating thereto] of the Sub-Adviser; (m) the Company's
legal and auditing expenses; (n) cost of certificates representing shares of the
Portfolio; (o) the Company's costs of stationery and supplies; (p) the Company's
insurance expenses; (q) the Company's association membership dues; (r) travel
expenses of officers and employees of the Sub-Adviser to the extent such
expenses relate to the attendance of such persons at meetings at the request of
the Board of Directors of the Company (EXCEPT that a representative of the
Sub-Adviser will attend one Board meeting per year, at the Sub-Adviser's own
expense); and (s) travel expenses for attendance at Board of Directors meetings
by members of the Board of Directors of the Company who are not "interested
persons" or "affiliated persons" of the Sub-Adviser. The Sub-Adviser shall for
all purposes herein be deemed to be an independent contractor and shall, except
as expressly provided or authorized (whether herein or otherwise), have no
authority to act for or on behalf of the Company in any way or otherwise be
deemed an agent of the Company.
2. DUTIES OF THE SUB-ADVISER. The Sub-Adviser will deal in good faith
and with due diligence and will use professional skill, care and judgment in the
performance of its duties under this Agreement. In so doing, the Sub-Adviser
shall formulate and implement a continuing program for the management of the
assets of the Portfolio. The Sub-Adviser shall amend and update such program
from time to time as financial and other economic conditions warrant. The
Sub-Adviser shall make all determinations with respect to the investment of the
assets of the Portfolio and shall take such steps as may be necessary to
implement the same, including the placement of purchase and sale orders on
behalf of the Portfolio. The Manager shall be responsible for the
administration of the investment activities of the Company and the Portfolio,
including compliance with the requirements of the 1940 Act, except for the
investment management activities specifically delegated to the Sub-Adviser
pursuant to this Agreement.
3. POWERS OF THE SUB-ADVISER.
3.1 The Sub-Adviser's power to direct the investment and reinvestment
of the assets of the Portfolio shall be exercised in accordance with applicable
law, the Company's Articles of Incorporation and the investment objectives,
policies and restrictions set forth in the then-current Prospectus and Statement
of Additional Information (collectively the "Prospectus") relating to the
Portfolio contained in the Company's Registration Statement under the 1940 Act
and the Securities Act of 1933, as amended. The Company and/or the Manager may
also place additional limitations on the Sub-Adviser's investment decisions by
written notice to the Sub-Adviser. The Company agrees to provide promptly to
the Sub-Adviser a copy of the documents mentioned above and all changes made to
such documents.
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3.2 While the Sub-Adviser will have day-to-day responsibility for the
discretionary investment decisions to be made on behalf of the Portfolio, the
Sub-Adviser will be subject to oversight by the Manager. Such oversight,
however, shall not require prior approval of discretionary investment decisions
made by the Sub-Adviser except as may be required by applicable law, the
Portfolio's investment policies and restrictions and/or any limitations imposed
on the Sub-Adviser by the Company and/or the Manager pursuant to the preceding
paragraph. The Manager shall retain the right to instruct the Sub-Adviser to
effect any transactions necessary to ensure compliance with the Portfolio's
investment policies and restrictions as well as the requirements of Subchapter M
of the Internal Revenue Code and the provisions of Section 817(h) of the
Internal Revenue Code and the regulations promulgated thereunder.
3.3 In the event the Sub-Adviser's compliance with any amendment of
the Portfolio's investment objectives, policies and restrictions or other
limitations placed on the Sub-Adviser's investment decisions with respect to the
Portfolio would interfere with the completion of any transaction commenced on
behalf of the Portfolio prior to the Sub-Adviser's knowledge of such amendment,
the Sub-Adviser may complete such transaction unless doing so would violate any
applicable law, rule or regulation. In such an event, the Sub-Adviser will not
be responsible for any loss that may result from the completion of the
transaction.
3.4 Further, and except as may be qualified elsewhere in this
Agreement, the Sub-Adviser is hereby authorized, for and on behalf of the
Company, with respect to the Portfolio, in its discretion to:
(a) exercise any conversion and/or subscription rights available
in connection with any securities or other investments held in the
Portfolio;
(b) maintain all or part of the Portfolio's assets uninvested in
short-term income-producing instruments for such periods of time as shall
be deemed reasonable and prudent by the Sub-Adviser;
(c) instruct the Custodian, in accordance with the Custodian
Agreement, to deliver for cash received, securities or other cash and/or
securities instruments sold, exchanged, redeemed or otherwise disposed of
from the Portfolio, and to pay cash for securities or other cash and/or
securities instruments delivered to the Custodian and/or credited to the
Portfolio upon acquisition of the same for the Portfolio;
(d) determine how to vote all proxies received with respect to
securities held in the Portfolio and direct the Custodian as to the voting
of such proxies; and
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(e) generally, perform any other act necessary to enable the
Sub-Adviser to carry out its obligations under this Agreement.
4. SELECTION OF BROKER-DEALERS. The Sub-Adviser shall select the brokers
and dealers through whom transactions on behalf of the Portfolio will be
executed and the markets on or in which such transactions will be executed and
shall place, in the name of the Portfolio or its nominee (or appropriate foreign
equivalent), all such orders. In selecting brokers and dealers to execute such
transactions, and in negotiating brokerage commissions, and in obtaining
research, statistical and other information from brokers and dealers in
connection with Portfolio transactions, the Sub-Adviser shall comply with the
description of the process contained in the Prospectus.
(a) It is understood that certain other clients (including other
funds, portfolios and accounts) of the Sub-Adviser may have investment
objectives and policies similar to those of the Portfolio and that the
Sub-Adviser may, from time to time, make recommendations that result in the
purchase (or sale) of a particular security by its other clients and the
Portfolio during the same period of time. If transactions on behalf of
more than one client during the same period increase the demand for
securities being purchased or the supply of securities being sold, there
may be an adverse effect on price or quantity. In such event, the
Sub-Adviser shall allocate the securities or investments to be purchased or
sold, as well as the expenses incurred in the transactions (including
price) in a manner the Sub-Adviser considers equitable and consistent with
its obligations to the Portfolio and the Sub-Adviser's other clients.
(b) The Sub-Adviser agrees that it will only enter into transactions
that are covered by Section 10(f) or Section 17(e) of the 1940 Act if it
has (i) complied with Rule 10f-3 or Rule 17e-1 thereunder, respectively, or
the terms of an appropriate exemptive order issued to the Company by the
SEC, and (ii) has complied with the procedures adopted thereunder by the
Board of Directors of the Company which may, pursuant to authority granted
by the Company, be supplemented by interpretive guidelines of the Manager.
Aside from parties that are known or should be known by the Sub-Adviser,
the Manager shall promptly notify the Sub-Adviser of any additional parties
with whom engaging in a transaction for the Portfolio would result in a
violation of the 1940 Act.
5. REPORTS AND INFORMATION TO BE PROVIDED BY THE SUB-ADVISER. The
Sub-Adviser shall furnish such information and reports relating to the
Portfolio, its holdings and transactions involving Portfolio securities as the
Manager and/or the Company may reasonably require to fulfill its or their legal
responsibilities or to meet regulatory requirements or discharge other duties
they may have. Among the subjects of the reports and information to be provided
by the Sub-Adviser are the following:
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(a) Information required by the Manager to determine the Company's
and Portfolio's compliance with the 1940 Act, the Advisers Act, the
Internal Revenue Code, applicable federal and state securities and
insurance laws and other applicable laws and regulations or regulatory and
taxing authorities in the United States and other relevant countries;
(b) Information required by the Manager to meet the accounting and
operational requirements of the Portfolio. Specific examples of the types
of reports and information that will be needed by the Manager and the
Company are set forth in Exhibit A, attached hereto;
(c) Information required by the Manager to satisfy its reporting
obligations to the Company arising from the Investment Advisory and
Management Agreement between the Manager and the Company;
(d) Information reasonably requested by the Manager to determine the
Portfolio's compliance with Rule 17f-5 under the 1940 Act, relating to
foreign custodians and sub-custodians;
(e) Information required by the Manager to determine the
Sub-Adviser's compliance with Rule 17j-1 under the 1940 Act with respect to
the Sub-Adviser's activities on behalf of the Portfolio;
(f) Information required by the Manager to determine compliance with
Rule 10f-3 and Rule 17e-1 under the 1940 Act with respect to the
Sub-Adviser's (or its affiliates') activities on behalf of the Portfolio;
and
(g) Information reasonably necessary to respond to specific inquiries
from the Company's management and/or Board of Directors.
6. NON-EXCLUSIVE SERVICES, CONFLICTS OF INTEREST AND MATERIAL NONPUBLIC
INFORMATION. The Manager understands that the Sub-Adviser and its affiliates
may furnish investment management and advisory services to others, and that the
Sub-Adviser and its affiliates shall be at all times free, in their discretion,
to make recommendations to, and investments for, others which may or may not
correspond to investments made for the Portfolio. The Manager further
understands that the Sub-Adviser, its affiliates, and any officer, director,
stockholder, employee or any member of their families may or may not have an
interest in the securities whose purchase and sale the Sub-Adviser effects for
the Portfolio. Actions taken by the Sub-Adviser on behalf of the Portfolio may
be the same as, or different from, actions taken by the Sub-Adviser on its own
behalf or for others or from actions taken by the Sub-Adviser's affiliates,
officers, directors, partners, employees of the Sub-Adviser or its affiliates,
or the family members of such persons or other investors. The Sub-Adviser
represents that it has in effect a code of ethics that complies with Rule 17j-1
under the 1940 Act and has procedures in place that, taken together, provide
reasonable enforcement of the code's provisions. Similarly, the
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Sub-Adviser represents that, with respect to the use of nonmaterial nonpublic
information, it has complied, and will continue to comply, with Section 204A of
the Investment Advisers Act of 1940, as amended ("Advisers Act") and any rules
thereunder.
7. DISCLOSURE OF INFORMATION AND CONFIDENTIALITY.
7.1 The Sub-Adviser, the Company and the Manager, either during or
after the termination of this Agreement, are authorized with respect to matters
arising out of this Agreement to make any disclosures and/or participate in any
conduct required by any applicable law, rule, regulation, self-regulating
organization, investment exchange or any other body having regulatory or
enforcement responsibility with respect to any investment business conducted by
the Sub-Adviser on behalf of the Portfolio.
7.2 Subject to the preceding paragraph, the Sub-Adviser agrees that
all information which has or will come into its possession or knowledge
concerning the Portfolio or its investments in connection with this Agreement
shall be held by the Sub-Adviser in confidence. The Sub-Adviser shall make no
use of such information other than for the performance of this Agreement, shall
disclose such information only to the directors, officers or employees of the
Sub-Adviser or its affiliated firms or of any third party appointed pursuant to
this Agreement requiring such information and shall not disclose such
information to any other person without the written consent of the Company;
provided, however, that to the extent the investments for the Portfolio are
similar to investments for other clients of the Sub-Adviser, the Sub-Adviser may
disclose such investments without direct reference to the Portfolio. The
Sub-Adviser may also include the name of the Portfolio in a representative
client list.
7.3 Subject to the preceding paragraph, the Company and the Manager
agree that all information which has or will come into their possession or
knowledge concerning the operations and procedures of the Sub-Adviser shall be
held by the Company and the Manager in confidence. The Company and the Manager
shall make no use of such information other than for the performance of this
Agreement, shall disclose such information only to their directors, officers or
employees or those of its affiliated firms and shall not disclose such
information to any other person without the written consent of the Sub-Adviser.
7.4 The Manager and the Company agree not to refer to Alliance
Capital Management L.P. or its affiliates in any advertisement or other document
without prior consent of the Sub-Adviser. Similarly, Alliance Capital
Management L.P. and its affiliates shall not refer to the Manager, the Company,
the Portfolio, or other Fortis affiliates in any advertisement or other document
without the Manager's prior consent. However, the Parties to this Agreement
agree that they may reference one another as necessary in regulatory and other
legal filings. Further, the parties agree that they will not unreasonably
withhold permission to
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use their names or otherwise reference them in materials used to describe the
Portfolio and/or the Company.
8. DEALINGS WITH THE CUSTODIAN. The Manager shall notify the Sub-Adviser
of the appointment of the custodian(s) ("Custodian") for all or any portion of
the Portfolio's assets, shall provide the Sub-Adviser with a true and complete
copy of each agreement with the Custodian that deals with the Portfolio's assets
("Custodian Agreements"), and shall provide the Sub-Adviser with the names of
persons authorized to act on behalf of the Custodian and such other information
as the Sub-Adviser shall reasonably require. The Sub-Adviser agrees to give
instructions in accordance with the terms of the applicable Custodian
Agreements. The Company agrees to provide promptly to the Sub-Adviser a copy of
all relevant Custodian Agreements, and all changes made to such documents.
9. DELEGATION OF THE SUB-ADVISER'S RESPONSIBILITIES. The Sub-Adviser may
not delegate its investment advisory responsibilities as Sub-Adviser to the
Portfolio. However, the Sub-Adviser may employ, retain or otherwise avail
itself of the services and facilities of persons and entities within its own
organization or any other organization for the purpose of providing the
Sub-Adviser, the Manager or the Portfolio with such information, advice or
assistance, including but not limited to advice regarding economic factors and
trends and advice as to transactions in specific securities, as the Sub-Adviser
may deem necessary, appropriate or convenient for the discharge of its
obligations hereunder or as may otherwise be helpful to the Manager or the
Portfolio, or in the discharge of the Sub-Adviser's overall responsibilities
with respect to the other accounts for which it serves as investment manager or
investment adviser. The Sub-Adviser's acquisition of information, advice or
assistance pursuant to this paragraph shall be at the Sub-Adviser's own expense
and shall not relieve the Sub-Adviser of any of its obligations under this
Agreement.
10. COMPENSATION. For the services to be rendered under this Agreement
and the facilities to be furnished, the Manager shall pay to the Sub-Adviser for
each fiscal year of the Company, a monthly management fee at the annual rate of
.50 of 1% of the Portfolio's first $100 million of average daily net assets; .45
of 1% of the Portfolio's next $100 million of average daily net assets; and .40
of 1% of the Portfolio's average daily net assets in excess of $200 million.
The monthly management fee shall be paid to the Sub-Adviser not later than the
tenth business day of the month following the month in which such services were
rendered and shall be based upon the average net asset values of all the issued
and outstanding shares of the Portfolio as determined as of the close of each
business day of the month pursuant to the Articles of Incorporation, Bylaws and
currently effective Prospectus of the Portfolio. Payments of the monthly
management fee will be accompanied by documentation that verifies the
calculation of such fee. If the management of the Portfolio by the Sub-Adviser
commences or terminates at any time other than the beginning or end of a month,
the management fee shall be prorated for that portion of such month during which
this Agreement was in force.
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11. REPRESENTATIONS OF THE SUB-ADVISER. The Sub-Adviser represents and
agrees that:
(a) The Sub-Adviser is registered as an "investment adviser" under
the Advisers Act and is currently in compliance in all material respects
and shall at all times continue to comply in all material respects with the
requirements imposed upon it by the Advisers Act, the 1940 Act, the
Internal Revenue Code, state securities laws and all applicable rules and
regulations thereunder as they relate to the services provided under this
Agreement. The Sub-Adviser will immediately notify the Manager if it
becomes aware of the occurrence of any event that would disqualify the
Sub-Adviser from serving as an investment adviser of an investment company
pursuant to Section 9 of the 1940 Act or any other applicable law or
regulation.
(b) The Sub-Adviser will maintain, keep current and accurate, and
preserve all records with respect to the Portfolio as are required of it
under the Advisers Act and the 1940 Act, in the manner provided by such
Acts and the rules thereunder. The Sub-Adviser agrees that such records
are the property of the Company, and following termination of this
Agreement will be surrendered to the Company promptly upon request except
to the extent that they are required to be retained by the Sub-Adviser
under applicable law. Further, such records shall be open to inspection by
the Company. The Sub-Adviser will also assure that the Company will have
the same access as the Sub-Adviser has to records relating to the Portfolio
that are held by relevant third parties. Such inspections will be at
reasonable times during business hours and only upon reasonable notice of
the Company's desire to make an inspection.
(c) The Sub-Adviser agrees to advise the Manager of any developments,
such as the reassignment of a portfolio manager, that would require
Prospectus disclosure and to provide any necessary information related to
such developments.
(d) The Sub-Adviser has provided the Manager and the Company with a
copy of its most recent and complete Form ADV and will promptly furnish
them with copies of any material amendments to the Form.
(e) If the Sub-Adviser's performance of its obligations under this
Agreement takes place in the United Kingdom, the Sub-Adviser shall be and
shall remain during the effectiveness of this Agreement, a member of the
Investment Management Regulatory Organization, Ltd. ("IMRO") and thereby
regulated in the conduct of Investment Business (as defined in IMRO's
rules) by the IMRO. The Company and the Manager will be treated as a
Non-Private Customer (as defined in IMRO's rules) of the Sub-Adviser.
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(f) The Sub-Adviser shall furnish the Manager with a certificate,
signed by a duly authorized officer of the Sub-Adviser that designates the
officers or employees of the Sub-Adviser having authority to act for and on
behalf of the Sub-Adviser in connection with this Agreement. The
Sub-Adviser agrees that, until such time as the Manager is otherwise
informed in writing by a duly authorized officer of the Sub-Adviser, the
Manager shall be authorized and entitled to rely on any notice,
instruction, request, order or other communication, given either in writing
or orally, and reasonably believed by the Manager in good faith to be given
by an authorized representative of the Sub-Adviser.
(g) The Sub-Adviser agrees to notify the Manager of any changes in
the membership of the general partners of the Sub-Adviser within a
reasonable time after such change.
12. REPRESENTATIONS OF THE MANAGER. The Manager represents and agrees
that:
(a) The Manager is registered as an "investment adviser" under the
Advisers Act and has provided to the Sub-Adviser a copy of its most recent
and complete Form ADV, along with a copy of the Investment Advisory and
Management Agreement between the Manager and the Company and the current
Company Prospectus regarding the Portfolio. After any amendment to the
documents referenced in this paragraph, the Manager will promptly furnish a
copy of such amended document to the Sub-Adviser. In addition, the Manager
will provide the Sub-Adviser with notice of proposed changes in the
Prospectus and the opportunity to review and comment upon such changes
before they are finalized, wherever possible.
(b) The Manager and the Company are currently in material compliance
and shall at all times continue to be in material compliance with the
relevant requirements of the Advisers Act, the 1940 Act, all applicable
state securities and insurance laws, and the rules thereunder, as they
pertain to the Portfolio.
(c) The Manager shall furnish the Sub-Adviser with a certificate,
signed by a duly authorized officer of the Manager that designates the
officers or employees of the Manager having authority to act for and on
behalf of the Manager in connection with this Agreement. The Manager
agrees that, until such time as the Sub-Adviser is otherwise informed in
writing by a duly authorized officer of the Manager, the Sub-Adviser shall
be authorized and entitled to rely on any notice, instruction, request,
order or other communication, given either in writing or orally, and
reasonably believed by the Sub-Adviser in good faith to be given by an
authorized representative of the Manager.
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(d) The Manager will maintain, keep current and accurate and preserve
all records with respect to the Portfolio as are required of it under the
Advisers Act and 1940 Act and the rules and regulations promulgated
thereunder with respect to transactions by the Sub-Adviser on behalf of the
Portfolio. In compliance with Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees that all records which it maintains for the
Portfolio are the property of the Company, agrees to preserve for the
persons prescribed by Rule 31a-2 under the Act any records which it
maintains for the Portfolio and which are required to be maintained by Rule
31a-1(b) (2(iii), (5), (6), (7), (9) and (10) under the 1940 Act, and
further agrees to surrender promptly to the Company any records which it
maintains for the Portfolio upon request by the Company.
13. LIABILITY, INDEMNIFICATION AND FORCE MAJEURE.
13.1 The Sub-Adviser, its affiliated firms or its or their employees,
officers, or directors will not be liable for any error of judgment or mistake
of law or for any loss suffered by the Portfolio, its shareholders, FBIC
contract owners or First Fortis contract owners in connection with the
performance of their duties under this Agreement, except for loss resulting from
willful misfeasance, bad faith or negligence on their part in the performance of
their duties or from reckless disregard by them of their duties under this
Agreement.
13.2 The Manager shall indemnify the Sub-Adviser against all claims
which may be made against the Sub-Adviser in connection with the exercise of the
powers and discretions conferred upon it pursuant to this Agreement, EXCEPT
insofar as such claims allege or are the result of the willful misfeasance, bad
faith or negligence of the Sub-Adviser or any of its affiliated firms or its or
their employees, officers or directors or its or their breach of this Agreement
or violation of applicable law. Conversely, the Sub-Adviser shall indemnify the
Manager and the Company against all claims alleging or resulting from the
willful misfeasance, bad faith or negligence of the Sub-Adviser or any of its
affiliated firms or its or their employees, officers or directors or its or
their breach of this Agreement or violation of applicable law.
13.3 Neither party shall be held responsible for their non-performance
of any of their obligations under this Agreement by reason of any cause beyond
their control, including any breakdown or failure of transmission, communication
or computer facilities, postal or other strikes or similar industrial action and
the failure of any relevant exchange, clearing house and/or broker for any
reason to perform its obligations.
14. TERM, RENEWAL AND TERMINATION.
14.1 This Agreement shall, with respect to the Portfolio, become
effective as of the date first above written and shall remain in force for two
years
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thereafter, and for successive annual periods thereafter but only so long as
each such continuance is specifically approved at least annually by (1) a
majority of the Directors of the Company who are not parties to this Agreement
or interested persons of any such parties (other than as Directors of the
Company), by vote cast in person at a meeting called for the purpose of voting
on such approval; or (2) a vote of the holders of a majority of the outstanding
voting securities (as defined in the 1940 Act) of such Portfolio. It shall be
the duty of the Directors of the Company to request and evaluate, and the duty
of the Manager and Sub-Adviser to furnish, such information as may be reasonably
necessary to evaluate the terms of this Agreement and any renewal hereof.
14.2 This Agreement may be terminated with respect to the Portfolio at
any time without the payment of any penalty by the Portfolio (1) by a vote of a
majority of the entire Board of Directors of the Company on sixty (60) days'
written notice to the Manager and the Sub-Adviser; (2) by vote of the holders of
a majority of the outstanding voting securities of such Portfolio (as defined in
the 1940 Act); or (3) by the Sub-Adviser on 60 days' written notice to the
Manager and the Company.
14.3 This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in Section 2(a)(4) of the 1940 Act and the
rules thereunder.
14.4 On the effective date of any termination of this Agreement or as
close to such date as is reasonably possible, the Sub-Adviser shall provide the
Manager with a final report for the Portfolio which will include the fair market
value for each of the Portfolio's investments.
14.5 Upon the Manager's receipt or service of any notice given by or
to the Company concerning the termination of the Manager's appointment as the
investment adviser to the Company, the Manager shall immediately forward a copy
of such notice to the Sub-Adviser and the Sub-Adviser's appointment under this
Agreement shall terminate on the same date as the termination of the Manager's
appointment.
15. AMENDMENT. No amendment to or modification of this Agreement shall be
effective unless and until it is set forth in a written amendment signed by the
Manager and the Sub-Adviser and approved by the vote of a majority of the
outstanding shares of the Portfolio, as defined in the 1940 Act.
16. AUTHORITY AND ENFORCEABILITY.
16.1 Each of the parties to this Agreement hereby represents that it
is duly authorized and empowered to execute, deliver, and perform this Agreement
and that such actions do not conflict with or violate any provision of law,
rule, regulation, other legal requirement, contract or other instrument to which
it is a party or to which it is subject and that this Agreement constitutes a
valid and
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binding obligation, inuring to the benefit of the Manager and the Sub-Adviser
and their respective successors, enforceable in accordance with its terms.
16.2 If any provision of this Agreement shall be held or made invalid
or unenforceable by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby and any such invalid or
unenforceable provision shall be deemed to be replaced with a valid and
enforceable provision that most closely reflects the intention of the parties.
17. APPLICABLE LAW. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the State of Minnesota.
18. NOTICES. All notices hereunder shall be in writing and shall be
delivered in person or by facsimile (followed by delivery in person) to the
parties at the addresses set forth below:
If to the Manager: Fortis Advisers, Inc.
500 Bielenberg Drive
St. Paul, MN 55125
Fax #: (612) 738-5262
Attn: Legal Department
If to the Sub-Adviser: Mark R. Manley
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
Fax #: (212) 969-2293
Copy to: James Reilly
or such other name or address as may be given in writing to the other party.
Unless specifically provided elsewhere, notice given as provided above
shall be deemed to have been given, if by personal delivery, on the day of such
delivery, and if by facsimile and mail, on the date on which such facsimile is
sent.
19. EXECUTION. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers.
Attest: FORTIS ADVISERS, INC.
/s/ John E. Hite By: /s/ Scott R. Plummer
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John E. Hite Scott R. Plummer
Assistant Secretary Vice President
Attest: ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management Corp.,
General Partner
/s/ Colin T. Burke By: /s/ Mark R. Manley
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Colin T. Burke Mark R. Manley
Vice President Assistant Secretary
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EXHIBIT A
EXAMPLES OF THE ROUTINE ACCOUNTING AND OPERATIONAL
INFORMATION AND DOCUMENTATION REQUIREMENTS OF THE
PORTFOLIO TO BE SATISFIED BY THE SUB-ADVISER
The following information is to be provided to:
Fortis Series Fund, Inc.
ATTN: Fund Accounting
P.O. Box 64284
St. Paul, MN 55164
FAX: (612) 738-0996
PHONE: (612) 738-4568, 5517 or 5606
1. DOCUMENTATION OF TRADES. On a daily basis, via facsimile, a listing
of that day's executed trades and copies of the trade tickets for those trades.
At the end of each week, by mail, hard copies of documentation for that week's
executed trades. The signature or initials of the portfolio manager or duly
authorized officer or employee of the Sub-Adviser should be placed on the trade
tickets to validate the authenticity of the trading information. On a weekly
basis, with respect to trades for which no DTC affirmation is available, hard
copies of broker confirmations for such trades.
2. PORTFOLIO HOLDINGS. On a weekly basis, via facsimile and mail, a list
of the Portfolio's holdings. The list should include the following information,
for each of the Portfolio's holdings, where applicable: long description,
cusip/sedol number, maturity date, par/principal amounts, market value, market
price, coupon rate and bond rating.
3. SECURITY PRICING. On a daily basis, by telephone or facsimile:
(i) review with the Company's Fund Accounting Department (the "Department") the
prices of the Portfolio's securities, which shall be provided by the Department;
(ii) inform the Department of its agreement or disagreement with such prices;
(iii) provide the Department with the basis for any disagreement it may have
with respect to a particular security's price and its opinion (along with
outside broker quotes) as to what that security's price should be; and (iv) in
any instance where the pricing services utilized by the Department do not
provide a price for a security held by the Portfolio, provide the Department
with reasonable assistance in determining a price for such security.
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SUB-MANAGEMENT AGREEMENT
This AGREEMENT made as of this 2nd day of April, 1998, between BERGER
ASSOCIATES, INC., a Delaware corporation ("Berger") and PERKINS, WOLF, MCDONNELL
& COMPANY, a Delaware corporation ("PWM").
WHEREAS, Berger has entered into an Investment Sub-Advisory Agreement
(the "Subadvisory Agreement") with Fortis Advisers, Inc. (the "Manager") with
respect to the Small Cap Value Series (the "Portfolio") of Fortis Series Fund,
Inc. (the "Company"); and
WHEREAS, PWM is engaged in the business of rendering investment
advisory services and is registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"); and
WHEREAS, Berger desires to delegate to PWM its duties and
responsibilities for providing investment advisory services to the Portfolio,
and PWM is willing to accept such delegation and to render such investment
advisory services.
NOW, THEREFORE, the parties agree as follows:
1. DELEGATION. Pursuant to Section 9 of the Subadvisory Agreement,
a copy of which is attached hereto as Exhibit 1, Berger hereby delegates to PWM
all the duties and responsibilities required to be performed by Berger for the
Portfolio pursuant to Section 2 of the Subadvisory Agreement except the
placement of purchase and sale orders on behalf of the Portfolio. PWM hereby
accepts such delegation and agrees to perform such duties and assume such
responsibilities, subject to the oversight of Berger. No provision of this
Agreement shall relieve Berger of its duties or responsibilities under the
Subadvisory Agreement, and Berger shall appropriately oversee, monitor and
evaluate PWM's performance of its duties and responsibilities under this
Agreement.
2. FURTHER OBLIGATIONS.
(a) In all matters relating to the performance of this Agreement, PWM
shall act in conformity with the Company's Articles of Incorporation, the
investment objectives, policies and restrictions for the applicable Portfolio
set forth in the Company's then current prospectus and statement of additional
information, such policies as the Company may from time to time establish and
which have been furnished to PWM in writing, the provisions of the Internal
Revenue Code (the Code) applicable to "regulated investment companies" (as
defined in Section 851 of the Code), all as from time to time in effect, and
with all applicable laws governing
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such Portfolio's operations and investments including without limitation the
provisions of the Investment Company Act of 1940, as amended (the "1940 Act"),
and rules adopted thereunder and applicable federal and state securities, and
tax laws. The Company, the Manager and/or Berger may also place additional
limitations on PWM's investment decisions by written notice to PWM. PWM will be
subject to oversight by Berger and the Manager, provided, however, that such
oversight shall not require prior approval of discretionary investment decisions
made by PWM except as may be required by applicable law, the Portfolio's
investment policies and restrictions and/or any limitations imposed on PWM by
the Company, the Manager and/or Berger as set forth herein. Berger retains, and
PWM acknowledges that the Manager has, the right to instruct PWM to effect any
transaction necessary to ensure compliance with the Portfolio's investment
policies and restrictions as well as the requirements of Subchapter M of the
Internal Revenue Code and the provisions of Section 817(h) of the Internal
Revenue Code and the regulations promulgated thereunder. In the event PWM's
compliance with any amendment of the Portfolio's investment objectives, policies
and restrictions or other limitations placed on PWM's investment decisions with
respect to the Portfolio would interfere with the completion of any transaction
commenced on behalf of the Portfolio prior to PWM's knowledge of such amendment,
PWM may complete such transaction unless doing so would violate any applicable
law, rule or regulation and, in such an event, PWM will not be responsible for
any loss that may result from the completion of the transaction.
(b) PWM shall provide timely reports to Berger on its activities
under this Agreement as agreed on from time to time, and shall provide Berger
with all information or documents that Berger may reasonably request in
connection with this Agreement, including but not limited to:
(1) Information required by Berger to satisfy its reporting
obligations to the Manager and/or the Company arising from the Subadvisory
Agreement;
(2) Information required to determine PWM's compliance with Rule
17j-1 under the 1940 Act with respect to PWM's activities on behalf of the
Portfolio;
(3) Information required to determine compliance with Rule 10f-3
and Rule 17e-1 under the 1940 Act with respect to PWM's (or its affiliates')
activities on behalf of the Portfolio;
(4) Such other information with regard to its affairs as Berger
may reasonably request.
(c) PWM shall maintain, keep current and accurate, and preserve
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all books and records with respect to the Portfolio as are required of it under
the Advisers Act and the 1940 Act, in the manner provided by such Acts and the
rules thereunder. PWM agrees that such records are the property of the Company,
and following termination of this Agreement will be surrendered to the Company
promptly upon request except to the extent that they are required to be retained
by PWM under applicable law. Further, such records shall be open to inspection
by the Company. PWM will also assure that the Company will have the same access
as PWM has to records relating to the Portfolio that are held by relevant third
parties. Such inspections will be at reasonable times during business hours and
only upon reasonable notice of the Company's desire to make an inspection.
(d) PWM will at all times comply in all material respects with the
requirements imposed upon it by the Advisers Act, the 1940 Act, the Internal
Revenue Code, state securities laws and all applicable rules and regulations
thereunder as they relate to the services provided under this Agreement. PWM
will immediately notify Berger if it becomes aware of the occurrence of any
event that would disqualify PWM from serving as an investment adviser of an
investment company pursuant to Section 9 of the 1940 Act or any other applicable
law or regulation.
(e) PWM agrees to advise Berger of any developments, such as the
reassignment of a portfolio manager, that would require prospectus disclosure
and to provide any necessary information related to such developments.
(f) PWM has provided Berger with a copy of its most recent and
complete Form ADV and will promptly furnish Berger with copies of any material
amendments to such Form ADV.
(g) If PWM's performance of its obligations under this Agreement
takes place in the United Kingdom, PWM shall be and shall remain during the
effectiveness of this Agreement, a member of the Investment Management
Regulatory Organization, Ltd. ("IMRO") and thereby regulated in the conduct of
Investment Business (as defined in IMRO's rules) by the IMRO. The Company and
the Manager will be treated as a Non-Private Customer (as defined in IMRO's
rules) of PWM.
(h) PWM shall furnish Berger with a certificate, signed by a duly
authorized officer of PWM that designates the officers or employees of PWM
having authority to act for and on behalf of PWM in connection with this
Agreement. PWM agrees that, until such time as Berger is otherwise informed in
writing by a duly authorized officer of PWM, Berger shall be authorized and
entitled to rely on any notice, instruction, request, order or other
communication, given either in writing or orally, and reasonably believed by
Berger in good faith to be given by an authorized representative of PWM.
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3. DISCRETIONARY ACTIONS.
(a) PWM is hereby authorized, to the same extent Berger is authorized
pursuant to Section 3.4 of the Subadvisory Agreement, to take the actions set
forth in subsections (a), (b), and (d) of Section 3.4 of the Subadvisory
Agreement, and generally, to perform any other act necessary to enable PWM to
carry out its obligations under this Agreement.
(b) PWM may employ, retain or otherwise avail itself of the services
and facilities of persons and entities within its own organization or any other
organization for the purpose of providing PWM, Berger, the Manager or the
Portfolio with such information, advice or assistance, including but not limited
to advice regarding economic factors and trends and advice as to transactions in
specific securities, as PWM may deem necessary, appropriate or convenient for
the discharge of its obligations hereunder or as may otherwise be helpful to
Berger, the Manager or the Portfolio, or in the discharge of PWM's overall
responsibilities with respect to the other accounts for which it serves as an
investment manager or investment adviser. PWM's acquisition of information,
advice or assistance pursuant to this subsection shall be at PWM's own expense
and shall not relieve PWM of any of its obligations under this Agreement.
4. DISCLOSURE OF INFORMATION AND CONFIDENTIALITY.
(a) PWM, either during, or after the termination of, this Agreement,
is authorized with respect to matters arising out of this Agreement to make any
disclosures and/or participate in any conduct required by any applicable law,
rule, regulation, self-regulating organization, investment exchange or any other
body having regulatory or enforcement responsibility with respect to any
investment business conducted by PWM on behalf of the Portfolio.
(b) Subject to Section 4(a), PWM agrees that all information which
has or will come into its possession or knowledge concerning the Portfolio or
its investments in connection with this Agreement shall be held by PWM in
confidence. PWM shall make no use of such information other than for the
performance of this Agreement, shall disclose such information only to the
directors, officers or employees of PWM or its affiliated firms or Berger or of
any third party appointed pursuant to this Agreement requiring such information
and shall not disclose such information to any other person without the written
consent of the Company; provided, however, that to the extent the investments
for the Portfolio are similar to investments for other clients of PWM, PWM may
disclose such investments without direct reference to the Portfolio. PWM may
also include the name of the Portfolio in a representative client list.
(c) PWM agrees that it shall not and its affiliates shall not refer
to
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the Manager, the Company, the Portfolio, or other Fortis affiliates in any
advertisement or other document without the Manager's prior consent, except as
may be necessary in regulatory and other legal filings. PWM agrees that it will
not unreasonably withhold permission to use its name or otherwise reference PWM
in materials used to describe the Portfolio and/or the Company.
5. COMPENSATION. Berger shall pay to PWM for its services under
this Agreement a fee, payable in United States dollars, at an annual rate of .25
of 1% (25 basis points) of the Portfolio's first $50 million of average daily
net assets and .225 of 1% (22 1/2 basis points) of the Portfolio's average daily
net assets in excess of $50 million. This fee shall be computed based upon the
average net asset values of all the issued and outstanding shares of the
Portfolio as determined as of the close of each business day of the month
pursuant to the Articles of Incorporation, Bylaws and currently effective
prospectus of the Portfolio, and shall be payable monthly as soon as practicable
after the end of each month. For the month during which this Agreement becomes
effective and the month during which it terminates, however, there shall be an
appropriate proration of the fee payable for such month based on the number of
calendar days of such month during which this Agreement is effective.
6. EXPENSES AND EXCLUDED EXPENSES. PWM shall pay all its own costs
and expenses incurred in rendering the services required under this Agreement,
including without limitation, the costs of a representative of PWM to attend one
meeting per year of the Board of Directors of the Company. Notwithstanding any
other provision hereof, it is expressly agreed that PWM shall not be responsible
to pay any organizational, operational or business expenses of Berger or the
Company including, without limitation, brokerage commissions and other costs in
connection with the purchase or sale of securities or other investment
instruments with respect to the Portfolio.
7. TERM, RENEWAL AND TERMINATION. This Agreement shall continue in
full force and effect with respect to the Portfolio until two years from the
date hereof, and from year to year thereafter so long as such continuance is
specifically approved at least annually (i) by the vote of a majority of those
directors of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval, and (ii) by the directors of the Company or by vote of
a majority of the outstanding voting securities of the Portfolio voting
separately from any other series of the Company.
With respect to the Portfolio, this Agreement may be terminated at any
time, without penalty, by vote of a majority of the directors of the Company, or
by Berger, on not less than 60 days' written notice to PWM, or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Portfolio, voting
5
<PAGE>
separately from any other series of the Company. This Agreement may be
terminated by PWM at any time, without the payment of any penalty, on 90 days'
written notice to Berger. This Agreement shall automatically terminate in the
event of its assignment (as defined by the 1940 Act). This Agreement will also
terminate in the event that the Subadvisory Agreement by and between Berger and
the Manager is terminated. On the effective date of any termination of this
Agreement or as close to such date as is reasonably possible, PWM shall provide
Berger with a final report for the Portfolio.
8. LIMIT OF LIABILITY; INDEMNIFICATION.
(a) None of PWM, its employees, officers, or directors will be liable
for any error of judgment or mistake of law or for any loss suffered by the
Company, the Manager, the Portfolio, its shareholders, Fortis Benefits Insurance
Company contract owners or First Fortis Life Insurance Company contract owners
in connection with the performance of their duties under this Agreement, except
for loss resulting from willful misfeasance, bad faith or gross negligence on
their part in the performance of their duties or from reckless disregard by them
of their duties under this Agreement.
(b) Berger shall indemnify PWM against all claims which may be made
against PWM in connection with the exercise of the powers and discretion
conferred upon it pursuant to this Agreement, except insofar as such claims are
the result of the willful misfeasance, bad faith or gross negligence of PWM or
any of its employees, officers or directors or its or their material breach of
this Agreement or violation of applicable law. PWM shall indemnify Berger
against all claims resulting from the willful misfeasance, bad faith or gross
negligence of PWM or any of its employees, officers or directors or its or their
material breach of this Agreement or violation of applicable law.
(c) Neither party shall be held responsible for their non-performance
of any of their obligations under this Agreement by reason of any cause beyond
their control, including any breakdown or failure of transmission, communication
or computer facilities, postal or other strikes or similar industrial action and
the failure of any relevant exchange, clearing house and/or broker for any
reason to perform its obligations.
9. ACTIVITIES OF PWM. The investment advisory services provided by
PWM hereunder are not exclusive, and PWM is free to render similar services to
others so long as its services under this Agreement are not materially adversely
affected or otherwise impaired thereby. Nothing in this Agreement shall limit
or restrict the right of any director, officer, or employee of PWM to engage in
any other business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar nature or a
dissimilar nature.
6
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10. INDEPENDENT CONTRACTOR. PWM shall for all purposes hereunder be
deemed to be an independent contractor and shall, unless otherwise provided or
authorized, have no authority to act for or represent Berger, the Manager, the
Portfolio or the Company in any way, nor otherwise be deemed an agent of,
partner or joint venturer with, Berger, the Portfolio or the Company.
11. PERMISSIBLE INTERESTS. It is understood that directors, officers
and shareholders of the Company are or may become interested in PWM as
directors, officers and shareholders of PWM, that directors, officers, employees
and shareholders of PWM are or may become similarly interested in the Company,
and that PWM may become interested in the Company as a shareholder or otherwise.
12. NOTICES. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
certified or registered mail, return receipt requested and postage prepaid:
(a) To Berger at:
Berger Associates, Inc.
210 University Boulevard
Denver, Colorado 80206
Attention: Kevin R. Fay
(b) To PWM at:
Perkins, Wolf, McDonnell & Company
53 W. Jackson Boulevard
Suite 818
Chicago, Illinois 60604
Attention: President
13. AMENDMENTS. This Agreement may be amended by the parties
only in a written instrument signed by the parties to this Agreement and only if
such amendment, if so required, is approved by vote of a majority of the
outstanding voting securities of the Portfolio voting separately from any other
series of the Company.
14. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Colorado (without giving effect to the
conflicts of laws principles thereof) and the 1940 Act. To the extent that the
applicable laws of the State of Colorado conflict with the applicable provisions
of the 1940 Act, the latter shall control.
7
<PAGE>
15. MISCELLANEOUS. This Agreement may be executed in two or
more counterparts, which taken together shall constitute one and the same
instrument. The headings in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions thereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
BERGER ASSOCIATES, INC.
By: /s/ Gerard M. Lavin
------------------------------
Gerard M. Lavin
President
PERKINS, WOLF, MCDONNELL & COMPANY
By: /s/ Robert H. Perkins
------------------------------
Robert H. Perkins
President
8
<PAGE>
EXHIBIT A
(AS AMENDED THROUGH APRIL 2, 1998)
TO THE
OCTOBER 6, 1994
CUSTODY AGREEMENT
BETWEEN
FORTIS SERIES FUND, INC.
AND
FIRST BANK NATIONAL ASSOCIATION
Name of Series Effective Date
- -------------- --------------
Series F - Global Growth Series October 6, 1994
Series J - International Stock Series October 6, 1994
Series K - Global Bond Series October 6, 1994
Series L - Global Asset Allocation Series October 6, 1994
Series O - Blue Chip Stock Series March 27, 1996
Series P - Small Cap Value Series April 2, 1998
Series Q - Mid Cap Stock Series April 2, 1998
Series R - Large Cap Growth Series April 2, 1998
Dated this 2nd day of April, 1998.
FORTIS SERIES FUND, INC. U.S. BANK NATIONAL ASSOCIATION
(Formerly FIRST BANK NATIONAL
ASSOCIATION)
/s/ Tamara L. Fagely /s/ Judy O'Hagan
- ------------------------------ ------------------------------
Tamara L. Fagely Judy O'Hagan
Vice President & Treasurer Assistant Vice President
Attest: Attest:
/s/ Scott R. Plummer /s/ Lynne M. Magel
- ------------------------------ ------------------------------
Scott R. Plummer Lynne M. Magel
Vice President & Assistant Treasurer Assistant Vice President
<PAGE>
[LETTERHEAD]
Fortis Series Fund, Inc.
500 Bielenberg Drive
Woodbury, Minnesota 55125
Ladies and Gentlemen:
We have acted as counsel to Fortis Series Fund, Inc., a Minnesota
corporation (the "Fund"), in connection with a Registration Statement on Form
N-1A (File No. 33-3920) (the "Registration Statement") relating to the sale
by the Fund of an indefinite number of shares of the Fund's Series P, Series
Q and Series R common stock, par value of $.01 per share (the "Shares").
We have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of our
opinions set forth below. In rendering our opinions set forth below, we have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures and the conformity to authentic originals of
all documents submitted to us as copies. We have also assumed the legal
capacity for all purposes relevant hereto of all natural persons and, with
respect to all parties to agreements or instruments relevant hereto other
than the Fund, that such parties had the requisite power and authority
(corporate or otherwise) to execute, deliver and perform such agreements or
instruments, that such agreements or instruments have been duly authorized by
all requisite action (corporate or otherwise), executed and delivered by such
parties and that such agreements or instruments are the valid, binding and
enforceable obligations of such parties. As to questions of fact material to
our opinions, we have relied upon certificates of officers of the Fund and of
public officials. We have also assumed that the Shares will be issued and
sold as described in the Registration Statement.
Based on the foregoing, we are of the opinion that the Shares have
been duly authorized by all requisite corporate action and, upon issuance,
delivery and payment therefore as described in the Registration Statement,
will be validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the laws of the State
of Minnesota.
<PAGE>
Fortis Series Fund, Inc.
April 30, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to our firm under the caption
"Counsel" in the Statement of Additional Information constituting part of the
Registration Statement.
Dated: April 30, 1998
Very truly yours,
/s/ Dorsey & Whitney LLP
MJR
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Fortis Series Fund, Inc.:
We consent to the use of our report dated February 6, 1998 incorporated herein
by reference, our report dated March 25, 1998, included in Part B of the
Registration Statement and the references to our Firm under the headings
"Financial Highlights" in Part A and "Financial Statements" in Part B of the
Registration Statement.
/s/ KPMG Peat Marwick LLP
----------------------------------
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 30, 1998
