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Solid partners, flexible solutions-sm-
FORTIS SERIES FUND PROSPECTUS
Dated May 1, 1999
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY STATEMENT TO THE CONTRARY IS A CRIMINAL OFFENSE.
MAILING ADDRESS:
P.O. Box 64284
St. Paul, Minnesota 55164-0284
STREET ADDRESS:
500 Bielenberg Drive
Woodbury, Minnesota 55125-1400
TELEPHONE: (651) 738-4000
TOLL FREE: (800) 800-2000, extension 3012
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TABLE OF CONTENTS
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PAGE
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The Series
S&P 500 Index Series................................................................................... 1
Shareholder Information
Separate accounts and the contracts.................................................................... 3
Pricing of Series shares............................................................................... 3
Purchase and redemption of Series shares............................................................... 3
Dividends and distributions............................................................................
Taxation............................................................................................... 3
Contract owner inquiries............................................................................... 3
Series Management
Investment adviser..................................................................................... 4
Sub-advisers........................................................................................... 4
More Information on Series Objectives, Investment Strategies and Risks
Objectives............................................................................................. 5
Investment strategies.................................................................................. 5
Principal risks........................................................................................ 5
Financial Highlights..................................................................................... 7
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THE SERIES
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This section briefly describes the objectives, principal investment strategies
and principal risks of S&P 500 Index Series. It also provides you with
information on how the Series has performed. For further information on the
Series, please read the section entitled "More Information on Series Objectives,
Investment Strategies and Risks."
AN INVESTMENT IN THE SERIES IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
S&P 500 INDEX SERIES
OBJECTIVE
The objective of S&P 500 Index Series is to replicate the total return of the
Standard & Poor's 500 Composite Stock Price Index (the "Index").
PRINCIPAL INVESTMENT STRATEGIES
S&P 500 Index Series generally invests at least 95% of its total assets in the
common stocks included in the Index. The Series may also use stock index futures
contracts, options on such contracts and options on stock indices as a
substitute for the sale or purchase of securities.
The Index is an unmanaged index of 500 common stocks chosen to reflect the
industries of the U.S. economy and is often considered a proxy for the stock
market in general. Each stock is weighted by its market capitalization, which
means larger companies have greater representation in the index than smaller
ones.
The Series' sub-adviser, The Dreyfus Corporation, utilizes a passive investment
approach, attempting to duplicate the investment performance of the Index
through statistical procedures. The Series expects to invest in all 500 stocks
in the Index in proportion to their weighting in the Index. To the extent that
the size of the Series does not permit it to invest in all 500 stocks in the
Index, the 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.
Because the Series may not always hold all of the stocks included in the Index,
and because the Series has expenses and the Index does not, the Series will not
duplicate the Index's performance precisely. However, the Series' adviser and
sub-adviser believe there should be a close correlation between the Series
performance and that of the Index 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. If the Series fails to achieve an appropriate level of correlation
over time, the Series' Board of Directors will consider alternative strategies
for the Series.
The Series median market capitalization was $64.5 billion as of March 31, 1999.
"STANDARD & POOR'S-REGISTERED TRADEMARK-," "S&P," "STANDARD & POOR'S 500" AND
"S&P 500-REGISTERED TRADEMARK-" ARE TRADEMARKS OF THE MCGRAW-HILL COMPANIES,
INC., AND HAVE BEEN LICENSED FOR USE BY THE 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.
PRINCIPAL RISKS
S&P 500 Index Series' share price will change daily because of changes in stock
prices and other factors. You may lose money if you invest in the Series. The
principal risks of investing in the Series include:
- RISKS OF COMMON STOCKS. Prices of stocks in the Series' portfolio may
decline over short or extended periods of time. Price changes may occur in
the market as a whole, or they may occur in only a particular company,
industry or sector of the market. In addition, stocks of the companies in
the Index may underperform the market as a whole. As you consider an
investment in the Series, you should take into account your personal
tolerance for daily fluctuations of the stock market.
- RISKS OF LARGE CAP COMPANIES. The Index is made up of large company
stocks. In the long run, stocks of these companies may produce more modest
gains than stocks of smaller companies.
- FAILURE TO MATCH PERFORMANCE OF THE INDEX. The Series' ability to
replicate the performance of the Index may be affected by, among other
things, changes in securities markets, changes in the composition of the
Index, and the timing of purchases and redemptions of Series shares.
- RISKS OF AN INDEXING STRATEGY. The Series uses an indexing strategy. It
does not attempt to manage market volatility, use defensive strategies or
reduce the effects of any long-term periods of poor stock market
performance.
- RISKS OF FUTURES AND OPTIONS. The use of options and futures contracts
exposes the Series to additional risks, such as losses due to unanticipated
market price movements and reduced opportunities for gain.
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SERIES PERFORMANCE
The bar chart and table below provide you with information on S&P 500 Index
Series' volatility and performance. The bar chart shows you how performance of
the Series has varied from year to year. The table compares the Series'
performance over different time periods to that of a broad measure of market
performance. Both the chart and the table assume that all dividends and
distributions have been reinvested. Fees and charges attributable to variable
annuity contracts and variable life insurance policies are not taken into
account in calculating the Series' returns. If they had been, returns would be
lower. Remember, how the Series has performed in the past is not necessarily an
indication of how it will perform in the future.
ANNUAL TOTAL RETURN AS OF DECEMBER 31 EACH YEAR (%)*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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1996 14.29%
1997 32.32%
1998 28.11%
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* The Series' total return for the period from January 1, 1999 through March 31,
1999 was %.
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BEST QUARTER: 21.19% quarter ended December 31, 1998
WORST QUARTER: -9.99% quarter ended September 30, 1998
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AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998
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ONE YEAR SINCE INCEPTION
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S&P 500 Index Series.................... 28.11% 28.12%
S&P 500 Index**......................... 28.58% 28.99%
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* Inception date was May 1, 1996.
** An unmanaged index of 500 common stocks.
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SHAREHOLDER INFORMATION
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SEPARATE ACCOUNTS AND THE CONTRACTS
Shares in the Series are currently sold to separate accounts of Fortis Benefits
Insurance Company ("Fortis Benefits") and First Fortis Life Insurance Company
("First Fortis") which fund benefits under variable life insurance policies and
variable annuity contracts issued by those companies. These variable life
insurance policies and variable annuity contracts are sometimes referred to as
"Contracts." As a Contract owner, you allocate the value of your Contract among
subaccounts of the separate accounts. Each subaccount invests in a different
Series. The rights of the separate accounts as shareholders should be
distinguished from your rights as a Contract owner, which are described in your
variable life insurance policy or variable annuity contract.
PRICING OF SERIES SHARES
The net asset values of the Series' shares are determined as of the primary
closing time of business on the New York Stock Exchange (usually 3 p.m. Central
Time) on each day the exchange is open.
The Series' net asset value per share is determined by dividing the value of the
securities and other assets owned by the Series, less all liabilities, by the
number of the Series' shares outstanding. The securities owned by the Series are
generally valued at market value. However, there are times when market values
are not readily available. In these cases, securities are valued at fair value
as determined in good faith by the Series' adviser under supervision of the
Board of Directors.
PURCHASE AND REDEMPTION OF SERIES SHARES
Series shares are offered only to the separate accounts. On each day when the
Series value its assets, shares of the Series may be purchased or redeemed by
the separate accounts based upon, among other things, the amounts of net
premiums allocated to the separate accounts, 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. These
purchases and redemptions for the separate accounts are effected at the net
asset value per share for the Series determined as of that same date.
TAXATION
So long as the Series qualifies as a regulated investment company and meets
certain diversification tests applicable to the segregated asset accounts
underlying variable annuity contracts and variable life insurance policies, you
will not be considered to be an owner of shares of the Series, and income earned
with respect to the Contracts will not be taxed to you.
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.
CONTRACT OWNER INQUIRIES
For further information, please 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. If you are a New York Contract owner, please contact First Fortis'
office: P.O. Box 3209, Syracuse, New York 13220.
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SERIES MANAGEMENT
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INVESTMENT ADVISER
Fortis Advisers, Inc. ("Advisers") is the investment adviser for the Series, and
also serves as the Series' transfer agent and dividend agent. Advisers has been
managing investment company portfolios since 1949. In addition to providing
investment advice, Advisers is responsible for the management of the Series'
business affairs, subject to the overall authority of the Board of Directors.
Advisers' address is 500 Bielenberg Drive, Woodbury, Minnesota 55125-1400.
The Series pays Advisers a monthly fee for providing investment advisory
services. Advisers has entered into an investment sub-advisory agreement on
behalf of S&P 500 Index Series. For their services, the sub-adviser is paid a
fee by Advisers. During their most recent fiscal year, the Series paid the
following investment advisory fee to Advisers:
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ADVISORY FEE
AS A PERCENTAGE OF
AVERAGE DAILY NET ASSETS
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S&P 500 Index Series...................... .40%
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SUB-ADVISERS
S&P 500 Index Series has a sub-adviser. The sub-adviser provides investment
research, advice and supervision and furnishes and conducts the management
investment programs for the Series, subject to the general control of Advisers
and the Series' Board of Directors. The sub-adviser of the Series is also
responsible for the selection of brokers and dealers to effect securities
transactions and the negotiation of brokerage commissions, if any.
S&P 500 INDEX SERIES. The Dreyfus Corporation ("Dreyfus"), 200 Park Avenue, New
York, New York 10166, is the sub-adviser to the S&P 500 Index Series. Dreyfus
was formed in 1947. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As of
December 31, 1998, Dreyfus managed or administered approximately $117 billion in
assets for approximately 1.7 million investor accounts nationwide. Through its
subsidiaries, including Dreyfus, Mellon managed more than $389 billion in assets
as of December 31, 1998, including approximately $141 billion in proprietary
mutual fund assets. As of December 31, 1998, Mellon, through various
subsidiaries, provided non-investment services, such as custodial or
administration services, for more than $1.9 trillion in assets, including
approximately $62 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.
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MORE INFORMATION ON SERIES OBJECTIVES, INVESTMENT STRATEGIES AND RISKS
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OBJECTIVES
The Series' objectives, which are described above under "The Series," may be
changed without shareholder approval.
INVESTMENT STRATEGIES
The principal investment strategies of the Series are described above under "The
Series." These are the strategies that Advisers and the respective sub-adviser
believes are most likely to be important in trying to achieve the Series'
objective. Of course, there is no guarantee that the Series will achieve its
objectives. You should be aware that a Series may also use strategies and invest
in securities that are not described below, but are described in the Statement
of Additional Information.
SECURITIES LENDING
To generate additional income, S&P 500 Index Series lends its portfolio
securities.
TEMPORARY DEFENSIVE MEASURES
S&P 500 Index Series does not intend to take temporary defensive positions that
are inconsistent with its principal investment strategies.
PORTFOLIO TURNOVER
Before investing in the Series you should review its portfolio turnover rate for
an indication of the potential effect of transaction costs on the Series' future
returns. In general, the greater the volume of buying and selling by the Series,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. The "Financial Highlights" section of this Prospectus
shows the Series' historical portfolio turnover rate.
PRINCIPAL RISKS
The principal risks of investing in the Series are summarized above under "The
Series." More information about Series risks is presented below. Please
remember, you may lose money if you invest in a Series.
- RISKS OF COMMON STOCKS. Because of its investment in common stocks, S&P
500 Index Series is subject to the following risks:
MARKET RISK. All stocks are subject to price movements due to changes in
general economic conditions, changes in the level of prevailing interest
rates, changes in investor perceptions of the market, or the outlook for
overall corporate profitability.
COMPANY RISK. Individual stocks can perform differently than the overall
market. This may be a result of specific factors such as changes in
corporate profitability due to the success or failure of specific
products or management strategies, or it may be due to changes in
investor perceptions regarding a company.
FACTOR RISK. The stocks of companies within specific industries or
sectors of the economy can periodically perform differently than the
overall market. This can be due to changes in such things as the
regulatory or competitive environment or to changes in investor
perceptions of a particular industry or sector.
- RISKS OF LARGE CAP COMPANIES. S&P 500 Index Series invests in stocks of
large-capitalization companies. Large company stocks historically have
tended to be less volatile than stocks of smaller companies. In the long
run, however, large company stocks may produce more modest gains than stocks
of smaller companies as a trade-off for this potentially lower risk.
- RISKS OF FORWARD CURRENCY EXCHANGE CONTRACTS, FUTURES AND OPTIONS
TRANSACTIONS. S&P 500 Index Series may engage in forward currency exchange
contracts and/or futures and options transactions as a principal investment
strategy. The use of these derivative instruments exposes the Series to
additional investment risks and transaction costs. Risks inherent in the use
of derivative instruments include:
the risk that interest rates, securities prices or currency markets will
not move in the direction that Advisers or a Series' sub-adviser
anticipates;
an imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies
being hedged;
the inability to close out certain hedged positions to avoid adverse tax
consequences;
the possible absence of a liquid secondary market for any particular
instrument and possible exchange-imposed price fluctuation limits,
either of which may make it difficult or impossible to close out a
position when desired;
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leverage risk, which is the risk that adverse price movements in an
instrument can result in a loss substantially greater than the Series'
initial investment in that instrument; and
particularly in the case of privately negotiated instruments, the risk
that the counterparty will fail to perform its obligations, which could
leave the Series worse off than if it had not entered into the position.
If the Series uses derivative instruments and if Advisers' or the Series'
sub-adviser's judgment proves incorrect, the Series' performance could be
worse than if it had not used these instruments.
- RISKS OF SECURITIES LENDING. S&P 500 Index Series may lend its portfolio
securities. The Series may lend up to 33 1/3% of the value of its total
assets. When the Series loans its portfolio securities, it will receive cash
collateral equal to at least 100% of the value of the loaned securities.
Nevertheless, the Series risks a delay in the recovery of the loaned
securities, or even the loss of rights in the collateral deposited by the
borrower if the borrower should fail financially. In addition, the Series
invests the cash collateral in high grade money market securities, which are
subject to credit risk.
- INFLATION RISK. Even if the principal value of your investment in the
Series, or your income from that investment, remains constant or increases,
its real value may be less in the future because of inflation. Thus, as
inflation occurs, the purchasing power of your Series shares and
distributions may decline, even if its value in dollars increases.
- YEAR 2000 ISSUES. Like other mutual funds and financial and business
organizations around the world, the Series could be adversely affected if
the computer systems used by the Series, Advisers, the Series' sub-advisers
and other service providers and entities with computer systems that are
linked to the Series' records do not properly process and calculate
date-related information and data from and after January 1, 2000. The
Series, Advisers and its affiliates are taking steps that they believe are
reasonably designed to address year 2000 issues with respect to the computer
systems they use and to obtain satisfactory assurances that comparable steps
are being taken by each of the Series' sub-advisers and other major service
providers. However, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Series. In addition, the
prices of securities in which the Series invest could be adversely affected
by year 2000 problems experienced by the issuers of those securities. Year
2000 difficulties may be more pronounced in foreign markets, and
particularly in emerging markets.
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FINANCIAL HIGHLIGHTS
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The tables that follow present performance information about the shares of the
Series. This information is intended to help you understand the Series'
financial performance for the past five years or, if shorter, the period of the
Series' operations. Some of this information reflects financial results for a
single Series share. The total returns in the tables represent the rate that you
would have earned or lost on an investment in the Series, assuming you
reinvested all of your dividends and distributions.
This information has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report, along with the Series' financial statements, is included
in the Series' annual report, which is available upon request.
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YEAR ENDED DECEMBER 31,
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S&P 500 INDEX SERIES 1998 1997 1996+
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Net asset value, beginning of year...... $14.93 $11.47 $10.09
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Operations:
Investment income - net............... .16 .12 .10
Net realized and unrealized gain on
investments.......................... 4.03 3.58 1.37
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Total from operations................... 4.19 3.70 1.47
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Distributions to shareholders:
From investment income - net.......... (.16) (.12) (.09)
From net realized gains............... (.13) (.12) --
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Total distributions to shareholders..... (.29) (.24) (.09)
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Net asset value, end of year............ $18.83 $14.93 $11.47
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Total return@........................... 28.11% 32.32% 14.29%
Net assets end of year (000s omitted)... $ 252,832 $ 109,572 $ 21,979
Ratio of expenses to average daily net
assets................................. .46% .51% .79%*
Ratio of net investment income to
average daily net assets............... 1.17% 1.41% 1.47%*
Portfolio turnover rate................. 3% 5% 6%
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* Annualized.
+ 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. Supplementary 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.
@ These are the Series' total returns during the period, including reinvestment
of all dividend and capital gains distributions.
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FORTIS-sm-
FORTIS FINANCIAL GROUP
P.O. Box 64284
St. Paul, Minnesota 55164-0284
PROSPECTUS
DATED MAY 1, 1999
- - SERIES FUND
SEC file numbers: 811-04615
[LOGO]
FORTIS FINANCIAL GROUP
Fortis Advisers, Inc. (fund management since 1949)
Fortis Investors, Inc. (principal underwriter; member NASD, SIPC)
Fortis Benefits Insurance Company & Fortis Insurance Company
(issuers of FFG's insurance products)
P.O. Box 64284 - St. Paul, MN 55164-0284 - (800) 800-2000
http://www.ffg.us.fortis.com
This prospectus is intended for use in connection with variable life
insurance policies and variable annuity contracts issued by Fortis Benefits
and First Fortis.
More information about the Series is available in the Series' Statement of
Additional Information (SAI) and annual and semiannual reports.
- - STATEMENT OF ADDITIONAL INFORMATION. The SAI provides more details
about the Series and their policies. A current SAI is on file with the
Securities and Exchange Commission (SEC) and is incorporated into this
Prospectus by reference, which means that it is legally considered part of
this Prospectus.
- - ANNUAL AND SEMIANNUAL REPORTS. Additional information about Series'
investments is available in the Series' annual and semiannual reports to
shareholders. In the Series' annual report, you will find a discussion of
the market conditions and investment strategies that significantly affected
the Series' performance during their last fiscal year.
You can obtain a free copy of the Series' SAI and/or free copies of the
Series' most recent annual or semiannual reports by calling (800) 800-2000,
extension 3012. The material you request will be sent by first-class mail, or
other means designed to ensure equally prompt delivery, within three business
days of receipt of request.
You can also obtain copies by visiting the SEC's public reference room in
Washington DC, or by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington DC 20549-6009. For more information,
call (800) SEC-0330.
Information about the Series is available on the Internet. Text-only versions
of the Series documents can be viewed online or downloaded from the SEC's
Internet site at http://www.sec.gov.
The Fortis logo and Fortis-sm- are servicemarks of Fortis AMEV and Fortis AG.
