Fortis Worldwide Portfolios, Inc.
October 10, 2000
Supplement to the Fortis Worldwide Portfolios, Inc.
Statement of Additional Information dated March 1, 2000
____________________________________________________________
____________
The following information replaces all of the information on
page 11 under the section entitled "Options."
Options
Generally. To reduce fluctuations in net asset value or
to increase current income, each Fund may:
* sell (write) covered call and secured put options; and
* purchase call and put options
on securities that are traded on United States and foreign
securities exchanges and in the over-the-counter markets.
The Funds may write and buy options on the same types of
securities that the Funds may purchase directly.
As a nonfundamental investment policy, each Fund will
limit its investments in options so that:
* the amount of premiums paid for all options, initial
margin deposits on all futures contracts and/or options
on futures contracts, and collateral deposited with
respect to forward contracts held by or entered into by
the Fund will not exceed 5% of the value of the total
assets of the Fund; and
* the Fund's 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
Fund.
Additional information about options is contained in
Appendix A.
Use of Options. Put and call options may be used for a
variety of purposes:
* To Hedge. Options can be used to hedge against
loss. For example, if a portfolio manager wishes to
hedge a security that the manager owns against a decline
in price, the manager may purchase a put option on the
underlying security, i.e., purchase the right to sell the
security to a third party at a stated price. If the
underlying security then declines in price, the manager
can exercise the put option, thus limiting the amount of
the manager's loss resulting from the decline in price.
Similarly, if the manager intends to purchase a security
at some date in the future, the manager may purchase a
call option on the security today in order to hedge
against an increase in its price before the intended
purchase date. The premium paid for a put or call option
plus any transaction costs will reduce the benefit, if
any, realized by a Fund upon exercise or liquidation of
the option, and, unless the price of the underlying
security changes sufficiently, the option may expire
without value to the Fund.
* To Speculate. Options also can be used for speculative
purposes. For example, if a portfolio manager believes
that the price of stocks generally is going to rise,
the manager may purchase a call option on a stock
index, the components of which are unrelated to the
stocks the manager holds in a Fund or intends to
purchase. If the stock index appreciates sufficiently,
the Fund will realize a gain. If the stock index
falls, the Fund will lose the premium paid for the
option plus related transaction costs.
* To Produce Gain. Finally, a portfolio manager may
write covered call options or secured put options to
realize additional gain. If the options expire
unexercised, the manager produces a gain by the amount
of the price (premium) received for selling the option
minus related transaction costs.
Writing Call Options. When a Fund sells (writes) a call
option, it gives a third party the right to purchase a
security from the Fund at the exercise price for a stated
period or on a stated date. A call option written by a Fund
is "covered" if the Fund:
* 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 segregated from assets
available for investment) upon conversion or exchange
of other securities held in its portfolio; or
* holds a call on the same security having the same
principal amount as the call written and the exercise
price of the call held (i) is equal to or less than the
exercise price of the call written or (ii) is greater
than the exercise price of the call written if the
difference is maintained by the Fund in cash and other
liquid assets segregated from assets available for
investment.
By writing covered call options, a Fund might lose the
potential for gain on the underlying security if the option
is exercised. However, Advisers believes that this
technique is a relatively low-risk way to enhance a Fund's
return. The Funds will not write "uncovered" call options.
Writing Put Options. When a Fund sells (writes) a put
option, it gives a third party the right to sell a security
to the Fund at the exercise price for a stated period or on
a stated date. A put option written by a Fund is "secured"
if the Fund:
* segregates cash not available for investment or other
liquid assets with a value equal to the exercise price
of the put; or
* holds a put on the same security having the same
principal amount as the put written and the exercise
price of the put held is (a) equal to or greater than
the exercise price of the put written or (b) less than
the exercise price of the put written if the difference
is maintained by the Fund in cash and other liquid
assets segregated from assets available for investment.
By writing a put option, a Fund might become obligated to
purchase the underlying security for more than its current
market price upon exercise of the option. The Funds will
not write "unsecured" put options.
Buying Call Options. As a holder of a call option, a
Fund has the option to buy the underlying security from the
option writer at the exercise price at any time during the
option period or on a stated date. If a Fund buys a call
option, any loss will be limited to the premium paid for the
call option and related transaction costs. A Fund may
exercise the call option, permit it to expire, or sell it.
By selling the call option, the Fund eliminates its
position.
A Fund may buy call options on securities that it
intends to purchase to limit the risk of a substantial
increase in the market price of the security. A Fund may
also buy call options on securities held in its portfolio
and on which it has written call options. Prior to its
expiration, a call option may be sold which eliminates the
Fund's position. Profit or loss from such a sale will depend
on whether the amount received is more or less than the
premium paid for the call option plus the related
transaction costs.
Buying Put Options. As the holder of a put option, a
Fund has the option to sell the underlying security at the
exercise price at any time during the option period or on a
stated date. If a Fund buys a put option, any loss will be
limited to the premium paid for the put option and related
transaction costs. A Fund may exercise the put option,
permit it to expire, or sell it. By selling the put option,
the Fund eliminates its position.
A Fund may buy a put option on an underlying security
owned by the Fund (a "protective put") as a hedging
technique to protect against an anticipated decline in the
value of the security. This hedge protection is provided
only during the life of the put option when the Fund, as the
holder of the put option, is able to sell the underlying
security at the put exercise price, regardless of any
decline in the underlying security's market price. For
example, a put option may be purchased in order to protect
unrealized appreciation of a security when the manager deems
it desirable to continue to hold the security due to tax
considerations. The premium paid for the put option and
related transaction costs would reduce any gain realized
when the underlying security is eventually sold.
A Fund may also buy put options at a time when the Fund
does not own the underlying security. By buying put
options on a security it does not own, the Fund seeks to
benefit from a decline in the market price of the
underlying security. If the put option is not sold when it
has remaining value, and if the market price of the
underlying security remains equal to or greater than the
exercise price during the life of the put option, the Fund
will lose some or all of the premium it paid to purchase the
put option. For the purchase of a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs.
Options on stock indices. Each Fund may:
* sell (write) covered call options and secured put
options on stock indices; and
* purchase call and put options on stock indices.
In contrast to an option on a security, an option on a
stock index provides the holder with the option to receive a
cash settlement upon exercise of the option, rather than the
right to purchase or sell a security. The amount of the
cash settlement is generally equal to:
* the difference between the closing price of the index
and the exercise price of the option, multiplied by
* a fixed "index multiplier".
Thus, unlike stock options, all settlements are in cash,
and gain or loss depends on price movements in the stock
market generally (or in a particular industry or segment of
the market) rather than price movements in an individual
stock.
Covered Call Options on Market Indices. A call option
written on a stock index is "covered" if the Fund:
* holds a diversified portfolio of securities similar to
those on which the underlying index is based. However,
a Fund cannot, as a practical matter, acquire and hold
a portfolio containing exactly the same securities that
underlie the index and, as a result, bears a risk that
the value of the securities held will not be perfectly
correlated with the value of the index; or
* holds a call on the same index and in the same
principal amount as the call written where the exercise
price of the call held is (a) equal to or less than the
exercise price of the call written or (b) greater than
the exercise price of the call written if the
difference is maintained by the Fund in cash and other
liquid assets segregated from assets available for
investment.
The Funds will not write "uncovered" call options on market
indices.
Secured Put Options on Market Indices. A Fund may also
"secure" put options on stock indices by:
* holding a put on the same index and in the same
principal amount as the put written where the exercise
price of the put held is (a) equal to or greater than
the exercise price of the put written or (b) less than
the exercise price of the put written if the difference
is maintained by the Fund in cash and other liquid
assets segregated from assets available for investment;
or
* segregates cash or other liquid assets in an amount
equal to the exercise price of the option from assets
available for investment.
The Funds will not write "unsecured" put options on market
indices.
The following information replaces all of the information on
pages 42 and 43 under the sections entitled "Options on
Securities" and "Options on Stock Indices."
Options on Securities
An option on a security provides the purchaser
("holder") with the option to purchase, in the case of a
"call" option, or sell, in the case of a "put" option, the
security or securities underlying the option, for a fixed
exercise price up to a stated expiration date or, in the
case of certain options, on such date. The holder pays a non-
refundable purchase price for the option, known as the
"premium." The maximum amount of risk the purchaser of the
option assumes is equal to the premium plus related
transaction costs, although this entire amount may be lost.
The risk of the seller, or "writer," however, is potentially
unlimited, unless the option is "covered" or "secured."
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 that 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 indices 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 Commission. 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 indices 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
indices 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 Indices
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
purchaser of the option receives this cash settlement amount
if the closing level of the 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 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 index underlying an index option 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 on
narrower market indices, such as the Standard & Poor's 100
Index, or on indices of securities of particular industry
groups, such as those of oil and gas or technology
companies. An index assigns relative values to the
securities included in the index and the index fluctuates
with changes in the market values of the securities so
included.
FORTIS GLOBAL GROWTH PORTFOLIO
FORTIS INTERNATIONAL EQUITY PORTFOLIO
each a series of Fortis Worldwide Portfolios, Inc.
STATEMENT OF ADDITIONAL INFORMATION
Dated March 1, 2000
As supplemented, October 10, 2000
This Statement of Additional Information is NOT a
prospectus. This Statement of Additional Information
relates to a prospectus for Fortis Worldwide Portfolios
dated March 1, 2000 and should be read in conjunction
therewith. Global Growth Portfolio ("Global Fund") and
International Equity Portfolio ("International Fund") are
collectively referred to as the "Funds." The financial
statements included as a part of the Funds' Annual Report to
Shareholders for the fiscal year ended October 31, 1999 are
incorporated by reference to this Statement of Additional
Information. Copies of the Fund's Prospectus and/or Annual
Report are available, without charge, by writing or calling
Fortis Investors, Inc. ("Investors") at P.O. Box 64284, St.
Paul, Minnesota 55164. Telephone: (651) 738-4000. Toll Free
(800) 800-2000.
TABLE OF CONTENTS
Page
Fund History
3
Description of the Funds
3
Investment Strategies and Risk Considerations
3
Investment Restrictions
16
Management of the Funds
18
Principal Holders of Securities
23
Investment Advisory and Other Services
23
Brokerage Allocation and Other Practices
26
Capital Stock
28
Pricing of Shares
29
Purchase of Shares
30
Redemption of Shares
33
Taxation 34
Underwriter and Distribution of Shares
36
Performance Information
36
Financial Statements
39
Other Service Providers
39
Limitation of Director Liability
39
Additional Information
39
Appendix A
Corporate Bond, Preferred Stock and Commercial Paper Ratings
41
Appendix B
Description of Futures, Options and Forward Contracts
45
FUND HISTORY
Global Fund and International Fund are portfolios of Fortis
Worldwide Portfolios, Inc. ("Fortis Worldwide") which was
incorporated in Minnesota in 1991. Global Fund commenced
operations on July 8, 1991 and International Fund commenced
operations on March 1, 1998.
DESCRIPTION OF THE FUNDS
Fortis Worldwide is registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of
1940 (the "1940 Act") as an open-end management investment
company. Fortis Worldwide currently has two investment
portfolios. Each Fund is an open-end investment company, which
means that a Fund generally must redeem an investor's shares upon
request. Although each Fund originally registered as a non-
diversified fund as defined under the 1940 Act, the Funds have in
fact been operated as diversified funds and will continue to be
operated in that manner. Neither Fund will operate as a non-
diversified fund without first obtaining shareholder approval.
The 1940 Act requires that at least 75% of a diversified fund's
assets be represented by cash and cash items (including
receivables), U.S. Government securities, securities of other
investment companies, and other securities for the purpose of this
calculation limited in respect of any one issuer to an amount not
greater in value than 5% of the value of the total assets of the
fund and to not more than 10% of the outstanding voting securities
of such issuer.
Fortis Worldwide may establish other portfolios, each
corresponding to a distinct investment portfolio and a distinct
series of its common stock.
INVESTMENT STRATEGIES AND RISK CONSIDERATIONS
This section of the Statement of Additional Information
contains more information on the types of securities in which the
Funds may invest and the investment strategies that the Funds may
use, including securities and strategies not discussed in the
Prospectus. Unless otherwise noted, investment strategies used by
the Funds may be changed without the approval of shareholders.
Investing In Foreign Securities
In certain countries, governmental restrictions and other
limitations on investment may affect the maximum percentage of
equity ownership in any one company by a Fund. 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. The Funds'
investment adviser, Fortis Advisers, Inc. ("Advisers"), is not
aware at this time of the existence of any investment or exchange
control regulations which might substantially impair the
operations of the Funds. Although restrictions may in the future
make it undesirable to invest in certain countries, Advisers does
not believe that any current repatriation restrictions would
affect its decisions to invest in the countries eligible for
investment by the Funds. It should be noted, however, that this
situation could change at any time. The Funds have no present
intention of making any significant investment in any country or
stock market where the political or economic situation in the
opinion of Advisers, cause such investment to be at risk of
substantial or total loss.
Political And Economic Risks. 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, a Fund
could lose its entire investment in any such country. Individual
foreign economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross national product,
rate of inflation, rate of savings and capital reinvestment,
resource self-sufficiency and balance of payments positions. It
is anticipated that substantially all of the foreign equities
purchased by the Funds will be listed on foreign exchanges.
Trading volume on foreign and emerging market stock exchanges is
substantially less than that on the New York Stock Exchange.
Foreign stock exchanges also have further risks due to permanent
or temporary termination of trading and greater spreads between
bid and asked prices for securities in such markets. In addition,
there is generally less government supervision and regulation of
foreign stock exchanges. Furthermore, stock markets in emerging
markets, such as nations in the Far East, while offering
opportunities for substantial returns, can be more volatile during
periods of investment uncertainty than established major
exchanges. Shares of the Funds, therefore, are subject to greater
fluctuation in value than shares of a conservative equity fund or
of a fund which invests entirely in more established markets. The
Funds may incur additional costs because of generally higher
foreign brokerage commissions and the additional custodial costs
associated with maintaining securities.
Foreign Investment Restrictions. Certain countries prohibit
or impose substantial restrictions on investments in their capital
markets, particularly their equity markets, by foreign entities
such as the Funds. 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 Fund 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.
Nonuniform Corporate Disclosure Standards and Governmental
Regulation. 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 Funds 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 Funds 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 Funds 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.
Currency Fluctuations. Because each Fund under normal
circumstances will 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 each
Fund's 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 each Fund's holdings of securities
denominated in such currency and, therefore, will cause an overall
decline in each Fund's net asset value and any net investment
income and capital gains to be distributed in U.S. dollars to
shareholders of such Fund.
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 each Fund values its assets daily in terms of U.S.
dollars, the Funds do not intend to convert their holdings of
foreign currencies into U.S. dollars on a daily basis. The Funds
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 a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to sell
that currency to the dealer.
Adverse Market Characteristics. 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 a Fund are not
invested and no return is earned thereon. The inability of a Fund
to make intended security purchases due to settlement problems
could cause the Fund to miss attractive opportunities. Inability
to dispose of a portfolio security due to settlement problems
either could result in losses to a Fund due to subsequent declines
in value of the portfolio security or, if the Fund has entered
into a contract to sell the security, could result in possible
liability to the purchaser. Advisers will consider such
difficulties when determining the allocation of a Fund's assets,
although Advisers does not believe that such difficulties will
have a material adverse effect on the Funds trading activities.
Non-U.S. Withholding Taxes. Each Fund's net investment
income from foreign issuers may be subject to non-U.S. withholding
taxes, thereby reducing the Fund's net investment income.
Emerging Markets. Global Fund may invest up to 45% of its
total assets and International Fund may invest without limit in
equity securities in emerging markets. The risks of foreign
investing are of greater concern in the case of investments in
emerging markets, which may exhibit greater price volatility and
have less liquidity. Further, the economies of emerging market
countries generally are heavily dependent upon international trade
and, accordingly, have been and may continue to be adversely
affected by trade barriers, managed adjustments in relative
currency values, and other protectionist measures imposed or
negotiated by the countries with which they trade. These emerging
market economies have also been and may continue to be adversely
affected by economic conditions in the countries with which they
trade.
As used in the Prospectus and this Statement of Additional
Information, emerging markets are countries categorized as
emerging markets by the International Finance Corporation, the
World Bank's private sector division. Such countries may be
located in various regions of the world, such as the Far East,
Asia, Central Europe and Latin America, and may include but are
not limited to Indonesia, Malaysia, China, India, Mexico,
Argentina, Chile, Brazil, Peru, Hungary, Poland and the Czech
Republic. 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.
Debt Obligations
The debt obligations in which each Fund may invest include a
variety of government bonds and corporate debt obligations.
Government bonds which the Funds may purchase include debt
obligations issued or guaranteed by the United States or foreign
governments (including foreign states, provinces or
municipalities) or their agencies, authorities or
instrumentalities and also may include debt obligations issued by
supranational entities, which entities are organized or supported
by several national governments, such as the World Bank and the
Asian Development Bank. Other debt obligations held by the Funds
may include corporate bonds of U.S. and non-U.S. issuers and debt
obligations convertible into equity securities or having attached
warrants or rights to purchase equity securities.
Risk of Investing in Debt Obligations
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 Funds may 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 generally increases. Thus shareholders
bear the risk that increase in market interest rate will cause the
value of a Fund's investments to decline.
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 Funds may invest in debt securities, they are subject
to credit risk.
Call Risk. Many corporate bonds may be redeemed ("called")
at the option of the issuer 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 refinancing may take place.
High Yield/High Risk Securities
International Fund may invest up to 25% of its total assets
in securities rated lower than investment grade, commonly known as
"high yield" or "junk bonds". The prices of high-yielding
securities have been found to be less sensitive to changes in
prevailing interest rates than higher-rated investments, but are
likely to be more sensitive to adverse economic changes or
individual corporate 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 their projected business goals or to
obtain additional financing. If the issuer of a fixed-income
security owned by International Fund were to default, the Fund
might incur additional expenses to seek recovery. The risk of
loss due to default by issuers of high-yielding securities is
significantly greater than that associated with higher-rated
securities because such securities generally are unsecured and
frequently are subordinated to the prior payment of senior
indebtedness. In addition, periods of economic uncertainty and
change can be expected to result in an increased volatility of
market prices of high-yielding securities and a corresponding
volatility in the net asset value of shares of the Fund.
High-yielding securities frequently have call or redemption
features that would permit an issuer to repurchase the security
from the Fund. If a call were exercised by the issuer during a
period of declining interest rates, the Fund likely would have to
replace such called security with a lower yielding security, thus
decreasing the net investment income to the Fund and dividends to
shareholders.
The secondary market for high-yielding securities is less
liquid than the markets for higher-quality securities and, as
such, may have an adverse effect on the market prices of certain
securities. The limited liquidity of the market may also
adversely affect the ability of the Fund's Board of Directors to
arrive at a fair value for certain high yield securities at
certain times and could make it difficult for the Fund to sell
certain securities.
There is no lower limit with respect to rating categories for
securities in which International Fund may invest. Securities
rated D by Standard & Poor's Ratings Services (Standard & Poor's")
are in the lowest rating class, which indicates that payments are
in default or that a bankruptcy petition has been filed with
respect to the issuer. The lowest rated class of bonds for
Moody's Investors Service, Inc. ("Moody's") is rated C. Issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Moody's and Standard &
Poor's ratings are discussed in Appendix A.
Zero Coupon Obligations
The Funds 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. The
Funds may invest in either type of zero coupon obligation. The
investment policies and restrictions applicable to corporate and
government securities in a Fund shall apply equally to the Fund's
investments in zero coupon securities (including, for example,
minimum corporate bond ratings).
Variable Amount Master Demand Notes
The Funds may invest in variable amount master demand notes.
Variable amount master demand notes allow the investment of
fluctuating amounts by a Fund at varying market rates of interest
pursuant to arrangements between the Fund and a financial
institution which has lent money to a 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 amount 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 a Fund has a "same day withdrawal
option," i.e., where it has the unconditional right to demand and
receive payment in full of the principal amount then outstanding
together with interest to the date of payment.
Money Market Investments
Under a temporary defensive strategy, pending investment of
proceeds from new sales of Fund shares, or to meet ordinary daily
cash needs, each Fund 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. Money market instruments in which the Funds may
invest include, but are not limited to, the following instruments
of U.S. or foreign issuers: government securities, commercial
paper, bank certificates of deposit, bankers' acceptances and
repurchase agreements relating to any of the foregoing. For
temporary defensive reasons, such as during times of international
political or economic uncertainty, most or all of a Fund's
investments may be made in the United States and denominated in
U.S. dollars.
Commercial Bank Obligations
For the purposes of the Fund's investment policies with
respect to bank obligations, obligations of foreign branches of
U.S. banks and of foreign banks may be obligations of the parent
bank in addition to the issuing bank, or may be limited by the
terms of a specific obligation and by government regulation. As
with investment in non-U.S. securities in general, investments in
the obligations of foreign branches of U.S. banks and of foreign
banks may subject the Funds to investment risks that are different
in some respects from those of investments in obligations of
domestic issuers. Although the Funds will typically acquire
obligations issued and supported by the credit of U.S. or foreign
banks having total assets at the time of purchase in excess of $1
billion, this $1 billion figure is not a fundamental investment
policy or restriction of the Funds. For the purposes of
calculation with respect to the $1 billion figure, the assets of a
bank will be deemed to include the assets of its U.S. and non-U.S.
branches.
Depository Receipts
Each Fund may hold equity securities of foreign issuers in
the form of American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs," which are sometimes referred to as
Continental Depository Receipts or "CDRs") or other securities
convertible into securities of eligible foreign issuers. These
securities may not necessarily be denominated in the same currency
as the securities for which they may be exchanged. ADRs are
receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by a
foreign corporation. EDRs are receipts issued in Europe typically
by foreign banks and trust companies that evidence ownership of
either foreign or domestic securities. Generally, ADRs in
registered form are designed for use in the U.S. securities
markets and EDRs in bearer form are designed for use in European
securities markets. For purposes of each Fund's investment
policies, a Fund's investments in ADRs and EDRs will be deemed to
be investments in the equity securities of the foreign issuers
into which the ADRs and EDRs may be converted.
Investment Company Securities
Each Fund may purchase shares of investment companies that
invest principally in securities in which the Funds are authorized
to invest. The purchase of investment company stock currently is
one of the few mechanisms through which the Funds may invest in
securities of companies located in certain foreign countries. A
Fund's investments in shares of investment companies may include
investments in S&P 500 Depository Receipts ("SPDRS") and World
Equity Benchmark Shares ("WEBS"). SPDRS are shares of ownership
of a unit investment trust (a type of investment company) that
holds all 500 stocks included in the Standard & Poor's 500 Index.
WEBS are country-specific series of securities, where each series
seeks to provide investment results that generally correspond to
the market yield performance of a specific Morgan Stanley Capital
International country index by investing in a portfolio of that
country's equity securities. Under the 1940 Act, a Fund may not
invest more than 10% of its total assets in investment companies
or more than 5% of its total assets in the securities of any one
investment company, nor may it own more than 3% of the outstanding
voting securities of any such company. A Fund will incur
additional expenses due to the duplication of expenses as a result
of investing in other investment companies.
Restricted and Illiquid Securities
Each Fund may invest up to 15% of its net assets in illiquid
securities, including "restricted" securities. Global Fund is
subject to the additional restriction that it may invest no more
than 10% of its total assets in securities the disposition of
which may be subject to legal or contractual restrictions. For
this purpose illiquid securities include, among others, (i)
securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale,
(ii) options purchased over-the-counter and the cover for options
written over-the-counter, and (iii) repurchase agreements not
terminable within seven days. Commercial paper issued pursuant to
the private placement exemption of Section 4(2) of the Securities
Act of 1933 (the "1933 Act") and securities that are eligible for
resale under Rule 144A under the 1933 Act that have legal or
contractual restrictions on resale but have a readily available
market are not deemed illiquid securities for this purpose. A
restricted security is one which was originally sold in a private
placement and was not registered with the Commission under the
Securities Act of 1933 (the "1933 Act") and which is not free to
be resold unless it is registered with the Commission or its sale
is exempt from registration
The staff of the Securities and Exchange Commission has taken
the position that the liquidity of securities in the portfolio of
a fund offering redeemable securities is a question of fact for a
board of directors of such a fund to determine, based upon a
consideration by such board of the readily available trading
markets and a review of any contractual restrictions. The SEC
staff also acknowledges that, while such a board retains ultimate
responsibility, it may delegate this function to the fund's
investment adviser. Securities that have been determined to be
liquid by the Board of Directors of Fortis Worldwide or by
Advisers subject to the oversight of the Board of Directors, will
not be subject to this limitation.
The Board of Directors has adopted procedures to determine
the liquidity of certain securities, including commercial paper
issued pursuant to the private placement exemption of Section 4(2)
of the 1933 Act and securities that are eligible for resale to
qualified institutional buyers pursuant to Rule 144A under the
1933 Act. Under these procedures, factors taken into account in
determining the liquidity of a security include (a) the frequency
of trades and quotes for the security, (b) the number of dealers
willing to purchase or sell the security and the number of other
potential purchasers, (c) dealer undertakings to make a market in
the security, and (d) the nature of the security and the nature of
the marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of
transfer). Securities which may be determined to be liquid under
such procedures include commercial paper issued pursuant to the
private placement exemption of Section 4(2) of the 1933 Act and
securities that are eligible for resale under Rule 144A under the
1933 Act that have legal or contractual restrictions on resale but
have a readily available market.
Section 4(2) commercial paper or a Rule 144A security that
when purchased enjoyed a fair degree of marketability may
subsequently become illiquid, thereby adversely affecting the
liquidity of the Funds. With respect to Rule 144A securities,
investing in such securities could have the effect of increasing
the level of Fund illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in
purchasing these securities.
Illiquid securities may offer a higher yield than securities
that are more readily marketable. The sale of illiquid
securities, however, often requires more time and results in
higher brokerage charges or dealer discounts or other selling
expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets.
Each Fund may also be restricted in its ability to sell such
securities at a time when it is advisable to do so. Illiquid
securities often sell at a price lower than similar securities
that are not subject to restrictions on resale.
Lending of Portfolio Securities
Each Fund is authorized to make loans of its portfolio
securities to broker-dealers or to other institutional investors.
The borrower must maintain with the Fund's custodian collateral
consisting of cash, U.S. short-term government securities, bank
letters of credit or such other collateral as may be permitted
under a Fund's investment program and by regulatory agencies and
approved by the Board of Directors of Fortis Worldwide (the "Board
of Directors") equal to at least 100% of the value of the borrowed
securities, plus any accrued interest. For the purpose of
realizing additional income, each Fund may make secured loans of
portfolio securities amounting to not more than 30% of its total
assets. ("Total assets" of a Fund includes the amount lent as
well as the collateral securing such loans.) Securities loans are
made to broker-dealers or institutional investors pursuant to
agreements requiring that the loans be continuously secured by
collateral at least equal at all times to the value of the
securities lent, "marked to market" on a daily basis.
While the securities loan is outstanding, the Fund will
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. Each
Fund has a right to call each loan and obtain the securities on
same days' notice. A Fund will not have the right to vote equity
securities while they are being lent, but it will call in a loan
in anticipation of any important vote. 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 a Fund to be of good standing and will
not be made unless, in the judgment of the Fund, the consideration
to be earned from such loans would justify the risk.
When-Issued or Delayed Delivery Transactions
The Funds may purchase or sell portfolio securities on a when-
issued or delayed delivery basis. When-issued or delayed delivery
transactions arise when securities are purchased by a Fund with
payment and delivery to take place in the future in order to
secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. When a Fund
enters into a delayed delivery transaction it becomes obligated to
purchase securities and it has all the rights and risks attendant
to ownership of a security, although delivery and payment occur at
a later date. The value of fixed income securities to be
delivered in the future will fluctuate as interest rates vary.
Each Fund generally has the ability to close out a purchase
obligation on or before the settlement date, rather than purchase
the security. At the time a Fund enters into a transaction on a
when-issued or forward commitment basis, a segregated account
consisting of cash, U.S. Government securities or any security
that is not considered restricted or illiquid at least 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
purchased by the purchaser and, thus, no interest accrues to the
purchaser from the transaction.
To the extent a Fund engages in when-issued or delayed
delivery transactions, it will do so for the purpose of acquiring
portfolio securities, except in the case of "roll" transactions,
consistent with the Fund's investment objectives and policies and
not for the purpose of investment leverage or to speculate in
interest rate changes. The Funds will only make commitments to
purchase securities on a when-issued or delayed delivery basis
with the intention of actually acquiring the securities, but the
Funds reserve the right to sell these securities before the
settlement date if deemed advisable.
The purchase of securities on a when-issued or delayed
delivery basis exposes the Funds to risk because the securities
may decrease in value prior to their delivery. Purchasing
securities on a when-issued or delayed delivery 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 Fund's net asset value to the extent the Fund
purchases securities on a when-issued or delayed delivery basis
while remaining substantially fully invested.
"Roll" Transactions
Each Fund may engage in "roll" transactions which involve the
sale of Government National Mortgage Association ("GNMA")
certificates or other securities together with a commitment to
purchase similar, but not identical, securities at a future date
(for which the Fund may receive a fee or purchase the securities
at a price that is lower than the then-current market value of
such securities). Each Fund will maintain in a segregated account
with a custodian cash or liquid securities in an amount sufficient
to cover its obligations under "roll" transactions.
Short Sales Against the Box
A Fund may sell a security to the extent the Fund
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 a Fund.
Options
Generally. To reduce fluctuations in net asset value or to
increase current income, each Fund may:
sell (write) covered call and secured put options; and
purchase call and put options
on securities that are traded on United States and foreign
securities exchanges and in the over-the-counter markets. The
Funds may write and buy options on the same types of securities
that the Funds may purchase directly.
As a nonfundamental investment policy, each Fund will limit its
investments in options so that:
* the amount of premiums paid for all options, initial margin
deposits on all futures contracts and/or options on futures
contracts, and collateral deposited with respect to forward
contracts held by or entered into by the Fund will not exceed 5%
of the value of the total assets of the Fund; and
* the Fund's 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 Fund.
Additional information about options is contained in Appendix A.
Use of Options. Put and call options may be used for a variety
of purposes:
* To Hedge. Options can be used to hedge against loss. For
example, if a portfolio manager wishes to hedge a security
that the manager owns against a decline in price, the manager
may purchase a put option on the underlying security, i.e.,
purchase the right to sell the security to a third party at a
stated price. If the underlying security then declines in
price, the manager can exercise the put option, thus limiting
the amount of the manager's loss resulting from the decline
in price. Similarly, if the manager intends to purchase a
security at some date in the future, the manager may purchase
a call option on the security today in order to hedge against
an increase in its price before the intended purchase date.
The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized
by a Fund upon exercise or liquidation of the option, and,
unless the price of the underlying security changes
sufficiently, the option may expire without value to the
Fund.
* To Speculate. Options also can be used for speculative
purposes. For example, if a portfolio manager believes that
the price of stocks generally is going to rise, the manager
may purchase a call option on a stock index, the components
of which are unrelated to the stocks the manager holds in a
Fund or intends to purchase. If the stock index appreciates
sufficiently, the Fund will realize a gain. If the stock
index falls, the Fund will lose the premium paid for the
option plus related transaction costs.
* To Produce Gain. Finally, a portfolio manager may write
covered call options or secured put options to realize
additional gain. If the options expire unexercised, the manager
produces a gain by the amount of the price (premium) received
for selling the option minus related transaction costs.
Writing Call Options. When a Fund sells (writes) a call
option, it gives a third party the right to purchase a security
from the Fund at the exercise price for a stated period or on a
stated date. A call option written by a Fund is "covered" if the
Fund:
* 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 segregated from assets available for
investment) upon conversion or exchange of other securities
held in its portfolio; or
* holds a call on the same security having the same principal
amount as the call written and the exercise price of the call
held (i) is equal to or less than the exercise price of the
call written or (ii) is greater than the exercise price of
the call written if the difference is maintained by the Fund
in cash and other liquid assets segregated from assets
available for investment.
By writing covered call options, a Fund might lose the potential
for gain on the underlying security if the option is exercised.
However, Advisers believes that this technique is a relatively low-
risk way to enhance a Fund's return. The Funds will not write
"uncovered" call options.
Writing Put Options. When a Fund sells (writes) a put option,
it gives a third party the right to sell a security to the Fund at
the exercise price for a stated period or on a stated date. A put
option written by a Fund is "secured" if the Fund:
* segregates cash not available for investment or other liquid
assets with a value equal to the exercise price of the put;
or
* holds a put on the same security having the same principal
amount as the put written and the exercise price of the put
held is (a) equal to or greater than the exercise price of
the put written or (b) less than the exercise price of the
put written if the difference is maintained by the Fund in
cash and other liquid assets segregated from assets available
for investment.
By writing a put option, a Fund might become obligated to purchase
the underlying security for more than its current market price
upon exercise of the option. The Funds will not write "unsecured"
put options.
Buying Call Options. As a holder of a call option, a Fund
has the option to buy the underlying security from the option
writer at the exercise price at any time during the option period
or on a stated date. If a Fund buys a call option, any loss will
be limited to the premium paid for the call option and related
transaction costs. A Fund may exercise the call option, permit it
to expire, or sell it. By selling the call option, the Fund
eliminates its position.
A Fund may buy call options on securities that it intends to
purchase to limit the risk of a substantial increase in the market
price of the security. A Fund may also buy call options on
securities held in its portfolio and on which it has written call
options. Prior to its expiration, a call option may be sold which
eliminates the Fund's position. Profit or loss from such a sale
will depend on whether the amount received is more or less than
the premium paid for the call option plus the related transaction
costs.
Buying Put Options. As the holder of a put option, a Fund has
the option to sell the underlying security at the exercise price
at any time during the option period or on a stated date. If a
Fund buys a put option, any loss will be limited to the premium
paid for the put option and related transaction costs. A Fund may
exercise the put option, permit it to expire, or sell it. By
selling the put option, the Fund eliminates its position.
A Fund may buy a put option on an underlying security owned
by the Fund (a "protective put") as a hedging technique to
protect against an anticipated decline in the value of the
security. This hedge protection is provided only during the life
of the put option when the Fund, as the holder of the put option,
is able to sell the underlying security at the put exercise price,
regardless of any decline in the underlying security's market
price. For example, a put option may be purchased in order to
protect unrealized appreciation of a security when the manager
deems it desirable to continue to hold the security due to tax
considerations. The premium paid for the put option and related
transaction costs would reduce any gain realized when the
underlying security is eventually sold.
A Fund may also buy put options at a time when the Fund does
not own the underlying security. By buying put options on a
security it does not own, the Fund seeks to benefit from a
decline in the market price of the underlying security. If the
put option is not sold when it has remaining value, and if the
market price of the underlying security remains equal to or
greater than the exercise price during the life of the put option,
the Fund will lose some or all of the premium it paid to purchase
the put option. For the purchase of a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium
and transaction costs.
Options on stock indices. Each Fund may:
* sell (write) covered call options and secured put options
on stock indices; and
* purchase call and put options on stock indices.
In contrast to an option on a security, an option on a stock
index provides the holder with the option to receive a cash
settlement upon exercise of the option, rather than the right to
purchase or sell a security. The amount of the cash settlement is
generally equal to:
* the difference between the closing price of the index and the
exercise price of the option, multiplied by
* a fixed "index multiplier".
Thus, unlike stock options, all settlements are in cash, and
gain or loss depends on price movements in the stock market
generally (or in a particular industry or segment of the market)
rather than price movements in an individual stock.
Covered Call Options on Market Indices. A call option written
on a stock index is "covered" if the Fund:
* holds a diversified portfolio of securities similar to those
on which the underlying index is based. However, a Fund
cannot, as a practical matter, acquire and hold a portfolio
containing exactly the same securities that underlie the
index and, as a result, bears a risk that the value of the
securities held will not be perfectly correlated with the
value of the index; or
* holds a call on the same index and in the same principal
amount as the call written where the exercise price of the
call held is (a) equal to or less than the exercise price of
the call written or (b) greater than the exercise price of
the call written if the difference is maintained by the Fund
in cash and other liquid assets segregated from assets
available for investment.
The Funds will not write "uncovered" call options on market
indices.
Secured Put Options on Market Indices. A Fund may also "secure"
put options on stock indices by:
* holding a put on the same index and in the same principal
amount as the put written where the exercise price of the put
held is (a) equal to or greater than the exercise price of
the put written or (b) less than the exercise price of the
put written if the difference is maintained by the Fund in
cash and other liquid assets segregated from assets available
for investment; or
* segregates cash or other liquid assets in an amount equal to
the exercise price of the option from assets available for
investment.
The Funds will not write "unsecured" put options on market
indices.
Futures Contracts and Options on Futures Contracts
Each Fund may enter into interest rate futures contracts and
stock index futures contracts for hedging purposes. The Funds 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 a Fund's 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 Fund's current or intended investments in fixed
income or foreign securities. In the event that an anticipated
decrease in the value of Fund 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 Fund 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 Fund
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 the Fund. A Fund
will incur brokerage fees when it purchases and sells Futures
Contracts, and it will be required to make and maintain margin
deposits.
Options on Futures Contracts. The Funds may purchase and
write options to buy or sell interest rate futures contracts. In
addition, the Funds may purchase and write options on stock index
futures contracts, and the Funds 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 a
Fund in order to protect against declines in the values of Fund
securities or against increases in the cost of securities to be
acquired. Purchases of Options on 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, the respective Fund may suffer a loss on the
transaction. Additional information regarding Futures Contracts
and Options on Futures Contracts is set forth in Appendix B to the
Statement of Additional Information.
Forward Foreign Currency Exchange Contracts
The Funds may enter into contracts for the purchase or sale
of a specific currency at a future date at a price set at the time
of the contract (a "Currency Contract"). The Funds will enter
into Currency Contracts primarily for hedging purposes, in a
manner similar to the Funds' use of foreign currency futures
contracts. These transactions will include forward purchases or
sales of foreign currencies for the purpose of protecting the
dollar value of securities denominated in a foreign currency or
protecting the dollar equivalent of interest or dividends to be
paid on such securities. By entering into such transactions,
however, a Fund may be required to forego the benefits of
advantageous changes in exchange rates. Currency Contracts are
traded over-the-counter, and not on organized commodities or
securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use
involves certain risks beyond those associated with transactions
in the futures and option contracts described above.
Options on Foreign Currencies. The Funds 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 a Fund 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 a
Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. As in the case of Currency
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. Additional information regarding
Currency Contracts is set forth in Appendix B to the Statement of
Additional Information.
Risks of Transactions in Options, Futures Contracts and Forward
Contracts
The Funds will enter into transactions in Futures Contracts,
Options on Futures Contracts, Currency Contracts, and certain
options primarily for hedging purposes. Their use involves
certain risks. For example, a lack of correlation between the
index or instrument underlying an option or Futures Contract and
the assets being hedged or unexpected adverse price movements,
could render a Fund's hedging strategy unsuccessful and could
result in losses. The Funds also may enter into transactions in
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, and a Fund 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 ("CFTC"), as well as in the over-the-
counter market and on foreign exchanges. In addition, the
securities underlying options and Futures Contracts traded by the
Funds may include domestic as well as foreign securities. You
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.
Portfolio Turnover
The portfolio turnover rate for a Fund is calculated by
dividing the lesser of purchases or sales by such Fund of
investment securities for the particular fiscal year by the
monthly average value of investment securities owned by the Fund
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 purchase or sales of investment securities for a
particular year were equal to the average monthly value of the
investment securities owned during such year.
Each Fund intends to engage in portfolio trading when it is
believed that the sale of a security owned by the Fund and/or the
purchase of another security of better value can enhance principal
and/or increase income. A security may be sold to avoid any
prospective decline in market value, or a security may be
purchased in anticipation of a market rise. Although the Funds do
not intend generally to trade for short-term profits, the
securities in the portfolio of a Fund will be sold whenever
management believes it is appropriate to do so, without regard to
the length of time a particular security may have been held.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions,
which are set forth below. Any investment restriction that is
denoted as "fundamental" may be changed only by the approval of a
majority of a Fund's shareholders. In this situation, majority
means the lesser of (i) 67% of the Fund's outstanding shares
present at a meeting of the holders if more than 50% of the
outstanding shares are present in person or by proxy or (ii) more
than 50% of the Fund's outstanding shares.
Any investment policy or restriction in the Prospectus or
this Statement of Additional Information which involves a maximum
percentage of securities or assets, except those dealing with
borrowing, shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of
securities or utilization of assets and results therefrom.
Global Fund
The following investment restrictions are fundamental and may
be changed only by the approval of shareholders. The Fund 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,
the Fund may invest in debt securities secured by real estate or
interests therein or issued by corporations that 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
Fund, 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 Fund may be deemed an underwriter under
applicable laws and except that the Fund may invest up to 10% of
the value of its assets (at time of investment) 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 the Fund, in
accordance with its 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. The Fund 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." While
a short sale is made by selling a security the Fund does not own,
a short sale is "against the box" to the extent the Fund
contemporaneously owns or has the right to obtain securities
identical to those sold short without payment of any additional
consideration.
(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 the Fund may purchase
securities on a when-issued and delayed delivery 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 Fund's total
assets. The Fund 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
Fund's borrowings falls below 300%, the Fund will reduce, within
three days (excluding Sundays and holidays), the amount of its
borrowings in order to provide for 300% asset coverage.
The following investment restrictions may be changed without
shareholder approval. The Fund will not:
(1) Invest more than 15% of its net assets in illiquid
securities.
(2) Enter into any options, futures, or forward contract
transactions if immediately thereafter (a) the amount of premiums
paid for all options, initial margin deposits on all futures
contracts and/or options on futures contracts, and collateral
deposited with respect to forward contracts held by or entered
into by the Fund would exceed 5% of the value of the total assets
of the Fund or (b) the Fund's assets covering, subject to, or
committed to all options, futures, and forward contracts would
exceed 20% of the value of the total assets of the Fund.
International Fund
The following investment restrictions are fundamental and may
be changed only by the approval of shareholders. The Fund will
not:
(1) Invest 25% or more of the value of its total assets in the
securities of issuers conducting their principal business
activities in the same industry, provided that there is no
limitation with respect to investments in obligations issued or
guaranteed by the United States Government or its agencies and
instrumentalities.
(2) Purchase or sell physical commodities (such as grains,
livestock, etc.) or futures or option contracts thereon. However,
the Fund may purchase or sell any forms of financial instruments
or contracts that might be deemed commodities.
(3) Invest in real estate, except that the Fund may invest in
securities issued by companies owning 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, the Fund may be deemed an underwriter under
applicable laws.
(5) Make loans to other persons except that it may engage in
repurchase agreements, securities lending transactions and the
acquisition of debt securities in accordance with the Prospectus
and Statement of Additional Information.
(6) Issue senior securities, except that the Fund may purchase
securities on a when-issued and delayed delivery basis and enter
into roll transactions and other transactions which may be deemed
to constitute borrowing, within the limitations set forth in the
Prospectus and Statement of Additional Information.
(7) Borrow money except from banks for temporary or emergency
purposes not in excess of 33 1/3% of the value of the Fund's total
assets. Investment securities will not be purchased for the Fund
while outstanding bank borrowings exceed 5% of the value of the
Fund's total assets.
The following investment restrictions may be changed without
shareholder approval. The Fund will not:
(1) Invest more than 15% of its net assets in illiquid
securities.
(2) Enter into any options, futures, or forward contract
transactions if immediately thereafter (a) the amount of premiums
paid for all options, initial margin deposits on all futures
contracts and/or options on futures contracts, and collateral
deposited with respect to forward contracts held by or entered
into by the Fund would exceed 5% of the value of the total assets
of the Fund or (b) the Fund's assets covering, subject to, or
committed to all options, futures, and forward contracts would
exceed 20% of the value of the total assets of the Fund.
MANAGEMENT OF THE FUNDS
Under Minnesota law, the Board of Directors of Fortis Worldwide
has overall responsibility for managing it in good faith, in a
manner reasonably believed to be in the best interests of the
Funds and with the care an ordinarily prudent person would
exercise in similar circumstances. This management may not be
delegated. The Articles of Incorporation limit the liability of
directors to the fullest extent permitted by law.
Name and Ag Position Principal Occupations During
Address e with the Past 5 Years
Funds
Richard W. 68 Director Certified public accountant
Cutting and financial consultant.
137 Chapin
Parkway
Buffalo, New
York
Allen R. 59 Director Chairman and Chief Executive
Freedman * Officer of Fortis, Inc.; a
One Chase Managing Director of Fortis
Manhattan Plaza International, N.V.; director
New York, New of Systems and Computer
York Technology Corporation.
Dr. Robert M. 59 Director President, Cranbrook Education
Gavin 380 Community; prior to July 1996,
Lone Pine Road President, Macalester College,
Bloomfield, St. Paul, MN.
Michigan
Jean L. King 55 Director President, Communi-King, a
12 Evergreen communications consulting
Lane firm, St. Paul, MN.
St. Paul,
Minnesota
Dean C. 47 President Chief Executive Officer and a
Kopperud* and Director of Advisers;
500 Bielenberg Director President and a Director of
Drive Woodbury, Investors; President of Fortis
Minnesota Financial Group; a Director of
Fortis Benefits Insurance
Company and Senior Vice
President of Fortis Insurance
Company.
Robb L. Prince 58 Director Financial and employee benefit
5108 Duggan consultant; prior to July
Plaza Edina, 1995, Vice President and
Minnesota Treasurer, Jostens, Inc., a
producer of products and
services for youth, education,
sports award, and recognition
markets; director of Analysts
International Corporation.
Leonard J. 63 Director Principal, Griggs & Santow,
Santow Inc., economic and financial
Fifth Floor consultants
One State
Street
New York, New
York
Noel Schenker 45 Director Marketing consultant; prior to
Shadko 1908 W. 1996, Senior Vice President,
49th Street Marketing and Strategic
Minneapolis, Planning, Rollerblade, Inc.
Minnesota
Joseph M. 57 Director Investment consultant and
Wikler private investor; prior to
12520 Davan 1994, Director of Research,
Drive Chief Investment Officer,
Silver Spring, Principal and a Director, The
Maryland Rothschild Co., and investment
adviser, Baltimore, MD.
Gary N. Yalen 57 Vice President and Chief Investment
One Chase President Officer of Advisers (since
Manhattan Plaza 1995) and Senior Vice
New York, New President, Investments, of
York Fortis, Inc.; prior to 1996,
President and Chief Investment
Officer, Fortis Asset
Management, a former division
of Fortis, Inc.
Howard G. 62 Vice Executive Vice President and
Hudson President Head of Fixed Income
One Chase Investments of Advisers since
Manhattan Plaza 1995; prior to 1996, Senior
New York, New Vice President, Fixed Income,
York Fortis Asset Management.
Lucinda S. 52 Vice Executive Vice President and
Mezey President Head of Equity Investments of
One Chase Advisers since October 1997;
Manhattan Plaza from 1995 to October 1997,
New York, New Chief Investment Officer, Alex
York Brown Capital Advisory and
Trust Co., Baltimore, MD;
prior to 1995, Senior Vice
President and Head of Equity
Investments, PNC Bank,
Philadelphia, PA.
James S. Byrd 48 Vice Executive Vice President of
90 South 7th President Advisers since 1995; prior to
Street 1995, Vice President of
Minneapolis, Advisers and of Investors.
Minnesota
Nicholas L.M. 33 Vice Vice President of Advisers
de Peyster One President since 1995; prior to 1995,
Chase Manhattan Vice President, Equities,
Plaza Fortis Asset Management.
New York, New
York
Diane M. Gotham 41 Vice Vice President of Advisers
90 South 7th President since 1998; from 1994 to 1998,
Street securities analyst for
Minneapolis, Advisers.
Minnesota
Laura E. 38 Vice Vice President of Advisers
Granger President since 1998; from 1993-1998,
One Chase portfolio manager, General
Manhattan Plaza Motors Investment Management,
New York, New New York, NY.
York
Maroun M. Hayek 51 Vice Vice President of Advisers
One Chase President since 1995; prior to 1996,
Manhattan Plaza Vice President, Fixed Income,
New York, New Fortis Asset Management.
York
Robert C. 43 Vice Vice President of Advisers
Lindberg President since 1993.
One Chase
Manhattan Plaza
New York, New
York
Charles L. 57 Vice Vice President of Advisers;
Mehlhouse President prior to March 1996, portfolio
One Chase manager, Marshall & Ilsley
Manhattan Plaza Bank Corporation, Milwaukee,
New York, New WI.
York
Kevin J. 48 Vice Vice President of Advisers
Michels President since 1995; prior to 1996,
One Chase Vice President,
Manhattan Plaza Administration, Fortis Asset
New York, New Management.
York
Christopher J. 36 Vice Senior Vice President of
Pagano One President Advisers since 1996; prior to
Chase Manhattan March 1996, government
Plaza strategist, Merrill Lynch, New
New York, New York, NY.
York
Kendall C. 43 Vice Vice President of Advisers
Peterson President since August 1999; prior to
One Chase August 1999, Vice President
Manhattan Plaza and portfolio manager at
New York, New Prudential Insurance Company
York of America, Newark, NJ.
Stephen M. 56 Vice Vice President of Advisers
Rickert President since 1995; from 1994 to 1996,
One Chase Corporate Bond Analyst, Fortis
Manhattan Plaza Asset Management.
New York, New
York
Michael J. 48 Vice Vice President of Advisers
Romanowski One President since 1998; from October 1995
Chase Manhattan to March 1998, portfolio
Plaza manager, Value Line, New York,
New York, New NY; prior to October 1995,
York securities analyst, Conning &
Co., Hartford, CT.
Christopher J. 39 Vice Vice President of Advisers
Woods One President since 1995; prior to 1996 Vice
Chase Manhattan President, Fixed Income,
Plaza Fortis Asset Management.
New York, New
York
Robert W. 50 Vice Vice President/Securities
Beltz, Jr. President Operations of Advisers and of
500 Bielenberg Investors.
Drive
Woodbury,
Minnesota
Peggy L. 42 Vice Senior Vice President,
Ettestad President Operations of Advisers since
500 Bielenberg March 1997; prior to March
Drive 1997, Vice President, G.E.
Woodbury, Capital Fleet Services,
Minnesota Minneapolis, MN.
Tamara L. 41 Vice Vice President of Advisers and
Fagely President of Investors since 1998; prior
500 Bielenberg and to 1998, Second Vice President
Drive Treasurer of Advisers and Investors.
Woodbury,
Minnesota
Dickson W. 50 Vice Senior Vice President,
Lewis President Marketing and Sales of
500 Bielenberg Advisers and of Investors
Drive since July 1997; from 1993 to
Woodbury, July 1997, President and Chief
Minnesota Executive Officer,
Hedstrom/Blessing, Inc.,
Minneapolis, MN.
David A. 57 Vice Vice President and Assistant
Peterson President General Counsel, Fortis
500 Bielenberg Benefits Insurance Company.
Drive
Woodbury,
Minnesota
Scott R. 40 Vice Vice President, Associate
Plummer President General Counsel and Assistant
500 Bielenberg Secretary of Advisers.
Drive
Woodbury,
Minnesota
Rhonda J. 41 Vice Since January 1996, Senior
Schwartz President Vice President and General
500 Bielenberg Counsel of Advisers, Vice
Drive President and General Counsel,
Woodbury, Life and Investment Products
Minnesota of Fortis Insurance Company
and Senior Vice President and
General Counsel of Fortis
Benefits Insurance Company,
FFG Division; from 1994 to
January 1996, Vice President,
General Counsel and Secretary
of Fortis, Inc.
Melinda S. 46 Vice Senior Vice President and
Urion President Chief Financial Officer of
500 Bielenberg Advisers since 1997; from 1995
Drive to 1997, Senior Vice President
Woodbury, of Finance and Chief Financial
Minnesota 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. 54 Secretary Partner, Dorsey & Whitney LLP,
Radmer the Company's General Counsel.
220 South Sixth
Street
Minneapolis,
Minnesota
___________________
* Mr. Kopperud is an "interested person" (as defined under the
1940 Act) of Advisers and Fortis Worldwide because he holds
certain positions including serving as Chief Executive Officer and
a director of Advisers. Mr. Freedman is an "interested person" of
Advisers and Fortis Worldwide because he holds certain positions
including serving as Chairman and Chief Executive Officer of
Fortis, Inc., the parent company of Advisers.
Each director who is not affiliated with Advisers or
Investors receives a monthly fee $100 per month from the Funds,
$100 per meeting attended from each Fund, and $100 per committee
meeting attended from each Fund (and reimbursement of travel
expenses to attend meetings). Each such director also receives a
monthly fee, a meeting fee and a committee meeting fee from each
fund in the Fund Complex for which they are a director. The
following table sets forth the aggregate compensation received by
each director from Fortis Worldwide during the fiscal year ended
October 31 1999, as well as the total compensation received by
each director from the Fund Complex during the calendar year ended
December 31, 1999. Mr. Freedman and Mr. Kopperud, who are
affiliated with Advisers and Investors, did not receive any
compensation. No executive officer receives any compensation from
the Funds. During the fiscal year ended October 31, 1999, Global
Fund paid $7,000 and International Fund paid $200 in legal fees
and expenses to a law firm of which the Funds' Secretary is
partner.
Aggregate Total
Director compensation compensation
from Fortis from Fund
Worldwide Complex*
Richard W. Cutting $1,800 $31,250
Dr. Robert M. Gavin $1,800 $31,250
Benjamin S. $1,800 $20,450
Jaffray**
Jean L. King $1,600 $29,250
Edward M. Mahoney** $1,800 $31,250
Robb L. Prince $1,800 $31,250
Leonard J. Santow $1,779 $33,850
Noel Schenker $1,800 $26,150
Shadko
Joseph M. Wikler $1,900 $34,750
______________________________
* The Fund Complex consists of one closed-end and eight open-end
investment companies managed by Advisers.
** Messrs. Jaffray and Mahoney retired from the Board of Directors
effective January 1, 2000.
Directors Gavin, Kopperud, Prince and Schenker Shadko are
members of the Executive Committee of the Board of Directors.
While the Executive Committee is authorized to act in the
intervals between regular board meetings with full capacity and
authority of the full Board of Directors, except as limited by
law, it is expected that the Committee will meet at least twice a
year.
Directors, officers and other persons affiliated with the
Funds are eligible to purchase shares of the Funds without a sales
charge. For more complete information about these arrangements,
refer to "Purchase of Shares -Exemptions from the Sales Charge."
PRINCIPAL HOLDERS OF SECURITIES
As of February 18, 2000, no person owned of record or, to the
Funds' knowledge, beneficially as much as 5% of the outstanding
shares of any Class of Fund shares, except as follows:
International Fund. Class A -- Fortis Advisers, Inc., PO Box
64284, St. Paul, MN (24%). Class H -- First Trust National
Association, C/F M. Judy Wardle, 1300 Country Club Drive, Findlay,
OH (8%) and First Trust National Association, C/F Robert F.
Shackerford 135 Dabill Place, Lima, OH (5%). Class C -- National
Association, C/F Dolores F. Posey, RR 5, Box 76B, Fairmont, WV
(8%); National Association, C/F Robert F. Matz, 68 Wilson Avenue,
Morgantown, WV (6%) and Donaldson Lufkin Jenrette Securities
Corporation, Inc., P O Box 2052, Jersey City, NJ (6%).
As of February 18, 2000, the directors and executive officers
as a group beneficially owned less than 1% of the outstanding
shares of each class of each Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
General
Fortis Advisers, Inc. ("Advisers") has been the investment
adviser and manager of each Fund since inception. Fortis
Investors, Inc. ("Investors") acts as the Funds underwriter. Each
acts pursuant to written agreements periodically approved by the
directors or shareholders. The address of each is that of the
Funds. As of December 31, 1999, Advisers managed thirty-three
investment company portfolios with combined net assets of
approximately $8.2 billion.
Control and Management of Advisers and Investors
Fortis, Inc. ("Fortis") owns 100% of the outstanding voting
securities of Advisers, and Advisers owns all of the outstanding
voting securities of Investors.
Fortis, located in New York, New York, is a financial
services company that provides specialty insurance and investment
products to individuals, businesses, associations and other
financial service organizations in the United States. Fortis is a
part of a worldwide group of companies active in the fields of
insurance, banking and investments. Fortis is jointly owned by
Fortis (NL) N.V. of The Netherlands and Fortis (B) of Belgium.
Fortis (NL) N.V. is a diversified financial services company
headquartered in Utrecht, The Netherlands, where its insurance
operations began in 1847. Fortis (B) is a diversified financial
services company headquartered in Brussels, Belgium, where its
insurance operations began in 1824. Fortis (NL) N.V. and Fortis
(B) own a group of companies active in insurance, banking and
financial services, and real estate development in The
Netherlands, Belgium, the United States, Western Europe, and the
Pacific Rim.
Investment Advisory And Management Agreement
Advisers acts as investment adviser and manager of the Funds
under an Investment Advisory and Management Agreement (the
"Agreement"). Under the Agreement, Advisers, as investment adviser
to the Funds, has the sole authority and responsibility to make
and execute investment decisions for the applicable Fund within
the framework of such Fund's investment policies, subject to
review by the Board of Directors. The Agreement will terminate
automatically in the event of its assignment. In addition, the
Agreement is terminable at any time, without penalty, by the Board
of Directors or, with respect to any particular portfolio, by vote
of a majority of the outstanding voting securities of the
applicable portfolio, on not more than 60 days' written notice to
Advisers, and by Advisers on 60 days' notice to Fortis Worldwide.
Unless sooner terminated, the 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
portfolio, by vote of a majority of the outstanding voting
securities of the applicable portfolio, provided that in either
event such continuance is also approved by the vote of a majority
of the directors who are not parties to the Agreement, or
interested persons of such parties, cast in person at a meeting
called for the purpose of voting on such approval.
The Agreement provides for an investment advisory and
management fee to
be paid by each Fund calculated as set forth below:
Average Net Annual Investment
assets of each fund advisory and management
fee
For the first $500 million 1.00%
For assets over $500 million 0.90%
The Funds' advisory fees are higher than those paid by many
other investment companies; however, such fees are partially
offset by the added costs paid by Advisers for acting as the
Funds' registrar, transfer agent and dividend agent. The
Agreement requires each Fund to pay all of its expenses that 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
Worldwide who are not "affiliated persons" of Advisers, Plan of
Distribution fees, interest expense, taxes, brokerage fees and
commissions, fees and expenses of registering and qualifying
Fortis Worldwide and its shares for distribution under Federal and
state securities laws, expenses of preparing prospectuses and of
printing and distributing prospectuses annually to existing
shareholders, custodian charges, auditing and legal expenses,
insurance expenses, association membership dues, and the expense
of reports to shareholders, shareholders meetings, and proxy
solicitations.
Global Fund paid $1,480,162 for the fiscal year ended October
31, 1997, $1,592,206 for the year ended October 31, 1998 and
$1,570,656 for the year ended October 31, 1999 in advisory and
management fees. International Fund paid $23,598 for the period
from March 2, 1998 (date shares first offered to
public) to October 31, 1998 and $66,564 for the year ended October
31, 1999.
Expenses
Advisers bears the costs of acting as the Funds' transfer
agent, registrar, and dividend agent. Advisers also furnishes the
Funds with all required management services, facilities,
equipment, and personnel.
Expenses that relate exclusively to a particular Fund, such
as custodian charges and registration fees for shares, are charged
to that Fund. Other expenses are allocated between the Funds in
an equitable manner as determined by officers of Fortis Worldwide
under the supervision of the Board of Directors, usually on the
basis of net assets or number of accounts.
If International Fund's total annual operating expenses
exceed, on an annual basis, an amount equal to 1.70% of average
daily net assets for Class A shares and 2.45% for each of Class B,
Class C and Class H shares, Advisers has agreed to reimburse the
Fund until its net assets exceed $20,000,000. In addition,
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 such reimbursement programs at any time without
notice to the Fund.
Plan of Distribution
Fortis Worldwide has adopted a plan of distribution pursuant
to Rule 12b-1 under the 1940 Act (the "Distribution Plan'). Rule
12b-1(b) provides that any payments made by a Fund in connection
with financing the distribution of its shares may only be made
pursuant to a written plan describing all aspects of the proposed
financing of distribution, and also requires that all agreements
with any person relating to the implementation of the plan must be
in writing. In addition, Rule 12b-1(b)(1) requires that such plan
be approved by a majority of the applicable Fund's outstanding
shares, and Rule 12b-1(b)(1) requires that such plan, together
with any related agreements, be approved by a vote of the Board of
Directors who are not interested persons of the applicable Fund
and have no direct or indirect interest in the operation of the
plan or in the agreements related to the plan, cast in person at a
meeting called for the purpose of voting on such plan or
agreement.
Pursuant to the provisions of the Distribution Plan, each
Fund pays Investors a monthly fee at an annual rate of .25% of
each Fund's average daily net assets attributable to Class A
shares and 1.00% of each Fund's average daily net assets
attributable to Class B, H and C shares. Such fees are paid in
connection with servicing of the shareholder accounts and in
connection with distribution-related services provided with
respect to the Funds.
A portion of each Fund's total fee is paid as a distribution
fee and will be used by Investors to cover expenses that are
primarily intended to result in, or that are primarily
attributable to, the sale of shares of a Fund ("Distribution
Fees"), and the remaining portion of the fee is paid as a
shareholder servicing fee and will be used by Investors to provide
compensation for ongoing servicing and/or maintenance of
shareholder accounts ("Shareholder Servicing Fees"). For the
Class A shares, the entire fee of .25% is designated as a
Distribution Fee. For the Class B, Class C and Class H shares,
Investors receives a total fee of 1.00% of the average daily net
assets of each such class, of which .75% is designated as a
Distribution Fee and .25% is designated as a Shareholder Servicing
Fee.
Distribution Fees under the Plan include, but are not limited
to, initial and ongoing sales compensation (in addition to sales
charges) paid to registered representatives of Investors and to
other broker-dealers; expenses incurred in the printing of
prospectuses, statements of additional information and reports
used for sales purposes; expenses of preparation and distribution
of sales literature; expenses of advertising of any type; an
allocation of Investors' overhead; and payments to and expenses of
persons who provide support services in connection with the
distribution of Fund shares. Shareholder Servicing Fees include
all expenses of Investors incurred in connection with providing
administrative or accounting services to shareholders, including,
but not limited to, an allocation of Investors' overhead and
payments made to persons, including employees of Investors, who
respond to inquiries of shareholders, regarding their ownership of
shares or their accounts with the Funds, or who provide other
administrative or accounting services not otherwise required to be
provided by Advisers.
Listed below are the total distribution fees paid by the
Funds and how those fees were used by Investors for the fiscal
year ended October 31, 1999.
Global
International
Fund
Fund____
Advertising $ 0
$ 0
Printing and Mailing of Prospectuses to
Other than Current Shareholders 38,598
3,120
Compensation to Underwriters 638,547
15,749
Compensation to Dealers 0
0
Compensation to Sales Personnel 0
0
Interest, Carrying or Other Financing
Charges 0
0
Other (distribution-related compensation,
sales literature, supplies, postage,
toll-free phone) 0
6,090
TOTAL $677,145
$24,959
BROKERAGE ALLOCATION AND OTHER PRACTICES
Advisers selects and (where applicable) negotiates
commissions with broker-dealers who execute trades for each Fund.
In selecting a broker-dealer to execute an equity trade, Advisers
primarily considers whether the broker-dealer can provide best
execution on the trade including best price for a security. Other
factors that Advisers considers when selecting a broker-dealer for
an equity trade include:
* competitive commissions commensurate with the value of
research products and services provided to Advisers;
* consistently good service quality;
* adequate capital position;
* broad market coverage;
* continuous flow of information concerning bids and offers;
* the ability to complete, clear and settle trades in a timely
and efficient manner;
* capital usage;
* specialized expertise;
* access to new issues; and
* the ability to handle large blocks of stock discreetly.
For a fund exclusively composed of debt, rather than equity
securities, portfolio transactions are effected with dealers
without the payment of brokerage commissions, but at net prices
which usually include a spread or markup. The volume of business
done with a broker-dealer for fixed income trades is based to a
large extent on the availability and competitive price of the
fixed income securities that fit the strategy of the fixed income
portfolio. Best execution, the quality of research, making of
secondary markets and other services are also determining factors
for the allocation of business when buying and selling fixed
income securities. If a broker-dealer charging a higher
commission or offering a larger spread is more reliable or
provides better execution than a broker-dealer charging a lower
commission or offering a smaller spread, then Advisers may select
the broker-dealer charging a higher commission or offering a
larger spread for a particular equity or fixed income trade.
Advisers may direct orders to broker-dealers who furnish
research products and services to Advisers as long as the broker-
dealers meet the selection criteria outlined above. The research
products and services supplement Advisers' own research and enable
Advisers to obtain the views and information of others prior to
making investment decisions for the Funds. Advisers has not
entered and will not enter into any agreement with a broker-dealer
that would prevent Advisers from obtaining best execution on a
trade. During fiscal year ended October 31, 1999, the Funds
directed brokerage commissions to broker-dealers who provided
research services to Advisers as follows: $618 to Autranet, Inc.
and $1,040 to Instinet, Inc.
Advisers will authorize each Fund to pay an amount of commission
for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if
Advisers determines in good faith that such amount of commission
is reasonable in relation to the value of the brokerage and
research services provided by such broker-dealer, viewed in terms
of either that particular transaction or Adviser's overall
responsibilities with respect to the accounts to which Advisers
exercises investment discretion. In 1999, the Funds generally
paid higher commissions than those obtainable from other broker-
dealers in return for research products and services.
Advisers believes that most research services obtained by it
generally benefit several or all of the investment companies,
insurance company accounts and private accounts which it manages,
as opposed to solely benefiting one specific managed fund or
account. Such research services include advice, both directly and
in writing, as to the value of the securities; the advisability of
investing in, purchasing, or selling securities; the availability
of securities, or purchasers or sellers of securities; and
analysis and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy, and the
performance of accounts. Examples of some of the research
products and services that were furnished to Advisers in 1999
include:
* hard copy securities research services;
* securities research software database services;
* electronic securities trading networks; and
* statistical services useful to mutual fund directors and
account representatives in evaluating the relative
performance of mutual fund portfolios.
If a broker-dealer furnishes Advisers with non-research products
and services, Advisers will pay the broker-dealer for such
products and services. No client brokerage will be used to pay
for non-research product and services.
The Funds contemplate purchasing most foreign equity securities
in over-the-counter markets or stock exchanges located in the
countries in which the respective principal offices of the issuers
of the various securities are located, if that is the best
available market. The fixed commissions paid in connection with
most such foreign stock transactions generally are higher than
negotiated commissions on United States transactions. There
generally is less government supervision and regulation of foreign
stock exchanges and brokers than in the United States. Foreign
security settlements may in some instances be subject to delays
and related administrative uncertainties.
Foreign equity securities may be held by a Fund in the form of
American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs," which are sometimes referred to as Continental
Depository Receipts or "CDRs"), or securities convertible into
foreign equity securities. ADRs or EDRs may be listed on stock
exchanges, or traded in the over-the-counter markets in the United
States or Europe, as the case may be. ADRs, like other securities
traded in the United States, will be subject to negotiated
commission rates. The foreign and domestic debt securities and
money market instruments in which the Funds may invest are
generally traded in the over-the-counter markets.
The Funds paid the following brokerage commissions for the
periods indicated:
Fiscal year Fiscal year
Fiscal year ended
ended ended
October 31, 1997 October 31, 1998
October 31, 1999
Global Fund $ 205,035 $ 170,896 $
303,961
International Fund n/a 14,407*
24,533
*Period from inception (January 27, 1998) to October 31, 1998.
The Funds will not effect any brokerage transactions in their
Fund securities with any broker-dealer affiliated directly or
indirectly with Advisers, unless such transactions, including the
frequency thereof, the receipt of commissions payable in
connection therewith, and the selection of the affiliated broker-
dealer effecting such transactions are not unfair or unreasonable
to the shareholders of the applicable Fund. No commissions were
paid to any affiliate of Advisers during the fiscal years ended
October 31, 1997, 1998 and 1999.
From time to time, the Funds may acquire the securities of
their regular brokers or dealers or parent companies of such
brokers or dealers. The Funds acquired the following securities
of its regular brokers or dealers or parent companies of such
brokers or dealers during the fiscal period ended October 31,
1999:
Value of Securities
Fund Owned at End of Period
Global Fund
U.S. Bank N.A. $ 3,841,287
International Fund
U.S. Bank N.A. 525,970
Advisers has developed written trade allocation procedures
for its management of the securities trading activities of its
clients. Advisers manages multiple funds, both public (mutual
funds) and private. The purpose of the trade allocation
procedures is to treat the Funds 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
Fund 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 Funds, the procedures require a pro rata
allocation based upon the amounts initially requested by each Fund
manager. In allocating trades made on combined basis, Advisers
seeks to achieve the average price of the securities for each
participating Fund.
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 Funds involved in the transaction; and (ii) the
relative importance of the security to a Fund in seeking to
achieve its investment objective.
CAPITAL STOCK
Each Fund's shares have a par value of $.01 per share and
equal rights to share in dividends and assets. The shares possess
no preemptive or conversion rights.
The Funds currently offer their shares in multiple classes,
each with different sales arrangements and bearing different
expenses. Under the Articles of Incorporation, the Board of
Directors is authorized to create new Funds or classes without the
approval of the shareholders of the Fortis Worldwide. Each share
will have a pro rata interest in the assets of the Fund to which
the shares relate, and will have no interest in the assets of any
other Fund. In the event of liquidation, each share of a Fund
would have the same rights to dividends and assets as every other
share of that Fund, except that, in the case of a Fund with more
than one class of shares, such distributions will be adjusted to
appropriately reflect any charges and expenses borne by each
individual class.
The Funds are not required under Minnesota law to hold annual
or periodically scheduled regular meetings of shareholders.
Minnesota corporation law provides for the Board of Directors to
convene shareholder meetings when it deems appropriate. In
addition, if a regular meeting of shareholders has not been held
during the immediately preceding fifteen months, a shareholder or
shareholders holding three percent or more of the voting shares
may demand a regular meeting of shareholders by written notice of
demand given to the chief executive officer or the chief financial
officer. Within ninety days after receipt of the demand, a
regular meeting of shareholders must be held at the Funds'
expense. Additionally, the 1940 Act requires shareholder votes
for all amendments to fundamental investment policies and
restrictions and for all investment advisory contracts and
amendments thereto.
Cumulative voting is not authorized. This means that the
holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so,
and in such event the holders of the remaining shares will be
unable to elect any directors.
PRICING OF SHARES
Global Fund
On October 31, 1999, the Fund's net asset values per share
were calculated as follows:
Class A
Net Assets ($130,195,214) = Net Asset Value
per Share ($31.23)
Shares Outstanding (4,169,414)
To obtain the public offering price per share, the 4.75% sales
charge must be added to the net asset value obtained above:
$31.23 = Public Offering Price per
Share ($32.79)
0.9525
Class B
Net Assets ($14,766,030)____ = Net Asset Value per
Share ($30.13)
Shares Outstanding (490,065)
Class C
Net Assets ($5,375,240) ____ = Net Asset Value per
Share ($30.19)
Shares Outstanding (178,076)
Class H
Net Assets ($22,022,608)___ = Net Asset Value per
Share ($30.14)
Shares Outstanding (730,729)
International Fund
On October 31, 1999, the Fund's net asset values per share
were calculated as follows:
Class A
Net Assets ($10,266,995)____ = Net Asset Value per
Share ($17.14)
Shares Outstanding (599,179)
To obtain the public offering price per share, the 4.75% sales
charge must be added to the net asset value obtained above:
$17.14 = Public Offering Price per
Share ($17.99)
0.9525
Class B
Net Assets ($959,273)____ = Net Asset Value per
Share ($17.05)
Shares Outstanding (56,278)
Class C
Net Assets ($596,934)____ = Net Asset Value per
Share ($17.05)
Shares Outstanding (35,021)
Class H
Net Assets ($1,648,613)____ = Net Asset Value per
Share ($17.03)
Shares Outstanding (96,813)
The primary close of trading of the New York Stock Exchange
(the "Exchange") currently is 3:00 P.M. (Central Time), but this
time may be changed. The offering price for purchase orders
received in the office of the applicable Fund after the beginning
of each day the Exchange is open for trading is based on net asset
value determined as of the primary closing time for business on
the Exchange that day; the price in effect for orders received
after such close is based on the net asset value as of such close
of the Exchange on the next day the Exchange is open for trading.
Generally, the net asset value of each Fund's shares is
determined on each day on which the Exchange is open for business.
The Exchange is not open for business on the following holidays
(or on the nearest Monday or Friday if the holiday falls on a
weekend): New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Additionally, the
net asset value of a Fund's shares need not be determined (i) on
days on which changes in the value of the Fund securities of the
Fund will not materially affect the current net asset value of the
Fund's shares or (ii) on days during which no shares of the Fund
are tendered for redemption and no orders to purchase or sell the
Fund's shares are received by a Fund.
PURCHASE OF SHARES
Exemptions from Sales Charge
The following purchases of Class A shares are exempt from the
sales charge:
* Fortis, Inc. or its subsidiaries and the following persons
associated with such companies, if all account owners fit this
description: (1) officers and directors; (2) employees or sales
representatives (including agencies and their employees); (3)
spouses/domestic partners of any such persons; or (4) any of
such persons' children, grandchildren, parents, grandparents, or
siblings or spouses/domestic partners of any of these persons.
(all such persons may continue to add to their account even
after their company relationships have ended);
* Fund directors, officers, or their spouses/domestic partners (or
such persons' children, grandchildren, parents, or grandparents-
or spouses/domestic partners of any such persons), if all
account owners fit this description;
* Representatives or employees (or their spouses) of Investors
(including agencies) or of other broker-dealers having a sales
agreement with Investors (or such persons' children,
grandchildren, parents, or grandparents--or spouses of any such
persons), if all account owners fit this description;
* Pension, profit-sharing, and other retirement plans of
directors, officers, employees, representatives, and other
relatives and affiliates (as set forth in the preceding three
paragraphs) of the Fund, Fortis, Inc., and broker-dealers (and
certain affiliated companies) having a sales agreement with
Investors and purchases with the proceeds from such plans upon
the retirement or employment termination of such persons;
* Registered investment companies;
* Shareholders of unrelated mutual funds with front-end and/or
deferred sales loads, to the extent that the purchase price of
such Fund shares is funded by the proceeds from the redemption
of shares of any such unrelated mutual fund (within 60 days of
the purchase of Fund shares), provided that the shareholder's
application so specifies and is accompanied either by the
redemption check of such unrelated mutual fund (or a copy of the
check) or a copy of the confirmation statement showing the
redemption. Similarly, anyone who is or has been the owner of a
fixed annuity contract not deemed a security under the
securities laws who wishes to surrender such contract and invest
the proceeds in a Fund, to the extent that the purchase price of
such Fund shares is funded by the proceeds from the surrender of
the contract (within 60 days of the purchase of Fund shares),
provided that such owner's application so specifies and is
accompanied either by the insurance company's check (or a copy
of the check) or a copy of the insurance company surrender form.
From time to time, Investors may pay commissions to broker-
dealers and registered representatives on transfers from mutual
funds or annuities as described above;
* Purchases by employees (including their spouses and dependent
children) of banks and other financial institutions that provide
referral and administrative services related to order placement
and payment to facilitate transactions in shares of the Fund for
their clients pursuant to a sales or servicing agreement with
Investors; provided, however, that only those employees of such
banks and other firms who as a part of their usual duties
provide such services related to such transactions in Fund
shares shall qualify;
* Commercial banks offering self directed 401(k) programs
containing both pooled and individual investment options may
purchase Fund shares for such programs at a reduced sales charge
of 2.5% on sales of less than $500,000. For sales of $500,000
or more, normal sales charges apply;
* Registered investment advisers, trust companies, and bank trust
departments exercising discretionary investment authority or
using a money management/mutual fund "wrap" program with respect
to the money to be invested in the Fund, provided that the
investment adviser, trust company or trust department provides
Advisers with evidence of such authority or the existence of
such a wrap program with respect to the money invested.
Special Purchase Plans
Statement of Intention. Your sales charge may be reduced or
eliminated by signing a non-binding Statement of Intention to
purchase at least $100,000 of shares which are sold with a sales
charge over a 13-month period. The 13-month period is measured
from the date the letter of intent is approved by Investors, or at
the purchaser's option it may be made retroactive 90 days, in
which case Investors will make appropriate adjustments on
purchases during the 90-day period.
In computing the total amount purchased for purposes of
determining the applicable sales commission, the public offering
price (at the time they were purchased) of shares currently held
in the Fortis Funds having a sales charge and purchased within the
past 90 days may be used as a credit toward Fund shares to be
purchased under the Statement of Intention. Any such fund shares
purchased during the remainder of the 13-month period also may be
included as purchases made under the Statement of Intention.
The Statement of Intention includes a provision for payment
of additional applicable sales charges at the end of the period in
the event the investor fails to purchase the amount indicated.
This is accomplished by holding in escrow the number of shares
represented by the sales charge discount. If the investor's
purchases equal those specified in the Statement of Intention, the
escrow is released. If the purchases do not equal those specified
in the Statement of Intention, the shareholder may remit to
Investors an amount equal to the difference between the dollar
amount of sales charges actually paid and the amount of sales
charges that would have been paid on the aggregate purchases if
the total of such purchases had been made at a single time. If
the purchaser does not remit this sum to Investors on a timely
basis, Investors will redeem the escrowed shares.
Retirement Plans. Individual taxpayers can defer taxes on
current income by investing in tax qualified retirement plans
established by their employer, such as a pension plan, profit-
sharing plan and Section 403(b)plans, or in Individual Retirement
Accounts (IRAs), including a traditional IRA, Roth IRA and
Education IRA. If you are interested in a retirement plan
account, you should contact Investors. Investing in a retirement
plan involves a long-term commitment of assets and is subject to
legal and tax requirements and restrictions. You should consult
with your attorney or tax adviser prior to establishing such a
plan.
Systematic Investment Plan. The Systematic Investment Plan
enables you to make regular purchases in amounts less than
normally required and employs the principle of dollar cost
averaging, described below.
By acquiring Fund shares on a regular or systematic basis,
you take advantage of the principle of dollar cost averaging.
Under dollar cost averaging, if a constant amount is invested at
regular intervals at varying price levels, the average cost of all
the shares will be lower than the average of the price levels.
This is because the same fixed number of dollars buys more shares
when price levels are low and fewer shares when price levels are
high. The principle of dollar cost averaging will not protect
against loss in a declining market and a loss will result if the
plan is discontinued when the market value is less than cost.
You have no obligation to invest regularly or to continue the
Plan, which you may terminate at any time without penalty. Under
the Plan, any distributions of income and realized capital gains
will be reinvested in additional shares at net asset value unless
you instruct Investors in writing to pay distributions in cash.
Investors reserves the right to increase or decrease the amount
required to open and continue a Plan, and to terminate any Plan
after one year if the value of the amount invested is less than
the amount indicated.
Exchange Privilege. You may exchange your shares for the
same class of shares in another Fortis Fund. There is no exchange
fee or additional sales charge. The amount exchanged must meet
the minimum purchase amount of the Fund being purchased. You
should consider the investment objectives and policies of the
other fund prior to making such exchange.
For Federal tax purposes, except where the transferring
shareholder is a tax qualified plan, an exchange between funds is
a taxable event that will result in a capital gain or loss. If
you exchange your shares within 90 days of purchase, the sales
charge on that purchase cannot be taken into account for
determining your gain or loss on the sale of those shares to the
extent that the sales charge that would have been applicable to
the purchase of the later-acquired shares in the other fund is
reduced because of the exchange privilege. However, the amount of
the sales charge that may not be taken into account in determining
your gain or loss on the sale of the first-acquired shares may be
taken into account in determining gain or loss on the eventual
sale or exchange of the later-acquired shares.
Gifts or Transfers to Minor Children. You may purchase Fund
shares in an account established for a minor. This gift or
transfer is registered in the name of the custodian for a minor
under the Uniform Transfers to Minors Act (in some states the
Uniform Gifts to Minors Act). Control of the Fund shares passes
to the child upon reaching a specified age (either 18 or 21 years
in most states).
REDEMPTION OF SHARES
General
If you request a redemption, the Fund is required to redeem
your shares, with certain exceptions. The Fund will pay all
redemption requests in cash, limited in amount during any 90-day
period to the lesser of $250,000 or 1% of the net asset value of
the Fund at the beginning of such period. If your redemption
request exceeds such amount, the Fund reserves the right to make
part or all of the payment in the form of readily marketable
securities or other assets of the Fund. An example of when this
might be done is in case of an emergency, such as in those
situations listed in the following paragraph, or at any time a
cash distribution would impair the liquidity of the Fund to the
detriment of the remaining shareholders. Any securities being so
distributed would be valued in the same manner as the portfolio
securities of the Fund are valued. If you received securities
which you later sold, you probably would incur brokerage charges.
Redemption of shares or payment may be suspended at time (a)
when the Exchange is closed for other than customary weekend or
holiday closings, (b) when trading on said Exchange is restricted,
(c) when an emergency exists, as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable, or
it is not reasonably practicable for the Fund to fairly determine
the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits; provided
that applicable rules and regulations of the Securities and
Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist.
There is no charge for redeeming shares. In the event a
charge is established, it would apply only to persons who became
shareholders after the charge was implemented, and it would not,
in any event, exceed 1% of the net asset value of the shares
redeemed. Should further public sales ever be discontinued, the
Funds may deduct a proportionate share of the cost of liquidating
assets from the asset value of the shares being redeemed, in order
to protect the equity of the other shareholders.
Systematic Withdrawal Plan
You may open a "Systematic Withdrawal Plan" providing for
withdrawals of $50 or more monthly, quarterly, semiannually or
annually if the value of your shares is at least $4,000 ($10,000
if you elect monthly withdrawals).
The redemption of Fund shares pursuant to the Systematic
Withdrawal Plan is a taxable event to you. The withdrawals do not
represent a yield or a return on your investment and they may
deplete or eliminate your investment. You have no assurance of
receiving payment for any specific period because payments will
terminate when all shares have been redeemed. The number of such
payments will depend on the amount and frequency of each payment
and the increase (or decrease) in value of the remaining shares.
Distributions of income and realized capital gains will
continue to be reinvested at net asset value. If you purchase
additional shares of the Fund (other than by reinvestment of
distributions), when you have elected a Systematic Withdrawal
Plan, you will pay a sales charge on your purchases at the same
time that withdrawals are made at net asset value. Purchases of
additional shares concurrent with withdrawals are ordinarily
disadvantageous to you because of sales charges and tax
liabilities. Additions to your account in which an election has
been made to receive systematic withdrawals will be accepted only
if each additional purchase is equal to at least one year's
scheduled withdrawals or $1,200, whichever is greater. You may
not have a "Systematic Withdrawal Plan" and a "Systematic
Investment Plan" in effect at the same time.
The Systematic Withdrawal Plan is voluntary, flexible and
under your control and direction at all times, and does not limit
or alter your right to redeem shares. You or the Fund may
terminate the Plan at any time by written notification. Advisers
bears the cost of operating the Plan.
Reinvestment Privilege
If you redeem Fund shares, you have a one-time privilege to
reinvest in the Fund or in any other fund underwritten by
Investors and available to the public, without a sales charge.
The reinvestment privilege must be exercised within 60 days of the
redemption and for an amount which does not exceed the redemption
proceeds.
The purchase price for Fund shares will be based upon net
asset value at the time of reinvestment, and may be more or less
than the redemption value. Should you utilize the reinvestment
privilege within 30 days following a redemption that resulted in a
loss, all or a portion of that loss may not be currently
deductible for Federal income tax purposes. Exercising the
reinvestment privilege would not defer any capital gains taxes
payable on a realized gain. Furthermore, if you redeem within 90
days of purchasing your shares, the sales charge incurred on that
purchase cannot be taken into account for determining your gain or
loss on the sale of those shares.
TAXATION
The Funds have qualified and intend to qualify in the future
as regulated investment companies under the Internal Revenue Code
of 1986, as amended (the "Code"). As long as the Funds so
qualify, the Funds are not taxed on the income they distribute to
their shareholders.
Under the Code, each Fund is treated as a separate entity for
Federal tax purposes. Therefore, each Fund is treated separately
in determining whether it qualifies as a regulated investment
company and for purposes of determining the net ordinary income
(or loss), net realized capital gains (or losses), and
distributions necessary to relieve each Fund of any Federal income
tax liability.
Gain or loss realized upon the sale of shares in a Fund will
be treated as capital gain or loss, provided that the shares
represented a capital asset in the hands of the shareholder. For
individuals, estates, and trusts, long-term capital gains, which
are realized on the sale or exchange of capital assets held for
more than one year, are subject to a maximum federal income tax
rate of 20%, while ordinary income is subject to a maximum rate of
39.6%. Short-term capital gains, which are realized on the sale
or exchange of capital assets held one year or less, are taxed at
the same rates as ordinary income.
Under the Code, each Fund is 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 the Fund pays income tax. In order to avoid the
imposition of the excise tax, each Fund generally must declare
dividends by the end of a calendar year representing at least 98
percent of the Fund's 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 12-month period ending October 31 of
the calendar year.
Some of the investment practices that may be employed by the
Funds will be subject to special provisions that, among other
things, may defer the use of certain losses of such Funds, affect
the holding period of the securities held by the Funds and,
particularly in the case of transactions in or with respect to
foreign currencies, affect the character of the gains or losses
realized. These provisions may also require the Funds to mark-to-
market some of the positions in their respective portfolios (i.e.,
treat them as closed out) or to accrue original discount, both of
which may cause such Funds to recognize income without receiving
cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for qualification as a
regulated investment company and for avoiding income and excise
taxes. Accordingly, in order to make the required distributions,
a Fund may be required to borrow or liquidate securities. Each
Fund will monitor its transactions and may make certain elections
in order to mitigate the effect of these rules and prevent
disqualification of the Funds as regulated investment companies.
If a Fund invests in zero coupon obligations upon their
issuance, such obligations will have original issue discount in
the hands of the Fund. Generally, the 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 the Fund acquires an already issued
zero coupon bond from another holder, the bond will have original
issue discount in the Fund's hands, equal to the difference
between the "adjusted issue price" of the bond at the time the
Fund acquires it (that is, the original issue price of the bond
plus the amount of original issue discount accrued to date) and
its stated redemption price at maturity. In each case, the Fund
is required to accrue as ordinary interest income a portion of
such original issue discount even though the Fund receives no cash
currently as interest payment on the obligation.
Because each Fund is required to distribute substantially all
of its net investment income (including accrued original issue
discount) in order to qualify as a regulated investment company,
each Fund may be required to distribute an amount greater than the
total cash income the Fund actually receives. Accordingly, in
order to make the required distribution, the Fund may be required
to borrow or to liquidate securities.
Pursuant to a special provision in the Code, if Fund shares
with respect to which a long-term capital gain distribution has
been made are held for six months or less, any loss on the sale or
other disposition of such shares will be a long-term capital loss
to the extent of such long-term capital gain distribution, unless
such sale or other disposition is pursuant to a Systematic
Withdrawal Plan.
Under the Code, each Fund is required to withhold and remit
to the U.S. Treasury 31% of dividend and capital gain income on
the accounts of certain shareholders who fail to provide a correct
tax identification number, fail to certify that they are not
subject to backup withholding, or are subject to backup
withholding for some other reason.
If more than 50% of a Fund's total assets at the close of its
fiscal year consist of securities of foreign corporations, it will
be eligible to, and may, file an election with the Internal
Revenue Service pursuant to which shareholders will be required to
include their pro rata portions of foreign taxes paid by the Fund
as income received by them. Shareholders may then either deduct
such pro rata portions in computing their taxable income or use
them as foreign tax credits against their United States income
taxes. If it makes such an election, the Fund will report
annually to each shareholder the amount of foreign taxes to be
included in income and then either deducted or credited.
Alternatively, if the amount of foreign taxes paid by a Fund
is not large enough to warrant its making the election described
above, the Fund may claim the amount of foreign taxes paid as a
deduction against its own gross income. In that case, shareholders
would not be required to include any amount of foreign taxes paid
by the Fund in their income and would not be permitted either to
deduct any portion of foreign taxes from their own income or to
claim any amount of foreign tax credit for taxes paid by the Fund.
The foregoing is a general discussion of the Federal income
tax consequences of an investment in a Fund as of the date of this
Statement of Additional Information. Distributions from net
investment income and from net realized capital gains may also be
subject to state and local taxes. You are urged to consult your
own tax adviser regarding specific questions as to Federal, state,
or local taxes.
UNDERWRITER AND DISTRIBUTION OF SHARES
Pursuant to the Underwriting and Distribution Agreement,
Investors has agreed to act as the principal underwriter for the
Funds in the sale and distribution to the public of shares of the
Funds, either through dealers or otherwise. Investors has agreed
to offer such shares for sale at all times when such shares are
available for sale and may lawfully be offered for sale and sold.
As compensation for its services, in addition to receiving its
distribution fees pursuant to the Distribution Plan discussed
above, Investors receives the initial sales charges on sales of
Class A shares of the Funds and any contingent deferred sales
charges on redemptions of certain Class A shares of the Funds that
were not subject to an initial sales charge and redemptions of
Class B, C and H shares, as set forth in the Prospectus. The
following tables set forth the amount of underwriting commissions
paid by each Fund and the amount of such commissions retained by
Investors.
Total Underwriting
Commissions_____________
Fiscal year ended Fiscal year ended Fiscal
period ended
October 31, 1997 October 31, 1998 October
31, 1999
Global Fund $ 679,460 $ 382,765 $
379,939
International Fund n/a 23,948*
84,915
Underwriting Commissions Retained By
Investors______
Fiscal year ended Fiscal year ended Fiscal
period ended
October 31, 1997 October 31, 1998 October
31, 1999
Global Fund $ 171,323 $ 78,212 $
91,805
International Fund n/a 5,491*
16,685
* Period from March 2, 1998 (date shares first offered to public)
to October 31, 1998.
Investors received the following compensation from each Fund
during its most recent fiscal year.
Net Underwriting Compensation on
Discounts and Redemptions and Brokerage
Other
Commissions Repurchases Commissions
Compensation
Global Fund $ 271,495 $ 108,444 $ 0
$ 0
International
Fund $ 81,717 $ 3,198 $ 0
$ 0
PERFORMANCE INFORMATION
Advertisements and other sales literature for the Funds may
refer to "average annual total return," and "cumulative total
return." All such total return quotations are based on historical
earnings and are not intended to indicate future performance.
Average annual total return is the average annual compounded
rate of return on a hypothetical $1,000 investment made at the
beginning of the advertised period. Average annual total return
figures are computed according to the following formula:
P(1+T) n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return;
N = number of years; and
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000
payment made at the beginning of such period.
This calculation deducts the maximum sales charge from the
initial hypothetical $1,000 investment, assumes all dividends and
capital gains distributions are reinvested at net asset value on
the appropriate reinvestment dates, and includes all recurring
fees, such as investment advisory and management fees, charged to
all shareholder accounts. Average annual total return quotations
may be accompanied by quotations which do not reflect the
reduction in value of the initial investment due to the sales
charge, and which thus will be higher.
The following tables set forth the average annual total
returns for each Class of shares of each Fund for one year, five
years and since inception for the period ending October 31, 1999.
Average Annual Total Returns
1 Year 5 Years Since Inception
Global Fund
Class A Shares* 34.73% 16.14% 14.64%
Class B Shares** 33.67% 15.59% 15.71%
Class C Shares** 33.88% 15.64% 15.76%
Class H Shares** 33.72% 15.60% 15.72%
Average Annual Total Returns
1 Year 5 Years Since Inception
International Fund*
Class A Shares 66.90% ---
35.08%
Class B Shares 65.56% --- 34.28%
Class C Shares 65.72% ---
34.28%
Class H Shares 65.53% --- 34.19%
* Inception date: March 2, 1998 for all classes of shares.
Cumulative total return is computed by finding the cumulative
compounded rate of return over the period indicated in the
advertisement that would equate the initial amount invested to the
ending redeemable value, according to the following formula:
CTR = ( ERV+P ) 100
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of
the period of a hypothetical
$1,000 payment made at the beginning of
such period; and
P = initial payment of $1,000
This calculation assumes all dividends and capital gain
distributions are reinvested at net asset value on the appropriate
reinvestment dates as described in the Prospectus and includes all
recurring fees, such as investment advisory and management fees,
charged to all shareholder accounts.
The following table sets forth the cumulative total returns
of each Class of shares of each Fund for the period from inception
through October 31, 1999:
Cumulative Total Return
Global Fund
Class A Shares* 196.71%
Class B Shares** 104.57%
Class C Shares** 106.78%
Class H Shares** 104.64%
International Fund
Class A Shares*** 57.45%
Class B Shares*** 60.06%
Class C Shares*** 63.66%
Class H Shares*** 59.87%
* Inception date: July 8, 1991
** Inception date: November 14, 1994.
*** Inception date: March 2, 1998
The Funds may advertise relative performance as compiled by
outside organizations or refer to publications which have
mentioned their performance or track the performance of investment
companies. Following is a list of ratings services which may be
referred to, along with the category in which the Funds are
included. Because some of these organizations do not take into
account sales charges, their ratings may sometimes be different
than had they done so.
Global Fund
Ratings Service Category
Lipper Analytical Services, Inc. global funds
CDA/Wiesenberger equity funds
Morningstar Publications, Inc. world stock
Johnson's Charts global equity
International Fund
Ratings Service Category
Lipper Analytical Services, Inc. international funds
CDA/Wiesenberger non-U.S. equity
Morningstar Publications, Inc. foreign stock
Johnson's Charts international equity
FINANCIAL STATEMENTS
The audited financial statements as of October 31, 1999, as
set forth in the Funds' Annual Report to Shareholders, are
incorporated herein by reference. The audited financial statements
are provided in reliance on the report of KPMG LLP, 4200 Norwest
Center, Minneapolis, MN 55402, independent auditors of the Funds,
and given on the authority of such firm as experts in accounting
and auditing.
OTHER SERVICE PROVIDERS
U.S. Bank National Association, Minneapolis MN acts as
custodian of each Fund's assets and Fund securities. Dorsey &
Whitney LLP, 220 South Sixth Street, Minneapolis, MN 55402, is
the independent General Counsel for the Funds. Advisers bears the
costs of serving as the transfer agent and dividend-paying agent
for each Fund.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director of Fortis Worldwide owes
certain fiduciary duties to it and to its shareholders. Minnesota
law provides that a director "shall discharge the duties of the
position of director in good faith, in a manner the director
reasonably believes to be in the best interest of the corporation,
and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of
a director of a Minnesota corporation include, therefore, both a
duty of "loyalty" (to act in good faith and act in a manner
reasonably believed to be in the best interests of the
corporation) and a duty of "care" (to act with the care an
ordinarily prudent person in a like position would exercise under
similar circumstances). Minnesota law authorizes corporations to
eliminate or limit the personal liability of a director to the
corporation or its shareholders for monetary damages for breach of
the fiduciary duty of "care." Minnesota law does not, however,
permit a corporation to eliminate or limit the liability of a
director (i) for any breach of the director's duty of "loyalty" to
the corporation or its shareholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for authorizing a dividend, stock
repurchase or redemption or other distribution in violation of
Minnesota law or for violation of certain provisions of Minnesota
securities laws, or (iv) for any transaction from which the
director derived an improper personal benefit. The Articles of
Incorporation of Fortis Worldwide 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
The Funds have filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement under
the Securities Act of 1933, as amended, with respect to the common
stock offered hereby. The Prospectus and this Statement of
Additional Information do not contain all of the information set
forth in the Registration Statement, certain parts of which are
omitted in accordance with Rules and Regulations of the
Commission. The Registration Statement may be inspected at the
principal office of the Commission at 450 Fifth Street NW,
Washington, D.C., and copies thereof may be obtained from the
Commission at prescribed rates.
Appendix A
Corporate Bond, Preferred Stock, and Commercial Paper Ratings
Commercial Paper Ratings
Standard & Poor's Ratings Services. Commercial paper ratings
are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Issues assigned the A
rating are regarded as having the greatest capacity for timely
payment. Issues in this category are further refined with
designation 1, 2, and 3 to indicate the relative degree of safety.
The "A-1" designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation. The "A-2" designation indicates
that the 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." Issues carrying the
"A-3" 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.
Moody's Investors Service, Inc. Moody's commercial paper
ratings are opinions of the ability of the issuers to repay
punctually promissory obligations not having an original maturity
in excess of nine months. Moody's makes no representations that
such obligations are exempt from registration under the Securities
Act of 1933, nor does it represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with
any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
Prime-1 Superior capacity for repayment of short-term
promissory obligations.
Prime-2 Strong capacity for repayment of short-term
promissory obligations.
Prime-3 Acceptable capacity for repayment of short-term
promissory obligations.
Corporate Bond Ratings
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 "CC" 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.
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 S&P believes that such payments will be made
during such grace period. The "D" rating also will be used upon
the filing of a bankruptcy petition if debt service payments are
jeopardized.
The rating "C1" is reserved for income bonds on which no
interest is being paid.
"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.
Bond Investment Quality Standards. Under present commercial
bank regulations issued by the Comptroller of the Currency, bonds
rated in the top four categories (AAA, AAA, 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.
Moody's Investors Service, Inc. Its ratings for corporate
bonds include the following:
Bonds which are rated "Aaa" are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Bonds which are rated "Aa" are judged to be of high quality
by all standards. Together with the Aaa group, they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa
securities.
Bonds which are rated "A" possess many favorable attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Bonds which are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated "B" generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Bonds which are rated "Caa" are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
Bond which are 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.
Preferred Stock Rating
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.
Appendix B
Description of Futures, Options and Forward Contracts
Options on Securities
An option on a security provides the purchaser ("holder")
with the option to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities
underlying the option, for a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date.
The holder pays a non-refundable purchase price for the option,
known as the "premium." The maximum amount of risk the purchaser
of the option assumes is equal to the premium plus related
transaction costs, although this entire amount may be lost. The
risk of the seller, or "writer," however, is potentially
unlimited, unless the option is "covered" or "secured."
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 that 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 indices 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 Commission. 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 indices 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 indices 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 Indices
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 purchaser of the option receives
this cash settlement amount if the closing level of the 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 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 index underlying an index option 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 on narrower market
indices, such as the Standard & Poor's 100 Index, or on indices of
securities of particular industry groups, such as those of oil and
gas or technology companies. An index assigns relative values to
the securities included in the index and the index fluctuates with
changes in the market values of the securities 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
Commodity Futures Trading Commission ("CFTC") for the trading of
such contract, and only through a registered futures commission
merchant which is a member of such contract market. A commission
must be paid on each completed purchase and sale transaction. The
contract market clearing house guarantees the performance of each
party to a Futures Contract, by in effect taking the opposite side
of such contract. At any time prior to the expiration of a
Futures Contract, a trader may elect to close out its position by
taking an opposite position on the contract market on which the
position was entered into, subject to the availability of a
secondary market, which will operate to terminate the initial
position. At that time, a final determination of variation margin
is made and any loss experienced by the trader is required to be
paid to the contract market clearing house while any profit due to
the trader must be delivered to it. Futures Contracts may also be
traded on foreign exchanges.
Interest rate Futures Contracts currently are traded on a
variety of fixed income securities, including long-term U.S.
Treasury Bonds, Treasury Notes, Government National Mortgage
Association modified pass-through mortgage-backed securities, and
U.S. Treasury Bills. In addition, interest rate Futures Contracts
include contracts on indexes of municipal securities. 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 Foreign Currencies
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
a Fund 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.
Forward Foreign Currency Exchange Contracts
A Currency 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. Currency 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 Currency Contracts, and ordinarily charge
a mark-up commission which may be included in the cost of the
Contract. In addition, market-makers may require their customers
to deposit collateral upon entering into a Currency 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 Currency 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 Futures Contracts
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 contrast, 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 a Fund's position, unless the institution acts as
broker and is able to find another counterparty willing to enter
into the transaction with the Fund. 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 a Fund could be
required to retain options purchased or written until exercise,
expiration or maturity. This in turn could limit the Fund's
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 Funds 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 Funds' ability to enter into desired
hedging transactions. The Funds will enter into an over-the-
counter transaction only with parties whose creditworthiness has
been reviewed and found satisfactory by Advisers.
