<PAGE>
December 27, 1995
FORTIS ADVANTAGE PORTFOLIOS, INC.
To the Shareholders of the Government Total Return Portfolio:
Enclosed with this letter is a proxy voting ballot, a Prospectus/Proxy
Statement and related information concerning a Special Meeting of Shareholders
of the Government Total Return Portfolio (the "Acquired Fund") of Fortis
Advantage Portfolios, Inc. to be held on Friday, February 9, 1996. The purpose
of this Special Meeting is to submit to shareholders of the Acquired Fund a
proposal to combine that Fund with and into the Fortis U.S. Government
Securities Fund portfolio (the "Acquiring Fund") of Fortis Income Portfolios,
Inc. by means of the reorganization described in the Prospectus/Proxy Statement.
If the proposed combination of Funds is approved, you will receive the same
class of shares in the Acquiring Fund that you currently hold in the Acquired
Fund. The exchange of shares will take place on the basis of the relative net
asset values per share of the respective classes of the two Funds. As described
in the Prospectus/Proxy Statement, sales charges and Rule 12b-1 fees will remain
unchanged as a result of the proposed combination of Funds, EXCEPT that Class A
shares of the Acquiring Fund are subject to LOWER Rule 12b-1 fees than Class A
shares of the Acquired Fund.
Fortis Advisers, Inc. acts as the investment adviser, transfer agent, and
dividend disbursing agent for both the Acquired Fund and the Acquiring Fund. As
described in the Prospectus/Proxy Statement, the investment advisory and
management fee schedule of the Acquiring Fund is slightly more favorable to
shareholders than that of the Acquired Fund. As a result of the favorable fee
schedule and the larger size of the Acquiring Fund relative to the Acquired
Fund, the Acquiring Fund currently pays, and after the reorganization will pay,
a lower investment advisory and management fee than the Acquired Fund currently
pays.
At July 31, 1995, the Acquired Fund had net assets of only approximately
$64.5 million, while the Acquiring Fund had net assets of approximately $481.1
million. The Acquired Fund's Board of Directors believes that the proposed
combination of Funds is in the best interests of Acquired Fund shareholders
because, among other things, it is expected to significantly lower the total
expense ratio experienced by such shareholders due to the economies of scale
associated with becoming part of a larger Fund, as described at pages 8 - 10 of
the Prospectus/Proxy Statement.
Although the investment objectives of the two Funds are similar in that both
seek to provide shareholders with a high level of current income and with
capital appreciation, shareholders should carefully consider both the
similarities and the differences between the investment objectives, policies and
restrictions of the two Funds. These similarities and differences, as well as
other important information concerning the proposed combination of Funds, are
described in detail in the Prospectus/ Proxy Statement, which you are encouraged
to review carefully. If you have any additional questions, please call your
registered representative, or the Acquired Fund directly at 1-800-800-2638, Ext.
3012 or 3014.
The Acquired Fund's Board of Directors has approved the proposed combination
of Funds and recommends it for your approval. I encourage you to vote "FOR" the
proposal, and ask that you please send your completed proxy ballot in as soon as
possible to help save the cost of additional solicitations. As always, we thank
you for your confidence and support.
Sincerely,
[SIG]
Dean C. Kopperud
PRESIDENT
<PAGE>
GOVERNMENT TOTAL RETURN PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS ADVANTAGE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MINNESOTA 55164
(800) 738-4000
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 9, 1996
---------------------
December 27, 1995
To the Shareholders of Government Total Return Portfolio:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Government
Total Return Portfolio (the "Acquired Fund"), a separately managed series of
Fortis Advantage Portfolios, Inc. ("Fortis Advantage"), will be held at 10:00
a.m., Central time, on Friday, February 9, 1996, at the offices of Fortis
Advisers, Inc., 500 Bielenberg Drive, Woodbury, Minnesota. The purpose of the
special meeting is as follows:
1. To consider and vote on a proposed Agreement and Plan of Reorganization
(the "Plan") providing for (a) the acquisition of substantially all of
the assets and the assumption of all liabilities of the Acquired Fund by
Fortis U.S. Government Securities Fund (the "Acquiring Fund"), a
separately managed series of Fortis Income Portfolios, Inc., in exchange
for shares of common stock of the Acquiring Fund having an aggregate net
asset value equal to the aggregate value of the assets acquired (less the
liabilities assumed) of the Acquired Fund and (b) the liquidation of the
Acquired Fund and the pro rata distribution of the Acquiring Fund shares
to Acquired Fund shareholders. Under the Plan, Acquired Fund shareholders
will receive the same class of shares of the Acquiring Fund that they
held in the Acquired Fund, having a net asset value equal as of the
effective time of the Plan to the net asset value of their Acquired Fund
shares. A vote in favor of the Plan will be considered a vote in favor of
an amendment to the articles of incorporation of Fortis Advantage
required to effect the reorganization contemplated by the Plan.
2. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Even if Acquired Fund shareholders vote to approve the Plan, consummation of
the Plan is subject to certain other conditions. See "Information About the
Reorganization -- Plan of Reorganization" in the attached Prospectus/Proxy
Statement.
THE BOARD OF DIRECTORS OF THE ACQUIRED FUND RECOMMENDS APPROVAL OF THE PLAN.
The close of business on December 15, 1995 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting and any adjournments or postponements thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IN ORDER TO
AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE RESPECTFULLY ASK FOR
YOUR COOPERATION IN MAILING IN YOUR PROXY PROMPTLY. If you are present at the
meeting, you may then revoke your proxy and vote in person, as explained in the
Prospectus/Proxy Statement in the section entitled "Voting Information."
By Order of the Board of Directors,
MICHAEL J. RADMER
SECRETARY
<PAGE>
PROSPECTUS/PROXY STATEMENT
DATED DECEMBER 27, 1995
ACQUISITION OF THE ASSETS OF
GOVERNMENT TOTAL RETURN PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS ADVANTAGE PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MINNESOTA 55164
(800) 738-4000
BY AND IN EXCHANGE FOR SHARES OF
FORTIS U.S. GOVERNMENT SECURITIES FUND
A SEPARATELY MANAGED SERIES OF
FORTIS INCOME PORTFOLIOS, INC.
500 BIELENBERG DRIVE, WOODBURY, MINNESOTA 55125
MAILING ADDRESS: P.O. BOX 64284, ST. PAUL, MINNESOTA 55164
(800) 738-4000
This Prospectus/Proxy Statement is being furnished to the shareholders of
Government Total Return Portfolio (the "Acquired Fund"), a separately managed
series of Fortis Advantage Portfolios, Inc. ("Fortis Advantage"), in connection
with a special meeting (the "Meeting") of the shareholders of the Acquired Fund
to be held at the offices of Fortis Advisers, Inc., 500 Bielenberg Drive,
Woodbury, Minnesota, on Friday, February 9, 1996, for the purposes set forth in
the accompanying Notice of Special Meeting of Shareholders. This
Prospectus/Proxy Statement is first being mailed to shareholders of the Acquired
Fund on or about December 27, 1995. Information concerning the voting rights of
each Acquired Fund shareholder is set forth under "Voting Information" below.
Representatives of Fortis Advisers, Inc., the investment adviser and manager of
the Acquired Fund, or of its affiliates, may, without cost to the Acquired Fund,
solicit proxies for management of the Acquired Fund by means of mail, telephone,
or personal calls. In addition, the services of a third-party proxy solicitation
firm may be utilized, with such firm's fees and expenses allocated between and
borne by the Acquired Fund and the Acquiring Fund as described under
"Information About the Reorganization -- Plan of Reorganization" below. Persons
holding shares as nominees will, upon request, be reimbursed for their
reasonable expenses incurred in sending proxy soliciting materials on behalf of
the Board of Directors to their principals.
As set forth in the Notice of Special Meeting of Shareholders, this
Prospectus/Proxy Statement relates to a proposed Agreement and Plan of
Reorganization (the "Plan") providing for (i) the acquisition of substantially
all the assets and the assumption of all liabilities of the Acquired Fund by
Fortis U.S. Government Securities Fund (the "Acquiring Fund"), a separately
managed series of Fortis Income Portfolios, Inc., in exchange for shares of
common stock of the Acquiring Fund having an aggregate net asset value equal to
the aggregate value of the assets acquired (less liabilities assumed) of the
Acquired Fund, and (ii) the liquidation of the Acquired Fund and the pro rata
distribution of its holdings of Acquiring Fund shares to Acquired Fund
shareholders. The Acquired Fund and the Acquiring Fund are sometimes referred to
herein, individually, as a "Fund," or together, as the "Funds." A vote in favor
of the Plan will be considered a vote in favor of an amendment to the articles
of incorporation of Fortis Advantage required to effect the reorganization
contemplated by the Plan.
As a result of the transactions contemplated by the Plan (collectively, the
"Reorganization"), each shareholder of the Acquired Fund will receive Acquiring
Fund shares of the same class that he or she held in the Acquired Fund, with a
net asset value equal at the effective time of the Reorganization to
1
<PAGE>
the net asset value of the shareholder's Acquired Fund shares at such time. The
Reorganization is being structured as a tax-free reorganization so that no
income, gain or loss will be recognized by the Acquired Fund or its shareholders
as a result thereof (except that the Acquired Fund contemplates that it will
make a distribution, immediately prior to the Reorganization, of all of its
current year net income and net realized capital gains, if any, not previously
distributed, and this distribution will be taxable to Acquired Fund shareholders
subject to taxation). The shareholders of the Acquired Fund are being asked to
vote on the proposed Plan and Reorganization at the Meeting.
In addition to the approval of the Plan and Reorganization by Acquired Fund
shareholders, the consummation of the Reorganization is subject to certain other
conditions. See "Information About the Reorganization -- Plan of
Reorganization."
The Acquired Fund and the Acquiring Fund are both diversified, open-end
funds with investment objectives which are similar, in that both seek to provide
shareholders with a high level of current income and with capital appreciation.
Specifically:
- The investment objective of the Acquired Fund is to provide investors with
a high level of current income consistent with liquidity and the
preservation of principal. In addition, the Acquired Fund will, when
market conditions permit and consistent with the overall goal of
preserving capital, seek capital appreciation.
- The investment objective of the Acquiring Fund is to maximize total return
(from current income and capital appreciation), while providing
shareholders with a high level of current income consistent with prudent
investment risk.
The investment policies of the Acquired Fund and the Acquiring Fund are similar
but not identical. Specifically:
- Under normal market conditions, the Acquired Fund invests at least 80% of
its net assets in obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities (whether or not backed by
the "full faith and credit" pledge of the United States Government), cash,
and receivables. In addition, the Acquired Fund may invest up to 20% of
its net assets in certain types of debt securities which are not issued or
guaranteed by the United States Government or its agencies or
instrumentalities.
- The Acquiring Fund invests in securities issued, guaranteed, insured, or
collateralized by the United States Government or its agencies or
instrumentalities (whether or not backed by the "full faith and credit"
pledge of the United States Government). Unlike the Acquired Fund, the
Acquiring Fund is not permitted to invest any portion of its assets in
debt securities which are not issued or guaranteed by the United States
Government or its agencies or instrumentalities. At the present time, the
Acquired Fund does not hold any assets which would not be permitted
investments for the Acquiring Fund.
In addition, both Funds may engage in certain repurchase agreement, delayed
delivery, securities lending, and other transactions and may, to the extent
consistent with the investment policies described above, invest in certain types
of mortgage-backed securities and collateralized mortgage obligations. The
Funds' investment objectives, policies and restrictions are described and
compared in further detail herein under "Information About the Acquired Fund and
the Acquiring Fund -- Comparison of Investment Objectives, Policies and
Restrictions."
For certain comparative information concerning the respective Funds'
portfolio compositions and overall durations, see "Summary -- Investment
Objectives, Policies and Restrictions" herein.
Fortis Advisers, Inc. ("Advisers") serves as the investment adviser,
transfer agent and dividend agent to both the Acquired Fund and the Acquiring
Fund.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the proposed Plan and
Reorganization and about the Acquiring Fund and its affiliates that each
Acquired Fund shareholder should know prior to voting on the proposed Plan and
Reorganization.
2
<PAGE>
INCORPORATION BY REFERENCE
The documents listed in items 1, 2 and 4 below, which have been filed with
the Securities and Exchange Commission (the "Commission"), are incorporated
herein by reference to the extent noted below. A Statement of Additional
Information dated December 27, 1995 relating to this Prospectus/ Proxy Statement
has been filed with the Commission and is also incorporated by reference into
this Prospectus/Proxy Statement. A copy of the Statement of Additional
Information, and of each of the documents listed in items 3 through 7 below, is
available upon request and without charge by writing to the Acquiring Fund at
P.O. Box 64284, St. Paul, Minnesota 55164, or by calling (800) 800-2638, Ext.
3012 or 3014. The documents listed in items 2, 3, and 5 through 7 below are
incorporated by reference into the Statement of Additional Information and will
be provided with any copy of the Statement of Additional Information which is
requested. Any documents requested will be sent within one business day of
receipt of the request by first class mail or other means designed to ensure
equally prompt delivery.
1. The Prospectus dated December 1, 1995 of the Acquiring Fund is
incorporated herein in its entirety by reference, and a copy thereof
accompanies this Prospectus/Proxy Statement.
2. The "Letter to Shareholders" set forth at pages 2-3 of the Acquiring
Fund's Annual Report for the fiscal year ended July 31, 1995 is
incorporated herein by reference, and a copy of such Annual Report
accompanies this Prospectus/Proxy Statement. The entire Annual Report is
incorporated by reference in the Statement of Additional Information
relating to this Prospectus/Proxy Statement.
3. The Statement of Additional Information dated December 1, 1995 of the
Acquiring Fund is incorporated by reference in its entirety in the
Statement of Additional Information relating to this Prospectus/Proxy
Statement.
4. The Prospectus dated March 1, 1995 of the Acquired Fund is incorporated
herein in its entirety by reference.
5. The Statement of Additional Information dated March 1, 1995 of the
Acquired Fund is incorporated by reference in its entirety in the
Statement of Additional Information relating to this Prospectus/Proxy
Statement.
6. The Annual Report of the Acquired Fund for the fiscal year ended October
31, 1994 is incorporated by reference in its entirety in the Statement of
Additional Information relating to this Prospectus/Proxy Statement.
7. The Semi-Annual Report of the Acquired Fund for the six months ended
April 30, 1995 is incorporated by reference in its entirety in the
Statement of Additional Information relating to this Prospectus/Proxy
Statement.
Also accompanying and attached to this Prospectus/Proxy Statement as Exhibit A
is a copy of the Plan for the proposed Reorganization.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
3
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement and in the
documents incorporated by reference herein, and by reference to the Plan, a copy
of which is attached to this Prospectus/Proxy Statement as Exhibit A. Acquired
Fund shareholders should review the accompanying documents carefully in
connection with their review of this Prospectus/Proxy Statement.
PROPOSED REORGANIZATION
The Plan provides for (i) the acquisition of substantially all of the assets
and the assumption of all liabilities of the Acquired Fund by the Acquiring Fund
in exchange for shares of common stock of the Acquiring Fund having an aggregate
net asset value equal to the aggregate value of the assets acquired (less
liabilities assumed) of the Acquired Fund and (ii) the liquidation of the
Acquired Fund and the pro rata distribution of its holdings of Acquiring Fund
shares to Acquired Fund shareholders as of the effective time of the
Reorganization (the close of normal trading on the New York Stock Exchange,
currently 4:00 p.m. Eastern Time, on March 1, 1996, or such later date as
provided for in the Plan) (such time and date, the "Effective Time"). The value
of the Acquired Fund assets and liabilities to be acquired by the Acquiring
Fund, and the value of the Acquiring Fund shares to be exchanged therefor, will
be computed as of the Effective Time. As a result of the Reorganization, each
shareholder of the Acquired Fund will receive Acquiring Fund shares of the same
class that he or she held in the Acquired Fund, with a net asset value equal to
the net asset value of the shareholder's Acquired Fund shares as of the
Effective Time. See "Information About the Reorganization."
For the reasons set forth below under "Information About the Reorganization
- -- Reasons for the Reorganization," the Board of Directors of the Acquired Fund,
including all of the "non-interested" Directors, as that term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act"), has
concluded that the Reorganization would be in the best interests of the
shareholders of the Acquired Fund and that the interests of Acquired Fund's
existing shareholders would not be diluted as a result of the transactions
contemplated by the Reorganization. Therefore, the Board of Directors has
approved the Reorganization and has submitted the Plan for approval by Acquired
Fund shareholders.
The Board of Directors of the Acquiring Fund has also concluded that the
Reorganization would be in the best interests of the Acquiring Fund's existing
shareholders and has therefore approved the Reorganization on behalf of the
Acquiring Fund.
Approval of the Plan and Reorganization will require the affirmative vote of
a majority of the outstanding shares of each class of the Acquired Fund, voting
as separate classes.
TAX CONSEQUENCES
Prior to completion of the Reorganization, the Acquired Fund will have
received from counsel an opinion that, upon the Reorganization and the transfer
of the assets of the Acquired Fund, no gain or loss will be recognized by the
Acquired Fund or its shareholders for federal income tax purposes. The holding
period and aggregate tax basis of Acquiring Fund shares that are received by
each Acquired Fund shareholder will be the same as the holding period and
aggregate tax basis of the Acquired Fund shares previously held by such
shareholders. In addition, the holding period and tax basis of the assets of the
Acquired Fund in the hands of the Acquiring Fund as a result of the
Reorganization will be the same as in the hands of the Acquired Fund immediately
prior to the Reorganization. See "Information About the Reorganization --
Federal Income Tax Consequences."
4
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
The Acquired Fund and the Acquiring Fund are both diversified, open-end
funds with investment objectives which are similar, in that both seek to provide
shareholders with a high level of current income and with capital appreciation.
Specifically:
- The investment objective of the Acquired Fund is to provide investors with
a high level of current income consistent with liquidity and the
preservation of principal. In addition, the Acquired Fund will, when
market conditions permit and consistent with the overall goal of
preserving capital, seek capital appreciation.
- The investment objective of the Acquiring Fund is to maximize total return
(from current income and capital appreciation), while providing
shareholders with a high level of current income consistent with prudent
investment risk.
The investment policies of the Acquired Fund and the Acquiring Fund are similar
but not identical. Specifically:
- Under normal market conditions, the Acquired Fund invests at least 80% of
its net assets in obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities (whether or not backed by
the "full faith and credit" pledge of the United States Government), cash,
and receivables. In addition, the Acquired Fund may invest up to 20% of
its net assets in certain types of debt securities which are not issued or
guaranteed by the United States Government or its agencies or
instrumentalities.
- The Acquiring Fund invests in securities issued, guaranteed, insured, or
collateralized by the United States Government or its agencies or
instrumentalities (whether or not backed by the "full faith and credit"
pledge of the United States Government). Unlike the Acquired Fund, the
Acquiring Fund is not permitted to invest any portion of its assets in
debt securities which are not issued or guaranteed by the United States
Government or its agencies or instrumentalities. At the date of this
Prospectus/Proxy Statement, the Acquired Fund does not hold any assets
which would not be permitted investments for the Acquiring Fund.
In addition, both Funds may engage in certain repurchase agreement, delayed
delivery, securities lending, and other transactions and may, to the extent
consistent with the investment policies described above, invest in certain types
of mortgage-backed securities and collateralized mortgage obligations. The
Funds' investment objectives, policies and restrictions are described and
compared in further detail herein under "Information About the Acquired Fund and
the Acquiring Fund -- Comparison of Investment Objectives, Policies and
Restrictions."
Based on the historical performance and current portfolio composition of the
respective Funds, the Funds' investment adviser expects that the level of net
investment income of the respective classes of Acquiring Fund shares issued in
the Reorganization will be somewhat higher than the historical level of net
investment income on the respective classes of Acquired Fund shares. As of July
31, 1995, the Acquired Fund held approximately 40.2% of its net assets in
mortgage-backed securities and approximately 57.8% in treasury and agency bonds,
while the Acquiring Fund held approximately 38.7% and 60.8%, respectively, of
its net assets in these two types of securities. At September 30, 1995, the
Acquired Fund's overall duration was approximately 4.4 years and the Acquiring
Fund's was approximately 4.4 years.
The Annual Report of the Acquiring Fund for the fiscal year ended July 31,
1995 and the Semi-Annual Report of the Acquired Fund for the six months ended
April 30, 1995, referred to on the cover page hereof under "Incorporation by
Reference," provide additional information concerning the composition of the
respective Funds' assets at the applicable dates. As noted above, at the date of
this Prospectus/Proxy Statement, the Acquired Fund does not hold any assets
which would not be permitted investments for the Acquiring Fund.
5
<PAGE>
FEES AND EXPENSES
ADVISORY FEES. The Acquired Fund and the Acquiring Fund have separate
agreements with Advisers pursuant to which they pay Advisers investment advisory
and management fees for managing their respective investment portfolios. The
investment advisory fees for the two Funds are calculated as a percentage of
Fund net assets pursuant to the following schedules:
<TABLE>
<CAPTION>
ACQUIRED FUND ACQUIRING FUND
- -------------------------------------------------- -------------------------------------------------
ANNUAL ANNUAL
INVESTMENT ADVISORY INVESTMENT ADVISORY
AVERAGE NET ASSETS AND MANAGEMENT FEE AVERAGE NET ASSETS AND MANAGEMENT FEE
- ---------------------------- -------------------- --------------------------- --------------------
<S> <C> <C> <C>
For the first $50 million .80% For the first $50 million .80%
For the next $450 million .75% For assets over $50 million .70%
For assets over $500 million .70%
</TABLE>
At July 31, 1995, the Acquired Fund had net assets of approximately $64.5
million, while the Acquiring Fund had net assets of approximately $481.1
million. Thus, due to the additional "breakpoint" in the advisory fee schedule
for the Acquired Fund and the greater size of the Acquiring Fund, it is
anticipated that Acquired Fund shareholders will experience slightly lower
advisory fees as a percentage of net assets as a result of the proposed
Reorganization.
SALES CHARGES AND RULE 12B-1 FEES. The Acquired Fund and the Acquiring Fund
both offer Class A, Class B, Class C and Class H shares. With respect to both
Funds, these classes are subject to the following charges (with differences in
bold-face type):
- Class A shares of both the Acquired Fund and the Acquiring Fund are
subject to a front-end sales charge of 4.5% on purchases of less than
$100,000, 3.5% on purchases of from $100,000 but less than $250,000, 2.5%
on purchases of from $250,000 but less than $500,000, and 2.0% on
purchases of from $500,000 but less than $1 million. The front-end sales
charge on Class A shares of both Funds is waived in full on purchases of
$1 million or more, but a 1% deferred sales charge is collected if shares
subject to such a waiver are sold within 24 months after purchase. No
Class A shares of either Fund are subject to any other contingent deferred
sales charge or other sales charges or to any redemption fee. CLASS A
SHARES OF THE ACQUIRED FUND ARE SUBJECT TO RULE 12B-1 FEES EQUALING 0.35%
PER ANNUM OF AVERAGE DAILY NET ASSETS, WHILE CLASS A SHARES OF THE
ACQUIRING FUND ARE SUBJECT TO RULE 12B-1 FEES EQUALING 0.25% OF AVERAGE
DAILY NET ASSETS. THUS, IF THE PROPOSED REORGANIZATION IS COMPLETED, CLASS
A SHAREHOLDERS OF THE ACQUIRED FUND WILL BECOME SUBJECT TO LOWER RULE
12B-1 FEES.
- Class B and Class H shares of both the Acquired Fund and the Acquiring
Fund are subject to no front-end sales charge. Class B and Class H shares
of both Funds are subject to a contingent deferred sales charge declining
from 4% in the first two years following purchase to 0% after six years
and to Rule 12b-1 fees of 1.00% per annum of average daily net assets.
After eight years, Class B and Class H shares of both Funds automatically
convert to Class A shares. Class B and Class H shares of the respective
Funds differ only with respect to dealer concessions.
- Class C shares of both the Acquired Fund and the Acquiring Fund are
subject to no front-end sales charge. Class C shares of both Funds are
subject to a contingent deferred sales charge of 1% if shares are redeemed
within one year after purchase and to Rule 12b-1 fees of 1.00% per annum
of average daily net assets. Unlike Class B and Class H shares, Class C
shares of the two Funds do not convert to Class A shares after any period
of time.
As described below, in the Reorganization Class A shares of the Acquired Fund
will be exchanged for Class A shares of the Acquiring Fund, Class B shares will
be exchanged for Class B shares, Class C shares will be exchanged for Class C
shares, and Class H shares will be exchanged for Class H shares. Therefore,
sales charges and Rule 12b-1 fees will remain unchanged as a result of the
Reorganization, except that Class A shareholders will become subject to lower
Rule 12b-1 fees as described above.
6
<PAGE>
The Plan provides that former holders of Acquired Fund Class B and Class H
shares who receive Acquiring Fund Class B or Class H shares in the
Reorganization will receive credit for the period they held Acquired Fund Class
B or Class H shares in applying the six-year step-down of the contingent
deferred sales charge on Acquiring Fund Class B and Class H shares and in
determining the date upon which such shares convert to Acquiring Fund Class A
shares. It also provides that former holders of Acquired Fund Class C shares who
receive Acquiring Fund Class C shares in the Reorganization will receive credit
for the period they held Acquired Fund Class C shares in applying the one-year
contingent deferred sales charge on Acquiring Fund Class C shares. Similarly,
the Plan provides that in applying the 24-month 1% deferred sales charge on
purchases of Class A shares with respect to which the front-end sales charge was
waived, credit will be given for the period a former Acquired Fund shareholder
who is subject to such a deferred sales charge held his or her shares.
Class A shares of the Acquiring Fund are subject to certain special purchase
plans as described in the accompanying Acquiring Fund Prospectus under the
caption "How to Buy Fund Shares -- Class A and Class E Shares-Initial Sales
Charge Alternative -- Special Purchase Plans for Class A and E Shares." These
include a right of accumulation in calculating sales charges and certain classes
of persons and entities which are exempt from sales charges. Class A shares of
the Acquired Fund are subject to substantially similar special purchase plans.
In addition, all classes of shares of the Acquiring Fund are subject to certain
other special purchase plans as described in the accompanying Acquiring Fund
Prospectus under the caption "How to Buy Fund Shares -- Special Purchase Plans
for all Classes." These include the availability of tax sheltered retirement
plans, gifts or transfers to minor children, systematic investment plans, and
exchange privileges with other funds managed by Advisers. All classes of shares
of the Acquired Fund are subject to substantially similar special purchase
plans.
DEALER COMPENSATION. Dealer compensation arrangements are substantially
similar for the respective classes of the two Funds, except that the lower Rule
12b-1 fees charged on Class A shares of the Acquiring Fund result in a lesser
amount being available for dealer compensation with respect to such Fund than
with respect to the Acquired Fund.
7
<PAGE>
PRO FORMA FEES AND EXPENSES
The following tables are intended to assist Acquired Fund shareholders of
the respective classes in understanding the various costs and expenses
(expressed as a percentage of average net assets) (i) that such shareholders
currently bear as Acquired Fund shareholders (under the "Acquired Fund" column);
(ii) that shareholders of the Acquiring Fund currently bear (under the
"Acquiring Fund" column); and (iii) that such shareholders can expect to bear as
Acquiring Fund shareholders after the Reorganization is consummated (under the
"Pro Forma" column). The examples set forth below should not be considered
representations of past or future expenses or performance, and actual expenses
may be greater or less than those shown. The following tables are as of July 31,
1995.
CLASS A SHARES FEES AND EXPENSES
<TABLE>
<CAPTION>
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
-------- ---------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).................... 4.50%* 4.50%* 4.50%*
Maximum Deferred Sales Charge..................... ** ** **
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE
NET ASSETS)
Management Fees................................... 0.79% 0.71% 0.71%
Rule 12b-1 Fees................................... 0.35% 0.25% 0.25%
Other Expenses.................................... 0.21% 0.08% 0.07%
Total Fund Operating Expenses..................... 1.35% 1.04% 1.03%
EXAMPLE
You would pay the following expenses on a $1,000 investment over various time periods
assuming: (1) 5% annual return; and (2) redemption at the end of each time period:
1 year............................................ $ 58 $ 55 $ 55
3 years........................................... $ 86 $ 77 $ 76
5 years........................................... $116 $ 100 $ 99
10 years.......................................... $200 $ 166 $165
</TABLE>
- ------------------------
* Since the Funds also pay an asset based sales charge, long-term shareholders
may pay more than the economic equivalent of the maximum front end sales
charge permitted by NASD rules.
** A contingent deferred sales charge of 1.00% is imposed on certain redemptions
of Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more. See "-- Sales Charges and Rule 12b-1
Fees" above.
8
<PAGE>
CLASS B AND CLASS H SHARES FEES AND EXPENSES
<TABLE>
<CAPTION>
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
-------- ---------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).................... 0.00%* 0.00%* 0.00%*
Maximum Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds,
as applicable)................................... 4.00% 4.00% 4.00%
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE
NET ASSETS)
Management Fees................................... 0.79% 0.71% 0.71%
Rule 12b-1 Fees................................... 1.00% 1.00% 1.00%
Other Expenses.................................... 0.21% 0.08% 0.07%
Total Fund Operating Expenses..................... 2.00% 1.79% 1.78%
EXAMPLE
You would pay the following expenses on a $1,000 investment over various time periods
assuming: (1) 5% annual return; and (2) redemption at the end of each time period.
This example includes conversion of Class B and Class H shares to Class A shares
after eight years and a waiver of deferred sales charges on Class B and Class H
shares of 10% of the amount invested. See "-- Sales Charges and Rule 12b-1 Fees"
above.
1 year............................................ $ 56 $ 54 $ 54
3 years........................................... $ 90 $ 83 $ 83
5 years........................................... $126 $ 115 $114
10 years.......................................... $216 $ 191 $190
Assuming no redemption, the expenses on the same investment would be as follows:
1 year............................................ $ 20 $ 18 $ 18
3 years........................................... $ 63 $ 56 $ 56
5 years........................................... $108 $ 97 $ 96
10 years.......................................... $216 $ 191 $190
</TABLE>
- ------------------------
* Class B and Class H shares are sold without a front end sales charge, but
their contingent deferred sales charge and Rule 12b-1 fees may cause long-term
shareholders to pay more than the economic equivalent of the maximum permitted
front end sales charge.
9
<PAGE>
CLASS C SHARES FEES AND EXPENSES
<TABLE>
<CAPTION>
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
-------- ---------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price).................... 0.00%* 0.00%* 0.00%*
Maximum Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds,
as applicable)................................... 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE
NET ASSETS)
Management Fees................................... 0.79% 0.71% 0.71%
Rule 12b-1 Fees................................... 1.00% 1.00% 1.00%
Other Expenses.................................... 0.21% 0.08% 0.07%
Total Fund Operating Expenses..................... 2.00% 1.79% 1.78%
EXAMPLE
You would pay the following expenses on a $1,000 investment over various time periods
assuming: (1) 5% annual return; and (2) redemption at the end of each time period.
1 year............................................ $ 30 $ 28 $ 28
3 years........................................... $ 63 $ 56 $ 56
5 years........................................... $108 $ 97 $ 96
10 years.......................................... $233 $ 211 $209
Assuming no redemption, the expenses on the same investment would be as follows:
1 year............................................ $ 20 $ 18 $ 18
3 years........................................... $ 63 $ 56 $ 56
5 years........................................... $108 $ 97 $ 96
10 years.......................................... $233 $ 211 $209
</TABLE>
- ------------------------
* Class C shares are sold without a front end sales charge, but their contingent
deferred sales charge and Rule 12b-1 fees may cause long-term shareholders to
pay more than the economic equivalent of the maximum permitted front end sales
charge.
PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
Class A, Class B, Class C and Class H shares of the Acquiring Fund received
by Acquired Fund shareholders in the Reorganization will be subject to
substantially the same purchase, exchange and redemption procedures that
currently apply to Class A, Class B, Class C and Class H shares of the Acquired
Fund. These procedures include the following:
MINIMUM AND MAXIMUM INVESTMENTS. A minimum initial investment of $500
normally is required. An exception to this minimum (except on telephone or wire
orders) is the "Systematic Investment Plan" ($25 per month by "Preauthorized
Check Plan" or $50 per month on any other basis). The minimum subsequent
investment normally is $50, again subject to the above exceptions. While Class A
and Class E shares have no maximum order, Class B and Class H shares have a
$500,000 maximum and Class C shares have a $1,000,000 maximum.
INVESTING BY TELEPHONE. An investor's registered representative may make a
purchase on behalf of the investor ($500 minimum) by telephoning (612) 738-4000
or (800) 800-2638, Extension 3012. The investor's check and account application
must be promptly forwarded so as to be received within three business days. If
an investor has a bank account authorization form on file, he or she may
purchase $100 - $10,000 worth of shares via telephone through the automated
Fortis Information Line.
INVESTING BY WIRE. A shareholder having an account with a commercial bank
that is a member of the Federal Reserve System may purchase shares ($500
minimum) by requesting their bank to
10
<PAGE>
transmit immediately available funds (Federal Funds) in the manner described in
the accompanying Acquiring Fund Prospectus under the caption "How to Buy Fund
Shares -- General Purchase Information."
INVESTING BY MAIL. In order to invest by mail, an account application must
be completed, signed, and sent with a check or other negotiable bank draft,
payable to "Fortis Funds," to the address set forth in the applicable
Prospectus. Additional purchases may be made at any time by mailing a check or
other negotiable bank draft along with a confirmation stub.
EXCHANGE PRIVILEGE. Class A, Class B, Class C and Class H shares of both
Funds may be exchanged among other funds of the same class managed by Advisers
without payment of an exchange fee or additional sales charge. Similarly,
shareholders of other Fortis funds may exchange their shares for Fund shares of
the same class (at net asset value if the shares to be exchanged have already
been subject to a sales charge). A shareholder initiates an exchange by writing
to or telephoning his or her broker-dealer, sales representative, or the
applicable Fund regarding the shares to be exchanged. Advisers reserves the
right to restrict the frequency of -- or otherwise modify, condition, terminate,
or impose charges upon -- the exchange privileges, all with 30 days notice to
shareholders.
REDEMPTION. Registered holders of Fund shares may redeem their shares
without any charge (except any applicable contingent deferred sales charge) at
the per share net asset value next determined following receipt by the
applicable Fund of a written redemption request in proper form (and a properly
endorsed stock certificate if one has been issued). An investor may redeem
shares registered in broker-dealer "street name accounts" by contacting the
broker-dealer, who must follow the procedures set forth in the applicable
Prospectus. An individual shareholder (or, in the case of multiple owners, any
shareholder) may orally redeem up to $25,000 worth of their shares, subject to
the procedures set forth in the applicable Prospectus. Payment for redeemed
shares will be made as soon as possible, but not later than three business days
after receipt of a proper redemption request (except in the case of shares
recently purchased with non-guaranteed funds, with respect to which mailing of a
redemption check may be delayed by fifteen days).
For additional information concerning purchase, exchange and redemption
procedures, see the accompanying Acquiring Fund Prospectus under the captions
"How to Buy Fund Shares" and "Redemption."
DIVIDENDS AND DISTRIBUTIONS
Each of the Funds declares dividends from net investment income on each day
the New York Stock Exchange is open (to shareholders of record as of 3:00 p.m.,
Central time, the preceding business day) and pays dividends monthly.
Distributions of net realized capital gains are made by both Funds annually.
Such dividends and capital gains distributions are made in the form of
additional Fund shares of the same class (at net asset value) unless the
shareholder sends the Fund a written request that either or both be sent to the
shareholder or reinvested (at net asset value) in the same class of another
Fortis fund.
CAPITAL STOCK; SHAREHOLDER VOTING RIGHTS
Each class of shares of the respective Funds represents interests in the
assets of the applicable Fund and has identical voting, dividend, liquidation,
and other rights on the same terms and conditions except that expenses related
to the distribution of each class are borne solely by such class and that each
class of shares has exclusive voting rights with respect to provisions of the
Fund's Rule 12b-1 plan which pertain to that particular class and other matters
for which separate class voting is appropriate under applicable law. In addition
to the Class A, Class B, Class C and Class H shares of the Acquiring Fund
described herein, the Acquiring Fund also offers Class E shares. Class E shares
are subject to the same sales charges as Class A shares but are not subject to
Rule 12b-1 fees, and they are only available to existing shareholders on
November 13, 1994. The Acquiring Fund may offer additional series or classes of
shares in the future.
11
<PAGE>
RISK FACTORS
Because the investment objectives, policies and restrictions of the Acquired
Fund and the Acquiring Fund are similar (see "Information About the Acquired
Fund and the Acquiring Fund -- Comparison of Investment Objectives, Policies and
Restrictions" below), the risks associated with investing in both Funds are
similar. Because both Funds invest in fixed-rate debt instruments, both are
subject to "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. In general, when interest rates rise, the value of a fixed-rate debt
security declines. Conversely, when interest rates decline, the value of a
fixed-rate debt security generally increases. Thus, shareholders of both the
Acquired Fund and the Acquiring Fund bear the risk that increases in market
interest rates will cause the value of their Fund's portfolio investments to
decline.
In general, the value of fixed-rate debt securities with longer durations is
more sensitive to changes in market interest rates than the value of such
securities with shorter durations. Thus, the net asset value of a Fund which has
an overall longer duration should be expected to have greater volatility in
periods of changing market interest rates than that of a Fund which has a
shorter overall duration. As noted above under "Summary -- Investment
Objectives, Policies and Restrictions," at September 30, 1995, the overall
duration of both the Acquired Fund and the Acquiring Fund was approximately 4.4
years.
Both Funds are intended to have a low exposure to "credit risk," that is,
the risk that the issuer of a debt security will fail to make payments on the
security when due. As described elsewhere herein, both Funds invest primarily in
obligations issued or guaranteed by the United States Government or its agencies
or instrumentalities (whether or not backed by the "full faith and credit"
pledge of the United States Government). However, the Acquired Fund may invest
up to 20% of its net assets in certain types of debt securities which are not
issued or guaranteed by the United States Government or its agencies or
instrumentalities, subject to the credit quality standards described below under
"Information About the Acquired Fund and the Acquiring Fund -- Comparison of
Investment Objectives, Policies and Restrictions." To the extent that the
Acquired Fund can invest in such securities, it could have somewhat higher
credit risk than the Acquiring Fund.
Both Funds also can invest in certain types of mortgage-backed securities
and use certain other investment techniques which entail investment risk. These
types of mortgage-backed securities and investment techniques are described or
referred to below under "Information About the Acquired Fund and the Acquiring
Fund -- Comparison of Investment Objectives, Policies and Restrictions," and are
similar with respect to both Funds.
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
The Board of Directors of both the Acquired Fund and the Acquiring Fund,
including all of the "non-interested" directors, has determined that it is
advantageous to the respective Funds to combine the Acquired Fund with the
Acquiring Fund. As discussed in detail below under "Information About the
Acquired Fund and the Acquiring Fund," the Funds have similar investment
objectives, policies and restrictions. The Funds also have the same investment
adviser and the same underwriter and auditors. Norwest Bank Minnesota, N.A. acts
as custodian for the Acquired Fund, while First Bank National Association acts
as custodian for the Acquiring Fund.
The Board of Directors of each Fund has determined that the Reorganization
is expected to provide certain benefits to its Fund and is in the best interests
of such Fund and its shareholders. The Board of Directors of each Fund has also
determined that the interests of the existing shareholders of its Fund will not
be diluted as a result of the Reorganization. The Boards considered, among other
things, the following factors in making such determinations:
12
<PAGE>
(i) the advantages which may be realized by the Acquired Fund and the
Acquiring Fund, consisting of a potentially reduced expense ratio, economies
of scale resulting from fund growth, and facilitation of portfolio
management. The Boards noted in this regard that the Acquiring Fund, with
its much larger asset base and resulting economies of scale, has a
significantly lower expense ratio than does the smaller Acquired Fund, and
it is expected that holders of the Acquired Fund will benefit from this
lower expense ratio;
(ii) the tax-free nature of the proposed Reorganization;
(iii) the terms and conditions of the Plan, including that (a) the
exchange of Acquired Fund shares for Acquiring Fund shares will take place
on a net asset value basis; and (b) no sales charge will be incurred by
Acquired Fund shareholders in connection with their acquisition of Acquiring
Fund shares in the Reorganization;
(iv) the provision of the Plan that expenses of the Reorganization will
be allocated between the Acquired Fund and the Acquiring Fund in proportion
to their relative net assets at the Effective Time;
(v) the fact that advisory fees, Rule 12b-1 fees and sales charges would
remain constant or, in some instances, be reduced for Acquired Fund
shareholders; and
(vi) the Acquiring Fund's agreements that (a) former holders of Acquired
Fund Class B and Class H shares who receive Acquiring Fund Class B or Class
H shares in the Reorganization will receive credit for the period they held
Acquired Fund Class B or Class H shares in applying the six-year step-down
of the contingent deferred sales charge on Acquiring Fund Class B and Class
H shares and in determining the date upon which such shares convert to
Acquiring Fund Class A shares; (b) former holders of Acquired Fund Class C
shares who receive Acquiring Fund Class C shares in the Reorganization will
receive credit for the period they held Acquired Fund Class C shares in
applying the one-year contingent deferred sales charge on Acquiring Fund
Class C shares; and (c) in applying the 24-month 1% deferred sales charge on
purchases of Class A shares with respect to which the front-end sales charge
was waived, credit will be given for the period a former Acquired Fund
shareholder who is subject to such a deferred sales charge held his or her
shares.
The Boards also considered the potential benefits to Advisers which could result
from the proposed Reorganization. The Boards recognized that if Advisers
determines to waive advisory fees in the future, to the extent that the proposed
Reorganization results in lower overall expense ratios before fee waivers, the
combination of Funds would have the effect of decreasing the cost to Advisers of
providing such waivers. The Boards also noted, however, that Advisers is not
obligated to make any such waivers and that if such waivers are not made, former
shareholders of the Acquired Fund and shareholders of the Acquiring Fund would
benefit directly from any decreases in overall expense ratios and that, in any
event, the proposed Reorganization is expected to provide other benefits to
shareholders. The Board thus concluded that, despite these potential benefits to
Advisers, the factors noted in (i) through (vi) above render the proposed
Reorganization fair to and in the best interests of shareholders of the Acquired
Fund and the Acquiring Fund.
PLAN OF REORGANIZATION
The following summary of the proposed Plan and the Reorganization is
qualified in its entirety by reference to the Plan attached to this
Prospectus/Proxy Statement as Exhibit A. The Plan provides that, as of the
Effective Time, the Acquiring Fund will acquire all or substantially all of the
assets and assume all liabilities of the Acquired Fund in exchange for Acquiring
Fund shares having an aggregate net asset value equal to the aggregate value of
the assets acquired (less liabilities assumed) from the Acquired Fund. Because
the Acquired Fund is a separate series within Fortis Advantage, for corporate
law purposes the transaction is structured as a sale of the assets and
assumption of the liabilities allocated to the Acquired Fund in exchange for the
issuance of Acquiring Fund shares to the Acquired Fund, followed immediately by
the distribution of such Acquiring Fund shares to Acquired
13
<PAGE>
Fund shareholders and the cancellation and retirement of outstanding Acquired
Fund shares. This distribution of Acquiring Fund shares and cancellation and
retirement of outstanding Acquired Fund shares is to be accomplished under the
Plan by amending the articles of incorporation of Fortis Advantage in the manner
provided in the amendment set forth in Exhibit 1 to the Plan attached hereto as
Exhibit A.
Pursuant to the Plan, each holder of Class A, Class B, Class C or Class H
shares of the Acquired Fund will receive, at the Effective Time, Class A, Class
B, Class C or Class H shares of the Acquiring Fund, as applicable, with an
aggregate net asset value equal to the aggregate net asset value of the Acquired
Fund shares owned by such shareholder immediately prior to the Effective Time.
At the Effective Time, the Acquiring Fund will issue to the Acquired Fund, and
the Acquired Fund will distribute to the Acquired Fund's shareholders of record,
determined as of the Effective Time, the Acquiring Fund Shares issued in
exchange for the Acquired Fund assets as described above. All outstanding shares
of the Acquired Fund thereupon will be cancelled and retired and thereafter, no
additional shares representing interests in the Acquired Fund will be issued,
and the Acquired Fund will be deemed to be liquidated.
Under the Plan, the net asset value per share of the Acquired Fund's and the
Acquiring Fund's Class A, Class B, Class C and Class H shares will be computed
as of the Effective Time using the valuation procedures set forth in the
respective Funds' articles of incorporation and bylaws and then-current
Prospectuses and Statements of Additional Information and as may be required by
the Investment Company Act. The distribution of Acquiring Fund shares to former
Acquired Fund shareholders described above will be accomplished by the
establishment of accounts on the share records of the Acquiring Fund in the
names of Acquired Fund shareholders, each representing the respective classes
and numbers of full and fractional Acquiring Fund shares due such shareholders.
The Plan provides that no sales charges will be incurred by Acquired Fund
shareholders in connection with the acquisition by them of Acquiring Fund shares
pursuant thereto. The Plan also provides that former holders of Acquired Fund
Class B and Class H shares who receive Acquiring Fund Class B or Class H shares
in the Reorganization will receive credit for the period they held Acquired Fund
Class B or Class H shares in applying the six-year step-down of the contingent
deferred sales charge on Acquiring Fund Class B and Class H shares and in
determining the date upon which such shares convert to Acquiring Fund Class A
shares. In addition, the Plan provides that former holders of Acquired Fund
Class C shares who receive Acquiring Fund Class C shares in the Reorganization
will receive credit for the period they held Acquired Fund Class C shares in
applying the one-year contingent deferred sales charge on Acquiring Fund Class C
shares. Similarly, the Plan provides that in applying the 24-month 1% deferred
sales charge on purchases of Class A shares with respect to which the front-end
sales charge was waived, credit will be given for the period a former Acquired
Fund shareholder who is subject to such a deferred sales charge held his or her
shares.
The Acquired Fund contemplates that it will make a distribution, immediately
prior to the Effective Time, of all of its current year net income and net
realized capital gains, if any, not previously distributed. This distribution
will be taxable to Acquired Fund shareholders subject to taxation.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including, among others: (i) approval of the Plan, which
includes the related amendment of Fortis Advantage's articles of incorporation
attached to the Plan, by the shareholders of the Acquired Fund; (ii) the
delivery of the opinion of counsel described below under "-- Federal Income Tax
Consequences;" (iii) the accuracy as of the Effective Time of the
representations and warranties made by the Acquired Fund and the Acquiring Fund
in the Plan; and (iv) the delivery of customary closing certificates. See the
Plan attached hereto as Exhibit A for a complete listing of the conditions to
the consummation of the Reorganization. The Plan may be terminated and the
Reorganization abandoned at any time prior to the Effective Time, before or
after approval by shareholders of the Acquired
14
<PAGE>
Fund, by resolution of the Board of Directors of either the Acquired Fund or the
Acquiring Fund, if circumstances should develop that, in the opinion of such
Board, make proceeding with the consummation of the Plan and Reorganization not
in the best interests of such Fund's shareholders.
The Plan provides that all expenses incurred in connection with the
Reorganization shall be allocated between and borne by the Acquired Fund and the
Acquiring Fund in proportion to their relative net assets at the Effective Time
and that such expenses, and the allocation thereof, shall be reflected in the
calculations of net asset values of the respective Funds for purposes of
determining the numbers of Acquiring Fund shares to be issued in the
Reorganization. The Plan also provides that at or prior to the Effective Time,
Advisers or an affiliate of Advisers shall reimburse the Acquired Fund by the
amount, if any, that the expenses incurred by the Acquired Fund (or accrued up
to the Effective Time) exceed any applicable state-imposed expense limitations.
Under the Plan, the Acquired Fund has agreed not to acquire any securities
which are not permissible investments for the Acquiring Fund prior to the
Effective Time, and it is a condition to closing that the Acquired Fund not hold
any such securities immediately prior to the Effective Time. See "Summary --
Investment Objectives, Policies and Restrictions" and "Information About the
Acquired Fund and the Acquiring Fund -- Comparison of Investment Objectives,
Policies and Restrictions." As previously noted, the Acquired Fund does not hold
any such securities at the date of this Prospectus/Proxy Statement.
Approval of the Plan will require the affirmative vote of a majority of the
shares of each class of the Acquired Fund present at the Special Meeting, voting
as separate classes. Approval of the Plan by Acquired Fund shareholders will be
deemed approval of the amendment to the articles of incorporation of Fortis
Advisers attached to the Plan. If the Plan is not approved, the Boards of
Directors of the respective Funds will consider other possible courses of
action. Acquired Fund shareholders are not entitled to assert dissenters' rights
of appraisal in connection with the Plan or Reorganization. See "Voting
Information -- No Dissenters' Rights of Appraisal" below.
DESCRIPTION OF ACQUIRING FUND SHARES
For information concerning the shares of capital stock of the Acquiring
Fund, including voting rights, see "Summary -- Capital Stock; Shareholder Voting
Rights" above. All Acquiring Fund shares issued in the Reorganization will by
fully paid and non-assessable and will not be entitled to pre-emptive or
cumulative voting rights.
FEDERAL INCOME TAX CONSEQUENCES
It is intended that the exchange of Acquiring Fund shares for the Acquired
Fund's net assets and the distribution of such shares to the Acquired Fund's
shareholders upon liquidation of the Acquired Fund will be treated as a tax-free
reorganization under the Code and that, for federal income tax purposes, no
income, gain or loss will be recognized by the Acquired Fund's shareholders
(except that the Acquired Fund contemplates that it will make a distribution,
immediately prior to the Effective Time, of all of its current year net income
and net realized capital gains, if any, not previously distributed, and this
distribution will be taxable to Acquired Fund shareholders subject to taxation).
The Acquired Fund has not asked, nor does it plan to ask, the Internal Revenue
Service to rule on the tax consequences of the Reorganization.
As a condition to the closing of the Reorganization, the two Funds will
receive an opinion from Dorsey & Whitney P.L.L.P., counsel to the Funds, based
in part on certain representations to be furnished by each Fund, substantially
to the effect that the federal income tax consequences of the Reorganization
will be as follows:
(i) the Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and the Acquiring Fund and the
Acquired Fund each will qualify as a party to the Reorganization under
Section 368(b) of the Code;
15
<PAGE>
(ii) the Acquired Fund shareholders will recognize no income, gain or
loss upon receipt, pursuant to the Reorganization, of the Acquiring Fund
shares. Acquired Fund shareholders subject to taxation will recognize income
upon receipt of any net investment income or net capital gains of the
Acquired Fund which are distributed by the Acquired Fund prior to the
Effective Time;
(iii) the tax basis of the Acquiring Fund shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will be equal to
the tax basis of the Acquired Fund shares exchanged therefor;
(iv) the holding period of the Acquiring Fund shares received by each
Acquired Fund shareholder pursuant to the Reorganization will include the
period during which the Acquired Fund shareholder held the Acquired Fund
shares exchanged therefor, provided that the Acquired Fund shares were held
as a capital asset at the Effective Time;
(v) the Acquired Fund will recognize no income, gain or loss by reason
of the Reorganization;
(vi) the Acquiring Fund will recognize no income, gain or loss by reason
of the Reorganization;
(vii) the tax basis of the assets received by the Acquiring Fund pursuant
to the Reorganization will be the same as the basis of those assets in the
hands of the Acquired Fund as of the Effective Time;
(viii) the holding period of the assets received by the Acquiring Fund
pursuant to the Reorganization will include the period during which such
assets were held by the Acquired Fund; and
(ix) the Acquiring Fund will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of the Acquired
Fund as of the Effective Time.
The foregoing advice is based in part upon certain representations furnished
by the Acquired Fund and Advisers, of which two principal ones are: (a) that
assets representing at least 90% of the fair market value of the Acquired Fund's
net assets and at least 70% of the fair market value of the Acquired Fund's
gross assets at the Effective Time are exchanged solely for Acquiring Fund
shares with unrestricted voting rights, and (b) that there are no owners of the
shares of the Acquired Fund who own 5% or more of the Acquired Fund's shares
and, to the best knowledge of management of the Acquired Fund, there is no plan
or intention on the part of the remaining Acquired Fund shareholders to sell,
exchange or otherwise dispose of a number of Acquiring Fund shares to be
received pursuant to the Reorganization that would reduce such shareholders'
interest to a number of Acquiring Fund shares having, in the aggregate, a value
as of the Effective Time of less than 50% of the total value of the Acquired
Fund shares outstanding immediately prior to the consummation of the
Reorganization.
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors of the Acquired Fund, including the "non-interested"
directors, recommends that shareholders of the Acquired Fund approve the Plan.
Approval of the Plan will require the affirmative vote of a majority of the
shares of each class of the Acquired Fund present at the Special Meeting, voting
as separate classes. Approval of the Plan by Acquired Fund shareholders will be
deemed approval of the amendment to the articles of incorporation of Fortis
Advantage attached to the Plan.
16
<PAGE>
INFORMATION ABOUT THE ACQUIRED FUND AND THE ACQUIRING FUND
Information concerning the Acquiring Fund and the Acquired Fund is
incorporated herein by reference from their current Prospectuses dated December
1, 1995 and March 1, 1995, respectively. The Prospectus of the Acquiring Fund
accompanies this Prospectus/Proxy Statement and forms part of the Registration
Statement of the Acquiring Fund on Form N-1A which has been filed with the
Commission. The Prospectus of the Acquired Fund may be obtained in the manner
described under "Incorporation by Reference" and forms part of the Registration
Statement of the Acquired Fund on Form N-1A which has been filed with the
Commission.
The Acquiring Fund and the Acquired Fund are subject to the informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and in
accordance therewith file reports and other information including proxy
materials, reports and charter documents with the Commission. These proxy
materials, reports and other information filed by the Acquiring Fund and the
Acquired Fund can be inspected and copies obtained at the Public Reference
Facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the New York Regional Office of the Commission at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Washington, D.C.
20549 at prescribed rates.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
GENERAL. The Acquired Fund and the Acquiring Fund are both diversified,
open-end funds with investment objectives which are similar, in that both seek
to provide shareholders with a high level of current income and with capital
appreciation. Specifically:
- The investment objective of the Acquired Fund is to provide investors with
a high level of current ncome consistent with liquidity and the
preservation of principal. In addition, the Acquired Fund will, when
market conditions permit and consistent with the overall goal of
preserving capital, seek capital appreciation.
- The investment objective of the Acquiring Fund is to maximize total return
(from current income and capital appreciation), while providing
shareholders with a high level of current income consistent with prudent
investment risk.
The investment policies of the Acquired Fund and the Acquiring Fund are similar
but not identical. Specifically:
- Under normal market conditions, the Acquired Fund invests at least 80% of
its net assets in obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities (whether or not backed by
the "full faith and credit" pledge of the United States Government), cash,
and receivables. In addition, the Acquired Fund may invest up to 20% of
its net assets in certain types of debt securities which are not issued or
guaranteed by the United States Government or its agencies or
instrumentalities. These types of debt securities are described below.
The Acquiring Fund invests in securities issued, guaranteed, insured, or
collateralized by the United States Government or its agencies or
instrumentalities (whether or not backed by the "full faith and credit" pledge
of the United States Government). Unlike the Acquired Fund, the Acquiring Fund
is not permitted to invest any portion of its assets in debt securities which
are not issued or guaranteed by the United States Government or its agencies or
instrumentalities. At the date of this Prospectus/Proxy Statement, the Acquired
Fund does not hold any assets which would not be permitted investments for the
Acquiring Fund.
17
<PAGE>
The similarities and differences in the respective Funds' investment
policies and restrictions with respect to particular types of instruments are
discussed in further detail under the following captions. For certain
comparative information concerning the respective Funds' portfolio compositions
and overall durations, see "Summary -- Investment Objectives, Policies and
Restrictions."
DEBT SECURITIES WHICH ARE PERMISSIBLE INVESTMENTS FOR THE ACQUIRED FUND BUT
NOT THE ACQUIRING FUND. As noted above, the Acquired Fund (but not the
Acquiring Fund) may invest up to 20% of its net assets in certain types of debt
securities which are not issued or guaranteed by the United States Government or
its agencies or instrumentalities. These include (i) negotiable certificates of
deposit, bankers acceptances and fixed time deposits of United States banks
(including foreign branches) and of foreign banks; (ii) commercial paper
consisting of direct obligations of domestic and foreign issuers; and (iii)
corporate debt securities (including variable amount master demand notes) and
debt securities of foreign government issuers denominated and payable in United
States dollars. The bank obligations and commercial paper in which the Acquired
Fund may invest must be obligations which at the time of investment are rated in
one of the two highest short-term rating categories by a nationally recognized
rating agency, or are issued or guaranteed as to principal and interest by
issuers having an existing long-term debt rating in one of the two highest
rating categories by a nationally recognized rating agency, or which are of
comparable investment quality in the opinion of Advisers. The corporate debt
securities and debt securities of foreign government issuers in which the
Acquired Fund may invest must be rated in one of the two highest short-term
rating categories by a nationally recognized rating agency at the time of
investment. In addition, the Acquired Fund may invest up to 20% of its total
assets in municipal securities when such securities appear to offer more
attractive returns than taxable securities.
To the extent that the Acquired Fund can invest in the foregoing types of
securities, it could have somewhat higher credit risk than the Acquiring Fund.
However, such securities also have the potential to produce higher interest
income. As previously noted, at the date of this Prospectus/Proxy Statement, the
Acquired Fund does not hold any of these types of securities.
MORTGAGE-BACKED SECURITIES. Both Funds may invest in mortgage-backed
securities backed by the full faith and credit of the United States or by the
credit of agencies or instrumentalities of the United States Government, such as
GNMA certificates, FNMA certificates, and FHLMC certificates. These
mortgage-backed securities may include collateralized mortgage obligations, or
"CMOs," and multi-class pass-through securities. These types of securities are
described in detail in the accompanying Prospectus of the Acquiring Fund under
the caption "Investment Objectives and Policies -- CMOs and Multi-Class
Pass-Through Securities." As described therein, these types of securities
include interest-only securities ("IOs"), principal-only securities ("POs"),
inverse floating rate securities ("inverse floaters"), and accrual bonds. As is
also described therein, these types of securities are subject to potentially
high price and yield volatility.
The Acquired Fund and the Acquiring Fund are subject to slightly different
restrictions on their investments in the latter four types of securities. The
Acquired Fund cannot invest more than 7.5% of its net assets in any one of these
types of securities at any one time or more than 15% of its net assets in all
such obligations at any one time. By contrast, the Acquiring Fund cannot invest
more than 5% of its net assets in any one of these types of securities at any
one time or more than 10% of its net assets in all such obligations at any one
time. Thus, the Acquiring Fund's permitted exposure to the risks associated with
these types of securities is somewhat lower than the Acquired Fund's permitted
exposure.
REPURCHASE AGREEMENTS. Both Funds may invest in repurchase agreements. The
Acquired Fund is permitted to invest up to 15% of its net assets in repurchase
agreements with a maturity of more than seven days, while the Acquiring Fund is
permitted to invest only up to 10% of its net assets in such repurchase
agreements. This policy is a "fundamental policy" as to the Acquiring Fund
(requiring shareholder vote to change), but not as to the Acquired Fund.
18
<PAGE>
DELAYED DELIVERY TRANSACTIONS. Both Funds may purchase securities on a
"when issued" or delayed delivery basis and purchase or sell securities on a
"forward commitment" basis. These types of transactions, and the risks
associated therewith, are described in the accompanying Prospectus of the
Acquiring Fund under the caption "Investment Objectives and Policies -- Delayed
Delivery Transactions." The Acquired Fund is permitted to invest up to 20% of
its net assets in when-issued, delayed delivery or forward commitment
transactions, no more than half of which (i.e., 10% of net assets) may be
invested in such transactions without the intention of actually acquiring
securities (i.e., dollar rolls). There is no limitation on the proportion of the
Acquiring Fund's net assets which may be invested in when-issued, delayed
delivery or forward commitment transactions, but no more than 20% of its net
assets may be invested in such transactions without the intention of actually
acquiring securities (i.e., dollar rolls).
LENDING OF PORTFOLIO SECURITIES. Both Funds may engage in securities
lending subject to applicable regulatory requirements. These types of
transactions are described in the accompanying Prospectus of the Acquiring Fund
under the caption "Investment Objectives and Policies -- Lending of Portfolio
Securities." Each Fund limits such securities lending to not more than 33 1/3%
of the value of its total assets, with "total assets" including the amount lent
as well as the collateral securing such loans. The Acquiring Fund is subject to
an additional limitation, not applicable to the Acquired Fund, which provides
that cash collateral received in connection with these loans may be invested in
short-term (one year or less) high-grade securities, but not in excess of 35% of
the Acquiring Fund's total assets.
TRANSACTIONS IN OPTIONS, FUTURES, AND FORWARD CONTRACTS. Subject to certain
restrictions, the Acquired Fund is permitted to enter into options, futures, and
forward contracts on a variety of investments and indexes, in order to protect
against declines in the value of portfolio securities or increase in the cost of
securities to be acquired and, in the case of options on securities or indexes
of securities, to increase its gross income. The Acquiring Fund is not permitted
to engage in such transactions.
OTHER. Each Fund is permitted to invest up to 15% of its net assets in all
forms of illiquid securities, as determined pursuant to applicable Commission
regulations. The Acquired Fund may borrow from a bank for temporary purposes
(i.e., to facilitate redemptions) in an amount that does not exceed 10% of its
total assets, while the Acquiring Fund may borrow for such purposes in an amount
not to exceed 5% of its total assets.
The foregoing comparison does not purport to be a complete summary of the
investment policies and restrictions of the Acquired Fund or the Acquiring Fund.
For complete discussions of the investment policies and restrictions of the
respective Funds, see the Acquiring Fund's Prospectus accompanying this
Prospectus/Proxy Statement; the Acquired Fund's Prospectus referred to under
"Incorporation by Reference;" and the Statements of Additional Information of
the Acquired Fund and the Acquiring Fund, also referred to under such caption.
19
<PAGE>
CAPITALIZATION
The following table shows the capitalization of the Acquired Fund and of the
Acquiring Fund as of July 31, 1995 and on a pro forma basis as of that date,
giving effect to the proposed Reorganization:
<TABLE>
<CAPTION>
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
-------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
VALUES)
<S> <C> <C> <C>
CLASS A SHARES
Net assets................................. $ 64,033 $ 4,909 $ 68,942
Net asset value per share.................. $ 8.03 $ 9.02 $ 9.02
Shares outstanding......................... 7,979 544 7,643
CLASS B SHARES
Net assets................................. $ 47 $ 483 $ 529
Net asset value per share.................. $ 8.00 $ 9.02 $ 9.02
Shares outstanding......................... 6 54 59
CLASS C SHARES
Net assets................................. $ 19 $ 326 $ 345
Net asset value per share.................. $ 8.01 $ 9.01 $ 9.01
Shares outstanding......................... 2 36 38
CLASS H SHARES
Net assets................................. $ 385 $ 4,823 $ 5,208
Net asset value per share.................. $ 7.99 $ 9.02 $ 9.02
Shares outstanding......................... 48 535 577
CLASS E SHARES*
Net assets................................. -- $ 470,597 $ 470,597
Net asset value per share.................. -- $ 9.02 $ 9.02
Shares outstanding......................... -- 52,150 52,150
</TABLE>
- ------------------------
* As described under "Summary -- Capital Stock; Shareholder Voting Rights," the
Acquiring Fund, but not the Acquired Fund, offers Class E shares.
VOTING INFORMATION
GENERAL
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of the Acquired Fund to be
used at the Special Meeting of Acquired Fund shareholders to be held at 10:00
a.m., Central time, on February 9, 1996, at the offices of Fortis Advisers,
Inc., 500 Bielenberg Drive, Woodbury, Minnesota and at any adjournments thereof.
This Prospectus/ Proxy Statement, along with a Notice of Special Meeting and a
proxy card, is first being mailed to shareholders of the Acquired Fund on or
about December 27, 1995. Only shareholders of record as of the close of business
on December 15, 1995 (the "Record Date") will be entitled to notice of, and to
vote at, the Meeting or any adjournment thereof. If the enclosed form of proxy
is properly executed and returned on time to be voted at the Meeting, the
proxies named therein will vote the shares represented by the proxy in
accordance with the instructions marked thereon. Unmarked proxies will be voted
"for" the proposed Plan and Reorganization. A proxy may be revoked by giving
written notice, in person or by mail, of revocation before the Meeting to the
Acquired Fund at its principal executive offices, 500 Bielenberg Drive,
Woodbury, Minnesota (mailing address: P.O. Box 64284, St. Paul, Minnesota 55164)
or by properly executing and submitting a later-dated proxy, or by voting in
person at the Meeting.
If a shareholder executes and returns a proxy but abstains from voting, the
shares held by such shareholder will be deemed present at the Meeting for
purposes of determining a quorum and will be
20
<PAGE>
included in determining the total number of votes cast. If a proxy is received
from a broker or nominee indicating that such person has not received
instructions from the beneficial owner or other person entitled to vote Acquired
Fund shares (i.e., a broker "non-vote"), the shares represented by such proxy
will not be considered present at the Meeting for purposes of determining a
quorum and will not be included in determining the number of votes cast. Brokers
and nominees will not have discretionary authority to vote shares for which
instructions are not received from the beneficial owner.
Approval of the Plan and Reorganization will require the affirmative vote
described above under "Information About the Reorganization -- Recommendation
and Vote Required."
As of December 15, 1995 (i) the Acquired Fund had the following numbers of
shares outstanding and entitled to vote at the Meeting: Class A, 7,353,194
shares; Class B, 20,316 shares; Class C, 3,899 shares; and Class H, 109,299
shares; (ii) the Acquiring Fund had the following numbers of shares outstanding:
Class A, 1,379,057 shares; Class B, 129,765 shares; Class C, 59,199 shares; and
Class H, 808,476 shares; and (iii) the directors and officers of the respective
Funds as a group owned less than one percent of the outstanding shares of either
Fund or any class thereof. The following table sets forth information concerning
those persons known by the respective Funds to own of record or beneficially
more than 5% of the outstanding shares of any class of either Fund as of such
date, including persons and entities who beneficially own more than 25% of any
class. No person is known to the Acquired Fund or the Acquiring Fund to own 5%
or more of the outstanding shares of either Fund as a whole. Unless otherwise
indicated, the persons named below have both record and beneficial ownership:
<TABLE>
<CAPTION>
CLASS OF PERCENTAGE
SHARES OWNERSHIP
NAME AND ADDRESS OF HOLDER OWNED OF CLASS
- -------------------------------------------------- -------- ---------
<S> <C> <C>
ACQUIRED FUND:
First Trust National Association C/F
Robert Harbo IRA ............................ Class B 6%
428 E. 11th
Fairmont, MN 56031-3754
First Trust National Association C/F
Marlene J. Overgaard IRA .................... Class B 6%
1404 Regency LN
Albert Lea, MN 56007-1352
First Trust National Association C/F
Charlotte A. Nelson IRA ..................... Class B 10%
1521 W. Clark Street
Albert Lea, MN 56007-1758
First Trust National Association C/F
Wayne R. Gunderson IRA ...................... Class B 12%
RR2 Box 228B
Albert Lea, MN 56007-9758
Harry Buck, Jr ................................. Class B 13%
P.O. Box 298
Upper Marlboro, MD 20773-0298
First Trust National Association C/F
Louis H. Tomschin IRA ....................... Class B 23%
RR 2, Box 173E
Alden, MN 56009-9561
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
CLASS OF PERCENTAGE
SHARES OWNERSHIP
NAME AND ADDRESS OF HOLDER OWNED OF CLASS
- -------------------------------------------------- -------- ---------
<S> <C> <C>
ACQUIRED FUND (CONTINUED):
Harvey Lou Dillard, Trustee FBO Dillard
Family Trust ................................ Class H 8%
118 N. Main Street
Cedar Hill, TX 75104-2003
Harvey Lou Dillard ............................. Class H 11%
118 N. Main Street
Cedar Hill, TX 75104-2003
Robert S. Kaper, Trustee FBO Kapers
Building Materials, Inc. .................... Class H 25%
U.S. Route 231, P.O. Box 517
Demotte, IN 46310
Shirley K. Levitan ............................. Class H 30%
218 Westmoreland Drive
Wilmette, IL 60091-3060
Bruce N. and Sherri L. Gorrell ................. Class C 5%
11512 Woody Lane
W. Burlington, IA 52655-8523
Robert S. Roesler and Rachael J. Springola ..... Class C 6%
W165N11478 Royal Court
Germantown, WI 53011-3251
Kim A. Luttenegger ............................. Class C 35%
11656 Highway 99
Burlington, IA 52601-8516
First Trust National Association C/F
Kurt Becks IRA .............................. Class C 39%
9 Suncrest Drive
Saint Peters, MO 63376-4432
ACQUIRING FUND:
Amalgamated Bank of N.Y. C/F
Pension A/C of TWV-NYC PRVT Bus Lines ....... Class A 14%
PO Box 370-Cooper Station
New York, NY 10003
Amalgamated Bank of N.Y. C/F
N.Y.C. Council & Hotel Assoc. of N.Y.C. ..... Class A 11%
PO Box 370 Cooper Station
New York, NY 10003
Trujillo Steel Erectors PS Key Plan, Acct.
of Anthony R. Solano ........................ Class B 5%
1800 S. 120th Street
Lafayette, CO 80026-9512
Mark D. Kayne MD, FBO Mark D. Kayne
Profit Sharing Plan ......................... Class B 8%
23928 Lyons Ave., Ste. 110
Newhall, CA 91321-2454
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
CLASS OF PERCENTAGE
SHARES OWNERSHIP
NAME AND ADDRESS OF HOLDER OWNED OF CLASS
- -------------------------------------------------- -------- ---------
<S> <C> <C>
ACQUIRING FUND (CONTINUED):
Roma Rosetta Klover Ewing ...................... Class C 5%
14982 County Ridge Drive
Chesterfield, MO 63017-7601
Joan A. Foreman ................................ Class C 5%
625 Black Rood Road
Hanover, PA 17331-8310
First Trust National Association C/F
Thomas H. Rykhus IRA ........................ Class C 5%
423 N. Wheeler Ave.
North Mankato, MN 56003-3737
American Chemical Systems, Inc. ................ Class C 6%
320 Burning Oaks Drive
Irwin, PA 15652-5906
Josephine B. Carlson
Debra J. Beyer POA .......................... Class C 7%
PO Box 141
Springfield, MN 56087-0141
Fortis Holdings Profit Sharing Trust
Marshall & Ilsley Trust Co. Trustee ......... Class E 5%
770 N Water St.
Milwaukee, WI 53202
</TABLE>
Proxies are solicited by mail. Additional solicitations may be made by
telephone or personal contact by officers or employees of Advisers and its
affiliates without cost to the Funds. In addition, the services of a third-party
proxy solicitation firm may be utilized, with such firm's fees and expenses
allocated between and borne by the Acquired Fund and the Acquiring Fund as
described under "Information About the Reorganization -- Plan of Reorganization"
above.
In the event that sufficient votes to approve the Plan and Reorganization
are not received by the date set for the Meeting, the persons named as proxies
may propose one or more adjournments of the Meeting for up to 120 days to permit
further solicitation of proxies. In determining whether to adjourn the Meeting,
the following factors may be considered: the percentage of votes actually cast,
the percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any such adjournment will require the
affirmative vote of a majority of the shares present in person or by proxy and
entitled to vote at the Meeting. The persons named as proxies will vote upon
such adjournment after consideration of the best interests of all shareholders.
INTERESTS OF CERTAIN PERSONS
The following persons affiliated with the Funds receive payments from the
Acquired Fund and the Acquiring Fund for services rendered pursuant to
contractual arrangements with the Funds: Fortis Advisers, Inc. as the investment
adviser, transfer agent and dividend agent to each Fund, receives payments for
its investment advisory and management services; and Fortis Investors, Inc., a
subsidiary of Advisers, as the underwriter for each Fund, receives payments for
providing distribution services.
NO DISSENTERS' RIGHTS OF APPRAISAL
Under the Investment Company Act, Acquired Fund shareholders are not
entitled to assert dissenters' rights of appraisal in connection with the Plan
or Reorganization.
23
<PAGE>
FINANCIAL STATEMENTS AND EXPERTS
The audited statements of net assets of the Acquired Fund as of October 31,
1994, and of the Acquiring Fund as of July 31, 1995 and the related statements
of operations for the years then ended, changes in net assets for each of the
periods indicated therein and the financial highlights for the periods indicated
therein, as included or incorporated by reference in the Statement of Additional
Information of the Acquired Fund dated March 31, 1995 and the Statement of
Additional Information of the Acquiring Fund dated December 1, 1995,
respectively, have been incorporated by reference into this Prospectus/Proxy
Statement in reliance on the reports of KPMG Peat Marwick LLP, independent
auditors for the Funds, given on the authority of such firm as experts in
accounting and auditing. In addition, the unaudited financial statements for the
Acquired Fund for the six-month period ended April 30, 1995, as included in the
Semi-Annual Report of Fortis Advantage for the six-month period ended April 30,
1995, are incorporated herein by reference.
LEGAL MATTERS
Certain legal matters concerning the issuance of the shares of the Acquiring
Fund to be issued in the Reorganization will be passed by Dorsey & Whitney
P.L.L.P., 220 South Sixth Street, Minneapolis, Minnesota 55402.
24
<PAGE>
EXHIBIT A TO PROSPECTUS/PROXY STATEMENT
AGREEMENT AND PLAN OF REORGANIZATION
GOVERNMENT TOTAL RETURN PORTFOLIO AND FORTIS U.S. GOVERNMENT SECURITIES FUND
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made as of
this day of , 1995, by and between Fortis Advantage Portfolios, Inc.
("FORTIS ADVANTAGE"), a Minnesota corporation, on behalf of Government Total
Return Portfolio (the "ACQUIRED FUND"), a series of Fortis Advantage, and Fortis
Income Portfolios, Inc. ("FORTIS INCOME"), a Minnesota corporation, on behalf of
Fortis U.S. Government Securities Fund (the "ACQUIRING FUND"), a series of
Fortis Income. The shares of the Acquired Fund and the Acquiring Fund designated
in the respective amended and restated articles of incorporation of Fortis
Advantage and Fortis Income are referred to herein by the names set forth in the
respective corporations' bylaws, as follows:
<TABLE>
<CAPTION>
DESIGNATION IN ARTICLES NAME ASSIGNED IN BYLAWS
- ------------------------------ --------------------------------------------------
<S> <C>
Fortis Advantage:
Series D, Class A........... Government Total Return Portfolio, Class A
Series D, Class B........... Government Total Return Portfolio, Class B
Series D, Class C........... Government Total Return Portfolio, Class C
Series D, Class H........... Government Total Return Portfolio, Class H
Fortis Income:
Series A, Class A........... Fortis U.S. Government Securities Fund, Class A
Series A, Class B........... Fortis U.S. Government Securities Fund, Class B
Series A, Class C........... Fortis U.S. Government Securities Fund, Class C
Series A, Class H........... Fortis U.S. Government Securities Fund, Class H
</TABLE>
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation pursuant to Sections 368(a)(1)(C) and 368(a)(2)(G) of the United
States Internal Revenue Code of 1986, as amended (the "CODE"). The
reorganization (the "REORGANIZATION") will consist of the transfer of all or
substantially all of the assets of the Acquired Fund to the Acquiring Fund and
the assumption by the Acquiring Fund of all of the liabilities of the Acquired
Fund in exchange solely for full and fractional shares of common stock, par
value $.01 per share, of the Acquiring Fund (the "ACQUIRING FUND SHARES"),
having an aggregate net asset value equal to the aggregate value of the assets
acquired (less liabilities assumed) of the Acquired Fund, and the distribution
of the Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth. The distribution of Acquiring Fund Shares to
Acquired Fund shareholders and the retirement and cancellation of Acquired Fund
Shares will be effected pursuant to an amendment to the articles of
incorporation of Fortis Advantage in the form attached hereto as Exhibit 1 (the
"AMENDMENT") to be adopted by Fortis Advantage in accordance with the Minnesota
Business Corporation Act.
WITNESSETH:
WHEREAS, each of Fortis Advantage and Fortis Income is a registered,
open-end management investment company, with Fortis Advantage offering its
shares of common stock in multiple series (each of which series represents a
separate and distinct portfolio of assets and liabilities) and Fortis Income
offering its shares of common stock in a single series at the current time;
WHEREAS, each of Fortis Advantage and Fortis Income offers Class A, Class B,
Class C and Class H shares of each of its series;
WHEREAS, the Acquired Fund owns securities which generally are assets of the
character in which the Acquiring Fund is permitted to invest; and
WHEREAS, the Board of Directors of each of the Acquired Fund and the
Acquiring Fund has determined that the exchange of all or substantially all of
the assets of the Acquired Fund for
1
<PAGE>
Acquiring Fund Shares and the assumption of all of the liabilities of the
Acquired Fund by the Acquiring Fund is in the best interests of the shareholders
of the Acquired Fund and the Acquiring Fund, respectively.
NOW, THEREFORE, in consideration of the premises and of the representations,
warranties, covenants and agreements hereinafter set forth, the parties hereto
covenant and agree as follows:
1. TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE ACQUIRED FUND TO
THE ACQUIRING FUND SOLELY IN EXCHANGE FOR ACQUIRING FUND SHARES, THE
ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES AND THE LIQUIDATION OF THE
ACQUIRED FUND
1.1 Subject to the requisite approval by Acquired Fund shareholders and to
the other terms and conditions set forth herein and in the Amendment and on the
basis of the representations and warranties contained herein, the Acquired Fund
agrees to transfer all or substantially all of the Acquired Fund's assets as set
forth in Section 1.2 to the Acquiring Fund, and the Acquiring Fund agrees in
exchange therefor (a) to deliver to the Acquired Fund that number of full and
fractional Acquiring Fund Shares determined in accordance with Article 2, and
(b) to assume all of the liabilities of the Acquired Fund, as set forth in
Section 1.3. Such transactions shall take place as of the effective time
provided for in Section 3.1 (the "EFFECTIVE TIME").
1.2(a) The assets of the Acquired Fund to be acquired by the Acquiring Fund
shall consist of all or substantially all of Acquired Fund's property,
including, but not limited to, all cash, securities, commodities, futures, and
interest and dividends receivable which are owned by the Acquired Fund as of the
Effective Time. All of said assets shall be set forth in detail in an unaudited
statement of assets and liabilities of the Acquired Fund as of the Effective
Time (the "EFFECTIVE TIME STATEMENT"). The Effective Time Statement shall, with
respect to the listing of the Acquired Fund's portfolio securities, detail the
adjusted tax basis of such securities by lot, the respective holding periods of
such securities and the current and accumulated earnings and profits of the
Acquired Fund. The Effective Time Statement shall be prepared in accordance with
generally accepted accounting principles (except for footnotes) consistently
applied from the prior audited period.
(b) The Acquired Fund has provided the Acquiring Fund with a list of all
of the Acquired Fund's assets as of the date of execution of this Agreement. The
Acquired Fund reserves the right to sell any of these securities and, subject to
Section 5.1, to acquire additional securities in the ordinary course of its
business.
1.3 The Acquiring Fund shall assume all of the liabilities, expenses, costs,
charges and reserves (including, but not limited to, expenses incurred in the
ordinary course of the Acquired Fund's operations, such as accounts payable
relating to custodian fees, investment management and administrative fees, legal
and audit fees, and expenses of state securities registration of the Acquired
Fund's shares), including those reflected in the Effective Time Statement.
1.4 Immediately after the transfer of assets provided for in Section 1.1 and
the assumption of liabilities provided for in Section 1.3, and pursuant to the
plan of reorganization adopted herein and the Amendment, the Acquired Fund will
distribute pro rata (as provided in Article 2) to the Acquired Fund's
shareholders of record, determined as of the Effective Time (the "ACQUIRED FUND
SHAREHOLDERS"), the Acquiring Fund Shares received by the Acquired Fund pursuant
to Section 1.1, and all other assets of the Acquired Fund, if any. Thereafter,
no additional shares representing interests in the Acquired Fund shall be
issued. Such distribution will be accomplished by the transfer of the Acquiring
Fund Shares then credited to the account of the Acquired Fund on the books of
the Acquiring Fund to open accounts on the share records of the Acquiring Fund
in the names of the Acquired Fund Shareholders representing the numbers and
classes of Acquiring Fund Shares due each such shareholder. All issued and
outstanding shares of the Acquired Fund will simultaneously be canceled on the
books of the Acquired Fund, although share certificates representing interests
in the Acquired Fund will represent those numbers and classes of Acquiring Fund
Shares after the Effective Time as
2
<PAGE>
determined in accordance with Article 2. Unless requested by Acquired Fund
Shareholders, the Acquiring Fund will not issue certificates representing the
Acquiring Fund Shares issued in connection with such exchange.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's Prospectus and Statement of Additional
Information as in effect as of the Effective Time, except that no front-end
sales charges will be incurred by Acquired Fund Shareholders in connection with
their acquisition of Acquiring Fund Shares pursuant to this Agreement.
1.6 The Acquiring Fund agrees that in determining contingent deferred sales
charges applicable to Class B, Class C and Class H shares distributed by it in
the Reorganization and the date upon which Class B and Class H shares
distributed by it in the Reorganization convert to Class A shares, it shall give
credit for the period during which the holders thereof held the shares of the
Acquired Fund in exchange for which such Acquiring Fund shares were issued. In
the event that Class A shares of the Acquiring Fund are distributed in the
Reorganization to former holders of Class A shares of the Acquired Fund with
respect to which the front-end sales charge was waived due to a purchase of $1
million or more, the Acquiring Fund agrees that in determining whether a
deferred sales charge is payable upon the sale of such Class A shares of the
Acquiring Fund it shall give credit for the period during which the holder
thereof held such Acquired Fund shares.
1.7 Any reporting responsibility of the Acquired Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "COMMISSION"),
any state securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
2. VALUATION; ISSUANCE OF ACQUIRING FUND SHARES
2.1 The net asset value per share of the Acquired Fund's and the Acquiring
Fund's Class A shares, Class B shares, Class C shares and Class H shares shall
be computed as of the Effective Time using the valuation procedures set forth in
their respective articles of incorporation and bylaws, their respective
then-current Prospectuses and Statements of Additional Information, and as may
be required by the Investment Company Act of 1940, as amended (the "1940 ACT").
2.2(a) The total number of Class A Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for the assets and liabilities
of the Acquired Fund which are allocable to the Acquired Fund's Class A shares
shall be determined as of the Effective Time by multiplying the number of Class
A Acquired Fund shares outstanding immediately prior to the Effective Time times
a fraction, the numerator of which is the net asset value per share of the
Acquired Fund's Class A shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Acquiring Fund's
Class A shares immediately prior to the Effective Time, each as determined
pursuant to Section 2.1.
(b) The total number of Class B Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for the assets and liabilities
of the Acquired Fund which are allocable to the Acquired Fund's Class B shares
shall be determined as of the Effective Time by multiplying the number of Class
B Acquired Fund shares outstanding immediately prior to the Effective Time times
a fraction, the numerator of which is the net asset value per share of the
Acquired Fund's Class B shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Acquiring Fund's
Class B shares immediately prior to the Effective Time, each as determined
pursuant to Section 2.1.
(c) The total number of Class C Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for the assets and liabilities
of the Acquired Fund which are allocable to the Acquired Fund's Class C shares
shall be determined as of the Effective Time by multiplying the number of Class
C Acquired Fund shares outstanding immediately prior to the Effective Time times
a
3
<PAGE>
fraction, the numerator of which is the net asset value per share of the
Acquired Fund's Class C shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Acquiring Fund's
Class C shares immediately prior to the Effective Time, each as determined
pursuant to Section 2.1.
(d) The total number of Class H Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for the assets and liabilities
of the Acquired Fund which are allocable to the Acquired Fund's Class H shares
shall be determined as of the Effective Time by multiplying the number of Class
H Acquired Fund shares outstanding immediately prior to the Effective Time times
a fraction, the numerator of which is the net asset value per share of the
Acquired Fund's Class H shares immediately prior to the Effective Time, and the
denominator of which is the net asset value per share of the Acquiring Fund's
Class H shares immediately prior to the Effective Time, each as determined
pursuant to Section 2.1.
2.3 Immediately after the Effective Time, the Acquired Fund shall distribute
to the Acquired Fund Shareholders of the respective classes in liquidation of
the Acquired Fund pro rata within classes (based upon the ratio that the number
of Acquired Fund shares of the respective classes owned by each Acquired Fund
Shareholder immediately prior to the Effective Time bears to the total number of
issued and outstanding Acquired Fund shares of such classes immediately prior to
the Effective Time) the full and fractional Acquiring Fund Shares of the
respective classes received by the Acquired Fund pursuant to Section 2.2.
Accordingly, each Class A Acquired Fund Shareholder shall receive, immediately
after the Effective Time, Class A Acquiring Fund Shares with an aggregate net
asset value equal to the aggregate net asset value of the Class A Acquired Fund
shares owned by such Acquired Fund Shareholder immediately prior to the
Effective Time; each Class B Acquired Fund Shareholder shall receive,
immediately after the Effective Time, Class B Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of the Class B
Acquired Fund shares owned by such Acquired Fund Shareholder immediately prior
to the Effective Time; each Class C Acquired Fund Shareholder shall receive,
immediately after the Effective Time, Class C Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of the Class C
Acquired Fund shares owned by such Acquired Fund Shareholder immediately prior
to the Effective Time; and each Class H Acquired Fund Shareholder shall receive,
immediately after the Effective Time, Class H Acquiring Fund Shares with an
aggregate net asset value equal to the aggregate net asset value of the Class H
Acquired Fund shares owned by such Acquired Fund Shareholder immediately prior
to the Effective Time.
3. EFFECTIVE TIME; CLOSING
3.1 The closing of the transactions contemplated by this Agreement (the
"CLOSING") shall occur as of the close of normal trading on the New York Stock
Exchange (the "EXCHANGE") (currently, 4:00 p.m. Eastern time) on the first day
upon which the conditions to closing shall have been satisfied (but not prior to
March 1, 1996), or at such time on such later date as provided herein or as the
parties otherwise may agree in writing (such time and date being referred to
herein as the "EFFECTIVE TIME"). All acts taking place at the Closing shall be
deemed to take place simultaneously as of the Effective Time unless otherwise
agreed to by the parties. The Closing shall be held at the offices of Dorsey &
Whitney P.L.L.P., 220 South Sixth Street, Minneapolis, Minnesota 55402, or at
such other place as the parties may agree.
3.2 The Acquired Fund shall deliver at the Closing its written instructions
to the custodian for the Acquired Fund, acknowledged and agreed to in writing by
such custodian, irrevocably instructing such custodian to transfer to the
Acquiring Fund all of the Acquired Fund's portfolio securities, cash, and any
other assets to be acquired by the Acquiring Fund pursuant to this Agreement.
3.3 In the event that the Effective Time occurs on a day on which (a) the
Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereon shall be restricted, or (b) trading or the reporting of trading on the
Exchange or elsewhere shall be disrupted so that accurate appraisal of the value
of the net assets of
4
<PAGE>
the Acquiring Fund or the Acquired Fund is impracticable, the Effective Time
shall be postponed until the close of normal trading on the Exchange on the
first business day when trading shall have been fully resumed and reporting
shall have been restored.
3.4 The Acquired Fund shall deliver at the Closing its certificate stating
that the records maintained by its transfer agent (which shall be made available
to the Acquiring Fund) contain the names and addresses of the Acquired Fund
Shareholders and the number of outstanding Acquired Fund shares owned by each
such shareholder as of the Effective Time. The Acquiring Fund shall certify at
the Closing that the Acquiring Fund Shares required to be issued by it pursuant
to this Agreement have been issued and delivered as required herein. At the
Closing, each party shall deliver to the other such bills of sale, liability
assumption agreements, checks, assignments, share certificates, if any, receipts
or other documents as such other party or its counsel may reasonably request.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 The Acquired Fund represents, warrants and covenants to the Acquiring
Fund as follows:
(a) Fortis Advantage is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota;
(b) Fortis Advantage is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and of each series
of shares offered by Fortis Advantage under the Securities Act of 1933, as
amended (the "1933 ACT"), is in full force and effect;
(c) Shares of the Acquired Fund are registered in all jurisdictions in
which they are required to be registered under state securities laws and any
other applicable laws; said registrations, including any periodic reports or
supplemental filings, are complete and current; all fees required to be paid
in connection with such registrations have been paid; and the Acquired Fund
is in good standing, is not subject to any stop orders, and is fully
qualified to sell its shares in any state in which its shares have been
registered;
(d) The Prospectus and Statement of Additional Information of the
Acquired Fund, as of the date hereof and up to and including the Effective
Time, conform and will conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not and will not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially misleading;
(e) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a violation of Fortis
Advantage's articles of incorporation or bylaws or of any material
agreement, indenture, instrument, contract, lease or other undertaking to
which the Acquired Fund is a party or by which it is bound;
(f) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to the
best of the Acquired Fund's knowledge, threatened against the Acquired Fund
or any of its properties or assets. The Acquired Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or its
ability to consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities of the Acquired Fund as of
the end of its most recently concluded fiscal year has been audited by KPMG
Peat Marwick LLP, independent accountants, and is in accordance with
generally accepted accounting principles consistently applied, and such
statement (a copy of which has been furnished to the Acquiring Fund)
presents
5
<PAGE>
fairly, in all material respects, the financial position of the Acquired
Fund as of such date, and there are no known material contingent liabilities
of the Acquired Fund as of such date not disclosed therein;
(h) Since the end of the Acquired Fund's most recently concluded fiscal
year, there has not been any material adverse change in the Acquired Fund's
financial condition, assets, liabilities or business other than changes
occurring in the ordinary course of business, except as otherwise disclosed
to the Acquiring Fund. For the purposes of this paragraph (h), a decline in
net asset value per share of the Acquired Fund, the discharge or incurrence
of Acquired Fund liabilities in the ordinary course of business, or the
redemption of Acquired Fund shares by Acquired Fund Shareholders, shall not
constitute such a material adverse change;
(i) All material federal and other tax returns and reports of the
Acquired Fund required by law to have been filed prior to the Effective Time
shall have been filed and shall be correct, and all federal and other taxes
shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquired Fund's knowledge, no such return
is currently under audit and no assessment shall have been asserted with
respect to such returns;
(j) For each taxable year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification and treatment
as a regulated investment company, and the Acquired Fund intends to meet the
requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company for its final, partial taxable year;
(k) All issued and outstanding shares of the Acquired Fund are, and at
the Effective Time will be, duly and validly issued and outstanding, fully
paid and non-assessable. All of the issued and outstanding shares of the
Acquired Fund will, at the Effective Time, be held by the persons and in the
amounts set forth in the records of the Acquired Fund, as provided in
Section 3.4. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any Acquired Fund
shares, and there is not outstanding any security convertible into any
Acquired Fund shares (other than Class B and Class H shares which
automatically convert to Class A shares after a specified period);
(l) At the Effective Time, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to Section 1.2 and full right, power, and authority
to sell, assign, transfer and deliver such assets hereunder, and upon
delivery of and payment for such assets, the Acquiring Fund will acquire
good and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act other than as disclosed to the Acquiring Fund in the Effective Time
Statement;
(m) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on
the part of the Acquired Fund's Board of Directors, and, subject to the
approval of the Acquired Fund Shareholders, this Agreement will constitute a
valid and binding obligation of the Acquired Fund, enforceable in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other laws relating to
or affecting creditors' rights and to the application of equitable
principles in any proceeding, whether at law or in equity;
(n) The information to be furnished by and on behalf of the Acquired
Fund for use in registration statements, proxy materials and other documents
which may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete in all material respects;
(o) All information pertaining to the Acquired Fund, its agents and
affiliates and Fortis Advantage and included in the Registration Statement
referred to in Section 5.5 (or supplied by the Acquired Fund or its agents
or affiliates for inclusion in said Registration Statement), on the
6
<PAGE>
effective date of said Registration Statement and up to and including the
Effective Time, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which such
statements are made, not materially misleading (other than as may timely be
remedied by further appropriate disclosure);
(p) Since the end of the Acquired Fund's most recently concluded fiscal
year, there have been no material changes by the Acquired Fund in accounting
methods, principles or practices, including those required by generally
accepted accounting principles, except as disclosed in writing to the
Acquiring Fund; and
(q) The Effective Time Statement will be prepared in accordance with
generally accepted accounting principles (except for footnotes) consistently
applied and will present accurately the assets and liabilities of the
Acquired Fund as of the Effective Time, and the values of the Acquired
Fund's assets and liabilities to be set forth in the Effective Time
Statement will be computed as of the Effective Time using the valuation
procedures set forth in the Acquired Fund's articles of incorporation and
bylaws, its then-current Prospectus and Statement of Additional Information,
and as may be required by the 1940 Act. At the Effective Time, the Acquired
Fund will have no liabilities, whether absolute or contingent, known or
unknown, accrued or unaccrued, which are not reflected in the Effective Time
Statement.
4.2 The Acquiring Fund represents, warrants and covenants to the Acquired
Fund as follows:
(a) Fortis Income is a corporation duly organized, validly existing and
in good standing under the laws of the State of Minnesota;
(b) Fortis Income is a registered investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act, and of each series
of shares offered by Fortis Income under the 1933 Act, is in full force and
effect;
(c) Shares of the Acquiring Fund are registered in all jurisdictions in
which they are required to be registered under state securities laws and any
other applicable laws; said registrations, including any periodic reports or
supplemental filings, are complete and current; all fees required to be paid
in connection with such registrations have been paid; and the Acquiring Fund
is in good standing, is not subject to any stop orders, and is fully
qualified to sell its shares in any state in which its shares have been
registered;
(d) The Prospectus and Statement of Additional Information of the
Acquiring Fund, as of the date hereof and up to and including the Effective
Time, conform and will conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not and will not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially misleading;
(e) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a violation of Fortis
Income's articles of incorporation or bylaws or of any material agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquiring Fund is a party or by which it is bound;
(f) No material litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or, to the
best of the Acquiring Fund's knowledge, threatened against the Acquiring
Fund or any of its properties or assets. The Acquiring Fund is not a party
to or subject to the provisions of any order, decree or judgment of any
court or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein contemplated;
7
<PAGE>
(g) The Statement of Assets and Liabilities of the Acquiring Fund as of
the end of its most recently concluded fiscal year has been audited by KPMG
Peat Marwick LLP, independent accountants, and is in accordance with
generally accepted accounting principles consistently applied, and such
statement (a copy of which has been furnished to the Acquired Fund) presents
fairly, in all material respects, the financial position of the Acquiring
Fund as of such date, and there are no known material contingent liabilities
of the Acquiring Fund as of such date not disclosed therein;
(h) Since the end of the Acquiring Fund's most recently concluded fiscal
year, there has not been any material adverse change in the Acquiring Fund's
financial condition, assets, liabilities or business other than changes
occurring in the ordinary course of business, except as otherwise disclosed
to the Acquired Fund. For the purposes of this paragraph (h), a decline in
net asset value per share of the Acquiring Fund, the discharge or incurrence
of Acquiring Fund liabilities in the ordinary course of business, or the
redemption of Acquiring Fund shares by Acquiring Fund shareholders, shall
not constitute such a material adverse change;
(i) All material federal and other tax returns and reports of the
Acquiring Fund required by law to have been filed prior to the Effective
Time shall have been filed and shall be correct, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquiring Fund's knowledge, no such
return is currently under audit and no assessment shall have been asserted
with respect to such returns;
(j) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and treatment
as a regulated investment company, and the Acquiring Fund intends to meet
the requirements of Subchapter M of the Code for qualification and treatment
as a regulated investment company in the current and future years;
(k) All issued and outstanding shares of the Acquiring Fund are, and at
the Effective Time will be, duly and validly issued and outstanding, fully
paid and non-assessable. The Acquiring Fund Shares to be issued and
delivered to the Acquired Fund for the account of the Acquired Fund
Shareholders, pursuant to the terms of this Agreement, at the Effective Time
will have been duly authorized and, when so issued and delivered, will be
duly and validly issued and outstanding, fully paid and non-assessable. The
Acquiring Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any Acquiring Fund shares, and there is
not outstanding any security convertible into any Acquiring Fund shares
(other than Class B and Class H shares which automatically convert to Class
A shares after a specified period);
(l) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Effective Time by all necessary action on
the part of the Acquiring Fund's Board of Directors, and at the Effective
Time this Agreement will constitute a valid and binding obligation of the
Acquiring Fund, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other laws relating to or affecting creditors'
rights and to the application of equitable principles in any proceeding,
whether at law or in equity. Consummation of the transactions contemplated
by this Agreement does not require the approval of the Acquiring Fund's
shareholders;
(m) The information to be furnished by and on behalf of the Acquiring
Fund for use in registration statements, proxy materials and other documents
which may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete in all material respects;
(n) Since the end of the Acquiring Fund's most recently concluded fiscal
year, there have been no material changes by the Acquiring Fund in
accounting methods, principles or practices, including those required by
generally accepted accounting principles, except as disclosed in writing to
the Acquired Fund; and
8
<PAGE>
(o) The Registration Statement referred to in Section 5.5, on its
effective date and up to and including the Effective Time, will (i) conform
in all material respects to the applicable requirements of the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 ACT"), and the 1940
Act and the rules and regulations of the Commission thereunder, and (ii) not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not materially misleading (other than as may timely be remedied by
further appropriate disclosure); provided, however, that the representations
and warranties in clause (ii) of this paragraph shall not apply to
statements in (or omissions from) the Registration Statement concerning the
Acquired Fund, its agents and affiliates and Fortis Advisers (or supplied by
the Acquired Fund, its agents or affiliates for inclusion in said
Registration Statement).
5. FURTHER COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Each of the Acquired Fund and the Acquiring Fund will operate its
business in the ordinary course between the date hereof and the Effective Time,
it being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distributions that may be advisable (which may include distributions prior to
the Effective Time of net income and/or net realized capital gains not
previously distributed). The Acquired Fund agrees that through the Effective
Time, it will not acquire any securities which are not permissible investments
for the Acquiring Fund.
5.2 The Acquired Fund will call a meeting of its shareholders to consider
and act upon this Agreement and the Amendment and to take all other action
necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the beneficial
ownership of the Acquired Fund shares.
5.4 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund will each take, or cause to be taken, all actions, and do or cause
to be done, all things reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary with respect to the Acquired Fund and its agents and
affiliates for the preparation of the Registration Statement on Form N-14 of the
Acquiring Fund (the "REGISTRATION STATEMENT"), in compliance with the 1933 Act,
the 1934 Act and the 1940 Act.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such
state blue sky or securities laws as may be necessary in order to conduct its
operations after the Effective Time.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder at or
before the Effective Time, and, in addition thereto, the following further
conditions (any of which may be waived by the Acquired Fund, in its sole and
absolute discretion):
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time;
9
<PAGE>
6.2 The Acquiring Fund shall have delivered to the Acquired Fund a
certificate executed in its name by its President or a Vice President, in a form
reasonably satisfactory to the Acquired Fund and dated as of the date of the
Closing, to the effect that the representations and warranties of the Acquiring
Fund made in this Agreement are true and correct at the Effective Time, except
as they may be affected by the transactions contemplated by this Agreement, and
as to such other matters as the Acquired Fund shall reasonably request; and
6.3 The Acquiring Fund shall have delivered to the Acquired Fund the
certificate as to the issuance of Acquiring Fund shares contemplated by the
second sentence of Section 3.4.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder at or
before the Effective Time and, in addition thereto, the following conditions
(any of which may be waived by the Acquiring Fund, in its sole and absolute
discretion):
7.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct as of the date hereof and, except as
they may be affected by the transactions contemplated by this Agreement, as of
the Effective Time with the same force and effect as if made at such time;
7.2 The Acquiring Fund shall have received, and certified as to its receipt
of, the Effective Time Statement;
7.3 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate executed in its name by its President or a Vice President, in a form
reasonably satisfactory to the Acquiring Fund and dated as of the date of the
Closing, to the effect that the representations and warranties of the Acquired
Fund made in this Agreement are true and correct at the Effective Time, except
as they may be affected by the transactions contemplated by this Agreement, and
as to such other matters as the Acquiring Fund shall reasonably request;
7.4 The Acquired Fund shall have delivered to the Acquiring Fund the written
instructions to the custodian for the Acquired Fund contemplated by Section 3.2;
7.5 The Acquired Fund shall have delivered to the Acquiring Fund the
certificate as to its shareholder records contemplated by the first sentence of
Section 3.4;
7.6 At or prior to the Effective Time, the Acquired Fund's investment
adviser, or an affiliate thereof, shall have reimbursed the Acquired Fund by the
amount, if any, that the expenses incurred by the Acquired Fund (or accrued up
to the Effective Time) exceed any applicable contractual or state-imposed
expense limitations; and
7.7 Immediately prior to the Effective Time, the Acquired Fund shall not
hold any securities which are not permissible investments for the Acquiring
Fund.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
The following shall constitute further conditions precedent to the
consummation of the Reorganization:
8.1 This Agreement, the Amendment and the transactions contemplated herein
and therein shall have been approved by the requisite vote of the holders of the
outstanding shares of the Acquired Fund in accordance with the provisions of its
articles of incorporation and bylaws and applicable law, and certified copies of
the resolutions evidencing such approval shall have been delivered to the
Acquiring Fund. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund may waive the conditions set forth in this
Section 8.1;
10
<PAGE>
8.2 As of the Effective Time, no action, suit or other proceeding shall be
threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits
of federal, state and local regulatory authorities deemed necessary by the
Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop order suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act;
8.5 The parties shall have received the opinion of Dorsey & Whitney P.L.L.P.
addressed to the Acquired Fund and the Acquiring Fund, dated as of the date of
the Closing, and based in part on certain representations to be furnished by the
Acquired Fund, the Acquiring Fund, and their investment adviser and other
service providers, substantially to the effect that:
(i) the Reorganization will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and the Acquiring Fund and the
Acquired Fund each will qualify as a party to the Reorganization under
Section 368(b) of the Code;
(ii) the Acquired Fund Shareholders will recognize no income, gain or
loss upon receipt, pursuant to the Reorganization, of the Acquiring Fund
Shares. Acquired Fund Shareholders subject to taxation will recognize income
upon receipt of any net investment income or net capital gains of the
Acquired Fund which are distributed by the Acquired Fund prior to the
Effective Time;
(iii) the tax basis of the Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will be equal to
the tax basis of the Acquired Fund shares exchanged therefor;
(iv) the holding period of the Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will include the
period during which the Acquired Fund Shareholder held the Acquired Fund
shares exchanged therefor, provided that the Acquired Fund shares were held
as a capital asset at the Effective Time;
(v) the Acquired Fund will recognize no income, gain or loss by reason
of the Reorganization;
(vi) the Acquiring Fund will recognize no income, gain or loss by reason
of the Reorganization;
(vii) the tax basis of the assets received by the Acquiring Fund pursuant
to the Reorganization will be the same as the basis of those assets in the
hands of the Acquired Fund as of the Effective Time;
(viii) the holding period of the assets received by the Acquiring Fund
pursuant to the Reorganization will include the period during which such
assets were held by the Acquired Fund; and
(ix) the Acquiring Fund will succeed to and take into account the
earnings and profits, or deficit in earnings and profits, of the Acquired
Fund as of the Effective Time; and
8.6 The Amendment shall have been filed in accordance with the applicable
provisions of Minnesota law.
11
<PAGE>
9. EXPENSES; INDEMNIFICATION
9.1 All expenses incurred by the parties hereto in connection with the
transactions contemplated hereby (including, without limitation, the fees and
expenses associated with the preparation and filing of the Registration
Statement referred to in Section 5.5 above and the expenses of printing and
mailing the prospectus/proxy statement, soliciting proxies and holding the
Acquired Fund shareholders meeting required to approve the transactions
contemplated hereby) shall be allocated between and borne by the Acquired Fund
and the Acquiring Fund in proportion to their relative net assets at the
Effective Time. Such expenses, and the allocation thereof, shall be reflected in
the calculations of net asset values pursuant to Section 2.1.
9.2 The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's directors and officers from and against any
and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which, jointly or severally, the Acquired Fund or any of its
directors or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquiring Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.3 The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's directors and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which, jointly or severally, the Acquiring Fund or any of its
directors or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 The Acquiring Fund and the Acquired Fund agree that neither party has
made any representation, warranty, covenant or agreement not set forth herein
and that this Agreement constitutes the entire agreement between the parties.
10.2 The representations and warranties contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall survive
the consummation of the transactions contemplated hereby.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by either party by resolution of the party's board of directors at
any time prior to the Effective Time, if circumstances should develop that, in
the good faith opinion of such board, make proceeding with this Agreement and
such transactions not in the best interest of the applicable party's
shareholders.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of the
Acquired Fund and the Acquiring Fund; provided, however, that following the
meeting of the Acquired Fund Shareholders called by the Acquired Fund pursuant
to Section 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of Acquiring Fund Shares to
be issued to Acquired Fund Shareholders under this Agreement to the detriment of
such shareholders without their further approval.
12
<PAGE>
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered or mailed by registered mail, postage prepaid, addressed to the
Acquiring Fund or the Acquired Fund, 500 Bielenberg Drive, Woodbury, Minnesota
55125.
14. HEADINGS; COUNTERPARTS; ASSIGNMENT; MISCELLANEOUS
14.1 The Article and Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same agreement.
14.3 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
either party without the prior written consent of the other party. Nothing
herein expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
14.4 The validity, interpretation and effect of this Agreement shall be
governed exclusively by the laws of the State of Minnesota, without giving
effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President.
FORTIS ADVANTAGE PORTFOLIOS, INC.
on behalf of its
GOVERNMENT TOTAL RETURN
PORTFOLIO
By ___________________________________
Its __________________________________
FORTIS INCOME PORTFOLIOS, INC.
on behalf of its
FORTIS U.S. GOVERNMENT
SECURITIES FUND
By ___________________________________
Its __________________________________
13
<PAGE>
EXHIBIT 1 TO AGREEMENT AND PLAN OF REORGANIZATION
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FORTIS ADVANTAGE PORTFOLIOS, INC.
The undersigned officer of Fortis Advantage Portfolios, Inc. (the
"Corporation"), a corporation subject to the provisions of Chapter 302A of the
Minnesota Statutes, hereby certifies that the Corporation's Board of Directors
and shareholders, at meetings held , 1995 and , 1996,
respectively, adopted the resolutions hereinafter set forth; and such officer
further certifies that the amendments to the Corporation's Amended and Restated
Articles of Incorporation set forth in such resolutions were adopted pursuant to
said Chapter 302A.
WHEREAS, the Corporation is registered as an open end management investment
company (i.e., a mutual fund) under the Investment Company Act of 1940 and
offers its shares to the public in several series, each of which represents
a separate and distinct portfolio of assets; and
WHEREAS, it is desirable and in the best interests of the holders of the
Series D shares of the Corporation (also known as the "Government Total
Return Portfolio") that the assets belonging to such series be sold to
Fortis U.S. Government Securities Fund, a series of Fortis Income
Portfolios, Inc., a Minnesota corporation and an open end management
investment company registered under the Investment Company Act of 1940, in
exchange for shares of Fortis U.S. Government Securities Fund; and
WHEREAS, the Corporation wishes to provide for the pro rata distribution of
such shares of Fortis U.S. Government Securities Fund received by it to
holders of shares of the Corporation's Government Total Return Portfolio and
the simultaneous cancellation and retirement of the outstanding shares of
the Corporation's Government Total Return Portfolio; and
WHEREAS, the Corporation and Fortis Income Portfolios, Inc. have entered
into an Agreement and Plan of Reorganization providing for the foregoing
transactions; and
WHEREAS, the Agreement and Plan of Reorganization requires that, in order to
bind all holders of shares of the Corporation's Government Total Return
Portfolio to the foregoing transactions, and in particular to bind such
holders to the cancellation and retirement of the outstanding shares of the
Corporation's Government Total Return Portfolio, it is necessary to adopt an
amendment to the Corporation's Amended and Restated Articles of
Incorporation.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation's Amended and Restated
Articles of Incorporation be, and the same hereby are, amended to add the
following Article 5A immediately following Article 5 thereof:
5A. (a) For purposes of this Article 5A, the following terms shall have
the following meanings:
"CORPORATION" means this corporation.
"FORTIS INCOME" means Fortis Income Portfolios, Inc., a Minnesota
corporation.
"ACQUIRED FUND" means the Corporation's Government Total Return
Portfolio, which is represented by the Corporation's Series D
shares.
"CLASS A ACQUIRED FUND SHARES" means the Corporation's Series D,
Class A shares.
"CLASS B ACQUIRED FUND SHARES" means the Corporation's Series D,
Class B shares.
"CLASS C ACQUIRED FUND SHARES" means the Corporation's Series D,
Class C shares.
"CLASS H ACQUIRED FUND SHARES" means the Corporation's Series D,
Class H shares.
"ACQUIRING FUND" means Fortis Income's U.S. Government Securities
Fund, which is represented by Fortis Income's Series A shares.
<PAGE>
"CLASS A ACQUIRING FUND SHARES" means Fortis Income's Series A,
Class A shares.
"CLASS B ACQUIRING FUND SHARES" means Fortis Income's Series A,
Class B shares.
"CLASS C ACQUIRING FUND SHARES" means Fortis Income's Series A,
Class C shares.
"CLASS H ACQUIRING FUND SHARES" means Fortis Income's Series A,
Class H shares.
"EFFECTIVE TIME" means 4:00 p.m. Eastern time on the date upon which
these Articles of Amendment are filed with the Minnesota Secretary
of State.
(b) At the Effective Time, the assets belonging to the Acquired Fund,
the Special Liabilities associated with such assets, and the General Assets
and General Liabilities allocated to the Acquired Fund, shall be sold to and
assumed by the Acquiring Fund in return for Class A, Class B, Class C and
Class H Acquiring Fund shares, all pursuant to the Agreement and Plan of
Reorganization. For purposes of the foregoing, the terms "assets belonging
to," "Special Liabilities," "General Assets" and "General Liabilities" have
the meanings assigned to them in Article 7(b), (c) and (d) of the
Corporation's Amended and Restated Articles of Incorporation.
(c) The numbers of Class A, Class B, Class C and Class H Acquiring Fund
shares to be received by the Acquired Fund and distributed by it to the
respective Acquired Fund shareholders shall be determined as follows:
(i) The net asset value per share of the Acquired Fund's and the
Acquiring Fund's Class A shares, Class B shares, Class C shares and Class
H shares shall be computed as of the Effective Time using the valuation
procedures set forth in their respective articles of incorporation and
bylaws, their respective then-current Prospectuses and Statements of
Additional Information, and as may be required by the Investment Company
Act of 1940, as amended (the "1940 ACT").
(ii) The total number of Class A Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for the assets and
liabilities of the Acquired Fund which are allocable to the Acquired
Fund's Class A shares shall be determined as of the Effective Time by
multiplying the number of Class A Acquired Fund shares outstanding
immediately prior to the Effective Time times a fraction, the numerator
of which is the net asset value per share of the Acquired Fund's Class A
shares immediately prior to the Effective Time, and the denominator of
which is the net asset value per share of the Acquiring Fund's Class A
shares immediately prior to the Effective Time, each as determined
pursuant to (i) above.
(iii) The total number of Class B Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for the assets and
liabilities of the Acquired Fund which are allocable to the Acquired
Fund's Class B shares shall be determined as of the Effective Time by
multiplying the number of Class B Acquired Fund shares outstanding
immediately prior to the Effective Time times a fraction, the numerator
of which is the net asset value per share of the Acquired Fund's Class B
shares immediately prior to the Effective Time, and the denominator of
which is the net asset value per share of the Acquiring Fund's Class B
shares immediately prior to the Effective Time, each as determined
pursuant to (i) above.
(iv) The total number of Class C Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for the assets and
liabilities of the Acquired Fund which are allocable to the Acquired
Fund's Class C shares shall be determined as of the Effective Time by
multiplying the number of Class C Acquired Fund shares outstanding
immediately prior to the Effective Time times a fraction, the numerator
of which is the net asset value per share of the Acquired Fund's Class C
shares immediately prior to the Effective Time, and the denominator of
which is the net asset value per share of the Acquiring Fund's Class C
shares immediately prior to the Effective Time, each as determined
pursuant to (i) above.
2
<PAGE>
(v) The total number of Class H Acquiring Fund shares to be issued
(including fractional shares, if any) in exchange for the assets and
liabilities of the Acquired Fund which are allocable to the Acquired
Fund's Class H shares shall be determined as of the Effective Time by
multiplying the number of Class H Acquired Fund shares outstanding
immediately prior to the Effective Time times a fraction, the numerator
of which is the net asset value per share of the Acquired Fund's Class H
shares immediately prior to the Effective Time, and the denominator of
which is the net asset value per share of the Acquiring Fund's Class H
shares immediately prior to the Effective Time, each as determined
pursuant to (i) above.
(vi) Immediately after the Effective Time, the Acquired Fund shall
distribute to the Acquired Fund shareholders of the respective classes in
liquidation of the Acquired Fund pro rata within classes (based upon the
ratio that the number of Acquired Fund shares of the respective classes
owned by each Acquired Fund shareholder immediately prior to the
Effective Time bears to the total number of issued and outstanding
Acquired Fund shares of such classes immediately prior to the Effective
Time) the full and fractional Acquiring Fund shares of the respective
classes received by the Acquired Fund pursuant to (ii) through (v) above.
Accordingly, each Class A Acquired Fund shareholder shall receive,
immediately after the Effective Time, Class A Acquiring Fund Shares with
an aggregate net asset value equal to the aggregate net asset value of
the Class A Acquired Fund Shares owned by such Acquired Fund shareholder
immediately prior to the Effective Time; each Class B Acquired Fund
shareholder shall receive, immediately after the Effective Time, Class B
Acquiring Fund Shares with an aggregate net asset value equal to the
aggregate net asset value of the Class B Acquired Fund Shares owned by
such Acquired Fund shareholder immediately prior to the Effective Time;
each Class C Acquired Fund shareholder shall receive, immediately after
the Effective Time, Class C Acquiring Fund Shares with an aggregate net
asset value equal to the aggregate net asset value of the Class C
Acquired Fund Shares owned by such Acquired Fund shareholder immediately
prior to the Effective Time; and each Class H Acquired Fund shareholder
shall receive, immediately after the Effective Time, Class H Acquiring
Fund Shares with an aggregate net asset value equal to the aggregate net
asset value of the Class H Acquired Fund Shares owned by such Acquired
Fund shareholder immediately prior to the Effective Time.
(d) The distribution of Acquiring Fund shares to Acquired Fund
shareholders provided for in paragraph (c) above shall be accomplished by
the issuance of such Acquiring Fund shares to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund shareholders
representing the numbers and classes of Acquiring Fund shares due each such
shareholder pursuant to the foregoing provisions. All issued and outstanding
shares of the Acquired Fund shall simultaneously be cancelled on the books
of the Acquired Fund and retired. From and after the Effective Time, share
certificates formerly representing Acquired Fund shares shall represent the
numbers and classes of Acquiring Fund shares determined in accordance with
the foregoing provisions.
(e) From and after the Effective Time, the Acquired Fund shares
cancelled and retired pursuant to paragraph (d) above shall have the status
of authorized and unissued Series D shares of the Corporation, without
designation as to class.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed
these Articles of Amendment behalf of the Corporation on , 1996.
FORTIS ADVANTAGE PORTFOLIOS, INC
By ___________________________________
Its __________________________________
3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS/PROXY STATEMENT
DECEMBER 27, 1995
PROPOSED ACQUISITION OF ASSETS OF
GOVERNMENT TOTAL RETURN PORTFOLIO
A SEPARATELY MANAGED SERIES OF
FORTIS ADVANTAGE PORTFOLIOS, INC.
BY AND IN EXCHANGE FOR SHARES OF
FORTIS U.S. GOVERNMENT SECURITIES FUND
A SEPARATELY MANAGED SERIES OF
FORTIS INCOME PORTFOLIOS, INC.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Incorporation by Reference..................... 3
Summary........................................ 4
Risk Factors................................... 12
Information About the Reorganization........... 12
Information About the Acquired Fund and the
Acquiring Fund................................ 17
Voting Information............................. 20
Financial Statements and Experts............... 24
Legal Matters.................................. 24
Exhibit A -- Agreement and Plan of
Reorganization
</TABLE>
------------------------
The following documents accompany this Prospectus/Proxy Statement:
Prospectus dated December 1, 1995, of Fortis U.S. Government Securities Fund.
Annual Report of Fortis U.S. Government Securities Fund for the fiscal year
ended July 31, 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
dated December 27, 1995
Acquisition of the Assets of
GOVERNMENT TOTAL RETURN PORTFOLIO
A Separately Managed Series of
FORTIS ADVANTAGE PORTFOLIOS, INC.
500 Bielenberg Drive, Woodbury, Minnesota 55125
Mailing Address: P.O. Box 64284, St. Paul, Minnesota 55164
(800) 738-4000
By and in Exchange for Shares of
FORTIS U.S. GOVERNMENT SECURITIES FUND
A Separately Managed Series of
FORTIS INCOME PORTFOLIOS, INC.
500 Bielenberg Drive, Woodbury, Minnesota 55125
Mailing Address: P.O. Box 64284, St. Paul, Minnesota 55164
(800) 738-4000
This Statement of Additional Information relates to the proposed
Agreement and Plan of Reorganization providing for (a) the acquisition of
substantially all of the assets and the assumption of all liabilities of
Government Total Return Portfolio (the "Acquired Fund"), a separately managed
series of Fortis Advantage Portfolios, Inc. ("Fortis Advantage") by Fortis
U.S. Government Securities Fund (the "Acquiring Fund"), a separately managed
series of Fortis Income Portfolios, Inc., in exchange for shares of common
stock of the Acquiring Fund having an aggregate net asset value equal to the
aggregate value of the assets acquired (less the liabilities assumed) of the
Acquired Fund and (b) the liquidation of the Acquired Fund and the pro rata
distribution of the Acquiring Fund shares to Acquired Fund shareholders.
This Statement of Additional Information consists of this cover page and
the following documents, of which items 1 through 5 are incorporated by
reference herein:
1. The Statement of Additional Information dated December 1, 1995 of the
Acquiring Fund.
2. The Annual Report of the Acquiring Fund for the fiscal year ended
July 31, 1995.
3. The Statement of Additional Information dated March 1, 1995 of the
Acquired Fund.
4. The Annual Report of the Acquired Fund for the fiscal year ended
October 31, 1994.
5. The Semi-Annual Report of the Acquired Fund for the six months ended
April 30, 1995.
6. Financial Statements required by Form N-14, Item 14 (to the extent
not included in items 2, 4 and 5 above).
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement dated December 27, 1995 relating to the
above-referenced transaction may be obtained without charge by writing or
calling the Acquired Fund or the Acquiring Fund at the addresses or telephone
numbers noted above. This Statement of Additional Information relates to,
and should be read in conjunction with, such Prospectus/Proxy Statement.
<PAGE>
COMBINATION OF
GOVERNMENT TOTAL RETURN PORTFOLIO OF FORTIS ADVANTAGE PORTFOLIOS, INC.
WITH AND INTO
FORTIS U.S. GOVERNMENT SECURITIES FUND OF FORTIS INCOME PORTFOLIOS, INC.
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS
The accompanying unaudited pro forma combining statement of assets and
liabilities, statement of operations, and schedule of investments of the
Government Total Return Portfolio of Fortis Advantage Portfolios, Inc. (the
"Acquired Fund") and the Fortis U.S. Government Securities Fund of Fortis
Income Portfolios, Inc. (the "Acquiring Fund"), reflect the accounts of the
two Funds at and for the 12-month period ended July 31, 1995. These
statements have been derived from the annual report for the Acquiring Fund as
of July 31, 1995, and the underlying accounting records used in calculating
daily net asset values for the 12-month period ended July 31, 1995 for the
Acquired Fund. The pro forma combining statements have been prepared based
upon the various fee structures of the Funds in existence as of July 31, 1995.
<PAGE>
PROFORMA STATEMENT OF ASSETS AND LIABILITIES
At July 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Acquired Acquiring
Fund Fund
07/31/95 07/31/95 Proforma Proforma
(Historical) (Historical) Adjustments Combined
----------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value $63,234,031 $479,504,553 $542,738,584
Collateral for securities lending transactions 12,501,150 252,179,800 264,680,950
Receivables:
Investment securities sold 544,096 10,866,864 11,410,960
Interest and dividends 896,359 6,767,642 7,664,001
Subscriptions of capital stock 107 105,824 105,931
Deferred registration costs 36,220 43,544 79,764
----------------- ------------------ ---------------- ------------------
TOTAL ASSETS 77,211,963 749,468,227 0 826,680,190
----------------- ------------------ ---------------- ------------------
LIABILITIES
Bank Overdraft 7,004 0 7,004
Cash portion of dividends payable 146,180 924,673 1,070,853
Payable upon return of securities loaned 12,501,150 252,179,800 264,680,950
Payable for investment securities purchased 0 14,771,875 14,771,875
Redemptions of capital stock 12,402 129,849 142,251
Payable for investment advisory and management fees 43,634 293,744 337,378
Payable for distribution fees 2,495 745 3,240
Accounts payable and accrued expenses 14,842 30,751 45,593
----------------- ------------------ ---------------- ------------------
TOTAL LIABILITIES 12,727,707 268,331,437 0 281,059,144
----------------- ------------------ ---------------- ------------------
NET ASSETS $64,484,256 $481,136,790 $ 0 $545,621,046
================= ================== ================ ==================
NET ASSETS
Net proceeds of capital stock, par value $.01 per share $78,063,964 $537,043,809 $615,107,773
Unrealized appreciation of investments 1,087,931 3,867,629 4,955,560
Excess distributions over net investment income (186,491) (17,686) (204,177)
Accumulated net realized loss from sale of investments (14,481,148) (59,756,962) (74,238,110)
----------------- ------------------ ---------------- ------------------
TOTAL NET ASSETS $64,484,256 $481,136,790 $ 0 $545,621,046
================= ================== ================ ==================
OUTSTANDING SHARES
Class A 7,978,790 544,097 (879,761)(a) 7,643,126
Class B 5,826 53,530 (662)(a) 58,694
Class C 2,402 36,194 (266)(a) 38,330
Class H 48,211 534,676 (5,507)(a) 577,380
Class E N/A 52,149,917 52,149,917
NET ASSET VALUE
Class A $8.03 $9.02 $9.02
Class B $8.00 $9.02 $9.02
Class C $8.01 $9.01 $9.01
Class H $7.99 $9.02 $9.02
Class E N/A $9.02 $9.02
</TABLE>
See accompanying notes to proforma financial statements.
(a) Reflects reduction in shares due to differences in the net asset values
of the Funds.
<PAGE>
PROFORMA STATEMENT OF OPERATIONS
For the year ended July 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
ACQUIRED ACQUIRING
FUND FUND
07/31/95 07/31/95 PROFORMA PROFORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS COMBINED
---------------- ------------------ --------------- ----------------
NET INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Income
Interest Income $5,282,170 $41,392,499 $ 702,522 (c) $47,377,191
Fee Income 5,132 321,417 0 326,549
---------------- ------------------ --------------- ----------------
Total Income 5,287,302 41,713,916 702,522 47,703,740
---------------- ------------------ --------------- ----------------
Expenses:
Investment advisory and management fees 535,894 3,576,719 (59,333) (a) 4,053,280
Distribution fees 239,212 23,151 (67,957) (a) 194,406
Shareholders' notices and reports 29,690 112,706 (12,239) (a) 130,157
Legal and auditing fees 24,608 72,056 (23,000) (a) 73,664
Registration fees 46,266 67,862 (44,000) (a) 70,128
Custodian fees 32,692 62,744 (32,060) (a) 63,376
Directors' fees and expenses 5,709 46,526 (5,709) (a) 46,526
Other 8,266 46,734 (8,266) (a) 46,734
---------------- ------------------ --------------- ----------------
Total Expenses 922,337 4,008,498 (252,564) 4,678,271
Less reimbursable expenses 0 (84,896) 84,896 (b) 0
---------------- ------------------ --------------- ----------------
Net Expenses 922,337 3,923,602 (167,668) 4,678,271
---------------- ------------------ --------------- ----------------
NET INVESTMENT INCOME 4,364,965 37,790,314 534,854 43,025,469
---------------- ------------------ --------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions (5,261,210) (33,680,898) 0 (38,942,108)
Net change in unrealized appreciation of investments
in securities 5,179,283 31,855,826 (702,522) (c) 36,332,587
---------------- ------------------ --------------- ----------------
NET LOSS ON INVESTMENTS (81,927) (1,825,072) (702,522) (2,609,521)
---------------- ------------------ --------------- ----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,283,038 $35,965,242 $ 167,668 $40,415,948
================ ================== =============== ================
</TABLE>
See accompanying notes to pro forma financial statements.
(a) Reflects reduction in expenses due to elimination of duplicate services.
(b) Expense waiver was in effect only through June 1, 1995.
(c) Reflects differences in the amortization policies of the Funds.
<PAGE>
PROFORMA SCHEDULE OF INVESTMENTS
At July 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
FACE AMOUNT (HISTORICAL) SECURITY MARKET AMOUNT (HISTORICAL)
- ------------------------------------------------------------------------------------------------------------------------------------
ACQUIRED ACQUIRING ACQUIRED ACQUIRING
FUND FUND COMBINED FUND FUND COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES
-----------------------
<C> <C> <C> <S> <C> <C> <C>
$ 1,500,000 $0 $1,500,000 Oakwood Mtg. Investors, Inc., 7.1% Ser 1995-A $1,468,687 $0 $1,468,687
9-15-2020
2,000,000 0 2,000,000 Green Tree Financial Corp., 7.65% Ser 1994-1 2,008,396 0 2,008,396
4-15-2019
1,620,942 0 1,620,942 Residential Resources, Inc., 9.50% Series 14 1,651,722 0 1,651,722
12-1-2018
- ------------------------------------------------------------------------------------------------------------------------------------
5,120,942 0 5,120,942 5,128,805 0 5,128,805
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND GOVERNMENT OBLIGATIONS
------------------------------------------
0 18,656,985 18,656,985 FHLMC Mortgage Backed, 8.00% 2001-2002 0 19,094,248 19,094,248
393,810 5,933,756 6,327,566 FHLMC Mortgage Backed, 9.00% 2001-2022 405,748 6,174,814 6,580,562
1,725,912 10,546,129 12,272,041 FHLMC Mortgage Backed, 9.50% 2016 1,811,129 11,066,844 12,877,973
0 426,504 426,504 FHLMC Mortgage Backed, 10.50% 2015 0 463,690 463,690
261,578 248,872 510,450 FHLMC Mortgage Backed, 11.25% 2013-2014 288,553 274,537 563,090
447,148 1,044,017 1,491,165 FHLMC Mortgage Backed, 11.50% 2015-2019 494,797 1,155,269 1,650,066
0 1,265,083 1,265,083 FHLMC Mortgage Backed, 11.75% 2010-2015 0 1,405,033 1,405,033
313,863 0 313,863 FHLMC Mortgage Backed, 12.50% 2019 352,017 0 352,017
0 2,404,831 2,404,831 FHLMC #136-D PAC, 9.00% 2020 0 2,459,467 2,459,467
44,025 108,257 152,282 FHLMC #1364 Interest Only I/O-ette strip, 100% 2015 660,368 1,623,856 2,284,224
1,202,416 0 1,202,416 FHLMC Remic-Pac's, 9.0% 2020 1,229,733 0 1,229,733
1,500,000 0 1,500,000 FHLMC Remic-Pac's, 9.5% 2003 1,535,444 0 1,535,444
0 15,000,000 15,000,000 FNMA Mortgage Backed, 7.00% 2025 (TBA) 0 14,625,000 14,625,000
0 21,227,505 21,227,505 FNMA Mortgage Backed, 7.50% 2022-2024 0 21,161,169 21,161,169
0 15,080,429 15,080,429 FNMA Mortgage Backed, 8.00% 2024 0 15,311,340 15,311,340
2,095,473 11,963,741 14,059,214 FNMA Mortgage Backed, 8.50% 2022-2025 2,158,991 12,146,930 14,305,921
0 226,337 226,337 FNMA Mortgage Backed, 9.00% 2020 0 235,391 235,391
0 2,315,203 2,315,203 FNMA Mortgage Backed, 9.75% 2020 0 2,471,838 2,471,838
0 1,882,841 1,882,841 FNMA Mortgage Backed, 10.00% 2020 0 2,045,236 2,045,236
410,220 1,517,640 1,927,860 FNMA Mortgage Backed, 10.50% 2012-2018 449,575 1,663,238 2,112,813
0 404,443 404,443 FNMA Mortgage Backed, 10.75% 2013 0 445,772 445,772
0 4,561,957 4,561,957 FNMA Mortgage Backed, 11.00% 2015-2020 0 5,056,641 5,056,641
0 588,197 588,197 FNMA Mortgage Backed, 11.25% 2013 0 654,002 654,002
382,269 0 382,269 FNMA Mortgage Backed, 11.50% 2015 426,349 0 426,349
278,109 417,628 695,737 FNMA Mortgage Backed, 12.00% 2011-2016 312,438 469,179 781,617
265,702 789,482 1,055,184 FNMA Mortgage Backed, 12.50% 2015 300,326 892,361 1,192,687
2,000,000 10,000,000 12,000,000 FNMA Note, 6.85% 2000 2,002,974 10,014,870 12,017,844
1,500,000 9,000,000 10,500,000 FNMA Note, 7.40% 2004 1,567,463 9,404,775 10,972,238
0 16,750,000 16,750,000 FNMA Note, 7.65% 2005 0 17,850,106 17,850,106
2,000,000 13,000,000 15,000,000 FNMA Note, 8.50% 2005 2,140,282 13,911,833 16,052,115
0 3,161,624 3,161,624 FNMA Remic-Pac's, 7.50% 2019 0 3,174,046 3,174,046
0 6,500,000 6,500,000 FNMA Remic-Pac's, 9.00% 2021 0 6,846,899 6,846,899
89,622 158,899 248,521 FNMA Remic-Pac's, 13.50% 2017 91,454 162,149 253,603
1,664,702 8,332,978 9,997,680 GNMA Mortgage Backed, 7.50% 2022 1,662,100 8,319,954 9,982,054
4,048,638 0 4,048,638 GNMA Mortgage Backed, 8.00% 2017-2022 4,129,611 0 4,129,611
567,030 18,622,484 19,189,514 GNMA Mortgage Backed, 9.00% 2016-2022 590,420 19,504,064 20,094,484
1,316,936 0 1,316,936 GNMA Mortgage Backed, 9.125% 2018 1,345,526 0 1,345,526
3,446,582 24,907,854 28,354,436 GNMA Mortgage Backed, 9.50% 2016-2019 3,636,164 26,240,116 29,876,280
0 1,066,600 1,066,600 GNMA Mortgage Backed, 11.00% 2015-2018 0 1,167,927 1,167,927
0 66,368 66,368 GNMA Mortgage Backed, 11.25% 2015 0 73,720 73,720
3,500,000 25,150,000 28,650,000 FHLB Note, 7.31% 2004 3,628,874 26,076,048 29,704,922
7,000,000 15,000,000 22,000,000 Resolution Funding Corp. Zero Coupon Strip, 1,831,963 3,849,135 5,681,098
7.24% 2014
2,930,000 33,500,000 36,430,000 U.S. Treasury Bond, 8.125% 2021 3,340,200 38,190,000 41,530,200
5,000,000 34,500,000 39,500,000 U.S. Treasury Note, 6.75% 2000 5,109,375 35,254,688 40,364,063
1,360,000 4,400,000 5,760,000 U.S. Treasury Note, 7.25% 1996 1,380,400 4,466,000 5,846,400
2,000,000 15,000,000 17,000,000 U.S. Treasury Note, 7.875% 1996-2004 2,191,872 15,173,415 17,365,287
0 20,000,000 20,000,000 U.S. Treasury Note, 8.25% 1998 0 21,181,220 21,181,220
5,000,000 25,000,000 30,000,000 U.S. Treasury Note, 8.75% 1997 5,285,930 26,429,650 31,715,580
0 20,000,000 20,000,000 U.S. Treasury Note, 8.875% 1998 0 21,643,720 21,643,720
4,500,000 33,000,000 37,500,000 U.S. Treasury Note, 9.00% 1998 4,838,900 35,485,263 40,324,163
2,650,000 13,350,000 16,000,000 U.S. Treasury Note, 9.375% 1996 2,716,250 13,683,750 16,400,000
- ------------------------------------------------------------------------------------------------------------------------------------
59,894,035 467,076,644 526,970,679 57,915,226 478,999,203 536,914,429
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS
----------------------
190,000 0 190,000 Associates Corp. Master Variable Rate Note, 5.79% 190,000 0 190,000
0 505,350 505,350 Federated Treasury Obligation Fund, 5.70% 0 505,350 505,350
- ------------------------------------------------------------------------------------------------------------------------------------
190,000 505,350 695,350 190,000 505,350 695,350
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
-----------------
$65,204,977 $467,581,994 $532,786,971 $63,234,031 $479,504,553 $542,738,584
- ------------------------------------------------------------------------------------------------------------------------------------
COST
----
$62,146,100 $475,636,924 $537,783,024
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN ACQUIRED FUND AND ACQUIRING FUND
July 31, 1995 (Unaudited)
1. GENERAL
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of Fortis Advantage Government Total Return
Portfolio (Acquired Fund) by Fortis U.S. Government Securities Fund (Acquiring
Fund), as if such acquisition had taken place as of the close of business on
July 31, 1994.
Under the terms of the Plan of Reorganization, the combination of the Acquired
Fund and the Acquiring Fund will be taxed as a tax-free business combination and
accordingly will be accounted for by a method of accounting for tax free mergers
of investment companies (sometimes referred to as the pooling without
restatement method). The acquisition would be accomplished by an acquisition of
the net assets of the Acquired Fund in exchange for shares of the Acquiring Fund
at net asset value. The statements of assets and liabilities and the related
statements of operations of the Acquired Fund and the Acquiring Fund have been
combined as of and for the year ended July 31, 1995.
The accompanying proforma financial statements should be read in conjunction
with the financial statements and schedule of investments of the Acquiring Fund
which are included in its annual report dated July 31, 1995. The information
included in the proforma financial statements for the Acquired Fund are from a
non-fiscal report date of the fund, however significant accounting information
can be found in the Fund's semi-annual report dated April 30, 1995.
The following notes refer to the accompanying pro forma financial statements as
if the above mentioned acquisition of the Acquired Fund and the Acquiring Fund
had taken place as of the close of business on July 31, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
The Acquiring Fund is a Minnesota corporation, registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company.
The significant accounting policies consistently followed by the Acquiring
Fund are (a) securities transactions are accounted for on the trade date (b)
long-term debt securities are valued at current market prices on the basis of
valuations furnished by an independent pricing service; short-term
investments that have a maturity of 60 days or less are valued at amortized
cost (c) interest income is recorded on the accrual basis (d) gains or losses
on the sale of securities are calculated by using the identified cost method
(e) for financial reporting purposes, except for original issue discount, the
Acquiring Fund does not amortize long-term bond premium and discount (the
Acquired Fund amortizes all premium and discount including original issue
discount for financial reporting purposes, differences in amortization have
been reflected in the proforma financials) (f) the Acquiring Fund lends its
portfolio securities (as does the Acquired Fund) (g) direct expenses are
charged to each portfolio and each class; management fees and general fund
expenses are allocated on the basis of relative net assets; registration costs
are deferred and charged to income over the registration period (h)
distributions from net investment income are declared daily and paid
monthly; the Fund
<PAGE>
PRO FORMA FOOTNOTES OF MERGER BETWEEN ACQUIRED FUND AND ACQUIRING FUND
July 31, 1995 (Unaudited) (continued)
will generally make annual distributions of any realized capital gains as
required by law (i) the Acquiring Fund intends to qualify under the Internal
Revenue Code as a regulated investment company and, if so qualified, will not
have to pay federal income taxes to the extent its taxable net income is
distributed.
3. PRO FORMA ADJUSTMENTS
The accompanying pro forma financial statements reflect changes in fund shares
as if the merger had taken place on July 31, 1995, and adjustments made to
expenses for duplicated services that would not have been incurred if the merger
had taken place as of the close of business on July 31, 1994.
4. PAYMENTS TO RELATED PARTIES
Fortis Advisers, Inc. is the investment adviser of the Acquiring Fund.
Investment advisory and management fees are computed at an annual rate of .80%
on the first 50 million of average daily net assets and .70% of net assets in
excess of $50 million. All fees are calculated daily and paid monthly. In
addition to the investment advisory and management fee, Classes A, B, C and H
pay Fortis Investors, Inc. (Acquiring Fund's principal underwriter) distribution
fees equal to .25% (Class A) and 1.00% (Class B, C and H) of average daily net
assets (of the respective classes) on an annual basis, to be used to compensate
those who sell shares of the fund and to pay certain other expenses of selling
fund shares.
5. FEDERAL TAXES
At July 31, 1995, the Acquiring Fund had net capital loss carryovers of
$59,084,201 available to offset future capital gains. To the extent that these
carryover losses are used to offset capital gains, it is probable that any gains
so offset will not be distributed.
