<PAGE>
File No. 2-46686
FISCAL YEAR END - July 31
Registrant proposes that this amendment will become effective:
60 days after filing
----
As of the filing date
----
As of MARCH 1, 1996 X
----
Pursuant to Rule 485:
paragraph (a)
----
paragraph (b) X
----
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment Number 39
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
FORTIS INCOME PORTFOLIOS, INC.
(Exact Name of Registrant as Specified in Charter)
500 Bielenberg Drive, Woodbury, Minnesota 55125
(Address of Principal Executive Offices)
Registrant's Telephone Number: (612) 738-4000
Scott R. Plummer, Esq., Asst. Secretary
(Same address as above)
(Name and Address of Agent for Service)
Copy to:
Michael J. Radmer, Esq.
Dorsey & Whitney
220 South Sixth Street
Minneapolis, MN 55402
Pursuant to Section 270.24f-2 of the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of securities under the
Securities Act of 1933. The Rule 24f-2 Notice for the Registrant's most recent
fiscal period was filed on September 25, 1995.
<PAGE>
FORTIS INCOME PORTFOLIOS, INC.
Registration Statement on Form N-1A
- ----------------------------------------------------------------------------
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) and Instruction F1 of Form N-1A
- ----------------------------------------------------------------------------
N-1A
Item No.
- --------
PART A (PROSPECTUS) PROSPECTUS HEADING
- ------------------- ------------------
1. Cover Page...............................COVER PAGE (no caption)
2. Synopsis (optional)......................SUMMARY OF FUND EXPENSES
3. Condensed Financial Information..........FINANCIAL HIGHLIGHTS
4. General Description of Registrant........ORGANIZATION AND CLASSIFICATION;
INVESTMENT OBJECTIVES AND POLICIES
5. Management of the Fund...................MANAGEMENT
6. Capital Stock and Other Securities.......CAPITAL STOCK; SHAREHOLDER
INQUIRIES; DIVIDENDS AND CAPITAL
GAINS DISTRIBUTIONS; TAXATION
7. Purchase of Securities Being Offered.....HOW TO BUY FUND SHARES; VALUATION
OF SECURITIES
8. Redemption or Repurchase.................REDEMPTION
9. Pending Legal Proceedings................None
PART B (STATEMENT OF ADDITIONAL INFORMATION) STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
HEADING
-------
10. Cover Page..............................COVER PAGE (no caption)
11. Table of Contents.......................TABLE OF CONTENTS
12. General Information and History.........ORGANIZATION AND CLASSIFICATION
13. Investment Objectives and Policies......INVESTMENT OBJECTIVES AND POLICIES
14. Management of the Fund..................DIRECTORS AND EXECUTIVE OFFICERS
15. Control Persons and Principal
Holders of Securities...................CAPITAL STOCK
16. Investment Advisory and Other Services..INVESTMENT ADVISORY AND OTHER
SERVICES
17. Brokerage Allocation....................PORTFOLIO TRANSACTIONS AND
ALLOCATION OF BROKERAGE
18. Capital Stock and Other Securities......CAPITAL STOCK
19. Purchase, Redemption, and Pricing of
Securities Being Offered................COMPUTATION OF NET ASSET VALUE
AND PRICING; SPECIAL PURCHASE
PLANS; REDEMPTION
20. Tax Status..............................TAXATION
21. Underwriters............................UNDERWRITER
22. Calculations of Performance Data........PERFORMANCE
23. Financial Statements....................FINANCIAL STATEMENTS
<PAGE>
MAILING ADDRESS:
P.O. Box 64284
St. Paul
Minnesota 55164
STREET ADDRESS:
500 Bielenberg Drive
Woodbury
Minnesota 55125
Telephone: (612) 738-4000
Toll Free (800) 800-2638, Ext. 3012
- -------------------------------------------------------
FORTIS
BOND FUNDS
PROSPECTUS
DATED MARCH 1, 1996
- ---------------------------------------
U.S. Government Securities
- ----------------------------------
High Yield
- ----------------------------------
THIS PROSPECTUS CONCISELY SETS FORTH THE INFORMATION A PROSPECTIVE INVESTOR
SHOULD KNOW ABOUT THE FUNDS BEFORE INVESTING. INVESTORS SHOULD RETAIN THIS
PROSPECTUS FOR FUTURE REFERENCE. THE FUNDS HAVE FILED A STATEMENT OF ADDITIONAL
INFORMATION (ALSO DATED MARCH 1, 1996) WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE STATEMENT OF ADDITIONAL INFORMATION IS AVAILABLE FREE OF CHARGE
FROM FORTIS INVESTORS, INC. ("INVESTORS") AT THE ABOVE MAILING ADDRESS OF THE
FUNDS, AND IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS IN ACCORDANCE WITH
THE COMMISSION'S RULES.
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; AND
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FORTIS-REGISTERED TRADEMARK- and
Fortis-Registered Trademark- are FORTIS
registered servicemarks of Fortis AMEV SOLID ANSWERS FOR A CHANGING
and Fortis AG. WORLD-REGISTERED TRADEMARK-
<PAGE>
RISK FACTORS
Investments in bond funds expose investors to potential declines in the value of
the bonds contained in the funds' portfolios, which may result in a decline in
the price of the shares of such funds. Generally, the risks associated with bond
investing are "market" or "interest rate risk" (when interest rates rise, bond
prices fall), "credit risk" (when the issuer of a bond defaults on its
obligations) and, with regard to many corporate bonds, "call risk" (redemption
of a bond at the option of its issuer at a specified price prior to the bond's
stated maturity date). The price of the shares of the bond funds offered in this
Prospectus will fluctuate and there is no assurance that investors will be able
to redeem their fund shares for more than they paid for them. For more
information on the risks associated with investing in the funds offered in this
Prospectus see "Investment Objectives and Policies; Risk Considerations."
SUMMARY OF INVESTMENT OBJECTIVES
Fortis U.S. Government Securities Fund is a portfolio of Fortis Income
Portfolios, Inc. ("Fortis Income"). Fortis High Yield Portfolio is a portfolio
of Fortis Advantage Portfolios, Inc. ("Fortis Advantage"). The U.S. Government
Securities Fund and the High Yield Portfolio are collectively referred to as the
"Funds" or individually a "Fund." The High Yield Portfolio is also at times
referred to as the "Portfolio." The objectives of the Funds offered in this
Prospectus are as follows:
The U.S. GOVERNMENT SECURITIES FUND'S investment objective 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 HIGH YIELD PORTFOLIO'S investment objective is maximum current income by
investing primarily in high yielding, fixed-income securities which, in the
opinion of the Portfolio's investment adviser, do not subject the Portfolio to
unreasonable investment risk. The Portfolio invests primarily in high-yield,
high-risk securities and therefore may not be suitable for all investors.
For more information on the investment objectives and policies of the Funds, as
well as the risks involved in investing in the Funds, see "Investment Objectives
and Policies; Risk Considerations."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Risk Factors.............................................................. 2
Summary of Investment Objectives.......................................... 2
Class Shares.............................................................. 2
Summary of Fund Expenses.................................................. 3
Financial Highlights...................................................... 4
Organization and Classification........................................... 6
Investment Objectives and Policies; Risk Considerations................... 6
- U.S. Government Securities Fund..................................... 6
- High Yield Portfolio................................................ 6
- Other Investment Practices of the Funds............................. 9
- Short-Term Trading.................................................. 11
Management................................................................ 11
- Board of Directors.................................................. 11
- The Investment Adviser/Transfer Agent/Dividend Agent................ 11
- The Underwriter and Distribution Expenses........................... 12
- Fund Expenses....................................................... 12
- Brokerage Allocation................................................ 13
Valuation of Securities................................................... 13
Capital Stock............................................................. 13
Dividends and Capital Gains Distributions................................. 13
<CAPTION>
PAGE
<S> <C>
Taxation.................................................................. 13
How To Buy Fund Shares.................................................... 14
- General Purchase Information........................................ 14
- Alternative Purchase Arrangements................................... 14
- Class A and E Shares Initial Sales Charge Alternative............... 14
- Class B and H Shares--Contingent Deferred Sales Charge
Alternatives...................................................... 16
- Class C Shares--Level Sales Charge Alternative...................... 16
- Special Purchase Plans for all Classes.............................. 17
Redemption................................................................ 17
- Contingent Deferred Sales Charge.................................... 18
Shareholder Inquiries..................................................... 19
Account Application....................................................... 23
Systematic Investment Plan Authorization Agreement........................ 26
</TABLE>
No broker-dealer, sales representative, or other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus, and if given or made, such information or representations
must not be relied upon as having been authorized by the Fund or Investors. This
Prospectus does not constitute an offer or solicitation by anyone in any state
in which such offer or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation.
CLASS SHARES
The Funds offer investors a choice among multiple classes of shares with
different sales charges and expenses. These alternatives permit choosing the
most beneficial method of purchasing shares given the amount of the purchase,
the length of time the investor expects to hold the shares, and other
circumstances.
CLASS A AND E SHARES. Generally, an investor who purchases Class A and E shares
pays a sales charge at the time of purchase. As a result, Class A and E shares
are not subject to any charges when they are redeemed (except for sales at net
asset value in excess of $1 million which may be subject to a contingent
deferred sales charge). The initial sales charge may be reduced or waived for
certain purchases. Class A shares are also subject to an annual Rule 12b-1 fee
of .25% of average daily net assets attributable to Class A shares (.35% on
Class A shares of the High Yield Portfolio). This fee is lower than the other
classes having Rule 12b-1 fees (all but Class E) and therefore Class A shares
have lower expenses and pay higher dividends. See "How to Buy Fund Shares--Class
A Shares." Class E shares are only available for the U.S. Government Securities
Fund and are not subject to a Rule 12b-1 fee. Therefore, Class E shares have the
lowest expenses and pay the highest dividends, but are only available to
investors who were U.S. Government Securities Fund shareholders on November 13,
1994.
CLASS B AND H SHARES. The only difference between Class B and H shares is the
percentage of dealer concession paid to dealers. This difference does not in any
way affect the charges on an investor's shares. Class B and H shares both are
sold without an initial sales charge, but are subject to a contingent deferred
sales charge of 4% if redeemed within two years of purchase, with declining
charges for redemptions thereafter up to six years after purchase. Class B and H
shares are also subject to a higher annual Rule 12b-1 fee than Class A
shares--1.00% of the Fund's average daily net assets attributable to Class B or
H shares, as applicable. However, after eight years, Class B and H shares
automatically will be converted to Class A shares at no charge to the investor,
resulting in a lower Rule 12b-1 fee thereafter. Class B and H shares provide the
benefit of putting all dollars to work from the time of investment, but will
have a higher
2
<PAGE>
expense ratio and pay lower dividends than Class A and E shares due to the
higher Rule 12b-1 fee and any other class specific expenses. See "How to Buy
Fund Shares--Class B and H Shares."
CLASS C SHARES. As with Class B and H shares, Class C shares: 1) are sold
without an initial sales charge, but are subject to a contingent deferred sales
charge; 2) are subject to the higher annual Rule 12b-1 fee of 1.00% of the
Fund's average daily net assets attributable to Class C shares; and 3) provide
the benefit of putting all dollars to work from the time of investment, but will
have a higher expense ratio and pay lower dividends than Class A and E shares
due to the higher Rule 12b-1 fee and any other class specific expenses. While
Class C shares, unlike Classes B and H, do not convert to Class A shares, they
are subject to a lower contingent deferred sales charge (1%) than Class B or H
shares and do not have to be held for as long a time (one year) to avoid paying
the contingent deferred sales charge. See "How to Buy Fund Shares--Class C
Shares."
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and Rule 12b-1 fees, as noted above, (3) whether you qualify for any reduction
or waiver of any applicable sales charge--if you are exempt from the sales
charge, you must invest in Class A shares, (4) the various exchange privileges
among the different classes of shares and (5) the fact that Class B and H shares
automatically convert to Class A shares at varying periods of time after
purchase.
SUMMARY OF FUND EXPENSES
The Fund's front-end and asset-based sales charges are within the limitations
imposed by the NASD. Such charges are shown below:
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS B CLASS E
CLASS A AND H CLASS C SHARES
SHARES SHARES SHARES ****
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)................... 4.50%* 0.00%** 0.00%** 4.50%*
Maximum Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds, as
applicable)....................... *** 4.00% 1.00% ***
</TABLE>
* SINCE THE FUND ALSO PAYS 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.
** CLASS B, H AND 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 CHARGES.
*** A CONTINGENT DEFERRED SALES CHARGE OF 1.00% IS IMPOSED ON CERTAIN
REDEMPTIONS OF CLASS A AND E SHARES THAT WERE PURCHASED WITHOUT AN INITIAL
SALES CHARGE AS PART OF AN INVESTMENT OF $1 MILLION OR MORE. SEE "HOW TO
BUY FUND SHARES--CLASS A AND E SHARES."
**** ONLY AVAILABLE FOR FORTIS U.S. GOVERNMENT SECURITIES FUND.
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
CLASS B
CLASS A AND H CLASS C CLASS E
SHARES SHARES SHARES SHARES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management Fees.................... .71% .71% .71% .71%
12b-1 fees......................... .25% 1.00% 1.00% --
Other Expenses..................... .08% .08% .08% .08%
--
--- --- ---
TOTAL FUND OPERATING
EXPENSES*..................... 1.04% 1.79% 1.79% .79%
</TABLE>
*TOTAL FUND OPERATING EXPENSES DOES NOT REFLECT THE EXPENSE REIMBURSEMENT OF
.02% (WHICH EXPIRED JUNE 1, 1995) FOR THE FISCAL YEAR ENDED JULY 31, 1995.
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
CLASS B
CLASS A AND H CLASS C
SHARES SHARES SHARES
------------ ------------ ------------
<S> <C> <C> <C>
Management Fees.................... .75% .75% .75%
12b-1 fees......................... .35% 1.00% 1.00%
Other Expenses..................... .15% .15% .15%
--- --- ---
TOTAL PORTFOLIO OPERATING
EXPENSES...................... 1.25% 1.90% 1.90%
</TABLE>
The purpose of these tables is to assist the investor in understanding the
various costs and expenses that investors in the Funds will bear, whether
directly or indirectly. For a more complete description of the various costs and
expenses, see "Management" and "How to Buy Fund Shares."
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 H shares to Class A
shares after eight years and a waiver of deferred sales charges on Class B and H
shares of 10% of the amount invested. See "Contingent Deferred Sales
Charge--Class B, H, and C Shares."
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Class A Shares..................... $ 55 $ 77 $ 100 $ 166
Class B and H Shares............... $ 54 $ 83 $ 115 $ 191
Class C Shares..................... $ 28 $ 56 $ 97 $ 211
Class E Shares..................... $ 53 $ 69 $ 87 $ 138
</TABLE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Class B and H Shares............... $ 18 $ 56 $ 97 $ 191
Class C Shares..................... $ 18 $ 56 $ 97 $ 211
</TABLE>
HIGH YIELD PORTFOLIO
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Class A Shares..................... $ 57 $ 83 $ 111 $ 189
Class B and H Shares............... $ 55 $ 87 $ 121 $ 205
Class C Shares..................... $ 29 $ 60 $ 103 $ 222
</TABLE>
Assuming no redemption, the Class B, H, and C expenses on the same investment
would be as follows:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Class B and H Shares............... $ 19 $ 60 $ 103 $ 205
Class C Shares..................... $ 19 $ 60 $ 103 $ 222
</TABLE>
The above examples use fiscal year 1995 historical data as a basis for the
estimated expenses of the time periods indicated and should not be considered a
representation of past or future expenses or performance. Actual expenses may be
greater or less than those shown.
3
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The information below has been derived from audited financial statements and
should be read in conjunction with the financial statements of the Funds and the
independent auditors' reports of KPMG Peat Marwick LLP found in the Funds' 1995
Annual Reports to Shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
YEAR SEVEN-MONTH
U.S. GOVERNMENT ENDED PERIOD YEAR ENDED
SECURITIES FUND JULY 31, ENDED JULY DECEMBER 31,
CLASS E SHARES 1995 31, 1994*** 1993 1992 1991 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $9.03 $9.87 $9.86 $10.16 $9.76 $9.72 $9.51 $9.72 $10.36 $10.16
- --------------------------------------------------------------------------------------------------------------------------------
Operations:
Investment income
-- net........... .67 .42 .75 .84 .88 .89 .92 .92 .89 .91
Net realized and
unrealized gains
(losses) on
investments...... (.01) (.84) .05 (.30) .41 .06 .21 (.23) (.54) .29
- --------------------------------------------------------------------------------------------------------------------------------
Total from
operations......... .66 (.42) .80 .54 1.29 .95 1.13 .69 .35 1.20
- --------------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income -- net.... (.67) (.42) (.75) (.84) (.89) (.91) (.92) (.90) (.92) (1.00)
From realized
gains............ -- -- (.04) -- -- -- -- -- (.07) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders.... (.67) (.42) (.79) (.84) (.89) (.91) (.92) (.90) (.99) (1.00)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $ 9.02 $ 9.03 $ 9.87 $ 9.86 $ 10.16 $ 9.76 $ 9.72 $ 9.51 $ 9.72 $ 10.36
- --------------------------------------------------------------------------------------------------------------------------------
Total Return*....... 7.71% (4.29)% 8.31% 5.60% 13.90% 10.43% 12.48% 7.33% 3.69% 12.36%
Net assets end of
period (000s
omitted)........... $ 470,597 $555,275 $641,977 $587,996 $ 452,222 $ 208,054 $121,271 $108,370 $106,259 $ 86,678
Ratio of expenses to
average daily net
assets............. .77% .77%** .76% .72% .72% .81% .83% .87% .90% 1.00%
Ratio of net
investment income
to average daily
net assets......... 7.51% 7.72%** 7.43% 8.48% 8.88% 9.37% 9.55% 9.39% 8.99% 8.70%
Portfolio turnover
rate............... 76% 85% 157% 128% %95 118% 118% 109% 178% 147%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
EIGHT AND ONE-HALF MONTH PERIOD FROM NOVEMBER 14, 1994
THROUGH JULY 31, 1995
CLASS A CLASS B CLASS H CLASS C
SHARES SHARES SHARES SHARES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $8.63 $8.63 $8.63 $8.63
- -------------------------------------------------------------------------------------------------
Operations:
Investment income -- net.............. .46 .41 .41 .41
Net realized and unrealized gains
(losses) on investments.............. .39 .39 .39 .38
- -------------------------------------------------------------------------------------------------
Total from operations................... .85 .80 .80 .79
- -------------------------------------------------------------------------------------------------
Distributions to shareholders:
From investment income -- net......... (.46) (.41) (.41) (.41)
From realized gains................... -- -- -- --
- -------------------------------------------------------------------------------------------------
Total distributions to shareholders..... (.46) (.41) (.41) (.41)
- -------------------------------------------------------------------------------------------------
Net asset value, end of period.......... $ 9.02 $ 9.02 $ 9.02 $ 9.01
- -------------------------------------------------------------------------------------------------
Total Return*........................... 10.07% 9.47% 9.47% 9.35%
Net assets end of period (000s
omitted)............................... $4,909 $483 $4,823 $326
Ratio of expenses to average daily net
assets................................. 1.02%** 1.77%** 1.77%** 1.77%**
Ratio of net investment income to
average daily net assets............... 7.01%** 6.24%** 6.24%** 6.24%**
Portfolio turnover rate................. 76% 76% 76% 76%
- -------------------------------------------------------------------------------------------------
</TABLE>
* These are the Fund's total returns during the periods, including
reinvestment of all dividend and capital gains distributions without
adjustments for sales charge.
** Annualized.
*** Effective July 31, 1994, the Fund changed its fiscal accounting and tax
year-end to July 31 (previously December 31).
4
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- -----------------------------
FOR THE YEAR ENDED OCTOBER 31,
CLASS A SHARES 1995 1994 1993 1992 1991 1990 1989 1988**
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............. $7.90 $8.65 $8.00 $7.82 $5.72 $8.59 $9.92 $10.00
- ------------------------------------------------------------------------------------------------------------
Operations:
Investment income
-- net........... .86 .86 .87 .85 .95 1.04 1.22 .92
Net realized and
unrealized gain
(loss) on
investments...... (.25) (.72) .68 .22 2.03 (2.73) (1.35) (.07)
- ------------------------------------------------------------------------------------------------------------
Total from
operations......... .61 14 1.55 1.07 2.98 (1.69) (.13) .85
- ------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From investment
income -- net.... (.86) (.89) (.89) (.85) (.88) (1.12) (1.20) (.93)
Excess
distributions of
net realized
gains............ (.04) -- (.01) (.04) -- -- -- --
From net realized
gains............ -- -- -- -- -- (.06) -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions
to shareholders.... (.90) (.89) (.90) (.89) (.88) (1.18) (1.20) (.93)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end
of period.......... $ 7.61 $ 7.90 $ 8.65 $ 8.00 $ 7.82 $ 5.72 $ 8.59 $ 9.92
- ------------------------------------------------------------------------------------------------------------
Total return@....... 8.07% .48% 20.33% 14.20% 55.78% (21.56)% (1.79)% 8.85%
Net assets at end of
period (000's
omitted)........... $ 113,268 $ 98,611 $ 73,395 $ 45,628 $ 31,250 $ 17,484 $ 21,814 $14,709
Ratio of expenses to
average daily net
assets............. 1.25% .23% 1.29% 1.33% 1.51% 1.53% 1.52% 1.35%*
Ratio of net
investment income
to average daily
net assets......... 10.61% 10.18% 10.43% 10.34% 13.80% 14.16% 12.77% 11.55%*
Portfolio turnover
rate............... 101% 63% 95% 80% %61 65% 52% 63%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
PERIOD FROM NOVEMBER 14, 1994 THROUGH
OCTOBER 31, 1995
CLASS B CLASS C CLASS H
SHARES SHARES SHARES
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $7.87 $7.87 $7.87
- ----------------------------------------------------------------------------------
Operations:
Investment income -- net.............. .78 .78 .78
Net realized and unrealized gains
(losses) on investments.............. (.23) (.24) (.23)
- ----------------------------------------------------------------------------------
Total from operations................... .55 .54 .55
- ----------------------------------------------------------------------------------
Distribution to shareholders:
From investment income -- net......... (.78) (.78) (.78)
Excess distributions of net realized
gains................................ (.04) (.04) (.04)
- ----------------------------------------------------------------------------------
Total distributions to shareholders..... (.82) (.82) (.82)
- ----------------------------------------------------------------------------------
Net asset value, end of period.......... $7.60 $7.59 $7.60
- ----------------------------------------------------------------------------------
Total Return@........................... 7.25% 7.12% 7.25%
Net assets end of period (000's
omitted)............................... $7,530 $2,180 $23,862
Ratio of expenses to average daily net
assets................................. 1.90%* 1.90%* 1.90%*
Ratio of net investment income to
average daily net assets............... 9.66%* 9.83%* 9.81%*
Portfolio turnover rate................. 101% 101% 101%
- ----------------------------------------------------------------------------------
</TABLE>
* Annualized.
** January 4, 1988 to October 31, 1988.
@ These are the Fund's total returns during the period, including reinvestment
of all dividend and capital gains distributions without adjustments for sales
charge.
5
<PAGE>
Each Fund may advertise its "cumulative total return," "average annual total
return," "systematic investment plan cumulative total return," and "systematic
investment plan average annual total return." Each Fund may also advertise its
"yield." When a Fund advertises its yield, it will also advertise its "average
annual total return" for the most recent one, five, and ten year periods, along
with other performance data. Performance figures are calculated separately for
each class of shares, and figures for each class will be presented. Each Fund
may advertise its relative performance as compiled by outside organizations such
as Lipper Analytical or Wiesenberger, or refer to publications which have
mentioned the Fund, Advisers, or their personnel, and also may advertise other
performance items as set forth in the Statement of Additional Information. The
performance discussion required by the Securities and Exchange Commission is
found in each Fund's Annual Report to Shareholders and will be made available
without charge upon request.
ORGANIZATION AND CLASSIFICATION
The U.S. Government Securities Fund is the only established series of Fortis
Income Portfolios, Inc. ("Fortis Income"). High Yield Portfolio is one of three
portfolios of Fortis Advantage Portfolios, Inc. ("Fortis Advantage"). Fortis
Income and Fortis Advantage were incorporated under Minnesota law in 1972 and
1987, respectively, and both are registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 as "open-end diversified
management investment companies".
INVESTMENT OBJECTIVES AND POLICIES; RISK CONSIDERATIONS
U.S. GOVERNMENT SECURITIES FUND
The investment objective of the U.S. Government Securities 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 U.S. Government Securities Fund's investment objective and,
except as otherwise noted, its investment policies, could be changed without
shareholder approval. While no such change is contemplated, such a change could,
of course, result in the Fund's objectives differing from those deemed
appropriate by an investor at the time of his or her investment.
In pursuing its objective, the Fund's assets will be invested in securities
issued, guaranteed, insured, or collateralized by the United States Government,
its agencies, or instrumentalities (whether or not backed by the "full faith and
credit" pledge of the United States Government), in repurchase agreements
pertaining to such securities, and, with respect to no more than 5% of its
assets, in other investment companies which invest in such securities.
Securities issued or guaranteed as to principal and interest by the United
States Government include a variety of securities, which differ in their
interest rates, maturities, and dates of issuance. In addition to Treasury
obligations, the Fund may invest in the following such securities: (1)
obligations of United States government agencies and instrumentalities which are
secured by the full faith and credit of the United States Treasury, such as
Government National Mortgage Association pass-through certificates; (2)
obligations which are secured by the right of the issuer to borrow from the
Treasury, such as securities issued by the Federal Financing Bank or the United
States Postal Service; (3) obligations which are supported by the credit of the
government agency or instrumentality itself, such as securities of the Federal
Home Loan Bank or the Federal National Mortgage Association; and (4)
collateralized mortgage obligations ("CMOs") and multi-class pass-through
securities. The Fund will invest in such securities which are not backed by the
full faith and credit of the United States Treasury only when the credit risk
with respect to the instrumentality or agency issuing such securities does not
make the securities, in the judgment of the Fund's investment adviser,
unsuitable investments for the Fund.
The Fund may invest up to 10% of its total assets (at the time of investment) in
repurchase agreements maturing in more than seven days. This policy may not be
changed without shareholder approval.
Market prices of the securities in which the Fund invests will fluctuate and
will tend to vary inversely with changes in prevailing interest rates. If
interest rates increase from the time a security is purchased, such security, if
sold, might be sold at a price less than its purchase cost. Conversely, if
interest rates decline from the time a security is purchased, such security, if
sold, might be sold at a price greater than its purchase cost.
HIGH YIELD PORTFOLIO
The investment objective of High Yield Portfolio is maximum current income by
investing primarily in a diversified portfolio of high-yielding, fixed-income
securities (sometimes referred to as "junk bonds") which, in the opinion of
Advisers, do not subject High Yield Portfolio to unreasonable investment risk.
In choosing investment securities for High Yield Portfolio, Advisers may also
consider capital appreciation potential, but only when consistent with the
primary objective of current income. Under normal economic circumstances, High
Yield Portfolio will be at least 65% (exclusive of collateral in connection with
securities lending) invested in lower grade (as explained below) debt
securities, convertible securities, options on debt securities, interest rate
futures contracts and options thereon, common and preferred stocks, and other
equity securities when these types of investments are consistent with the
Portfolio's investment objective of high current income. The Portfolio's
remaining assets may be held in cash or cash equivalents or invested in
investment grade debt instruments.
The higher yields that High Yield Portfolio seeks are usually available from
lower-rated securities--those rated Baa or lower by Moody's Investors Service,
Inc. ("Moody's") or BBB or lower by Standard & Poor's Corporation ("S&P"), or
comparably rated by another nationally recognized rating agency, and unrated
securities of similar quality. This is an aggressive approach to income
investing and is subject to greater risk than investing in higher quality
securities. The Portfolio may invest without limitation in any "eligible" rating
category.
6
<PAGE>
The lowest eligible rating categories in which the Portfolio will invest are Caa
as determined by Moody's and CCC as determined by S&P, or comparably rated by
another nationally recognized rating agency, except that up to 10% of the
Portfolio's assets (at the time of investment) may be invested in
"non-performing" securities rated lower than these categories. Securities in the
Caa/CCC rating categories are considered to be of poor standing and are
predominantly speculative. Lower ratings may reflect a greater possibility that
the financial condition of the issuer, or adverse changes in general economic
conditions, or both, may impair the ability of the issuer to make payments of
interest and principal. Additionally, investments in securities rated Caa or CCC
involve significant risk exposure to adverse conditions. Such securities may be
in default, or there may be present elements of danger with respect to the
payment of principal or interest. "Non-performing" securities are highly
speculative. For a description of ratings assigned by both Moody's and S&P, see
Appendix.
The prices and yields of lower rated securities generally fluctuate more than
higher quality securities, and such prices may decline significantly in periods
of general economic difficulty or rising interest rates. Advisers reserves the
right to adopt a defensive approach by temporarily investing up to 100% of High
Yield Portfolio's assets in investment grade debt securities and commercial
paper, and/or in obligations of banks or the United States Government.
In considering investments for High Yield Portfolio, Advisers will attempt to
identify high-yielding securities of issuer companies whose financial condition
has improved or is expected to improve in the future. Advisers will not rely
exclusively on ratings assigned by Moody's and S&P in this process, but, in
appropriate circumstances, may perform its own credit analysis as well.
Adviser's analysis focuses on relative values, based on such factors as interest
or dividend coverage, asset coverage, earnings prospects, and the experience and
managerial strength of the issuer companies.
Because High Yield Portfolio invests primarily in securities in the lower rating
categories, investors should carefully consider their ability to assume the
risks involved before making an investment in the High Yield Portfolio.
As discussed below, High Yield Portfolio may invest in CMOs and multi-class
pass-through securities.
PAYMENT-IN-KIND DEBENTURES. High Yield Portfolio may invest in debentures the
interest on which may be paid in other securities rather than cash ("PIKs").
Typically, during a specified term prior to the debenture's maturity, the issuer
of a PlK may provide for the option or the obligation to make interest payments
in debentures, common stock, or other instruments (i.e., "in kind" rather than
in cash). The type of instrument in which interest may or will be paid would be
known by Fortis Advantage at the time of the investment. The investment
restrictions regarding corporate bond quality are applicable to High Yield
Portfolio's investments in PIKs as well as to the securities which may
constitute interest payments on PIKs. While PIKs generate income for generally
accepted accounting standards purposes, they do not generate cash flow and thus
could cause High Yield Portfolio to be forced to liquidate securities at an
inopportune time in order to distribute cash, as required by the Internal
Revenue Code.
RISKS OF TRANSACTIONS IN HIGH-YIELDING SECURITIES. Participation in
high-yielding securities transactions generally involves greater returns in the
form of higher average yields. However, participation in such transactions
involves greater risks, often related to sensitivity to interest rates, economic
changes, solvency, and relative liquidity in the secondary trading market.
Yields on high yield securities will fluctuate over time. The prices of
high-yielding securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to adverse economic
changes or individual corporate developments. Also, during an economic downturn
or substantial period of rising interest rates highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals, and to obtain additional financing. If the issuer of a security
held by High Yield Portfolio defaulted, High Yield Portfolio may incur
additional expenses to seek recovery. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of high-yielding securities and the Portfolio's asset value.
Furthermore, in the case of high-yielding securities structured as zero coupon
or PIKs, their market prices are affected to a greater extent by interest rate
changes and thereby tend to be more volatile than securities which pay interest
periodically and in cash.
High-yielding securities present risks based on payment expectations. For
example, high-yielding securities may contain redemption or call provisions. If
an issuer exercises these provisions in a declining interest rate market, High
Yield Portfolio would have to replace the security with a lower-yielding
security, resulting in a decreased return for investors. Conversely, a
high-yielding security's value will decrease in a rising interest rate market,
as will the value of such Portfolio's assets. If High Yield Portfolio
experiences unexpected net redemptions, this may force it to sell its
high-yielding securities, without regard to their investment merits, thereby
decreasing the asset base upon which such Portfolio's expenses can be spread and
possibly reducing the rate of return.
To the extent that there is no established secondary market, there may be thin
trading of high-yielding securities. This may adversely affect the ability of
Fortis Advantage's Board of Directors to accurately value high-yielding
securities and High Yield Portfolio's assets and the Portfolio's ability to
dispose of the securities. Securities valuation becomes more difficult and
judgment plays a greater role in valuation because there is less reliable,
objective data available. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of
high-yielding securities, especially in a thinly traded market. Illiquid or
restricted high-yielding securities purchased by High Yield Portfolio may
involve special registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties.
7
<PAGE>
Certain risks are associated with applying credit ratings as a method for
evaluating high-yielding securities. For example, credit ratings evaluate the
safety of principal and interest payments, not market value risk of
high-yielding securities. Since credit rating agencies may fail to timely change
the credit ratings to reflect subsequent events, Advisers continuously monitors
the issuers of high-yielding securities held by High Yield Portfolio to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments, and to assure the securities'
liquidity so High Yield Portfolio can meet redemption requests. The achievement
of the investment objective of High Yield Portfolio may be more dependent upon
Advisers' own credit analysis than is the case for higher quality bonds. Also,
High Yield Portfolio may retain a portfolio security whose rating has been
changed if the security otherwise meets the Portfolio's investment objective and
investment criteria.
The table below shows the weighted average percentages of High Yield Portfolio's
long-term bond investments during the fiscal year ended October 31, 1995,
represented by (1) bonds rated by a nationally recognized statistical rating
organization, separated into each rating category, and (2) all unrated bonds as
a group.
<TABLE>
<CAPTION>
STANDARD & POOR'S RATING PERCENT OF TOTAL
(OR EQUIVALENT) INVESTMENTS
- ------------------------------------ ------------------
<S> <C>
AAA................................. 0%
AA.................................. 0%
A................................... 0%
BBB................................. 1.1%
BB.................................. 6.7%
B................................... 64.1%
CCC................................. 15.6%
Below CCC........................... 2.4%
All unrated bonds as a group........ 10.1%
---
100.0%
</TABLE>
MORTGAGE-RELATED SECURITIES. The High Yield Portfolio may invest in certain
types of mortgage-related securities. One type of mortgage-related security
includes certificates which represent pools of mortgage loans assembled for sale
to investors by various governmental and private organizations. Another type of
mortgage-related security includes debt securities which are secured, directly
or indirectly, by mortgages on commercial or residential real estate. The High
Yield Portfolio may also invest to a limited extent in collateralized mortgage
obligations, as set forth below and in the Statement of Additional Information.
Investments in mortgage-related securities involve certain risks. In periods of
declining interest rates, prices of fixed income securities tend to rise.
However, during such periods, the rate of prepayment of mortgages underlying
mortgage-related securities tends to increase, with the result that such
prepayments must be reinvested at lower rates. In addition, the value of such
securities may fluctuate in response to the market's perception of the
creditworthiness of the issuers of mortgage-related securities owned by the High
Yield Portfolio. The ability of the issuer of mortgage-related securities to
reinvest favorably in underlying mortgages may be limited by prevailing economic
conditions or by government regulation. Additionally, although mortgages and
mortgage-related securities are generally supported by some form of government
or private guarantee and/or insurance, there is no assurance that private
guarantors or insurers will be able to meet their obligations.
ZERO COUPON OBLIGATIONS. High Yield Portfolio may invest in zero coupon
obligations of the U.S. Government, U.S. Government agencies, and corporate
issuers, including rights to "stripped" coupon and principal payments. Certain
U.S. Government obligations (principally, Treasury Notes and Treasury Bonds) and
corporate obligations are "stripped" of their coupons, and the rights to receive
each coupon payment and the principal payment are sold as separate securities.
Once separated, each coupon as well as the principal amount represents a
different single-payment claim due from the issuer of the security. Each
single-payment claim (coupon or principal) is equivalent to a zero coupon bond.
A zero coupon security pays no interest to its holder during its life, and its
value consists of the difference between its face value at maturity (the coupon
or principal amount), if held to maturity, or its market price on the date of
sale, if sold prior to maturity, and its acquisition price (the discounted
"present value" of the payment to be received).
Certain zero coupon obligations represent direct obligations of the issuer of
the "stripped" coupon and principal payments. Other zero coupon obligations are
securities issued by financial institutions which constitute a proportionate
ownership of an underlying pool of stripped coupon or principal payments. High
Yield Portfolio may invest in either type of zero coupon obligation. The
investment policies and restrictions applicable to corporate and government
securities in the High Yield Portfolio shall apply equally to the High Yield
Portfolio's investments in zero coupon securities (including, for example,
minimum corporate bond ratings and percentage limitations).
TRANSACTIONS IN OPTIONS, FUTURES, AND FORWARD CONTRACTS. The High Yield
Portfolio may, to a limited extent, 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 increases in the cost of
securities to be acquired and, in the case of options on securities or indexes
of securities, to increase a Portfolio's gross income. It is currently the
intention of the High Yield Portfolio to limit the investment in options by the
Portfolio so that such investments do not expose more than 5% of the Portfolio's
assets to risk of loss.
REPURCHASE AGREEMENTS. The High Yield Portfolio may invest in repurchase
agreements.
FOREIGN SECURITIES. The High Yield Portfolio may invest up to 10% of its total
assets (at the time of investment) in foreign securities.
Investors should recognize that investing in foreign companies involves certain
considerations, including those discussed below, which are not typically
associated with investing in United States issuers. Since the High Yield
Portfolio may invest in securities denominated in currencies other than U.S.
dollars, and since the Portfolio may temporarily hold funds in bank deposits or
other money
8
<PAGE>
market investments denominated in foreign currencies, the Portfolio may be
affected favorably or unfavorably by exchange control regulations or changes in
the exchange rate between such currencies and the dollar. A change in the value
of a foreign currency relative to the U.S. dollar will result in a corresponding
change in the dollar value of the Portfolio's assets denominated in that foreign
currency. Changes in foreign currency exchange rates may also affect the value
of dividends and interest earned, gains and losses realized in the sale of
securities, and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balances of
payments and other economic and financial conditions, government intervention,
speculation, and other factors.
Foreign securities held by the Portfolio may not be registered with, nor the
issuers thereof be subject to, reporting requirements of the U.S. Securities and
Exchange Commission. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Foreign companies are generally not subject to uniform financial reporting
standards, practices, and requirements comparable to those applicable to
domestic companies. In addition, with respect to some foreign countries, there
is the possibility of expropriation or confiscatory taxation, limitations of the
removal of funds or other assets of the Portfolio, political or social
instability, or domestic developments which could affect United States
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States economy in such respects
as growth of Gross Domestic Product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payment positions.
Securities of some foreign companies are less liquid and their prices are more
volatile than securities of comparable domestic companies. Certain foreign
countries are known to experience long delays between the trade and settlement
dates of securities purchased or sold. Due to the increased exposure to the
Portfolio of market and foreign exchange fluctuations brought about by such
delays, and due to the corresponding negative impact on liquidity, the Portfolio
will avoid investing in countries which are known to experience settlement
delays which may expose the Portfolio to unreasonable risk of loss.
The Portfolio will calculate its net asset value to complete orders to purchase,
exchange, or redeem shares only on a Monday through Friday basis (excluding
holidays on which the New York Stock Exchange is closed). A material portion of
the Portfolio's investment securities may be listed on foreign stock exchanges
which may trade on other days (such as a Saturday). As a result, the Portfolio's
net asset value may be materially affected by such trading on days when a
shareholder has no access to the Portfolio.
VARIABLE AMOUNT MASTER DEMAND NOTES. The High Yield Portfolio may invest in
variable amount master demand notes.
OTHER INVESTMENT PRACTICES OF THE FUNDS
CMOS AND MULTI-CLASS PASS-THROUGH SECURITIES. CMOs are debt instruments issued
by special purpose entities which are secured by pools of mortgage loans or
other mortgage-backed securities. Multi-class pass-through securities are
interests in a trust composed of mortgage loans or other mortgage-backed
securities. Payments of principal and interest on underlying collateral provide
the funds to pay debt service on the CMO or make scheduled distributions on the
multi-class pass-through security. Multi-class pass-through securities, CMOs,
and classes thereof (including those discussed below) are examples of the types
of financial instruments commonly referred to as "derivatives".
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specified coupon
rate and has a stated maturity or final distribution date. Principal prepayments
on collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturities or final distribution dates. Interest is paid or
accrues on all classes of a CMO on a monthly, quarterly or semi-annual basis.
The principal and interest on the underlying mortgages may be allocated among
the several classes of a series of a CMO in many ways. In a common structure,
payments of principal, including any principal prepayments, on the underlying
mortgages are applied according to scheduled cash flow priorities to classes of
the series of a CMO.
There are many classes of CMOs. There are IOs, which entitle the holder to
receive distributions consisting solely or primarily of all or a portion of the
interest in an underlying pool of mortgage loans or mortgage-backed securities),
("Mortgage Assets"). There are also "POs", which entitle the holder to receive
distributions consisting solely or primarily of all or a portion of the
principal of the underlying pool of Mortgage Assets. In addition, there are
"inverse floaters", which have a coupon rate that moves in the reverse direction
to an applicable index, and accrual (or "Z") bonds, which are described below.
As to the U.S. Government Securities Fund's investment in IOs, POs, inverse
floaters, and accrual bonds, not more than 5% of the Fund's net assets will be
invested in any one of these items at any one time, and no more than 10% of the
net assets of the Fund will be invested in all such obligations at any one time.
With respect to the High Yield Portfolio's investment in such instruments, the
limits are 7.5% and 15% respectively.
Inverse floating CMOs are typically more volatile than fixed or adjustable rate
tranches of CMOs. Investments in inverse floating CMOs would be purchased by the
Fund to attempt to protect against a reduction in the income earned on the Fund
investments due to a decline in interest rates. The Fund would be adversely
affected by the purchase of such CMOs in the event of an increase in interest
rates since the coupon rate thereon will decrease as interest rates increase,
and, like other mortgage-backed securities, the value will decrease as interest
rates increase.
9
<PAGE>
The cash flows and yields on IO and PO classes are extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
pool of mortgage loans or mortgage-backed securities ("Mortgage Assets"). For
example, a rapid or slow rate of principal payments may have a material adverse
effect on the yield to maturity of IOs or POs, respectively. If the underlying
Mortgage Assets experience greater than anticipated prepayments of principal,
the holder of an IO may incur substantial losses, even if the IO class is rated
AAA. Conversely, if the underlying Mortgage Assets experience slower than
anticipated prepayments of principal, the yield and market value for the holder
of a PO will be affected more severely than would be the case with a traditional
Mortgage-Backed Security.
However, if interest rates were expected to rise, the value of an IO might
increase and may partially offset other bond value declines, and if rates were
expected to fall, the inclusion of POs could balance lower reinvestment rates.
An accrual or "Z" bond holder is not entitled to receive cash payments until one
or more other classes of the CMO have been paid in full from payments on the
mortgage loans underlying the CMO. During the period in which cash payments are
not being made on the Z tranche, interest accrues on the Z tranche at a stated
rate, and this accrued interest is added to the amount of principal which is due
to the holder of the Z tranche. After the other classes have been paid in full,
cash payments are made on the Z tranche until its principal (including
previously accrued interest which was added to principal, as described above)
and accrued interest at the stated rate have been paid in full. Generally, the
date upon which cash payments begin to be made on a Z tranche depends on the
rate at which the mortgage loans underlying the CMO are prepaid, with a faster
prepayment rate resulting in an earlier commencement of cash payments on the Z
tranche. Like a zero coupon bond, during its accrual period the Z tranche of a
CMO has the advantage of eliminating the risk of reinvesting interest payments
at lower rates during a period of declining market interest rates. At the same
time, however, and also like a zero coupon bond, the market value of a Z tranche
can be expected to fluctuate more widely with changes in market interest rates
than would the market value of a tranche which pays interest currently. Changes
in market interest rates also can be expected to influence prepayment rates on
the mortgage loans underlying the CMO of which a Z tranche is a part. As noted
above, such changes in prepayment rates will affect the date at which cash
payments begin to be made on a Z tranche, and therefore also will influence its
market value.
DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase securities on a "when
issued" or delayed delivery basis and purchase or sell securities on a "forward
commitment" basis. When such transactions are negotiated, the price is fixed at
the time the commitment is made, but delivery and payment for the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but delayed settlements beyond two months may be
negotiated. (The settlement date for transactions made on a when-issued or
delayed delivery basis will be within 120 days of the trade date.) At the time
the Fund enters into a transaction on a when-issued or forward commitment basis,
a segregated account consisting of cash, U.S. Government securities or liquid
high-grade debt securities equal to the value of the when-issued or forward
commitment securities will be established and maintained with the custodian and
will be marked to the market daily. During the period between a commitment and
settlement, no payment is made for the securities purchased by the purchaser
and, thus, no interest accrues to the purchaser from the transaction. If the
Fund disposes of the right to acquire a when-issued security prior to its
acquisition or disposes of its right to deliver or receive against a forward
commitment, it can incur a gain or loss due to market fluctuation. The use of
when-issued transactions and forward commitments enables the Fund to hedge
against anticipated changes in interest rates and prices. The Fund may also
enter into such transactions to generate incremental income. In some instances,
the third-party seller of when-issued or forward commitment securities may
determine prior to the settlement date that it will be unable or unwilling to
meet its existing transaction commitments without borrowing securities. If
advantageous from a yield perspective, the Fund may, in that event, agree to
resell its purchase commitment to the third-party seller at the current market
price on the date of sale and concurrently enter into another purchase
commitment for such securities at a later date. As an inducement for the Fund to
"'roll over" its purchase commitment, the Fund may receive a negotiated fee. The
purchase of securities on a when-issued, delayed delivery or forward commitment
basis exposes the Fund to risk because the securities may decrease in value
prior to their delivery. Purchasing securities on a when-issued, delayed
delivery or forward commitment basis involves the additional risk that the
return available in the market when the delivery takes place will be higher than
that obtained in the transaction itself. These risks could result in increased
volatility of the Fund's net asset value to the extent that the Fund purchases
securities on a when-issued, delayed delivery or forward commitment basis while
remaining substantially fully invested. There is also a risk that the securities
may not be delivered or that a Fund may incur a loss or will have lost the
opportunity to invest the amount set aside for such transaction in the
segregated asset account. With respect to the U.S. Government Securities Fund,
no more than 20% of the Fund's net assets may be invested in when-issued,
delayed delivery or forward commitment transactions without the intention of
actually acquiring securities (i.e., dollar rolls). As for the High Yield
Portfolio, no more than 20% of its net assets may be invested in when-issued,
delayed delivery or forward commitment transactions, and of such 20%, no more
than one-half (i.e., 10% of its net assets) may be invested in when-issued,
delayed delivery or forward commitment transactions without the intention of
actually acquiring securities.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, each Fund may lend its portfolio securities (principally to
broker-dealers) where such loans are callable at any time and are continuously
secured by collateral (cash, government securities, short-term (one year or
less) high-grade securities, or interest-bearing cash equivalents) equal to no
less than the market value, determined daily, of the securities loaned. The Fund
will receive amounts equal to dividends or interest on the securities loaned.
The Fund will also earn income for having made the loan. Cash collateral
pursuant to these loans may be invested in short-term (one year or less)
high-grade securities or interest-bearing cash equivalents (but
10
<PAGE>
for U.S. Government Securities Fund, not in excess of 35% of the Fund's total
assets). Each Fund will limit its loans of portfolio securities to an aggregate
of 33 1/3% of the value of its total assets, measured at the time such loan is
made. ("Total assets" of the Fund includes the amount lent as well as the
collateral securing such loans.) Where voting or consent rights with respect to
loaned securities pass to the borrower, management will follow the policy of
calling the loan, in whole or in part as may be appropriate, to permit the
exercise of such voting or consent rights if the issues involved have a material
effect on the Fund's investment in the securities loaned. Apart from lending its
securities, investing in repurchase agreements, and acquiring debt securities,
as described in the Prospectus and Statement of Additional Information, the
Funds will not make loans to other persons.
ILLIQUID SECURITIES. Policies which could be changed without shareholder
approval prohibit: 1) with respect to the High Yield Portfolio, more than 5% of
the Portfolio's assets from being invested in securities of unseasoned issuers,
including their predecessors, which have been in operation for less than three
years; and 2) with respect to both the U.S. Government Securities Fund and the
High Yield Portfolio, more than 15% of its net assets from being invested in all
forms of illiquid investments, as determined pursuant to applicable Securities
and Exchange Commission rules and interpretations. For this purpose illiquid
securities include, among others, (i) securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restrictions
on resale, (ii) options purchased over-the-counter and the cover for options
written over-the-counter, and (iii) repurchase agreements not terminable within
seven days. Securities that have been determined to be liquid by the Board of
Directors of Fortis Income or Fortis Advantage, or by Advisers subject to the
oversight of such Board of Directors, will not be subject to this limitation.
Commercial paper issued pursuant to the private placement exemption of Section
4(2) of the 1933 Act and securities that are eligible for resale under Rule 144A
under the 1933 Act that have legal or contractual restrictions on resale but
have a readily available market are not deemed illiquid securities for this
purpose.
SHORT-TERM TRADING. The U.S. Government Securities Fund intends to use
short-term trading of its securities as a means of managing its portfolio to
achieve its investment objectives. As used herein, "short-term trading" means
selling securities held for a relatively brief period of time, usually less than
three months. Short-term trading will be used by the Fund primarily in two
situations:
(a) MARKET DEVELOPMENTS. A security may be sold to avoid depreciation in
what the Fund anticipates will be a market decline (a rise in interest
rates), or a security may be purchased in anticipation of a market rise (a
decline in interest rates) and later sold; and
(b) YIELD DISPARITIES. A security may be sold and another of comparable
quality purchased at approximately the same time, in order to take advantage
of what the Fund believes is a temporary disparity in the normal yield
relationship between the two securities (a yield disparity).
The Fund will engage in short-term trading if it believes the transactions, net
of costs (including commission, if any), will result in improving the
appreciation potential or income of its portfolio. Whether any improvement will
be realized by short-term trading will depend upon the ability of the Fund to
evaluate particular securities and anticipate relevant market factors, including
interest rate trends and variations from such trends. Short-term trading such as
that contemplated by the Fund places a premium upon the ability of the Fund to
obtain relevant information, evaluate it promptly, and take advantage of its
evaluations by completing transactions on a favorable basis.
While it is not generally the policy of the High Yield Portfolio to invest or
trade for short-term profits, the Portfolio may dispose of a security without
regard to the time such security has been held when such action appears
advisable to Advisers.
PORTFOLIO TURNOVER. The portfolio turnover rate for a Fund is calculated by
dividing the lesser of purchases or sales by such Fund of investment securities
for the particular fiscal year by the monthly average value of investment
securities owned by the Fund during the same fiscal year. "Investment
securities" for purposes of this calculation do not include securities with a
maturity date less than twelve months from the date of investment. A 100%
portfolio turnover rate would occur, for example, if the lesser of the value of
purchases or sales of investment securities for a particular year were equal to
the average monthly value of the investment securities owned during such year.
As you will note in the Financial Highlights table on page 5, for the fiscal
year ended October 31, 1995, the annual portfolio turnover rate of the High
Yield Portfolio exceeded 100%. This was the result of active portfolio
management in recognition of changing economic conditions. While a higher
turnover rate may result in the Funds incurring higher transaction costs, the
Funds' managers attempt to have such costs outweighed by the benefits of such
transactions, although this cannot be assured.
MANAGEMENT
BOARD OF DIRECTORS
Under Minnesota law, the Board of Directors of each Fund has overall
responsibility for managing it in good faith, in a manner reasonably believed to
be in the best interests of such Fund, and with the care an ordinarily prudent
person would exercise in similar circumstances. However, this management may be
delegated.
The Articles of Incorporation of each Fund limit the liability of directors to
the fullest extent permitted by law.
THE INVESTMENT ADVISER/TRANSFER AGENT/DIVIDEND AGENT
Fortis Advisers, Inc. ("Advisers") is the investment adviser, transfer agent,
and dividend agent for the Funds. Advisers has been managing investment company
portfolios since 1949, and is indirectly owned 50% by Fortis AMEV and 50% by
Fortis AG, diversified financial services companies. In addition to providing
investment advice, Advisers is responsible for management of each Fund's
business affairs, subject to the overall authority of the Board of Directors.
Advisers' address is that of the Funds.
11
<PAGE>
Howard G. Hudson, Christopher J. Woods and Maroun M. Hayek (all since August,
1995) manage the U.S. Government Securities Fund.
Mr. Hudson, Charles J. Dudley, Robert C. Lindberg and Stephen M. Rickert (all
since August 1985) manage the High Yield Portfolio.
Mr. Hudson, an Executive Vice President of Advisers and the head of Advisers'
fixed income department, has been managing debt securities for Fortis, Inc.
since 1991. Mr. Woods, a Vice President of Advisers, has been managing debt
securities for Fortis, Inc. since 1993. Prior to that, Mr. Woods was the head of
fixed income for The Police and Firemen's Disability and Pension Fund of Ohio in
Columbus, OH. Mr. Hayek, a Vice President of Advisers, has been managing debt
securities for Fortis, Inc. since 1987. Mr. Dudley, a Vice President of
Advisers, began managing debt securities for Advisers in August 1995. Prior to
joining Advisers, Mr. Dudley was a Senior Vice President and Senior Portfolio
Manager for SunAmerica Asset Management, New York, New York. Mr. Lindberg, a
Vice President of Advisers, has been managing debt securities for Advisers since
1993. Prior to that, Mr. Lindberg was Vice President and Chief Securities Trader
for COMERICA, Inc., Detroit, Michigan. Mr. Rickert, a Vice President of
Advisers, has been involved in management of debt securities for Fortis, Inc.
since 1994. Prior to that, Mr. Rickert was a corporate bond analyst for Dillon,
Read & Co., Inc. in New York, New York and before that Western Asset Management
in Los Angeles, California. Messrs. Hudson, Woods, Hayek, Dudley, Lindberg and
Rickert are located at One Chase Manhattan Plaza, New York, NY 10005.
THE UNDERWRITER AND DISTRIBUTION EXPENSES
Fortis Investors, Inc. ("Investors"), a subsidiary of Advisers, is each Fund's
underwriter. Investors' address is that of the Funds. Investors reserves the
right to reject any purchase order. The following persons are affiliated with
both Investors and the Fund: Dean C. Kopperud is a director and officer of both;
Stephen M. Poling and Jon H. Nicholson are directors of Investors and officers
of both; and Dennis M. Ott, James S. Byrd, Robert C. Lindberg, Keith R. Thomson,
Larry A. Medin, Anthony J. Rotondi, Rhonda J. Schwartz, Robert W. Beltz, Jr.,
Thomas D. Gualdoni, Richard P. Roche, Tamara L. Fagely, John E. Hite, Carol M.
Houghtby and Scott R. Plummer are officers of both.
Pursuant to a Plan of Distribution adopted by each Fund under Rule 12b-1 under
the 1940 Act, each Fund is separately obligated to pay Investors an annual fee
of .25% on the U.S. Government Securities Fund (.35% on the High Yield
Portfolio) of average net assets attributable to that Fund's Class A shares and
1.00% of average net assets attributable to that Fund's Class B, H, and C
shares. While all of Class A's Rule 12b-1 fee constitutes a "distribution fee",
only 75% of Class B, H, and C's fees constitute distribution fees.
With regard to the High Yield Portfolio, the standard payout to broker-dealers
not affiliated with Investors for selling the Portfolio's shares is equal to an
annual rate of .25 of 1% of the net asset value of the shares sold (the "Base
Fee"). However, should any of such broker-dealers have sold currently
outstanding shares of the Portfolio that, coupled with the shares of the
Portfolio currently being sold and computed at the time of each individual sale,
have an aggregate net asset value of greater than $1,000,000, then the
broker-dealer would be entitled to an additional fee of .10 of 1% of the net
asset value of High Yield Portfolio shares sold (the "Service Fee").
The higher distribution fee attributable to Class B, H, and C shares is designed
to permit an investor to purchase such shares through registered representatives
of Investors and other broker-dealers without the assessment of an initial sales
charge and at the same time to permit Investors to compensate its registered
representatives and other broker-dealers in connection with the sale of such
shares. The distribution fee for all classes may be used by Investors for the
purpose of financing any activity which is primarily intended to result in the
sale of shares of the applicable Fund. For example, such distribution fee may be
used by Investors: (a) to compensate broker-dealers, including Investors and its
registered representatives, for their sale of Fund shares, including the
implementation of various incentive programs with respect to broker-dealers,
banks, and other financial institutions, and (b) to pay other advertising and
promotional expenses in connection with the distribution of Fund shares. These
advertising and promotional expenses include, by way of example but not by way
of limitation, costs of prospectuses for other than current shareholders;
preparation and distribution of sales literature; advertising of any type;
expenses of branch offices provided jointly by Investors and affiliated
insurance companies; and compensation paid to and expenses incurred by officers,
employees or representatives of Investors or of other broker-dealers, banks, or
other financial institutions, including travel, entertainment, and telephone
expenses.
A portion of the Rule 12b-1 fee equal to .25% of the average net assets of each
Fund attributable to the Class B, H, and C shares constitutes a shareholder
servicing fee designed to compensate Investors for the provision of certain
services to shareholders. The services provided may include personal services
provided to shareholders, such as answering shareholder inquiries regarding the
Funds and providing reports and other information, and services related to the
maintenance of shareholder accounts. Investors may use the Rule 12b-1 fee to
make payments to qualifying broker-dealers and financial institutions that
provide such services.
Investors may also enter into sales or servicing agreements with certain
institutions such as banks ("Service Organizations") which have purchased shares
of the Funds for the accounts of their clients, or which have made Fund shares
available for purchase by their clients, and/or which provide continuing service
to such clients. The Glass-Steagall Act and other applicable laws prohibit
certain banks from engaging in the business of underwriting securities. In such
circumstances, Investors, if so requested, will engage such banks as Service
Organizations only to perform administrative and shareholder servicing
functions, but at the same fees and other terms applicable to dealers. (If a
bank were later prohibited from acting as a Service Organization, its
shareholder clients would be permitted to remain Fund shareholders and
alternative means for continuing servicing of such shareholders would be
sought.) In such event changes in the operation of the Funds might occur and a
shareholder serviced by such bank might no longer be able to avail itself of any
automatic investment or other services then being provided by the
12
<PAGE>
Bank. (State securities laws on this issue may differ from the interpretations
of Federal law expressed above and banks and other financial institutions may be
required to register as dealers pursuant to state law.)
FUND EXPENSES
For the most recent fiscal period, the annualized ratios of the Funds' total
operating expenses, including the Rule 12b-1 fees referred to under "The
Underwriter and Distribution Expenses," and their advisory fees (which are
included in operating expenses), both as a percentage of average daily net
assets were as follows:
<TABLE>
<CAPTION>
TOTAL OPERATING EXPENSES
--------------------------------------
CLASS
B, ADVISORY
CLASS A H AND C CLASS E FEE
------- ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund......... 1.02% 1.77% .77% .71%
High Yield Portfolio.................... 1.25% 1.90% N/A .75%
</TABLE>
While the advisory fee paid on the High Yield Portfolio is higher than that paid
by many other investment companies, it is partially offset by the added costs
which Advisers pays (which other investment companies pay), such as acting as
the Funds' registrar, transfer agent, and dividend agent.
BROKERAGE ALLOCATION
Advisers may consider sales of shares of the Fund, and of other funds advised by
Advisers, as a factor in the selection of broker-dealers to execute Fund
securities transactions when it is believed that this can be done without
causing the Fund to pay more in brokerage commissions than it would otherwise.
VALUATION OF SECURITIES
Each Fund's net asset value per share is determined by dividing the value of the
securities owned by the Fund, plus any cash or other assets, less all
liabilities, by the number of the Fund's shares outstanding. The portfolio
securities in which the Funds invest fluctuate in value, and hence the net asset
value per share of the Fund also fluctuates. The net asset value of the Fund's
shares is determined as of the primary closing time for business on the New York
Stock Exchange (the "Exchange") on each day on which the Exchange is open. If
shares are purchased through another broker-dealer who receives the order prior
to the close of the Exchange, then Investors will apply that day's price to the
order as long as the broker-dealer places the order with Investors by the end of
the day.
Securities are generally valued at market value. Securities for which
over-the-counter market quotations are readily available are valued on the basis
of the last current bid price. When market quotations are not readily available,
or when restricted or illiquid securities or other assets are being valued, such
securities or other assets are valued at fair value as determined in good faith
by management under supervision of the Board of Directors. However, debt
securities may be valued on the basis of valuations furnished by a pricing
service which utilizes electronic data processing techniques to determine
valuations for normal institutional-size trading units of debt securities when
such valuations are believed to more accurately reflect the fair market value of
such securities. Short-term investments in debt securities with maturities of
less than 60 days when acquired, or which subsequently are within 60 days of
maturity, are valued at amortized cost. Purchases and sales by the Fund after
2:00 P.M. Central Time normally are not recorded until the following day.
CAPITAL STOCK
Each Fund currently offers its shares in multiple classes, each with different
sales arrangements and bearing differing expenses. Class A, B, H, C, and E
shares each represent interests in the assets of the applicable Fund and have
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 each class of shares has exclusive voting rights
with respect to provisions of the Fund's Rule 12b-1 distribution plan which
pertain to that particular class and other matters for which separate class
voting is appropriate under applicable law. The Fund may offer additional
classes of shares.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund currently declares dividends from net investment income on each day
the Exchange is open (to shareholders of record as of 3:00 p.m., Central Time,
the preceding business day) and pays dividends monthly. A shareholder will not
be credited with a dividend until payment is received for the shares.
Distributions of net realized capital gains are made annually. Distributions
paid by the Funds with respect to all classes of shares will be calculated in
the same manner, at the same time, on the same day, and will be in the same
amount, except that the per share dividends on Class B, H, and C shares will be
lower than those on Class A (which have lower Rule 12b-1 fees) and Class E
shares (which do not have Rule 12b-1 fees and will therefore have the highest
dividends). Shareholders will receive confirmations after each dividend, or
quarterly, at Advisers' option.
Such dividends and capital gains distributions will be made in the form of
additional Fund shares of the same class (at net asset value) unless the
shareholder sends the applicable Fund a written request that either or both be
sent to the shareholder or reinvested (at net asset value) in shares of the same
class of another Fortis fund.
Dividends will be reinvested monthly, on the last business day of each month, at
the net asset value on that date. If they are to be reinvested in other Fortis
funds, processing normally takes one business day. If cash payment is requested,
checks will be mailed within five business days after the end of the month. If
shareholders withdraw their entire account, all dividends accrued from the last
payment date to the time of withdrawal will be paid at that time.
TAXATION
Each Fund will distribute substantially all of its net income and capital gains
to its shareholders. Such distributions are taxable to shareholders, whether
paid in cash or reinvested. Dividends paid
13
<PAGE>
from the net income of a Fund must be treated as ordinary income by its
shareholders. Dividends paid from the Fund's net capital gains and designated in
the shareholder's Annual Account Summary as long-term capital gain distributions
are treated as long-term capital gains by shareholders, regardless of the length
of time for which they have held their shares in the Fund.
Information about the tax status of each year's dividends and distributions will
be mailed annually.
Prior to purchasing shares of the Fund, prospective shareholders (except for tax
qualified retirement plans) should consider the impact of dividends or capital
gains distributions which are expected to be announced, or have been announced
but not paid. Any such dividends or capital gains distributions paid shortly
after a purchase of shares by an investor prior to the record date will have the
effect of reducing the per share net asset value by the amount of the dividends
or distributions. All or a portion of such dividends or distributions, although
in effect a return of capital, is subject to taxation.
HOW TO BUY FUND SHARES
GENERAL PURCHASE INFORMATION
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 "Pre-authorized 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 E shares have no maximum order, Class B and H shares have a
$500,000 maximum and Class C shares have a $1,000,000 maximum. Orders greater
than these limits will be treated as orders for Class A shares.
INVESTING BY TELEPHONE
Your registered representative may make your purchase ($500 minimum) by
telephoning the number on the cover page of this Prospectus. In addition, your
check and the Account Application which accompanies this Prospectus must be
promptly forwarded, so that Investors receives your check within three business
days. Please make your check payable to Fortis Investors, Inc. and mail it with
your Application to "CM-9651, St. Paul, MN 55170-9651". If you have a bank
account authorization form on file, you may purchase $100 - $10,000 worth of
Fund 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
banks to transmit immediately available funds (Federal Funds) by wire to:
First Bank National Association
ABA #091000022, credit account no: 1-702-2514-1341
Fortis Funds Purchase Account
For further credit to __________________________________________________________
(name of client)
Fortis Account NBR _____________________________________________________________
Before making an initial investment by wire, your broker-dealer must first
telephone Investors at the number on the cover page of this Prospectus to open
your account and obtain your account number. In addition, the Account
Application which accompanies this Prospectus must be promptly forwarded to
Investors at the mailing address in the "Investing by Mail" section of this
Prospectus. Additional investments may be made at any time by having your bank
wire Federal Funds to the above address for credit to your account. Such
investments may be made by wire even if the initial investment was by mail.
INVESTING BY MAIL (ADDRESS: CM-9614, ST. PAUL, MN 55170-9614)
The Account Application which accompanies this Prospectus must be completed,
signed, and sent with a check or other negotiable bank draft, payable to "Fortis
Funds." Additional purchases may be made at any time by mailing a check or other
negotiable bank draft along with your confirmation stub. The account to which
the subsequent purchase is to be credited should be identified as to the name(s)
of the registered owner(s) and by account number.
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund offers investors the choice between multiple classes of shares which
offer differing sales charges and bear different expenses. These alternatives
permit an investor to choose the more beneficial method of purchasing shares
given the amount of the purchase, the length of time the investor expects to
hold the shares, and other circumstances. The inside front cover of the
Prospectus contains a summary of these alternative purchase arrangements. A
broker-dealer may receive different levels of compensation depending on which
class of shares is sold. Investors may also provide additional financial
assistance not to exceed .5% of estimated sales for a particular period to
dealers in connection with seminars for the public, advertising, sales campaigns
and/or shareholder services and programs regarding one or more of the Fortis
Funds, and other dealer-sponsored programs or events. Non-cash compensation will
be provided to dealers and includes payment or reimbursement for conferences,
sales or training programs for their employees, and travel expenses incurred in
connection with trips taken by registered representatives to locations within or
outside of the United States for meetings or seminars of a business nature. None
of the aforementioned additional compensation is paid for by the Fund or its
shareholders.
14
<PAGE>
CLASS A AND E SHARES--INITIAL SALES CHARGE ALTERNATIVE
(Note: Class E shares are only available in the U.S. Government Securities Fund
and only to investors who were shareholders of that Fund on November 13, 1994.)
The public offering price of Class A and E Fund shares is determined once daily,
by adding a sales charge to the net asset value per share of the shares next
calculated after receipt of the purchase order. The sales charges and
broker-dealer concessions, which vary with the size of the purchase, are shown
in the following table. Additional compensation (as a percentage of sales
charge) will be paid to a broker-dealer when its annual sales of Fortis Funds
having a sales charge exceed $10,000,000 (2%), $25,000,000 (4%), and $50,000,000
(5%).
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS AS
PERCENTAGE PERCENTAGE
OF THE OF THE NET BROKER-
OFFERING AMOUNT DEALER
AMOUNT OF SALE PRICE INVESTED CONCESSION
<S> <C> <C> <C>
Less than $100,000...................... 4.500% 4.712% 4.00%
$100,000 but less than $250,000......... 3.500% 3.627% 3.00%
$250,000 but less than $500,000......... 2.500% 2.564% 2.25%
$500,000 but less than $1,000,000....... 2.000% 2.041% 1.75%
$1,000,000 or more*..................... -0- -0- 1.00%
</TABLE>
- ------------------------
* The Fund imposes a contingent deferred sales charge in connection with certain
purchases of Class A and E shares of $1,000,000 or more. See
"Redemption--Contingent Deferred Sales Charge."
The above scale applies to purchases of Class A and E shares by the following:
(1) Any individual, his or her spouse, and their children under the age of 21,
and any of such persons' tax-qualified plans (provided there is only one
participant); (2) A trustee or fiduciary of a single trust estate or single
fiduciary account; and (3) Any organized group which has been in existence for
more than six months, provided that it is not organized for the purpose of
buying redeemable securities of a registered investment company, and provided
that the purchase is made by means which result in economy of sales effort or
expense, whether the purchase is made through a central administration, through
a single broker-dealer, or by other means. An organized group does not include a
group of individuals whose sole organizational connection is participation as
credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer, or clients of an investment
adviser.
SPECIAL PURCHASE PLANS FOR CLASS A AND E SHARES
For information on any of the following special purchase or exchange plans
applicable to Class A and E shares, see the Statement of Additional Information
or contact your broker-dealer or sales representative. It is the purchaser's
obligation to notify his or her broker-dealer or sales representative about the
purchaser's eligibility for any of the following special purchase or exchange
plans.
RIGHT OF ACCUMULATION The preceding table's sales charge discount applies to the
current purchase plus the net asset value of shares already owned of any Fortis
Fund having a sales charge.
STATEMENT OF INTENTION The preceding table's sales charge discount applies to an
initial purchase of at least $1,000, with an intention to purchase the balance
needed to qualify within 13 months excluding shares purchased by reinvesting
dividends or capital gains.
REINVESTED DIVIDEND/CAPITAL GAINS DISTRIBUTIONS BETWEEN THE FORTIS
FUNDS Shareholders of any fund may reinvest their dividend and/ or capital gains
distributions in any of such funds at net asset value.
CONVERSION FROM CLASS B OR H SHARES Class B or H shares will automatically be
converted to Class A shares (at net asset value) after eight years.
EXEMPTIONS FROM SALES CHARGE:
- Fortis, Inc. or its subsidiaries and the following persons
associated with such companies, if all account owners fit this
description: (1) officers and directors; (2) employees or sales
representatives (including agencies and their employees); (3) spouses
of any such persons; or (4) any of such persons' children,
grandchildren, parents, grandparents, or siblings--or spouses of any
of these persons. (All such persons may continue to add to their
account even after their company relationships have ended);
- Fund directors, officers, or their spouses (or such
persons' children, grandchildren, parents, or grandparents--or spouses of
any such persons), if all account owners fit this description;
- Representatives or employees (or their spouses) of
Investors (including agencies) or of other broker-dealers having a
sales agreement with Investors (or such persons' children,
grandchildren, parents, or grandparents--or spouses of any such
persons), if all account owners fit this description;
- Pension, profit-sharing, and other retirement plans of
directors, officers, employees, representatives, and other relatives
and affiliates (as set forth in the preceding three paragraphs) of the
Fund, Fortis, Inc., and broker-dealers (and certain affiliated
companies) having a sales agreement with Investors and purchases with
the proceeds from such plans upon the retirement or employment
termination of such persons;
- Registered investment companies;
- Shareholders of unrelated mutual funds with front-end
and/or deferred sales loads, to the extent that the purchase price of
such Fund shares is funded by the proceeds from the redemption of
shares of any such unrelated mutual fund (within 60 days of the
purchase of Fund shares), provided that the shareholder's application
so specifies and is accompanied either by the redemption check of such
unrelated mutual fund (or a copy of the check) or a copy of the
confirmation statement showing the redemption. Similarly, anyone who
is or has been the owner of a fixed annuity contract not deemed a
security under the securities laws who wishes to surrender such
contract and invest the proceeds in a
15
<PAGE>
Fund, to the extent that the purchase price of such Fund shares is
funded by the proceeds from the surrender of the contract (within 60
days of the purchase of Fund shares), provided that such owner's
application so specifies and is accompanied either by the insurance
company's check (or a copy of the check) or a copy of the insurance
company surrender form. From time to time, Investors may pay
commissions to broker-dealers and registered representatives on
transfers from mutual funds or annuities as described above;
- Purchases by employees (including their spouses and
dependent children) of banks and other financial institutions that
provide referral and administrative services related to order
placement and payment to facilitate transactions in shares of the Fund
for their clients pursuant to a sales or servicing agreement with
Investors; provided, however, that only those employees of such banks
and other firms who as a part of their usual duties provide such
services related to such transactions in Fund shares shall qualify;
- Commercial banks offering self directed 401(k)
programs containing both pooled and individual investment options may
purchase Fund shares for such programs at a reduced sales charge of
2.5% on sales of less than $500,000. For sales of $500,000 or more,
normal sales charges apply;
- Registered investment advisers, trust companies, and
bank trust departments exercising discretionary investment authority
or using a money management/mutual fund "wrap" program with respect to
the money to be invested in the Fund, provided that the investment
adviser, trust company or trust department provides Advisers with
evidence of such authority or the existence of such a wrap program
with respect to the money invested;
- With respect to U.S. Government Securities Fund only,
(1) officers, directors, and employees of Empire of America Advisory
Services, Inc., the investment advisor of Pathfinder Fund; and (2)
accounts which were in existence and entitled to purchase shares of
the Pathfinder Fund without a sales charge at the time of the
effectiveness of the acquisition of its assets by the Fund;
- With respect to U.S. Government Securities Fund only,
Accounts which were in existence and entitled to purchase shares of
Carnegie Government Securities Trust without a sales charge at the
time of the effectiveness of the acquisition of its assets by the
Fund.
RULE 12B-1 FEES (FOR CLASS A SHARES ONLY)
For each Fund, Class A shares are subject to a Rule 12b-1 fee payable at an
annual rate of the average daily net assets of the Fund attributable to such
shares. The Rule 12b-1 fee will cause Class A shares to have a higher expense
ratio and to pay lower dividends than Class E shares. For additional
information, see "Management-- The Underwriter and Distribution Expenses."
DEFERRED SALES CHARGES Although there is no initial sales charge on purchases of
Class A and E shares of $1,000,000 or more, Investors pays broker-dealers out of
its own assets, a fee of up to 1% of the offering price of such shares. If these
shares are redeemed within two years, the redemption proceeds will be reduced by
1.00%. For additional information, see "Redemption--Contingent Deferred Sales
Charge."
CLASS B AND H SHARES--CONTINGENT DEFERRED SALES CHARGE ALTERNATIVES
The public offering price of Class B and H shares is the net asset value of the
applicable Fund's shares. Such shares are sold without an initial sales charge
so that the Fund receives the full amount of the investor's purchase. However, a
contingent deferred sales charge ("CDSC") of 4% will be imposed if shares are
redeemed within two years of purchase, with lower CDSCs as follows if
redemptions occur later:
<TABLE>
<S> <C> <C>
3 years -- 3%
4 years -- 3%
5 years -- 2%
6 years -- 1%
</TABLE>
For additional information, see "Redemption--Contingent Deferred Sales Charge."
In addition, Class B and H shares are subject to higher annual Rule 12b-1 fees
as described below.
Proceeds from the CDSC are paid to Investors and are used to defray its expenses
related to providing distribution-related services to the applicable Fund in
connection with the sale of Class B and H shares, such as the payment of
compensation to selected broker-dealers, and for selling such shares. The
combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell such
shares without deduction of a sales charge at the time of purchase. Although
such shares are sold without an initial sales charge, Investors pays a dealer
concession equal to: (1) 4.00% of the amount invested to broker-dealers who sell
Class B shares at the time the shares are sold and an annual fee of .25% of the
average daily net assets of the Fund attributable to such shares; or (2) 5.25%
of the amount invested to broker-dealers who sell Class H shares at the time the
shares are sold (with no annual fee). Under alternative (2), from time to time
the dealer concession paid to broker-dealers who sell Class H shares may be
increased up to 5.50%.
RULE 12B-1 FEES Class B and H shares are subject to a Rule 12b-1 fee payable at
an annual rate of 1.00% of the average daily net assets of the Fund attributable
to such shares. The higher Rule 12b-1 fee will cause Class B and H shares to
have a higher expense ratio and to pay lower dividends than Class A and E
shares. For additional information about this fee, see "Management--The
Underwriter and Distribution Expenses."
CONVERSION TO CLASS A SHARES Class B and H shares (except for those purchased by
reinvestment of dividends and other distributions) will automatically convert to
Class A shares after eight years. Each time any such shares in the shareholder's
account convert to
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Class A, a proportionate amount of the Class B and H shares purchased through
the reinvestment of dividends and other distributions paid on such shares will
also convert to Class A.
CLASS C SHARES--LEVEL SALES CHARGE ALTERNATIVE
The public offering price of Class C shares is the net asset value of such
shares. Class C shares are sold without an initial sales charge so that the
applicable Fund receives the full amount of the investor's purchase. However, a
CDSC of 1% will be imposed if shares are redeemed within one year of purchase.
For additional information, see "Redemption--Contingent Deferred Sales Charge."
In addition, Class C shares are subject to higher annual Rule 12b-1 fees as
described below.
Proceeds from the CDSC are paid to Investors and are used to defray its expenses
related to providing distribution-related services to the applicable Fund in
connection with the sale of Class C shares, such as the payment of compensation
to selected broker-dealers, and for selling Class C shares. The combination of
the CDSC and the Rule 12b-1 fee enables the Fund to sell the Class C shares
without deduction of a sales charge at the time of purchase. Although Class C
shares are sold without an initial sales charge, Investors pays a dealer
concession equal to 1.00% of the amount invested to broker-dealers who sell
Class C shares at the time the shares are sold and an annual fee of 1.00% of the
amount invested that begins to accrue one year after the shares are sold.
RULE 12B-1 FEES For each Fund, Class C shares are subject to a Rule 12b-1 fee
payable at an annual rate of 1.00% of the average daily net assets of the Fund
attributable to such shares. The higher Rule 12b-1 fee will cause Class C shares
to have a higher expense ratio and to pay lower dividends than Class A and E
shares. For additional information about this fee, see "Management--The
Underwriter and Distribution Expenses."
SPECIAL PURCHASE PLANS FOR ALL CLASSES
TAX SHELTERED RETIREMENT PLANS Individual Retirement Accounts ("IRAs"),
Self-Employed, Pension, Profit Sharing, and 403(b) accounts are available.
GIFTS OR TRANSFERS TO MINOR CHILDREN Adults can make an irrevocable gift or
transfer of up to $10,000 annually per child ($20,000 for married couples) to as
many children as they choose without having to file a Federal gift tax return.
SYSTEMATIC INVESTMENT PLAN Voluntary $25 or more per month purchases by
automatic financial institution transfers (see Systematic Investment Plan
Authorization Agreement in this Prospectus) or $50 or more per month by any
other means enable an investor to lower his or her average cost per share
through the principle of "dollar cost averaging." Any plan involving systematic
purchases may, at Advisers' option, result in transactions under such plan being
confirmed to the investor quarterly, rather than as a separate notice following
the transaction.
EXCHANGE PRIVILEGE Except for Class E shares, Fund shares 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).
Also, holders of Class E shares of other Fortis Funds may exchange their shares
for Class A Fund shares and holders of Fortis Money Fund Class A shares may
exchange their shares for any class of Fund shares (at net asset value and only
into Class A if the shares have already incurred a sales charge). Finally,
holders of Fund Class E shares who exchange such shares for Class A shares of
another Fortis Fund may re-exchange such Class A shares for Fund Class E shares.
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. Telephone exchanges will be permitted only if the shareholder
completes and returns the Telephone Exchange section of the Account Application.
During times of chaotic economic or market circumstances, a shareholder may have
difficulty reaching his or her broker-dealer, sales representative, or the Fund
by telephone. Consequently, a telephone exchange may be difficult to implement
at those times. (See "Redemption".) Shareholders may also use the automated
Fortis Information Line for exchanges of $100 - $100,000 worth of shares.
An exchange of shares of one Fund for those of another Fund pursuant to the
exchange privilege is considered to be a sale for federal income tax purposes,
and may result in a taxable capital gain or loss.
Advisers reserves the right to restrict the frequency of--or otherwise modify,
condition, terminate, or impose charges upon--the exchange and/or telephone
transfer privileges, all with 30 days notice to shareholders.
REDEMPTION
Registered holders of each Fund's 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 Fund of a written
redemption request in proper form (and a properly endorsed stock certificate if
one has been issued). However, if shares are redeemed through another
broker-dealer who receives the order prior to the close of the Exchange, then
Investors will apply that day's price to the order as long as the broker-dealer
places the order with Investors by the end of the day. Some broker-dealers may
charge a fee to process redemptions.
Any certificates should be sent to the Fund by certified mail. Share
certificates and/or stock powers, if any, tendered in redemption must be
endorsed and executed exactly as the Fund shares are registered. If the
redemption proceeds are to be paid to the registered holder and sent to the
address of record, normally no signature guarantee is required unless Advisers
does not have the shareholder's signature on file and the redemption proceeds
are greater than $25,000. However, for example, if the redemption proceeds are
to be paid to someone other than the registered holder, sent to a different
address,
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<PAGE>
or the shares are to be transferred, the owner's signature must be guaranteed by
a bank, broker (including government or municipal), dealer (including government
or municipal), credit union, national securities exchange, registered securities
association, clearing agency, or savings association.
Class A shares may be registered in broker-dealer "street name accounts" only if
the broker-dealer has a selling agreement with Investors. In such cases,
instructions from the broker-dealer are required to redeem shares or transfer
ownership and transfer to another broker-dealer requires the new broker-dealer
to also have a selling agreement with Investors. If the proposed new
broker-dealer does not have a selling agreement with Investors, the shareholder
can, of course, leave the shares under the original street name account or have
the broker-dealer transfer ownership to the shareholder's name.
Broker-dealers having a sales agreement with Investors may orally place a
redemption order, but proceeds will not be released until the appropriate
written materials are received.
An individual shareholder (or in the case of multiple owners, any shareholder)
may orally redeem up to $25,000 worth of his or her shares, provided that the
account is not a tax-qualified plan, the check will be sent to the address of
record, and the address of record has not changed for at least 30 days. During
times of chaotic economic or market circumstances, a shareholder may have
difficulty reaching his or her broker-dealer, sales representative, or the Fund
by telephone. Consequently, a telephone redemption may be difficult to implement
at those times. If a shareholder is unable to reach the Fund by telephone,
written instructions should be sent. Advisers reserves the right to modify,
condition, terminate, or impose charges upon this telephone redemption
privilege, with 30 days notice to shareholders. Advisers, Investors, and the
Fund will not be responsible for, and the shareholder will bear the risk of loss
from, oral instructions, including fraudulent instructions, which are reasonably
believed to be genuine. The telephone redemption procedure is automatically
available to shareholders. The Fund will employ reasonable procedures to confirm
that telephone instructions are genuine, but if such procedures are not deemed
reasonable, it may be liable for any losses due to unauthorized or fraudulent
instructions. The Fund's procedures are to verify address and social security
number, tape record the telephone call, and provide written confirmation of the
transaction. Shareholders may also use the automated Fortis Information Line for
redemptions of $500 - $25,000 on non-tax qualified accounts. The security
measures for automated telephone redemptions involve use of a personal
identification number and providing written confirmation of the transaction.
Payment will be made as soon as possible, but not later than three business days
after receipt of a proper redemption request. However, if shares subject to the
redemption request were recently purchased with non-guaranteed funds (e.g.,
personal check), the mailing of your redemption check may be delayed by fifteen
days. A shareholder wishing to avoid these delays should consider the wire
purchase method described under "How to Buy Fund Shares."
Employees of certain Texas public educational institutions who direct investment
in Fund shares under their State of Texas Optional Retirement Plan generally
must obtain the prior written consent of their authorized employer
representative in order to redeem.
Each Fund has the right to redeem accounts with a current value of less than
$500 unless the original purchase price of the remaining shares (including sales
commissions) was at least $500. Fund shareholders actively participating in the
Fund's Systematic Investment Plan or Group Systematic Investment Plan will not
have their accounts redeemed. Before redeeming an account, the Fund will mail to
the shareholder a notice of its intention to redeem, which will give the
shareholder an opportunity to make an additional investment. If no additional
investment is received by the Fund within 60 days of the date the notice was
mailed, the shareholder's account will be redeemed. Any redemption in an account
established with the minimum initial investment of $500 may trigger this
redemption procedure.
Each Fund has a "Systematic Withdrawal Plan," which provides for voluntary
automatic withdrawals of at least $50 monthly, quarterly, semiannually, or
annually. Deferred sales charges may apply to monthly redemptions. Such plans
may, at Advisers' option, result in transactions being confirmed to the investor
quarterly, rather than as a separate notice following the transaction.
There is also a "Reinvestment Privilege," which is a one-time opportunity to
reinvest sums redeemed within the prior 60 days without payment of an additional
sales charge. For further information about these plans, contact your
broker-dealer or sales representative.
CONTINGENT DEFERRED SALES CHARGE
CLASS A AND E SHARES
Each Fund imposes a contingent deferred sales charge ("CDSC") on Class A and E
shares in certain circumstances. Under the CDSC arrangement, for sales of shares
of $1,000,000 or more (including right of accumulation and statements of
intention (see "How to Buy Fund Shares--Special Purchase Plans")), the front-end
sales charge ("FESC") will not be imposed (although Investors intends to pay its
registered representatives and other dealers that sell Fund shares, out of its
own assets, a fee of up to 1% of the offering price of such sales except on
purchases exempt from the FESC). However, if such shares are redeemed within two
years after their purchase date (the "CDSC Period"), the redemption proceeds
will be reduced by the 1.00% CDSC.
The CDSC will be applied to the lesser of (a) the net asset value of shares
subject to the CDSC at the time of purchase, or (b) the net asset value of such
shares at the time of redemption. No charge will be imposed on amounts
representing an increase in share value due to capital appreciation. The CDSC
will not be applied to shares acquired through reinvestment of income dividends
or capital gain distributions or shares held for longer than the applicable CDSC
Period. In determining which shares to redeem, unless instructed otherwise,
shares that are not subject to the CDSC and having a higher Rule 12b-1 fee
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will be redeemed first, shares not subject to the CDSC having a lower Rule 12b-1
fee will be redeemed next, and shares subject to the CDSC then will be redeemed
in the order purchased.
Each Fund will waive the CDSC in the event of a shareholder's death or
disability, as defined in Section 72(m)(7) of the Code (if satisfactory evidence
is provided to the Fund), and for tax-qualified retirement plans (excluding
IRAs, SEPS, 403(b) plans, and 457 plans). Shares of the Fund that are acquired
in exchange for shares of another Fortis Fund that were subject to a CDSC will
remain subject to the CDSC that applied to the shares of the other Fortis Fund.
Additionally, the CDSC will not be imposed at the time that Fund shares subject
to the CDSC are exchanged for shares of Fortis Money Fund or at the time such
Fortis Money Fund shares are reexchanged for shares of any Fortis Fund subject
to a CDSC; provided, however, that, in each such case, the shares acquired will
remain subject to the CDSC if redeemed within the CDSC Period.
Investors, upon notification, will provide a PRO RATA refund of any
CDSC paid in connection with a redemption of shares of any Fortis Fund having a
sales charge ("Fortis Load Fund") (by crediting such refunded CDSC to such
shareholder's account) if, within 60 days of such redemption, all or any portion
of the redemption proceeds are reinvested in shares of one or more Fortis Load
Fund. Any reinvestment within 60 days of a redemption on which the CDSC was paid
will be made without the imposition of a FESC. Such reinvestment will be subject
to the same CDSC to which such amount was subject prior to the redemption, but
the CDSC Period will run from the original investment date.
CLASS B, H, AND C SHARES
The CDSC on Class B, H, and C shares will be calculated on an amount equal to
the lesser of the net asset value of the shares at the time of purchase or their
net asset value at the time of redemption. No charge will be imposed on amounts
representing an increase in share value due to capital appreciation. In
addition, no charge will be assessed on shares derived from reinvestment of
dividends or capital gains distributions or on shares held for longer than the
applicable CDSC Period.
Upon any request for redemption of shares of any class of shares that imposes a
CDSC, it will be assumed, unless otherwise requested, that shares subject to no
CDSC will be redeemed first in the order purchased and all remaining shares that
are subject to a CDSC will be redeemed in the order purchased. With respect to
the redemption of shares subject to no CDSC where the shareholder owns more than
one class of shares, those shares with the highest Rule 12b-1 fee will be
redeemed in full prior to any redemption of shares with a lower Rule 12b-1 fee.
The CDSC does not apply to: (1) redemption of shares when a Fund exercises its
right to liquidate accounts which are less than the minimum account size; (2)
death or disability, as defined in Section 72(m)(7) of the Code (if satisfactory
evidence is provided to the Fund); (3) with respect to Class B and H shares
only, an amount that represents, on an annual (non-cumulative) basis, up to 10%
of the amount (at the time of the investment) of the shareholder's purchases;
and (4) with respect to Class B, H, and C shares, qualified plan benefit
distributions due to participant's separation from service, loans or financial
hardship (excluding IRAs, SEPs, and 403(b), 457, and Fortis KEY plans) upon a
Fund's receipt from the plan's administrator or trustee of written instructions
detailing the reason for the distribution.
As an illustration of CDSC calculations, assume that Shareholder X purchases on
Year 1/Day 1 100 shares at $10 per share. Assume further that, on Year 2/Day 1,
Shareholder X purchased an additional 100 shares at $12 per share. Finally,
assume that, on Year 3/Day 1, Shareholder X wishes to redeem shares worth
$1,300, and that the net asset value per share as of the close of business on
such day is $13. To effect Shareholder X's redemption request, 100 shares at $13
per share (totaling $1,300) would be redeemed. The CDSC would be waived in
connection with the redemption of that number of shares equal in value (at the
time of redemption) to $220 (10% of $1,000--the purchase amount of the shares
purchased by Shareholder X on Year 1/Day 1--plus 10% of $1200--the purchase
amount of the shares purchased by Shareholder X on Year 2/Day 1.) In addition,
no CDSC would apply to the $400 in capital appreciation on Shareholder X's
shares ($2,600 Year 3 value minus $2,200 purchase cost of shares).
If a shareholder exchanges shares subject to a CDSC for Class B, H, or C shares
of a different Fortis Fund, the transaction will not be subject to a CDSC.
However, when shares acquired through the exchange are redeemed, the shareholder
will be treated as if no exchange took place for the purpose of determining the
CDSC Period and applying the CDSC.
Investors, upon notification, will provide, out of its own assets, a PRO RATA
refund of any CDSC paid in connection with a redemption of Class B, H, or C
shares of any Fund (by crediting such refunded CDSC to such shareholder's
account) if, within 60 days of such redemption, all or any portion of the
redemption proceeds are reinvested in shares of the same class in any of the
Fortis Funds. Any reinvestment within 60 days of a redemption to which the CDSC
was paid will be made without the imposition of a front-end sales charge but
will be subject to the same CDSC to which such amount was subject prior to the
redemption. The CDSC Period will run from the original investment date.
SHAREHOLDER INQUIRIES
Inquiries should be directed to your broker-dealer or sales representative, or
to the Funds at the telephone number or mailing address listed on the cover of
this Prospectus. A $10 fee will be charged for copies of Annual Account
Summaries older than the preceding year.
APPENDIX
CORPORATE BOND, PREFERRED STOCK AND COMMERCIAL PAPER RATINGS
COMMERCIAL PAPER RATINGS
STANDARD & POOR'S CORPORATION. Commercial paper ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Issues assigned the A rating are
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regarded as having the greatest capacity for timely payment. Issues in this
category are further refined with designation 1, 2, and 3 to indicate the
relative degree of safety. The "A-1" designation indicates that the degree of
safety regarding timely payment is very strong.
MOODY'S INVESTORS SERVICE INC. Moody's commercial paper ratings are opinions of
the ability of the issuers to repay punctually promissory obligations not having
an original maturity in excess of nine months. Moody's makes no representation
that such obligations are exempt from registration under the Securities Act of
1933, nor does it represent that any specific note is a valid obligation of a
rated issuer or issued in conformity with any applicable law. Moody's employs
the following three designations, all judged to be investment grade, to indicate
the relative repayment capacity of rated issuers:
Prime-1 -- Superior capacity for repayment of short-term promissory obligations.
Prime-2 -- Strong capacity for repayment of short-term promissory obligations.
Prime-3 -- Acceptable capacity for repayment of short-term promissory
obligations.
CORPORATE BOND RATINGS
STANDARD & POOR'S CORPORATION. Its ratings for corporate bonds have the
following definitions:
Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity
to pay interest and repay principal is extremely strong.
Debt rated "AA" has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in a small degree.
Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in high rated categories.
Debt rated "BBB" is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated "BB," "B," "CCC," "CC," and "C" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
Debt rated "CCC" has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
The rating "CC" is typically applied to debt subordinated to senior debt that is
assigned an actual or implied "CCC" rating.
The rating "C" is typically applied to debt subordinated to senior debt which is
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The rating "C1" is reserved for income bonds on which no interest is being paid.
"NR" indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
BOND INVESTMENT QUALITY STANDARDS. Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings) are
generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states impose certain rating or other standards for
obligations eligible for investment by savings banks, trust companies, insurance
companies and fiduciaries generally.
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MOODY'S INVESTORS SERVICE, INC. Its ratings for corporate bonds include the
following:
Bonds which are rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
Bonds which are rated "A" possess many favorable attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest arc considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Bonds which are rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated "Caa" are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Bonds which are rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
PREFERRED STOCK RATING
STANDARD & POOR'S CORPORATION. Its ratings for preferred stock have the
following definitions:
An issue rated "AAA" has the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA."
An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the "A" category.
Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay preferred
stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in arrears on dividends
or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer in default on
debt instruments.
"NR" indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MOODY'S INVESTORS SERVICE, INC. Its ratings for preferred stock include the
following:
An issue which is rated "Aaa" is considered to be a top-quality preferred stock.
This rating indicates good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
An issue which is rated "Aa" is considered a high-grade preferred stock. This
rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
An issue which is rated "A" is considered to be an upper-medium grade preferred
stock. While risks are judged to be somewhat greater than in the "aaa" and "aa"
classifications, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.
An issue which is rated "Baa" is considered to be medium-grade, neither highly
protected nor poorly secured. Earnings and asset protection appear adequate at
present but may be questionable over any great length of time.
An issue which is rated "Ba" is considered to have speculative elements and its
future cannot be considered well assured. Earnings
21
<PAGE>
and asset protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred stocks in this
class.
An issue which is rated "B" generally lacks the characteristics of a desirable
investment. Assurance of dividend payments and maintenance of other terms of the
issue over any long period of time may be small.
An issue which is rated "Caa" is likely to be in arrears on dividend payments.
This rating designation does not purport to indicate the future status of
payments. An issue which is rated "Ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
An issue rated "C" is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
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FORTIS-Registered Trademark-
--------------------------------------------------------
ACCOUNT APPLICATION
Complete this application to open a new Fortis
account or to add services to an existing Fortis
account. For personal service, please call your
Mail to: investment professional or Fortis at 1-800-800-2638,
FORTIS MUTUAL FUNDS ext. 3012.
CM-9614 DO NOT USE TO OPEN A FORTIS IRA, SEP, 403(B) OR
St. Paul, MN 55170-9614 FORTIS MONEY FUND ACCOUNT.
________________________________________________________________________________
1 ACCOUNT INFORMATION
________________________________________________________________________________
Please provide the information requested below:
/ /INDIVIDUAL: Please print your name, Social Security number, U.S. citizen
status.
/ /JOINT TENANT: List all names, one Social Security number, one U.S. citizen
status.
/ /UNIFORM GIFT/TRANSFER TO MINORS: Provide name of custodian (ONLY ONE) and
minor, minor's Social Security number, minor's U.S. citizen status and date
of birth of minor.
/ /TRUST: List trustee and trust title, including trust date, trust's Taxpayer
ID number
/ /CORPORATION, ASSOCIATION, PARTNERSHIP: Include full name, Taxpayer ID number.
/ /FORTIS KEY PLAN: Include Social Security number.
/ /QUALIFIED PLAN: Include name of Plan and trustee, Plan's Taxpayer ID number.
/ / OTHER: _____________________________________________________________________
- --------------------------------------------------
Owner (Individual, 1st Joint Tenant, Custodian, Trustee) (Please print)
- ------------------------------------------------------------------------
Owner (2nd Joint Tenant, Minor, Trust Name) (Please print)
- ------------------------------------------------------------------------
Additional information, if needed
- ------------------------------------------------------------------------
Street address
- ------------------------------------------------------------------------
City State Zip
- ------------------------------------------------------------------------
Social Security number (Taxpayer ID)
( )
- --------------------------------------------------
Daytime phone Date of birth
(Uniform Gift/Transfer to Minors)
Date of Trust (if applicable) __________________________________________________
Are you a U.S. citizen? / / Yes / / No
If no, country of permanent residence __________________________________________
95749 (12/95)
________________________________________________________________________________
2 TRANSFER ON DEATH
________________________________________________________________________________
Please indicate the Primary Beneficiary with "PB" after the beneficiary(ies)
name(s). Indicate Contingent Beneficiary with "CB." Indicate Lineal Descendant
Per Stirpes with "LDPS" if you want ownership to pass to the legal heirs of the
primary beneficiary in the event a designated beneficiary dies before the
account owner.
TOD IS ONLY AVAILABLE FOR INDIVIDUAL AND JOINT TENANTS (JTWROS) ACCOUNTS.
BENEFICIARY(IES):
Name _____________________________ SS# _________________________________________
Name _____________________________ SS# _________________________________________
Name _____________________________ SS# _________________________________________
________________________________________________________________________________
3 INVESTMENT ACCOUNT
________________________________________________________________________________
A. PHONE ORDERS
Was order previously phoned in? If yes, date ___________________________________
Confirmation # ___________________________ Account # ___________________________
FOR PHONE ORDERS, CHECK MUST BE MADE PAYABLE TO FORTIS INVESTORS
B. MAIL-IN ORDERS
Check enclosed for $____________________________. (MADE PAYABLE TO FORTIS FUNDS)
MUST INDICATE CLASS
<TABLE>
<C> <S> <C> <C>
1) ---------- $ ---------- A / / B / / C / / H / /
Fund Name Amount or % Class
2) $ A / / B / / C / / H / /
---------- ----------
Fund Name Amount or % Class
3) $ A / / B / / C / / H / /
---------- ----------
Fund Name Amount or % Class
4) $ A / / B / / C / / H / /
---------- ----------
Fund Name Amount or % Class
5) $ A / / B / / C / / H / /
---------- ----------
Fund Name Amount or % Class
</TABLE>
________________________________________________________________________________
4 EXEMPTION FROM SALES CHARGE
________________________________________________________________________________
CHECK IF APPLICABLE (for net asset value purchases):
/ / I am a member of one of the categories of persons listed under "Exemptions
from Sales Charge" in the prospectus. I qualify for exemption from the sales
charge because ____________________________________________________________.
/ / I was (within the past 60 days) the owner of a fixed annuity contract not
deemed a security or a shareholder of an unrelated mutual fund with a front-
end and/or deferred sales charge. I have attached the mutual fund/insurance
check (or copy of the redemption confirmation/surrender form).
<PAGE>
________________________________________________________________________________
5 SIGNATURE & CERTIFICATION
________________________________________________________________________________
I HAVE RECEIVED AND READ EACH APPROPRIATE FUND PROSPECTUS AND UNDERSTAND THAT
ITS TERMS ARE INCORPORATED BY REFERENCE INTO THIS APPLICATION. I AM OF LEGAL AGE
AND LEGAL CAPACITY.
I understand that this application is subject to acceptance by Fortis Investors,
Inc.
I certify, under penalties of perjury, that:
(1) The Social Security number or Taxpayer ID number provided is correct; and
(cross out the following if not true)
(2) that the IRS has never notified me that I am subject to 31% backup
withholding, or has notified me that I am no longer subject to such backup
withholding.
Each person signing on behalf of any entity represents that his or her actions
are authorized. It is agreed that all Fortis Funds, Fortis Investors, Fortis
Advisers and their officers, directors, agents and employees will not be liable
for any loss, liability, damage or expense for relying upon this application or
any instruction believed genuine.
IF YOU ARE NOT SIGNING AS AN INDIVIDUAL, STATE YOUR TITLE OR CAPACITY (INCLUDE
APPROPRIATE DOCUMENTS VERIFYING YOUR CAPACITY).
AUTHORIZED SIGNATURE(S)
X
- --------------------------------------------------
Owner, Custodian, Trustee Date
X
- --------------------------------------------------
Joint Owner, Trustee Date
________________________________________________________________________________
6 DEALER/REPRESENTATIVE INFORMATION
________________________________________________________________________________
- --------------------------------------------------
Representative's name (please print)
- ------------------------------------------------------------------------
Name of Broker/Dealer
- ------------------------------------------------------------------------
Branch Office address
- ------------------------------------------------------------------------
Representative's signature
( )
- ------------------------------------------------------------------------
Representative's number Representative's Phone Number
- ------------------------------------------------------------------------
AUTHORIZED SIGNATURE OF BROKER/DEALER
________________________________________________________________________________
7 DISTRIBUTION OPTIONS
________________________________________________________________________________
If no option is selected, all distributions will be reinvested in the same
Fortis fund(s) selected above. Please note that distributions can only be
reinvested in the SAME CLASS.
/ / Reinvest dividends and capital gains
/ / Dividends in cash and reinvest capital gains (See Section 9 for payment
options.)
/ / Dividends and capital gains in cash (See Section 9 for payment options.)
/ / Distributions into another Fortis fund (must be SAME CLASS).
____________________________________________________________________________
Fund Name Fund/Account # (if existing account)
________________________________________________________________________________
8 SYSTEMATIC EXCHANGE PROGRAM
________________________________________________________________________________
Fortis' Systematic Transfer Program allows you to transfer money from any Fortis
fund, in which you have a current balance of at least $1,000, into any other
Fortis fund (maximum of three), on a monthly basis. The minimum amount for each
transfer is $50. Generally, transfers between funds must be within the SAME
CLASS. See prospectus for details.
- ------------------------------------------------------------------------
Fund from which shares will be exchanged: Effective Date
FUND(S) TO RECEIVE INVESTMENT(S):
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Fund Amount to invest monthly
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
________________________________________________________________________________
9 WITHDRAWAL OPTIONS
________________________________________________________________________________
A. CASH DIVIDENDS
PLEASE SEND THE PAYMENT TO:
/ / My bank. (Please complete Bank Information in Section D next page.)
/ / My address of record.
B. SYSTEMATIC WITHDRAWAL PLAN
Please consult your financial or tax adviser before electing a Systematic
Withdrawal Plan.
Please redeem shares from my Fortis ______________________________________ Fund,
account number _______________________ in the amount of $______________________.
Effective Payment Date ____________________________ ___________________________
Month Day
<TABLE>
<S> <C> <C> <C>
FREQUENCY: / / Monthly DATE: / / Semi-Annually
/ / Quarterly / / Annually
</TABLE>
PLEASE SEND THE PAYMENT TO:
/ / My bank. (Please complete Bank Information in Section D next page.)
/ / My address of record. (If bank option is not chosen, check will be processed
on the 15th of every month.)
C. TELEPHONE OPTIONS
/ / TELEPHONE EXCHANGE. All exchanges must be into accounts having the identical
registration-ownership. All authorized signatures listed in Section 5 (or
your registered representative with shareholder consent) can make telephone
transfers.
/ / TELEPHONE REDEMPTION ($25,000 LIMIT AND NOT AVAILABLE FOR QUALIFIED PLANS)
If you have not changed your address in the past 60 days, you are eligible
for this service. This option allows all authorized signatures in Section 5
(or your registered representative with shareholder consent) to redeem up to
$25,000 from your Fortis account.
PLEASE SEND THE PAYMENT TO:
/ / My bank. (Please complete Bank Information in Section D next page.)
/ / My address of record.
<PAGE>
(WITHDRAWAL OPTIONS, CONTINUED)
D. BANK INFORMATION
I request Fortis Financial Group (FFG) to pay sums due me by crediting my bank
account in the form of electronic entries. This authorization will remain in
effect until I notify FFG.
TYPE OF ACCOUNT: / / Checking / / Savings
Bank name ______________________________________________________________________
Address ________________________________________________________________________
City, State, Zip _______________________________________________________________
Name of bank account ___________________________________________________________
Bank account number ____________________________________________________________
Bank transit number ____________________________________________________________
Bank phone number ______________________________________________________________
ATTACH A VOIDED CHECK FROM YOUR BANK CHECKING ACCOUNT
________________________________________________________________________________
10 REDUCED FRONT-END SALES CHARGES
________________________________________________________________________________
A. RIGHT OF ACCUMULATION
/ / I own shares of more than one fund in the Fortis Family of Funds, which may
entitle me to a reduced sales charge.
- --------------------------------------------------------------------------------
Name on account Account number
- --------------------------------------------------------------------------------
Name on account Account number
- --------------------------------------------------------------------------------
Name on account Account number
B. STATEMENT OF INTENT
I agree to invest $________ over a 13-month period beginning __________, 19__
(not more than 90 days prior to this application). I understand that an
additional sales charge must be paid if I do not complete my purchase.
________________________________________________________________________________
11 PRIVILEGED ACCOUNT SERVICE
________________________________________________________________________________
Fortis' Privileged Account Service systematically rebalances your funds back to
your original specifications ($10,000 minimum per account). All funds must be
within the SAME CLASS. START DATE:__________________________
Frequency: / / quarterly / / semi-annually / / annually
<TABLE>
<S> <C> <C>
Fund Selected Percentage
(up to 5) (whole %)
1) ------------------------- ---------------
2) ------------------------- ---------------
3) ------------------------- ---------------
4) ------------------------- ---------------
5) ------------------------- ---------------
</TABLE>
________________________________________________________________________________
12 SUITABILITY
________________________________________________________________________________
NOTE: Must be completed with each fund application unless you provide
suitability information to your broker/dealer on a different form.
State In Which Application Was Signed ____________________________________
- --------------------------------------------------------------------------------
Employer
- --------------------------------------------------------------------------------
Business Address
- --------------------------------------------------------------------------------
City, state, ZIP
- --------------------------------------------------------------------------------
Occupation Age (optional)
Is customer associated with or employed by another
NASD member? / / Yes / / No
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Please mark one box under ESTIMATED
ESTIMATED ANNUAL INCOME ESTIMATED NET
and one box under ANNUAL WORTH
ESTIMATED NET WORTH INCOME (Exclusive of
(All Sources) Family Residence)
- --------------------------------------------------------------------------------
under $10,000
- --------------------------------------------------------------------------------
$10,000 - $25,000
- --------------------------------------------------------------------------------
$25,000 - $50,000
- --------------------------------------------------------------------------------
$50,000 - $100,000
- --------------------------------------------------------------------------------
$100,000 - $500,000
- --------------------------------------------------------------------------------
$500,000 - $1,000,000
- --------------------------------------------------------------------------------
Over $1,000,000
- --------------------------------------------------------------------------------
Declined
- --------------------------------------------------------------------------------
</TABLE>
Source of Funds
- --------------------------------------------------------------------------------
ESTIMATED FEDERAL TAX BRACKET
/ / 15% / / 28% / / 31% / / 36% / / 39.6% / / Declined
INVESTMENT OBJECTIVES
/ / Growth (long-term capital appreciation)
/ / Income (cash generating)
/ / Tax-free Income
/ / Diversification
/ / Other (please specify) _________________________________________
Did you use a Fortis Asset Allocation model? / / Yes / / No
________________________________________________________________________________
13 SYSTEMATIC INVESTMENT PLAN
________________________________________________________________________________
Complete the Automated Clearing House (ACH) Authorization Agreement Form in the
prospectus and attach a VOIDED check from your bank checking account. These
plans may be established for as little as $25.
________________________________________________________________________________
14 OTHER SPECIAL INSTRUCTIONS
________________________________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORTIS-Registered Trademark-
FORTIS MUTUAL FUND Mail to:
AUTOMATED CLEARING HOUSE (ACH) FORTIS MUTUAL FUNDS
AUTHORIZATION AGREEMENT P.O. Box 64284
St. Paul, MN 55164
Please complete each section below to establish ACH capability to your Fortis
Mutual Fund Account. For personal service, please call your investment
professional or Fortis at (800) 800-2638, Ext. 3012.
________________________________________________________________________________
1 FORTIS ACCOUNT INFORMATION
________________________________________________________________________________
Account Registration:
________________________________________________________________________________
Owner (Individual, 1st Joint Tenant, Custodian, Trustee)
________________________________________________________________________________
Owner (2nd Joint Tenant, Minor, Trust Name)
________________________________________________________________________________
Additional Information, if needed
________________________________________________________________________________
Street address
________________________________________________________________________________
City State Zip
________________________________________________________________________________
Social Security number (Taxpayer I.D.)
Account # ______________________________________________________________________
Fund: Class:
1)
Fund Name / / A / / B / / C / / H
2)
Fund Name / / A / / B / / C / / H
3)
Fund Name / / A / / B / / C / / H
4)
Fund Name / / A / / B / / C / / H
5)
Fund Name / / A / / B / / C / / H
________________________________________________________________________________
2 BANK/FINANCIAL INSTITUTION INFORMATION
________________________________________________________________________________
PLAN TYPE: / / New Plan / / Bank Change
ACCOUNT TYPE: / / Checking / / Savings
(must attach a (must attach a
voided check) deposit slip)
________________________________________________________________________________
Transit Number
________________________________________________________________________________
Bank Account Number
________________________________________________________________________________
Account Owner (if other than name of Depositor)
________________________________________________________________________________
Depositor's Daytime Phone Number
CLEARLY PRINT THE BANK/FINANCIAL INSTITUTION'S NAME AND ADDRESS BELOW:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature of Depositor Date
________________________________________________________________________________
Signature of Joint-Depositor Date
<PAGE>
________________________________________________________________________________
3 SELECT OPTION
________________________________________________________________________________
I. INVESTMENT OPTION(S)
A. / / Invest via FORTIS INFORMATION LINE by
phone (minimum $25, maximum $10,000)
Please allow up to four business days for deposit
into Fortis Funds. Transactions after 3:00 p.m.
(CST) will be processed the following business
day.
*Not available on tax qualified accounts such as
IRA, SEP, SARSEP and Key plans.
B. / / Systematic Investment Plan
/ / New Plan
/ / Change Plan
I request Fortis Financial Group (FFG) to obtain payment of
sums becoming due the company by charging my account in the
form of electronic debit entries. I request and authorize the
financial institution named to accept, honor and charge those
entries to my account. Please allow 30 days for collected
funds to be available in your Fortis account.
Draft Date (1-26 only): ----------------------------
Amount per Fund (Min. $25): ----------------------
Beginning Draft Month: ----------------------------
II. WITHDRAWAL OPTION(S)
(Please consult your financial or tax adviser before electing
a systematic withdrawal plan. For tax qualified accounts,
additional forms are required for distribution.)
A. / / Cash Dividends
B. / / Redeem via FORTIS INFORMATION LINE by
phone (minimum $100, maximum $25,000)
Please allow up to four business days for
withdrawal to credit your bank account.
Transactions after 3:00 p.m. (CST) will be
processed the following business day.
*Not available on tax qualified accounts such as
IRA, SEP, SARSEP and Key plans.
C. / / Systematic Withdrawal Plan
/ / New Plan
/ / Change Plan
I request Fortis Financial Group (FFG) to pay sums due me by
crediting my bank account in the form of electronic entries.
I request and authorize the financial institution to accept,
honor and credit those entries to my account.
Withdrawal Date (1-26 only): -----------------------
Amount per Fund (Min. $25): ----------------------
Beginning Withdrawal Month: ----------------------
________________________________________________________________________________
4 SIGNATURES
________________________________________________________________________________
Each person signing on behalf of any entity represents that his or her actions
are authorized. It is agreed that all Fortis Funds, Fortis Investors, Fortis
Advisers and their officers, directors, agents and employees will not be liable
for any loss, liability, damage or expense for relying upon this application or
any instruction believed genuine.
This authorization will remain in effect until I notify FFG. I hereby terminate
any prior Authorization of FFG to initiate charges to this account. I understand
that any returned item or redemption of the entire account may result in
termination of my Automated Clearing House agreement. This authorization will
become effective upon acceptance by FFG at its home office.
Authorized Signature(s)
X ______________________________________________________________________________
Owner, Custodian, Trustee Date
X ______________________________________________________________________________
Joint Owner, Trustee Date
FORTIS-Registered Trademark-
FORTIS FINANCIAL GROUP
Fortis Advisers, Inc. (fund management since 1949)
Fortis Investors, Inc. (principal underwriter; (member SIPC)
P.O. Box 64284
St. Paul, MN 55164
(800) 800-2638
Attach additional information if more space is needed.
98049 (7/95)
<PAGE>
PROSPECTUS
MARCH 1, 1996
FORTIS U.S. GOVERNMENT SECURITIES FUND
FORTIS HIGH YIELD PORTFOLIO
98301 (REV. 3/96)
FORTIS-Registered Trademark-
FORTIS FINANCIAL GROUP
P.O. BOX 64284
ST. PAUL, MN 55164
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 3794
MINNEAPOLIS, MN
<PAGE>
FORTIS U.S. GOVERNMENT SECURITIES FUND
FORTIS HIGH YIELD PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 1, 1996
Fortis U.S. Government Securities Fund (the "Fund") is a portfolio of
Fortis Income Portfolios, Inc. ("Fortis Income"). Fortis High Yield Portfolio is
a portfolio of Fortis Advantage Portfolios, Inc. ("Fortis Advantage"). The U.S.
Government Securities Fund and the High Yield Portfolio are collectively
referred to as the "Funds". This Statement of Additional Information is NOT a
prospectus, but should be read in conjunction with the Funds Prospectus dated
March 1, 1996. A copy of that prospectus may be obtained from your broker-dealer
or sales representative. The address of Fortis Investors, Inc. ("Investors") is
P.O. Box 64284, St. Paul, Minnesota 55164. Telephone: (612) 738-4000. Toll Free
1-(800) 800-2638.
No broker-dealer, sales representative, or other person has been authorized
to give any information or to make any representations other than those
contained in this Statement of Additional Information, and if given or made,
such information or representations must not be relied upon as having been
authorized by the Funds or Investors. This Statement of Additional Information
does not constitute an offer or solicitation by anyone in any state in which
such offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation.
29
<PAGE>
TABLE OF CONTENTS
PAGE
ORGANIZATION AND CLASSIFICATION . . . . . . . . . . . . . . . . . . . 31
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . 31
- U.S. Government Securities Fund . . . . . . . . . . . . . . 31
- High Yield Portfolio . . . . . . . . . . . . . . . . . . . . 33
- Investment Practices Common to Both Funds . . . . . . . . . 40
DIRECTORS AND EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . 42
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . 46
- General. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
- Control and Management of Advisers and Investors . . . . . 47
- Investment Advisory and Management Agreement . . . . . . . 49
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE . . . . . . . . . . 51
CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
COMPUTATION OF NET ASSET VALUE AND PRICING . . . . . . . . . . . . . . 54
SPECIAL PURCHASE PLANS . . . . . . . . . . . . . . . . . . . . . . . . 54
- Statement of Intention . . . . . . . . . . . . . . . . . . . 54
- Tax Sheltered Retirement Plans . . . . . . . . . . . . . . . 56
- Gifts or Transfers to Minor Children . . . . . . . . . . . . 57
- Systematic Investment Plan . . . . . . . . . . . . . . . . . 57
- Exchange Privilege . . . . . . . . . . . . . . . . . . . . . 57
- Reinvested Dividend/Capital Gains Distributions between
Fortis Funds . . . . . . . . . . . . . . . . . . . . . . . 57
- Purchases by Fortis Income Directors or Officers . . . . . 57
- Purchases by Fortis, Inc. (or its Subsidiaries) or
Associated Persons . . . . . . . . . . . . . . . . . . . . 58
- Purchases by Representatives or Employees of Broker-Dealers. 58
- Purchases by Certain Retirement Plans . . . . . . . . . . . 58
- Purchases with Proceeds from Redemption of Unrelated
Mutual Fund Shares or Surrender of Certain Fixed
Annuity Contracts . . . . . . . . . . . . . . . . . . . . . 58
- Purchases by Employees of Certain Banks and Other
Financial Services Firms. . . . . . . . . . . . . . . . . . 58
- Purchases by Commercial Banks Offering
Self-Directed 401(k) Programs Containing both Pooled and
Individual Investment Options . . . . . . . . . . . . . . . 58
- Purchases by Investment Advisers, Trust Companies, and
Bank Trust Departments Exercising Discretionary Investment
Authority or Using a Money Management/Mutual Fund "Wrap"
Program . . . . . . . . . . . . . . . . . . . . . . . . . . 58
- Purchases by Certain Persons Associated with the
Pathfinder Fund . . . . . . . . . . . . . . . . . . . . . . 58
- Purchases by Certain Carnegie Intermediate Government
Series (of Carnegie Government Securities Trust) Accounts . 58
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
- Systematic Withdrawal Plan . . . . . . . . . . . . . . . . . 59
- Reinvestment Privilege . . . . . . . . . . . . . . . . . . . 59
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
UNDERWRITER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . 61
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 63
CUSTODIAN; COUNSEL; ACCOUNTANTS . . . . . . . . . . . . . . . . . . . 77
LIMITATION OF DIRECTOR LIABILITY . . . . . . . . . . . . . . . . . . . 77
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 77
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
30
<PAGE>
ORGANIZATION AND CLASSIFICATION
Fortis Income was originally organized as a "non-series" investment
company. On January 31, 1992, the Fund was reorganized as a "series" fund and
its name was changed from AMEV U.S. Government Securities Fund, Inc. to Fortis
Income Portfolios, Inc. ("Fortis Income"). The U.S. Government Securities Fund
became a portfolio of Fortis Income. Fortis Advantage is made up of three
separate portfolios (the "Portfolios"): Capital Appreciation Portfolio, High
Yield Portfolio and Asset Allocation Portfolio. Fortis Income and Fortis
Advantage may establish other portfolios, each corresponding to a distinct
investment portfolio and a distinct series of their common stock.
An investment company is an arrangement by which a number of persons invest
in a company that in turn invests in securities of other companies. The Funds
operate as "open-end" investment companies because they generally must redeem an
investor's shares upon request. The Funds operate as "diversified" investment
companies because they offer investors an opportunity to minimize the risk
inherent in all investments in securities by spreading their investment over a
number of companies in various industries. However, diversification cannot
eliminate such risks.
INVESTMENT OBJECTIVES AND POLICIES
Each Fund will operate as a "diversified" investment company as defined
under the Investment Company Act of 1940 (the "1940 Act"), which means that it
must meet the following requirements:
At least 75% of the value of its total assets will be
represented by cash and cash items (including receivables), Government
securities, securities of other investment companies, and other
securities for the purposes of this calculation limited in respect of
any one issuer to an amount not greater in value than 5% of the value
of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of such issuer.
U.S. GOVERNMENT SECURITIES FUND
The investment objective of the U.S. Government Securities 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.
INVESTMENT RESTRICTIONS
The following investment restrictions are deemed fundamental policies. They
may be changed only by the vote of a "majority" of the Fund's outstanding
shares, which as used in this Statement of Additional Information, means the
lesser of (i) 67% of the Fund's outstanding shares present at a meeting of the
holders if more than 50% of the outstanding shares are present in person or by
proxy or (ii) more than 50% of the Fund's outstanding shares.
The Fund will not:
(1) Issue any senior securities (as defined in the Investment Company Act
of 1940, as amended).
(2) Borrow money, except from banks for temporary or emergency purposes in
an amount not exceeding 5% of the value of its total assets.
(3) Mortgage, pledge, or hypothecate its assets, except in an amount not
exceeding 10% of the value of its total assets to secure temporary or emergency
borrowing. In order to comply with certain state statutes or investment
restrictions, the Fund will not, as a matter of operating policy, pledge,
mortgage, or hypothecate its portfolio securities to the extent that at any time
the percentage of pledged securities plus the sales load will exceed 10% of the
offering price of the Fund's shares.
(4) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to be an
underwriter under applicable laws.
(5) Purchase or sell real estate.
31
<PAGE>
(6) Purchase or sell commodities or commodity contracts.
(7) Invest 25% or more of the value of its total assets in the securities
of issuers conducting their principal business activities in the same industry,
provided that this limitation does not apply to securities issued, guaranteed,
insured, or collateralized by the United States Government or its agencies or
instrumentalities.
(8) Purchase or retain the securities of any issuer, if, to the Fund's
knowledge, those officers or directors of the Fund or of its investment adviser
who individually own beneficially more than 5% of the outstanding securities of
such issuer, together owned beneficially more than 5% of such outstanding
securities.
(9) Make loans to other persons except for the entering into of repurchase
agreements and except that the Fund may lend its portfolio securities if such
loans are secured by collateral equal to at least the market value of the
securities lent, provided that such collateral shall be limited to cash,
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit or other high-grade, short-term
obligations or interest-bearing cash equivalents, and provided further that such
loans may not be made if as a result the aggregate of such loans would exceed
fifty percent of the value of the Fund's total assets [excluding collateral
securing such loans] taken at current value. The purchase of a portion of an
issue of publicly distributed bonds, debentures, or other debt securities will
not be considered the making of a loan. Fund assets may be invested in
repurchase agreements in connection with interest bearing debt securities which
may otherwise be purchased by the Fund, provided that the Fund will not enter
into repurchase agreements if, as a result thereof, more than 10% of the Fund's
total assets valued at the time of the transaction would be subject to
repurchase agreements maturing in more than seven days.
(10) Purchase securities on margin, except that it may obtain such
short-term credits as may be necessary for the clearance of purchases or sales
of securities.
(11) Participate on a joint or a joint and several basis in any securities
trading account.
(12) Invest in puts, calls, or combinations thereof.
(13) Make short sales, except for sales "against the box." While a short
sale is made by selling a security the Fund does not own, a short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain securities identical to those sold short at no added cost.
(14) Purchase from or sell to any officer, director, or employee of the
Fund, or its adviser or underwriter, or any of their officers or directors, any
securities other than shares of the Fund's common stock.
The following investment restrictions may be changed without shareholder
approval.
The Fund will not:
(1) Invest more than 5% of the value of its total assets in securities of
other investment companies, except in connection with a merger, consolidation,
acquisition or reorganization. (Although the Fund indirectly absorbs its prorata
share of the other investment companies' expenses through the yield received on
these securities, management believes the yield and liquidity features of these
securities to, at times, be more beneficial to the Fund than other types of
short-term securities and that the indirect absorption of these expenses has a
de minimis effect on the Fund's return.)
(2) Invest more than 15% of its net assets in illiquid securities.
(3) Invest, with respect to collateral obtained in lending portfolio
securities, more than 35% of its total assets in short-term (one year or less)
high-grade securities.
(4) Invest more than 5% of the Fund's net assets in IOs, POs, inverse
floaters, and accrual bonds at any one time, and no more than 10% of the net
assets of the Fund will be invested in all such obligations at any one time.
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(5) Invest more than 20% of the Fund's net assets in when-issued, delayed
delivery or forward commitment transactions without the intention of actually
acquiring securities (i.e., dollar rolls).
Pursuant to requirements of the Texas Securities Board, the Fund will not
invest in oil, gas, and other mineral leases, nor more than 5% of its net
assets, valued at the lower of cost or market, in warrants; nor, within such
amount, invest more than 2% of such net assets in warrants not listed on the New
York Stock Exchange or American Stock Exchange. Warrants attached to securities
or acquired in units are excepted from the above limitations.
MORTGAGE-BACKED SECURITIES
Consistent with the Fund's investment objective and policies set forth in
the Prospectus, and the investment restrictions set forth below, the Fund may
invest in certain types of mortgage-backed securities. One type of
mortgage-backed security includes certificates which represent pools of mortgage
loans assembled for sale to investors by various governmental organizations.
These securities provide a monthly payment which consists of both interest and
principal payment, which are in effect a "pass-through" of the monthly payments
made by individual borrowers on their residential mortgage loans, net of any
fees paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs which may
be incurred. Some certificates (such as those issued by the Government National
Mortgage Association) are described as "modified pass-through." These securities
entitle the holder to receive all interest and principal payments owed on the
mortgage pool, net of certain fees, regardless of whether the mortgagor actually
makes the payment.
A major governmental guarantor of pass-through certificates is the
Government National Mortgage Association ("GNMA"). GNMA is authorized to
guarantee, with the full faith and credit of the United States Government, the
timely payments of principal and interest on securities issued by institutions
approved by GNMA (such as savings and loan institutions, commercial banks and
mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages.
Other governmental (but not backed by the full faith and credit of the
United States Government) guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA purchases residential mortgages from a list of approved seller/servicers
which include state and Federally-chartered savings and loan associations,
mutual savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States Government. FHLMC issues Participation Certificates ("PCs")
which represent interests in mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal
but PCs are not backed by the full faith and credit of the United States
Government.
If mortgage interest rates decrease, the value of the Fund's securities
generally will increase, however it is anticipated that the average life of the
mortgages in the pool will decrease-as borrowers refinance and prepay mortgages
in order to take advantage of lower rates. The proceeds to the Fund from such
prepayments will have to be invested at the then prevailing lower interest
rates. On the other hand, if interest rates increase, the value of the Fund's
securities generally will decrease, while it is anticipated that borrowers will
not refinance and therefore the average life of the mortgages in the pool will
be longer.
HIGH YIELD PORTFOLIO
INVESTMENT OBJECTIVE
The investment objective of High Yield Portfolio is maximum current income by
investing primarily in high-yielding, fixed-income securities which, in the
opinion of the Portfolio's investment adviser, do not subject High Yield
Portfolio to unreasonable investment risk. The Portfolio invests primarily in
high-yield, high-risk securities and therefore may not be suitable for all
investors.
INVESTMENT RESTRICTIONS
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Certain investment restrictions are fundamental to the operation of the
Portfolio and may not be changed except with the approval of the holders of a
majority of the outstanding shares of the Portfolio. For this purpose, "majority
of the outstanding voting securities" means the lesser of (i) 67% of the
outstanding shares of the Portfolio present at the meeting of shareholders if
more than 50% of the outstanding shares of the Portfolio are present in person
or by proxy, or (ii) more than 50% of the outstanding shares of the Portfolio.
As a result of these fundamental investment restrictions, except as set
forth below, the Portfolio will not:
1. Purchase securities on margin or otherwise borrow money or issue
senior securities, except that the Portfolio, in accordance with its investment
objectives and policies, may purchase securities on a when-issued and delayed
delivery basis, within the limitations set forth in the Prospectus and Statement
of Additional Information. The Portfolio may also obtain such short-term credit
as it needs for the clearance of securities transactions, and may borrow from a
bank, for the account of the Portfolio, as a temporary measure to facilitate
redemptions (but not for leveraging or investment) an amount that does not
exceed 10% of the value of the Portfolio's total assets. Investment securities
will not be purchased for the Portfolio while outstanding bank borrowings exceed
5% of the value of the Portfolio's total assets.
2. Mortgage, pledge or hypothecate its assets, except in an amount not
exceeding 10% of the value of its total assets to secure temporary or emergency
borrowing.
3. Invest in commodities or commodity contracts, other than for hedging
purposes only.
4. Act as an underwriter of securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, Fortis
Advantage may be deemed an underwriter under applicable laws.
5. Participate on a joint or a joint and several basis in any securities
trading account.
6. Invest in real estate, except the Portfolio may invest in securities
issued by companies owning real estate or interests therein.
7. Make loans to other persons. Repurchase agreements, the lending of
securities and the acquiring of debt securities in accordance with the
Prospectus and Statement of Additional Information are not considered to be
"loans" for this purpose.
8. Concentrate its investments in any particular industry, except that
(i) it may invest up to 25% of the value of its total assets in any particular
industry, and (ii) there is no limitation with respect to investments in
obligations issued or guaranteed by the United States Government or its agencies
and instrumentalities, or obligations of domestic commercial banks. As to
utility companies, gas, electric, water and telephone companies will be
considered as separate industries. As to finance companies, the following
categories will be considered as separate industries: (a) captive automobile
finance, such as General Motors Acceptance Corp. and Ford Motor Credit Corp.;
(b) captive equipment finance companies, such as Honeywell Finance Corporation
and General Electric Credit Corp.; (c) captive retail finance companies, such as
Macy Credit Corp. and Sears Roebuck Acceptance Corp.; (d) consumer loan
companies, such as Beneficial Finance Corporation and Household Finance
Corporation; (e) diversified finance companies such as CIT Financial Corp.,
Commercial Credit Corporation and Borg Warner Acceptance Corp.; and (f) captive
oil finance companies, such as Shell Credit, Inc., Mobil Oil Credit Corp. and
Texaco Financial Services, Inc.
9. Purchase from or sell to any officer, director, or employee of Fortis
Advantage, or its adviser or underwriter, or any of their officers or directors,
any securities other than shares of Fortis Advantage's common stock.
10. Make short sales, except for sales "against the box." While a short
sale is made by selling a security the Portfolio does not own, a short sale is
"against the box" to the extent that the Portfolio contemporaneously owns or has
the right to obtain securities identical to those sold short at no added cost.
The following investment restrictions may be changed by the Board of
Directors of Fortis Advantage (the "Board of Directors") without shareholder
approval. The Portfolio, unless otherwise noted, will not:
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1. Invest more than 5% of the value of its total assets in securities of
other investment companies, except in connection with a merger, consolidation,
acquisition or reorganization. (Due to restrictions imposed by the California
Department of Corporations, the Portfolio does not currently invest in other
investment companies.)
2. Invest in a company for the purposes of exercising control or
management.
3. Buy or sell foreign exchange, except as incidental to the purchase or
sale of permissible foreign investments.
4. Invest in interests (including partnership interests or leases) in
oil, gas, or other mineral exploration or development programs, except it may
purchase or sell securities issued by corporations engaging in oil, gas, or
other mineral exploration or development business.
5. Purchase or retain the securities of any issuer if those officers and
directors of Fortis Advantage or its investment adviser owning (including
beneficial ownership) individually more than 1/2 of 1% of the securities of such
issuer together own (including beneficial ownership) more than 5% of the
securities of such issuer.
6. Invest more than 5% of its total assets in companies which have been
in business for less than three years (except that a company will be deemed to
have been in business for more than three years if such company is the
subsidiary of another company which has been in business for more than three
years).
7. Invest more than 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and Exchange
Commission rules and interpretations. (Securities that have been determined to
be liquid by the Board of Directors of Fortis Advantage or Advisers subject to
the oversight of such Board of Directors will not be subject to this
limitation.)
8. Invest more than 5% of its total assets in warrants, nor invest more
than 2% of its total assets in warrants not traded on the New York Stock
Exchange or the American Stock Exchange.
9. Invest in real estate limited partnership interests.
10. Invest more than 20% of its net assets in when-issued, delayed
delivery or forward commitment transactions, and of such 20%, no more than
one-half (I.E., 10% of its net assets) may be invested in when-issued, delayed
delivery or forward commitment transactions without the intention of actually
acquiring securities (I.E., dollar rolls).
MORTGAGE-RELATED SECURITIES
Consistent with the investment objectives and policies of High Yield
Portfolio, as set forth in the Prospectus, and the investment restrictions set
forth below, the Portfolio may invest in certain types of mortgage-related
securities. One type of mortgage-related security includes certificates which
represent pools of mortgage loans assembled for sale to investors by various
governmental and private organizations. These securities provide a monthly
payment, which consists of both an interest and a principal payment, which is in
effect a "pass-through" of the monthly payment made by each individual borrower
on his or her residential mortgage loan, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying residential property,
refinancing, or foreclosure, net of fees or costs which may be incurred. Some
certificates (such as those issued by the Government National Mortgage
Association) are described as "modified pass-through." These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, regardless of whether the mortgagor actually makes
the payment.
A major governmental guarantor of pass-through certificates is the
Government National Mortgage Association ("GNMA"). GNMA guarantees, with the
full faith and credit of the United States government, the timely payments of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks, and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages. Other
governmental guarantors (but not backed by the full faith and credit of the
United States Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA
purchases residential mortgages from a list of approved seller/servicers
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which include state and federally chartered savings and loan associations,
mutual savings banks, commercial banks, credit unions, and mortgage bankers.
(i) GNMA CERTIFICATES. Certificates of the GNMA ("GNMA Certificates")
evidence an undivided interest in a pool of mortgage loans. GNMA
Certificates differ from bonds in that principal is paid back monthly as
payments of principal, including prepayments, on the mortgages in the
underlying pool are passed through to holders of the GNMA Certificates
representing interests in the pool, rather than returned in a lump sum at
maturity.
(ii) GNMA GUARANTEE. The National Housing Act authorizes GNMA to
guarantee the timely payment of principal and interest on securities backed
by a pool of mortgages insured by the Federal Housing Administration
("FHA") or the Farmers' Home Administration ("FmHA"), or guaranteed by the
Veterans Administration ("VA"). GNMA is also empowered to borrow without
limitation from the U.S. Treasury, if necessary, to make any payments
required under its guarantee.
(iii) LIFE OF GNMA CERTIFICATES. The average life of a GNMA
Certificate is likely to be substantially less than the stated maturity of
the mortgages underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures will usually result in the return of
the greater part of principal investment long before the maturity of the
mortgages in the pool. Foreclosures impose no risk of loss of the principal
balance of a Certificate, because of the GNMA guarantee, but foreclosure
may impact the yield to shareholders because of the need to reinvest
proceeds of foreclosure.
As prepayment rates of individual mortgage pools vary widely, it is
not possible to predict accurately the average life of a particular issue
of GNMA Certificates. However, statistics published by the FHA indicate
that the average life of single family dwelling mortgages with 25 to 30-
year maturities, the type of mortgages backing the vast majority of GNMA
Certificates, is approximately 12 years. Prepayments are likely to increase
in periods of falling interest rates. It is customary to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in
the twelfth year.
(iv) YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of
interest of GNMA Certificates is lower than the interest rate paid on the
VA-guaranteed or FHA-insured mortgages underlying the certificates, by the
amount of the fees paid to GNMA and the issuer.
The coupon rate by itself, however, does not indicate the yield which
will be earned on GNMA Certificates. First, GNMA Certificates may be issued
at a premium or discount, rather than at par, and, after issuance, GNMA
Certificates may trade in the secondary market at a premium or discount.
Second, interest is earned monthly, rather than semi-annually as with
traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying it. For example, if
interest rates decline, prepayments may occur faster than had been
originally projected and the yield to maturity and the investment income of
the High Yield Portfolio would be reduced.
(v) FHLMC SECURITIES. "FHLMC" is a federally chartered corporation
created in 1970 through enactment of Title III of the Emergency Home
Finance Act of 1970. Its purpose is to promote development of a nationwide
secondary market in conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities,
mortgage participation certificates ("PCs") and guaranteed mortgage
certificates ("GMCs"). PCs resemble GNMA Certificates in that each PC
represents a pro rata share of all interest and principal payments made or
owed on the underlying pool. The FHLMC guarantees timely payment of
interest on PCs and the ultimate payment of principal. Like GNMA
Certificates, PCs are assumed to be prepaid fully in their twelfth year.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal
once a year in guaranteed minimum payments. The expected average life of
these securities is approximately ten years.
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(vi) FNMA SECURITIES. "FNMA" is a federally chartered and privately
owned corporation which was established in 1938 to create a secondary
market in mortgages insured by the FHA. It was originally established as a
government agency and was transformed into a private corporation in 1968.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all interest and principal
payments made or owed on the underlying pool. FNMA guarantees timely
payment of interest on FNMA certificates and the full return of principal.
Like GNMA Certificates, FNMA Certificates are assumed to be prepaid fully
in their twelfth year.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the pass-through certificates. Pools created by such
non-governmental issuers generally offer a higher rate of interest than
governmental pools because there are no direct or indirect governmental
guarantees of payments in the former pools. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool, and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers,
and the mortgage poolers.
Fortis Advantage expects that governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. As new types of pass-through securities are developed and
offered to investors, Advisers may, consistent with High Yield Portfolio's
investment objectives, policies, and restrictions, consider making investments
in such new types of securities.
Other types of mortgage-related securities include debt securities which
are secured, directly or indirectly, by mortgages on commercial real estate or
residential rental properties, or by first liens on residential manufactured
homes (as defined in section 603(6) of the National Manufactured Housing
Construction and Safety Standards Act of 1974), whether such manufactured homes
are considered real or personal property under the laws of the states in which
they are located.
Securities in this investment category include, among others, standard
mortgage-backed bonds and newer collateralized mortgage obligations (CMO's).
Mortgage-backed bonds are secured by pools of mortgages, but, unlike
pass-through securities, payments to bondholders are not determined by payments
on the mortgages. The bonds consist of a single class, with interest payable
periodically and principal payable on the stated date of maturity. CMO's have
characteristics of both pass-through securities and mortgage-backed bonds. CMO's
are secured by pools of mortgages, typically in the form of "guaranteed"
pass-through certificates such as GNMA, FNMA, or FHLMC securities. The payments
on the collateral securities determine the payments to the bondholders, but
there is not a direct "pass-through" of payments. CMO's are structured into
multiple classes, each bearing a different date of maturity. Monthly payments of
principal received from the pool of underlying mortgages, including prepayments,
is first returned to investors holding the shortest maturity class. Investors
holding the longest maturity classes receive principal only after the shorter
maturity classes have been retired.
CMO's are issued by entities that operate under orders from the Securities
and Exchange Commission (the SEC) exempting such issuers from the provisions of
the Investment Company Act of 1940 (the 1940 Act). Until recently, the staff of
the SEC had taken the position that such issuers were investment companies and
that, accordingly, an investment by an investment company (such as the
Portfolios) in the securities of such issuers was subject to limitations imposed
by Section 12 of the 1940 Act. However, in reliance on a recent SEC staff
interpretation, the Portfolios may invest in securities issued by certain
"exempted issuers" without regard to the limitations of Section 12 of the 1940
Act. In its interpretation, the SEC staff defined "exempted issuers" as
unmanaged, fixed asset issuers that (a) invest primarily in mortgage-backed
securities, (b) do not issue redeemable securities as defined in
Section 2(a)(32) of the 1940 Act, (c) operate under general exemptive orders
exempting them from "all provisions of the [1940] Act" and (d) are not
registered or regulated under the 1940 Act as investment companies.
Investments in mortgage-related securities involve certain risks. In
periods of declining interest rates, prices of fixed income securities tend to
rise. However, during such periods, the rate of prepayment of mortgages
underlying mortgage-related securities tends to increase, with the result that
such prepayments must be reinvested by the issuer at lower rates. In addition,
the value of such securities may fluctuate in response to the market's
perception of the creditworthiness of the issuers of mortgage-related securities
owned by High Yield Portfolio. Because investments in mortgage-related
securities are interest sensitive, the ability of the issuer to
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reinvest favorably in underlying mortgages may be limited by government
regulation or tax policy. For example, action by the Board of Governors of the
Federal Reserve System to limit the growth of the nation's money supply may
cause interest rates to rise and thereby reduce the volume of new
residential mortgages. Additionally, although mortgages and mortgage-related
securities are generally supported by some form of government or private
guarantees and/or insurance, there is no assurance that private guarantors or
insurers will be able to meet their obligations.
FOREIGN SECURITIES
High Yield Portfolio may invest up to 10% of its total assets in securities
of foreign governments and companies. Investing in foreign securities may
result in greater risk than that incurred by investing in domestic securities.
The obligations of foreign issuers may be affected by political or economic
instabilities. Financial information published by foreign companies may be less
reliable or complete than information disclosed by domestic companies pursuant
to United States Government securities laws, and may not have been prepared in
accordance with generally accepted accounting principles. Fluctuations in
exchange rates may affect the value of foreign securities not denominated in
United States currency.
OPTIONS
As provided below, the High Yield Portfolio may enter into transactions in
options on a variety of instruments and indexes, in order to protect against
declines in the value of portfolio securities or increases in the costs of
securities to be acquired and in order to increase the gross income of the
Portfolio. The types of instruments to be purchased and sold are further
described in the Appendix of this Statement of Additional Information, which
should be read in conjunction with the following sections.
OPTIONS ON SECURITIES. The Portfolio may write (sell) covered call and secured
put options and purchase call and put options only on debt securities . Where
the Portfolio writes an option which expires unexercised or is closed out by the
Portfolio at a profit, it will retain all or a portion of the premium received
for the option, which will increase its gross income and will offset in part the
reduced value of the Portfolio security underlying the option, or the increased
cost of portfolio securities to be acquired. In contrast, however, if the price
of the underlying security moves adversely to the Portfolio's position, the
option may be exercised and the Portfolio will be required to purchase or sell
the underlying security at a disadvantageous price, which may only be partially
offset by the amount of the premium, if at all. The Portfolio may also write
combinations of put and call options on the same security, known as "straddles."
Such transactions can generate additional premium income but also present
increased risk.
The Portfolio may also purchase put or call options in anticipation of
market fluctuations which may adversely affect the value of its portfolio or the
prices of securities that the Portfolio wants to purchase at a later date. In
the event that the expected market fluctuations occur, the Portfolio may be able
to offset the resulting adverse effect on its Portfolio, in whole or in part,
through the options purchased. The premium paid for a put or call option plus
any transaction costs will reduce the benefit, if any, realized by the Portfolio
upon exercise or liquidation of the option, and, unless the price of the
underlying security changes sufficiently, the option may expire without value to
the Portfolio.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS. High Yield Portfolio may enter into interest rate futures
contracts for hedging purposes. The Portfolio may also enter into foreign
currency futures contracts. (Unless otherwise specified, interest rate futures
contracts and foreign currency futures contracts are collectively referred to as
"Futures Contracts.")
Interest rate and foreign currency futures contracts are purchased or sold
to attempt to hedge against the effects of interest or exchange rate changes on
the Portfolio's current or intended investments in fixed income or foreign
securities. In the event that an anticipated decrease in the value of portfolio
securities occurs as a result of a general stock market decline, a general
increase in interest rates, or a decline in the dollar value of foreign
currencies in which portfolio securities are denominated, the adverse effects of
such changes may be offset, in whole or in part, by gains on the sale of Futures
Contracts. Conversely, the increased cost of portfolio securities to be
acquired, caused by a general rise in the stock market, a general decline in
interest rates, or a rise in the dollar value of foreign currencies, may be
offset, in whole or in part, by gains on Futures Contracts purchased by the
Portfolio. The Portfolio will incur brokerage fees when it purchases and sells
Futures Contracts, and it will be required to make and maintain margin deposits.
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OPTIONS ON FUTURES CONTRACTS. High Yield Portfolio may purchase and write
options to buy or sell interest rate futures contracts. In addition, the
Portfolio may purchase and write options on foreign currency futures contracts.
(Unless otherwise specified, options on interest rate futures contracts and
options on foreign currency futures contracts are collectively referred to as
"Options on Futures Contracts.") Such investment strategies will be used as a
hedge and not for speculation.
Put and call options on Futures Contracts may be traded by the Portfolio in
order to protect against declines in the values of portfolio securities or
against increases in the cost of securities to be acquired. Purchases of options
on Futures Contracts may present less risk in hedging the portfolios of the
Portfolio than the purchase or sale of the underlying Futures Contracts since
the potential loss is limited to the amount of the premium plus related
transaction costs. The writing of such options, however, does not present less
risk than the trading of futures contracts and will constitute only a partial
hedge, up to the amount of the premium received, and, if an option is exercised,
the Portfolio may suffer a loss on the transaction.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The High Yield Portfolio may enter into contracts for the purchase or sale
of a specific currency at a future date at a price set at the time of the
contract (a "Currency Contract"). The Portfolio will enter into Currency
Contracts for hedging purposes only, in a manner similar to the Portfolio's use
of foreign currency futures contracts. These transactions will include forward
purchases or sales of foreign currencies for the purpose of protecting the
dollar value of securities denominated in a foreign currency or protecting the
dollar equivalent of interest or dividends to be paid on such securities. By
entering into such transactions, however, the Portfolio may be required to
forego the benefits of advantageous changes in exchange rates. Currency
Contracts are traded over-the-counter, and not on organized commodities or
securities exchanges. As a result, such contracts operate in a manner distinct
from exchange-traded instruments, and their use involves certain risks beyond
those associated with transactions in the futures and option contracts described
above.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may purchase and write put and
call options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio securities and against
increases in the dollar cost of foreign securities to be acquired. As in the
case of other types of options, however, the writing of an option on foreign
currency will constitute only a partial hedge, up to the amount of the premium
received, and a portfolio could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although, in the event of rate movements
adverse to the Portfolio's position, it may forfeit the entire amount of the
premium plus related transaction costs. As in the case of Currency Contracts,
certain options on foreign currencies are traded over-the-counter and involve
risks which may not be present in the case of exchange-traded instruments.
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS, AND FORWARD CONTRACTS
Although the High Yield Portfolio will enter into transaction in Futures
Contracts, Options on Futures Contracts, Currency Contracts, and certain options
solely for hedging purposes, their use does involve certain risks. For example,
a lack of correlation between the index or instrument underlying an option or
Futures Contract and the assets being hedged, or unexpected adverse price
movements, could render the Portfolio's hedging strategy unsuccessful and could
result in losses. The Portfolio also may enter into transactions in options on
securities and indexes of securities for other than hedging purposes, which
involves greater risk. In addition, there can be no assurance that a liquid
secondary market will exist for any contract purchased or sold, and a Portfolio
may be required to maintain a position until exercise or expiration, which could
result in losses.
Transactions in options, Futures Contracts, Options on Futures Contracts,
and Currency Contracts may be entered into on United States exchanges regulated
by the SEC or the Commodity Futures Trading Commission (the "CFTC"), as well as
in the over-the-counter market and on foreign exchanges. In addition, the
securities underlying options and Futures Contracts traded by the Portfolio may
include domestic as well as foreign securities. Investors should recognize that
transactions involving foreign securities or foreign currencies, and
transactions entered into in foreign countries, may involve considerations and
risks not typically associated with investing in U.S. markets. See "Investment
Objectives and Policies; Risk Considerations-High Yield Portfolio-Foreign
Securities" in the Prospectus.
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REGULATORY RESTRICTIONS
To the extent required to comply with Securities and Exchange Commission
Release No. 10666, when purchasing a futures contract, writing a put option, or
entering into a delayed delivery purchase, the High Yield Portfolio will
maintain in a segregated account cash or liquid high-grade securities equal to
the value of such contracts.
To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid "commodity pool operator" status, the Portfolio
will not enter into a futures contract or purchase an option thereon if
immediately thereafter the initial margin deposits for futures contracts held by
the Portfolio, plus premiums paid by it for open options on futures (less the
amount by which the value of the underlying futures contract exceeds the
exercise price at the time of purchase), would exceed 5% of the Portfolio's
total assets. The Portfolio will not engage in transactions in financial futures
contracts or options thereon for speculation, but only to attempt to hedge
against changes in market conditions affecting the values of securities which
the Portfolio holds or intends to purchase. When futures contracts or options
thereon are purchased to protect against a price increase on securities intended
to be purchased later, it is anticipated that at least 75% of such intended
purchases will be completed. When other futures contracts or options thereon are
purchased, the underlying value of such contracts will at all times not exceed
the sum of: (1) accrued profit on such contracts held by the broker; (2) cash or
high quality money market instruments set aside in an identifiable manner; and
(3) cash proceeds from investments due in 30 days.
BORROWING MONEY
The High Yield Portfolio may borrow money from banks as a temporary measure
to facilitate redemptions. As a fundamental policy, however, borrowings may not
exceed 10% of the value of the Portfolio's total assets and no additional
investment securities may be purchased by a Portfolio while outstanding bank
borrowings exceed 5% of the value of the Portfolio's total assets. Interest paid
on borrowings will not be available for investment.
VARIABLE AMOUNT MASTER DEMAND NOTES
Variable amount master demand notes are short-term, unsecured promissory
notes issued by corporations to finance short-term credit needs. They allow the
investment of fluctuating amounts by the High Yield Portfolio at varying market
rates of interest pursuant to arrangements between the Portfolio and a financial
institution which has lent money to a borrower. Variable amount master demand
notes permit a series of short-term borrowings under a single note. Both the
lender and the borrower have the right to reduce the amount of outstanding
indebtedness at any time. Such notes provide that the interest rate on the
amount outstanding varies on a daily basis depending upon a stated short-term
interest rate barometer. Advisers will monitor the creditworthiness of the
borrower throughout the term of the variable master demand note. It is not
generally contemplated that such instruments will be traded and there is no
secondary market for the notes. Typically, agreements relating to such notes
provide that the lender shall not sell or otherwise transfer the note without
the borrower's consent. Thus, variable amount master demand notes may under
certain circumstances be deemed illiquid assets. However, such notes will not be
considered illiquid where the Portfolio has a "same day withdrawal option,"
I.E., where it has the unconditional right to demand and receive payment in full
of the principal amount then outstanding together with interest to the date of
payment.
INVESTMENT PRACTICES COMMON TO BOTH FUNDS
PORTFOLIO TURNOVER
The portfolio turnover rate for a Portfolio is calculated by dividing the
lesser of purchases or sales by such Portfolio of investment securities for the
particular fiscal year by the monthly average value of investment securities
owned by the Portfolio during the same fiscal year. "Investment securities," for
purposes of this calculation, only include securities with a maturity date more
than twelve months from the date of investment. A 100% portfolio turnover rate
would occur, for example, if the lesser of the value of purchases or sales of
investment securities for a particular year were equal to the average monthly
value of the investment securities owned during such year. The U.S. Government
Securities Fund's portfolio turnover rates for the fiscal year ended July 31,
1995 and the seven-month fiscal period ended July 31, 1994, were 76% and 85%,
respectively. Portfolio turnover rates for the fiscal years ended October 31,
1995 and 1994 were 101% and 63% for High Yield Portfolio.
40
<PAGE>
REPURCHASE AGREEMENTS
A repurchase agreement is an instrument under which securities are
purchased from a bank or securities dealer with an agreement by the seller to
repurchase the securities at a mutually agreed upon date, interest rate, and
price. Generally, repurchase agreements are of short duration-usually less than
a week, but on occasion for longer periods. The High Yield Portfolio will limit
its investment in repurchase agreements with a maturity of more than seven days
to 15% of its net assets. The U.S. Government Securities Fund's limit on such
investments is 10%.
In investing in repurchase agreements, the Portfolio's risk is limited to
the ability of such bank or securities dealer to pay the agreed upon amount at
the maturity of the repurchase agreement. In the opinion of management, such
risk is not material; if the other party defaults, the underlying security
constitutes collateral for the obligation to pay-although the Portfolio may
incur certain delays in obtaining direct ownership of the collateral, plus costs
in liquidating the collateral. In the event a bank or securities dealer defaults
on the repurchase agreement, management believes that, barring extraordinary
circumstances, the Portfolio will be entitled to sell the underlying securities
or otherwise receive adequate protection (as defined in the federal Bankruptcy
Code) for its interest in such securities. To the extent that proceeds from any
sale upon a default were less than the repurchase price, however, the Portfolio
could suffer a loss. If the Portfolio owns underlying securities following a
default on the repurchase agreement, the Portfolio will be subject to risk
associated with changes in the market value of such securities. The Portfolios'
custodian will hold the securities underlying any repurchase agreement or such
securities may be part of the Federal Reserve Book Entry System. The market
value of the collateral underlying the repurchase agreement will be determined
on each business day. If at any time the market value of the collateral falls
below the repurchase price of the repurchase agreement (including any accrued
interest), the Portfolio will promptly receive additional collateral (so the
total collateral is in an amount at least equal to the repurchase price plus
accrued interest).
ILLIQUID SECURITIES
The Funds may invest in illiquid securities, including "restricted"
securities. (A restricted security is one which was originally sold in a private
placement and was not registered with the Commission under the Securities Act of
1933 [the "1933 Act"] and which is not free to be resold unless it is registered
with the Commission or its sale is exempt from registration.) However, the Funds
will not invest more than 15% of the value of its net assets in illiquid
securities, as determined pursuant to applicable Commission rules and
interpretations.
The staff of the Securities and Exchange Commission has taken the position
that the liquidity of securities in the portfolio of a fund offering redeemable
securities is a question of fact for a board of directors of such a fund to
determine, based upon a consideration by such board of the readily available
trading markets and a review of any contractual restrictions. The SEC staff also
acknowledges that, while such a board retains ultimate responsibility, it may
delegate this function to the fund's investment adviser.
The Board of Directors of Fortis Income and Fortis Advantage have adopted
procedures to determine the liquidity of certain securities, including
commercial paper issued pursuant to the private placement exemption of
Section 4(2) of the 1933 Act and securities that are eligible for resale to
qualified institutional buyers pursuant to Rule 144A under the 1933 Act. Under
these procedures, factors taken into account in determining the liquidity of a
security include (a) the frequency of trades and quotes for the security,
(b) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers, (c) dealer undertakings to make a market
in the security, and (d) the nature of the security and the nature of the
marketplace trades (E.G., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). Section 4(2) commercial
paper or a Rule 144A security that when purchased enjoyed a fair degree of
marketability may subsequently become illiquid, thereby adversely affecting the
liquidity of the Funds.
Illiquid securities may offer a higher yield than securities that are more
readily marketable. The sale of illiquid securities, however, often requires
more time and results in higher brokerage charges or dealer discounts or other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. The Funds may
also be restricted in its ability to sell such securities at a time when it is
advisable to do so. Illiquid securities often sell at a price lower than similar
securities that are not subject to restrictions on resale.
41
<PAGE>
Any investment policy or restriction which involves a maximum percentage of
securities or assets except those dealing with borrowing and illiquid
securities, shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or utilization
of assets and results therefrom.
DIRECTORS AND EXECUTIVE OFFICERS
The names, addresses, principal occupations, and other affiliations of
directors and executive officers of Fortis Income and Fortis Advantage are given
below:
<TABLE>
<CAPTION>
Name & Address Age Position with Principal Occupation and Affiliations with
--------------- --- the Fund "affiliated persons" or Investors (past 5 years)
------------- ------------------------------------------------
<S> <C> <C> <C>
Richard W. Cutting 64 Director Certified public accountant and
137 Chapin Parkway financial consultant.
Buffalo, New York
Allen R. Freedman* 56 Director Chairman, Chief Executive Officer
One Chase Manhattan Plaza and President of Fortis, Inc.; a
New York, New York Managing Director of Fortis
International, N. V.
Dr. Robert M. Gavin 55 Director President, Macalester College.
1600 Grand Avenue
St. Paul, Minnesota
Benjamin S. Jaffray 66 Director Chairman of the Sheffield Group,
4040 IDS Center Ltd., a financial consulting group.
Minneapolis, Minnesota
Jean L. King 51 Director President, Communi-King, a
12 Evergreen Lane communications consulting firm.
St. Paul, Minnesota
Dean C. Kopperud* 43 President and Chief Executive Officer and a
500 Bielenberg Drive Director Director of Fortis Advisors, Inc.
Woodbury, Minnesota ("Advisers"), President and a
Director of Fortis Investors, Inc.
("Investors"), and Senior Vice
President and a Director of Fortis
Benefits Insurance Company and Time
Insurance Company.
Edward M. Mahoney 66 Director Retired; prior to December, 1994,
2760 Pheasant Road Chairman and Chief Executive Officer
Excelsior, Minnesota and a Director of Advisers and
Investors, Senior Vice President and
a Director of Fortis Benefits
Insurance Company, and Senior Vice
President of Time Insurance Company.
Robb L. Prince 54 Director Retired; prior to July, 1995, Vice
5108 Duggan Plaza President and Treasurer, Jostens,
Edina, Minnesota Inc., a producer of products and
services for the youth, education,
sports award, and recognition markets.
Leonard J. Santow 60 Director Principal, Griggs & Santow,
75 Wall Street Incorporated, economic and financial
21st Floor consultants.
New York, New York
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C> <C>
Joseph M. Wikler 55 Director Investment consultant and private
12520 Davan Drive investor; prior to January, 1994,
Silver Spring, Maryland Director of Research, Chief
Investment Officer, Principal, and a
Director, The Rothschild Co.,
Baltimore, Maryland. The Rothschild
Co. is an investment advisory firm.
Gary N. Yalen 53 Vice President President and Chief Investment
One Chase Manhattan Plaza Officer of Advisers (since August,
New York, New York 1995) and Fortis Asset Management, a
division of Fortis, Inc., New York,
NY, and Senior Vice President,
Investments, Fortis, Inc.
Howard G. Hudson 58 Vice President Executive Vice President of Advisers
One Chase Manhattan Plaza (since August, 1995) and Senior Vice
New York, New York President, Fixed Income, Fortis
Asset Management; prior to February,
1991, Senior Vice President,
Fairfield Research, New Canaan, CT.
Stephen M. Poling 64 Vice President Executive Vice President and
5500 Wayzata Boulevard Director of Advisers and Investors.
Golden Valley, Minnesota
Fred Obser 57 Vice President Senior Vice President of Advisers
One Chase Manhattan Plaza (since August, 1995) and Senior Vice
New York, New York President, Equities, Fortis Asset Management.
Dennis M. Ott 49 Vice President Senior Vice President of Advisers
5500 Wayzata Boulevard and Investors.
Golden Valley, Minnesota
James S. Byrd 45 Vice President Vice President of Advisers and
5500 Wayzata Boulevard Investors; prior to March, 1991,
Golden Valley, Minnesota Senior Vice President, Templeton
Investment Counsel, Inc., Fort
Lauderdale, Florida.
Nicholas L. M. dePeyster 29 Vice President Vice President of Advisers (since
One Chase Manhattan Plaza August, 1995) and Vice President,
New York, New York Equities, Fortis Asset Management;
prior to July, 1991, Research
Associate, Smith Barney, Inc., New York, NY.
Charles J. Dudley 36 Vice President Vice President of Advisers and
One Chase Manhattan Plaza Fortis Asset Management; prior to
New York, New York August, 1995, Senior Vice President,
Sun America Asset Management, Los
Angeles, CA.
Maroun M. Hayek 48 Vice President Vice President of Advisers (since
One Chase Manhattan Plaza August, 1995) and Vice President,
New York, New York Fixed Income, Fortis Asset
Management.
Robert C. Lindberg 43 Vice President Vice President of Advisers and
One Chase Manhattan Plaza Investors; prior to July, 1993, Vice
New York, New York President, Portfolio Manager, and
Chief Securities Trader, COMERICA,
Inc., Detroit, Michigan. COMERCA,
Inc. is a bank.
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C> <C>
Kevin J. Michels 44 Vice President Vice President of Advisers (since
One Chase Manhattan Plaza August, 1995) and Vice President,
New York, New York Administration, Fortis Asset Management.
Stephen M. Rickert 53 Vice President Vice President of Advisers (since
One Chase Manhattan Plaza August, 1995) and Corporate Bond
New York, New York Analyst, Fortis Asset Management;
from August, 1993 to April, 1994,
Corporate Bond Analyst, Dillon,
Read & Co., Inc., New York, NY;
prior to June, 1992, Corporate Bond
Analyst, Western Asset Management,
Los Angeles, CA.
Keith R. Thomson 58 Vice President Vice President of Advisers and
5500 Wayzata Boulevard Investors.
Golden Valley, Minnesota
Christopher J. Woods 36 Vice President Vice President of Advisers (since
One Chase Manhattan Plaza August, 1995) and Vice President,
New York, New York Fixed Income, Fortis Asset
Management; prior to November, 1992,
Head of Fixed Income, The Police and
Firemen's Disability and Pension
Fund of Ohio, Columbus, OH.
Robert W. Beltz, Jr. 46 Vice President Vice President-Mutual Fund
500 Bielenberg Drive Operations of Advisers and
Woodbury, Minnesota Investors.
Thomas D. Gualdoni 47 Vice President Vice President of Advisers,
500 Bielenberg Drive Investors, and Fortis Benefits
Woodbury, Minnesota Insurance Company.
Larry A. Medin 46 Vice President Senior Vice President-Sales of
500 Bielenberg Drive Advisers and Investors; from August
Woodbury, Minnesota 1992 to November 1994, Senior Vice
President, Western Divisional
Officer of Colonial Investment
Services, Inc., Boston,
Massachusetts; from June 1991 to
August 1992, Regional Vice
President, Western Divisional
Officer of Alliance Capital
Management, New York, New York;
prior to June 1991, Senior Vice
President, National Sales Director,
Met Life State Street Investment
Services, Inc.
Jon H. Nicholson 46 Vice President Vice President-Marketing and Product
500 Bielenberg Drive Development of Fortis Benefits
Woodbury, Minnesota Insurance Company.
David A. Peterson 53 Vice President Vice President and Assistant General
500 Bielenberg Drive Counsel, Fortis Benefits Insurance
Woodbury, Minnesota Company.
Richard P. Roche 44 Vice President Vice President of Advisers and
500 Bielenberg Drive Investors; prior to August, 1995,
Woodbury, Minnesota President of Prospecting By
Seminars, Inc., Guttenberg, NJ.
</TABLE>
44
<PAGE>
<TABLE>
<S> <C> <C> <C>
Anthony J. Rotondi 51 Vice President Senior Vice President of Advisers;
500 Bielenberg Drive from January, 1993 to August, 1995,
Woodbury, Minnesota Senior Vice President, Operations,
Fortis Benefits Insurance Company;
prior to January, 1993, Senior Vice
President, Information Technology,
Fortis, Inc.
Rhonda J. Schwartz 38 Vice President Senior Vice President and General
500 Bielenberg Drive Counsel of Advisers and Investors;
Woodbury, Minnesota Senior Vice President and General
Counsel, Life and Investment
Products, Fortis Benefits Insurance
Company and Vice President and
General Counsel, Life and Investment
Products, Time Insurance Company;
from 1993 to January 1996, Vice
President, General Counsel, Fortis,
Inc.; prior to 1993, Attorney,
Norris, McLaughlin & Marcus,
Washington, D.C.
Michael J. Radmer 50 Secretary Partner, Dorsey & Whitney, L.L.P.,
220 South Sixth Street the Fund's General Counsel.
Minneapolis, Minnesota
Tamara L. Fagely 37 Treasurer Second Vice President of Advisers
500 Bielenberg Drive and Investors.
Woodbury, Minnesota
</TABLE>
___________________
* Mr. Kopperud is an "interested person" (as defined under the 1940 Act) of
Fortis Income, Fortis Advantage, Advisers, and Investors primarily because
he is an officer and director of each. Mr. Freedman is an "interested
person" of Fortis Income, Advisers, and Investors because he is Chairman,
Chief Executive Officer and President of Fortis, Inc. ("Fortis"), the
parent company of Advisers and indirect parent company of Investors, and a
Managing Director of Fortis International, N. V., the parent company of
Fortis.
___________________
The following table sets forth the aggregate compensation received by each
director during the fiscal year ended July 31, 1995 for Fortis Income and
October 31, 1995 for Fortis Advantage, as well as the total compensation
received by each director from the Funds and all other open-end investment
companies managed by Advisers during the fiscal year ended October 31, 1995.
Neither Mr. Freedman, who is an officer of the parent company of Advisers, nor
Mr. Kopperud, who is an officer of Advisers and Investors, received any such
compensation and they are not included in the table. No executive officer of
the Funds received compensation from the Funds during the fiscal year ended
October 31, 1995.
<TABLE>
<CAPTION>
Aggregate Pension or
Compensation Aggregate Retirement Benefits Estimated Total Compensation
from Fortis Compensation from Accrued as Part of Annual Benefits from Fund Complex
Director Income Fortis Advantage(3) Company Expenses Upon Retirement Paid to Director(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard W. Cutting $4,900 $3,100 _ _ $32,300
Dr. Robert M. Gavin $4,700 $2,900 - - $30,100
Benjamin S. Jaffray $4,900 $3,100 - - $32,300
Jean L. King $5,000 $3,200 - - $33,400
Edward M. Mahoney $3,650 $2,300 - - $23,950
Thomas R. Pellett (2) $4,900 $3,100 - - $32,300
Robb L. Prince $4,800 $3,000 - - $31,200
Leonard J. Santow $4,792 $2,990 - - $31,100
Joseph M. Wikler $4,900 $3,100 - - $32,300
</TABLE>
________________________
45
<PAGE>
(1) Includes aggregate compensation paid by the Funds and all 9 Other Fortis
Funds paid to the director.
(2) Mr. Pellett resigned as a director of the Fortis Funds effective December
7, 1995.
(3) The compensation paid by Fortis Advantage covers three separate portfolios,
including High Yield Portfolio.
As of October 31, 1995, the directors and executive officers beneficially
owned less than 1% of the outstanding shares of either. Directors Gavin,
Jaffray, Kopperud, Mahoney and Prince are members of the Executive Committee
of the Board of Directors. While the Executive Committee is authorized to act in
the intervals between regular board meetings with full capacity and authority of
the full Board of Directors, except as limited by law, it is expected that the
Committee will act only infrequently.
INVESTMENT ADVISORY AND OTHER
SERVICES
GENERAL
Fortis Advisers, Inc. ("Advisers") has been the investment adviser and
manager of each Fund since inception. Investors acts as the Fund's underwriter.
Both act as such pursuant to written agreements periodically approved by the
directors or shareholders of each Fund. The address of both is that of the
Funds.
As of January 31, 1996, Advisers managed thirty investment company
portfolios with combined net assets of approximately $ 4,196,467,000, and one
private account with net assets of approximately $ 17,544,000. Fortis Financial
Group also has approximately $1.9 billion in insurance reserves. As of the same
date, the investment company portfolios had an aggregate of 230,794
shareholders, including 29,785 shareholders of the U.S. Government Securities
Fund and 12,208 shareholders of High Yield Portfolio.
During the fiscal year ended July 31, 1995, the seven-month fiscal period
ended July 31, 1994, and the fiscal year ended December 31, 1993, Advisers
received $3,576,719, $2,444,873, and $4,405,583, respectively, as its
compensation for acting as the investment adviser and manager of the U.S.
Government Securities Fund. However, for such periods, Advisers reimbursed such
Fund $84,896, $58,157, and $71,866 pursuant to the expense reimbursement
agreement then in effect, resulting in a net fee of $3,491,823, $2,386,716, and
$4,333,717, respectively. Investors received $802,986, $1,465,992, and
$5,071,141 during these same periods for underwriting such Fund's shares, out of
which commissions of sales representatives and allowances to dealers
approximating $665,203, $1,221,615, and $4,290,352, were paid by Investors.
During the fiscal year ended July 31, 1995, Investors received $23,151 from
the U.S. Government Securities Fund pursuant to the Plan of Distribution (see
"Plan of Distribution"). Investors paid $278,793 to broker-dealers and
registered representatives. In addition to such amount paid, Advisers and
Investors together spent $140,061 on activities related to the distribution of
the Fund's shares.
During the past three fiscal years ended October 31, 1995, 1994 and 1993, the
High Yield Portfolio paid to Advisers advisory and management fees of $874,371,
$685,802, and $450,524 for the High Yield Portfolio.
Investors received $815,079, $1,332,078 and $827,899 for the High Yield
Portfolio during the fiscal years ended October 31, 1995, 1994, and 1993,
respectively, for underwriting the Portfolios' shares, out of which allowances
to dealers and representatives totaling approximately $625,940, $1,120,285, and
$696,024 for the High Yield Portfolio, respectively, were paid.
During the fiscal year ended October 31, 1995, Investors received, $494,706
from the High Yield Portfolio, pursuant to the Plan of Distribution (see "Plan
of Distribution"). Of these amounts, Investors paid $1,695,835 for the High
Yield Portfolio, respectively, to broker-dealers and registered representatives.
In addition to such amounts paid, Advisers and Investors together spent $526,351
for the High Yield Portfolio, respectively, on activities related to the
distribution of the Portfolios' shares.
46
<PAGE>
CONTROL AND MANAGEMENT OF ADVISERS AND INVESTORS
Fortis owns 100% of the outstanding voting securities of Advisers, and
Advisers owns all of the outstanding voting securities of Investors.
Fortis, located in New York, New York, is a wholly owned subsidiary of
Fortis International, N.V., which has approximately $100 billion in assets
worldwide and is in turn an indirect wholly owned subsidiary of AMEV/VSB 1990
N.V. ("AMEV/VSB 1990").
AMEV/VSB 1990 is a corporation organized under the laws of The Netherlands
to serve as the holding company for all U.S. operations and is owned 50% by
Fortis AMEV and 50% by Fortis AG. AMEV/VSB 1990 owns a group of companies active
in insurance, banking and financial services, and real estate development in The
Netherlands, the United States, Western Europe, Australia, and New Zealand.
Fortis AMEV is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis AMEV and Fortis AG
own a group of companies (of which AMEV/VSB 1990 is one) active in insurance,
banking and financial services, and real estate development in The Netherlands,
Belgium, the United States, Western Europe, and the Pacific Rim.
Dean C. Kopperud is Chief Executive Officer of Advisers and President of
Investors; Gary N. Yalen is President and Chief Investment Officer of Advisers;
James S. Byrd and Stephen M. Poling are Executive Vice Presidents of Advisers
and Investors; Howard G. Hudson is Executive Vice President of Advisers; Debra
L. Foss, Larry A. Medin, Jon H. Nicholson, Dennis M. Ott and Anthony J. Rotondi
are Senior Vice Presidents of Advisers and Investors; Rhonda J. Schwartz is
Senior Vice President, General Counsel, and Secretary of Advisers and Investors;
Fred Obser is Senior Vice President of Advisers; Robert W. Beltz, Jr., Thomas
D. Gualdoni, Robert C. Lindberg, Jon H. Nicholson, Richard P. Roche, and Ketih
R. Thomson are Vice Presdients of Advisers and Investors; Nicholas L. M. De
Peyster, Charles J. Dudley, Maroun H. Hayek; Kevin J. Michels, Stephen M.
Rickert, and Christopher J. Woods are Vice Presdients of Advisers; John E. Hite
is 2nd Vice President and Assistant Secretary of Advisers and Investors; Carol
M. Houghtby is 2nd Vice President and Treasurer of Advisers and Investors;
Tamara L. Fagely, Barbara W. Kirby and Deborah K. Kramer are 2nd Vice Presidents
of Advisers and Investors; David C. Greenzang is Money Market Portfolio Officer
of Advisers; Michael D. O'Connor is Qualified Plan Officer of Advisers and
Investors; Barbara J. Wolf is Trading Officer of Advisers; Scott R. Plummer is
Assistant Secretary of Advisers and Investors; Joanne M. Herron is Assistant
Treasurer of Advisers and Investors and Sharon R. Jibben is Assistant Secretary
of Advisers.
Messrs. Kopperud, Yalen, and Poling are the Directors of Advisers.
All of the above persons reside or have offices in the Minneapolis/St. Paul
area, except Messrs. Yalen, Hudson, De Peyster, Dudley, Hayek, Lindberg,
Michels, Obser, and Woods, who all are located in New York City.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Advisers acts as investment adviser and manager of the U.S. Government
Securities Fund under an Investment Advisory and Management Agreement (the
"Agreement") dated April 2, 1993, which became effective the same date following
shareholder approval on April 1, 1993; and acts as investment adviser and
manager of the High Yield Portfolio under an Investment Advisory and Management
Agreement dated January 31, 1992, which became effective January 31, 1992,
following shareholder approval on January 28, 1992 (hereafter collectively "the
Agreements"). The Agreements were last approved by the Board of Directors
(including a majority of the directors who are not parties to the contract, or
interested persons of any such party) on December 7, 1995. The Agreements will
terminate automatically in the event of its assignment. In addition, the
Agreements are terminable at any time, without penalty, by the Board of
Directors or, with respect to any particular portfolio, by vote of a majority of
the outstanding voting securities of the applicable portfolio, on not more than
60 days' written notice to Advisers, and by Advisers on 60 days' notice to the
Funds. Unless sooner terminated, the Agreements shall continue in effect for
more than two years after their execution only so long as such continuance is
specifically approved at least annually by either the Board of Directors or,
with respect to any
47
<PAGE>
particular portfolio, by vote of a majority of the outstanding voting
securities of the applicable portfolio, provided that in either event such
continuance is also approved by the vote of a majority of the directors who
are not parties to such Agreements, or interested persons of such parties,
cast in person at a meeting called for the purpose of voting on such approval.
The Agreements provide for an investment advisory and management fee
calculated as described in the following table. As you can see from the table,
this fee decreases (as a percentage of Fund net assets) as the Funds grow. As of
January 31, 1996, the U.S. Government Securities Fund had net assets of
approximately $472,863,000 and the High Yield Portfolio had net assets of
approximately $156,210,000.
ANNUAL
INVESTMENT
ADVISORY
AND MANAGEMENT
AVERAGE NET ASSETS FEE
------------------ --------------
U.S.
Government For the first $50,000,000 .8%
Securities Fund For assets over $50,000,000 .7%
High Yield For the first $50,000,000 .8%
Portfolio For assets over $50,000,000 .7%
The Agreements requires the Funds to pay all their expenses which are not
assumed by Advisers and/or Investors. These Fund expenses include, by way of
example, but not by way of limitation, the fees and expenses of directors and
officers of the Funds who are not "affiliated persons" of Advisers, interest
expenses, taxes, brokerage fees and commissions, fees and expenses of
registering and qualifying the Funds and their shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and of
printing and distributing prospectuses annually to existing shareholders,
custodian charges, auditing and legal expenses, insurance expenses, association
membership dues, and the expense of reports to shareholders, shareholders'
meetings, and proxy solicitations.
Advisers bears the costs of acting as the Funds' transfer agent, registrar,
and dividend agent. Advisers or Investors also shall bear all promotional
expenses in connection with the distribution of the Funds' shares, including
paying for prospectuses and shareholder reports for new shareholders, and the
costs of sales literature.
Pursuant to an undertaking given to the State of California, Advisers has
agreed to reimburse the Funds monthly for any amount by which the Funds'
aggregate annual expenses, exclusive of taxes, brokerage commissions, and
interest on borrowing exceeds 21/2% on the first $30,000,000 of average net
assets, 2% on the next $70,000,000, and 11/2% on the balance. Pursuant to an
additional undertaking given to the State of California, Advisers has agreed to
limit aggregate annual expenses charged to the Fund to 1.5% of the first
$30,000,000 of its average net assets and 1% of its remaining average net assets
with respect to any period that the Fund invests in other open-end investment
companies. Advisers reserves the right to agree to lesser expense limitations
from time to time. In the fiscal year ended July 31, 1995, Advisers was not
required to make any reimbursement to the Fund pursuant to these limitations.
From June 1, 1993 until June 1, 1995, Advisers limited expenses (exclusive
of 12b-1 fees, interest, taxes, brokerage commissions, and non-recurring or
extraordinary charges and expenses) to .77% of the U.S. Government Securities
Fund's average net assets.
Under the Agreement, Advisers, as investment adviser to the Funds, has the
sole authority and responsibility to make and execute investment decisions for
the Fund within the framework of the Funds' investment policies, subject to
review by the Board of Directors. Advisers also furnishes the Funds with all
required management services, facilities, equipment, and personnel.
48
<PAGE>
Although investment decisions for the Funds are made independently from
those of the other funds or private accounts managed by Advisers, sometimes the
same security is suitable for more than one fund or account. If and when two or
more funds or accounts simultaneously purchase or sell the same security, the
transactions will be allocated as to price and amount in accordance with
arrangements equitable to each fund or account. The simultaneous purchase or
sale of the same securities by the Fund and other funds or accounts may have a
detrimental effect on the Funds, as this may affect the price paid or received
by the Funds or the size of the position obtainable by the Funds.
Advisers reserves the right, but shall not be obligated, to institute
voluntary expense reimbursement programs which, if instituted, shall be in such
amounts and based on such terms and conditions as Advisers, in its sole and
absolute discretion, determines. Furthermore, Advisers reserves the absolute
right to discontinue any of such reimbursement programs at any time without
notice to the applicable Fund.
Expenses that relate exclusively to a particular Portfolio of Advantage
Portfolios, such as custodian charges and registration fees for shares, are
charged to that Portfolio. Other expenses of Fortis Advantage are allocated pro
rata among the Portfolios in an equitable manner as determined by officers of
Fortis Advantage under the supervision of the Board of Directors, usually on the
basis of net assets or number of accounts.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
U.S. GOVERNMENT SECURITIES FUND
As the Fund's portfolio is exclusively composed of debt, rather than equity
securities, most of the Fund's portfolio transactions are effected with dealers
without the payment of brokerage commissions, but at net prices which usually
include a spread or markup. In effecting such portfolio transactions on behalf
of the Fund, Advisers seeks the most favorable net price consistent with the
best execution. However, frequently Advisers selects a dealer to effect a
particular transaction without contacting all dealers who might be able to
effect such transaction, because of the volatility of the bond market and the
desire of Advisers to accept a particular price for a security because the price
offered by the dealer meets its guidelines for profit, yield, or both.
Decisions with respect to placement of the Fund's portfolio transactions
are made by its investment adviser. The primary consideration in making these
decisions is efficiency in the execution of orders and obtaining the most
favorable net prices for the applicable Fund. When consistent with these
objectives, business may be placed with broker-dealers who furnish investment
research services to Advisers. Such research services include advice, both
directly and in writing, as to the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities, or purchasers or sellers of securities; as well as analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts. This allows Advisers to
supplement its own investment research activities and enables Advisers to obtain
the views and information of individuals and research staffs of many different
securities firms prior to making investment decisions for the Fund. To the
extent portfolio transactions are effected with broker-dealers who furnish
research services to Advisers, Advisers receives a benefit, not capable of
evaluation in dollar amounts, without providing any direct monetary benefit to
the Fund from these transactions. Advisers believes that most research services
obtained by it generally benefits several or all of the investment companies and
private accounts which it manages, as opposed to solely benefiting one specific
managed fund or account. Normally, research services obtained through managed
funds or accounts investing in common stocks would primarily benefit those funds
or accounts managed by Advisers which invest in common stock; similarly,
services obtained from transactions in fixed income securities would normally be
of greater benefit to the managed funds or accounts which invest in debt
securities.
Advisers has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of Fund portfolio transactions in exchange for
research services provided Advisers, except as noted below. However, Advisers
does maintain an informal list of broker-dealers, which is used from time to
time as a general guide in the placement of Fund business, in order to encourage
certain broker-dealers to provide Advisers with research services which Advisers
anticipates will be useful to it. Because the list is merely a general guide,
which is to be used only after the primary criterion for the selection of
broker-dealers (discussed above) has been met, substantial deviations from the
list are permissible and may be expected to occur. Advisers will authorize the
Fund to pay an amount of commission for effecting a securities transaction in
excess of the amount of commission another broker-dealer would have charged only
if Advisers determines in good
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<PAGE>
faith that such amount of commission is reasonable in relation to the
value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either that particular transaction or Advisers' overall
responsibilities with respect to the accounts as to which Advisers exercises
investment discretion. Generally, the Fund pays higher commissions than the
lowest rates available.
During the fiscal year ended July 31, 1995, fixed income securities
transactions having an aggregate dollar value of approximately $798,222,000
(excluding short-term securities) were traded at net prices including a spread
or markup; during the same period, the Fund paid no brokerage commissions to
brokers involved in the purchase and sale of securities for the Fund's
portfolio.
The Fund will not effect any brokerage transactions in its portfolio
securities with any broker-dealer affiliated directly or indirectly with
Advisers, unless such transactions, including the frequency thereof, the receipt
of commissions payable in connection therewith, and the selection of the
affiliated broker-dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the Fund. No commissions were paid to any
affiliate of Advisers during the fiscal year ended July 31, 1995, the
seven-month fiscal period ended July 31, 1994, or the fiscal year ended
December 31, 1993.
During the fiscal year ended July 31, 1995, the Fund did not acquire the
securities of any of its regular brokers or dealers or the parent of those
brokers or dealers that derive more than fifteen percent of their gross revenue
from securities-related activities.
HIGH YIELD PORTFOLIO
The High Yield Portfolio will not normally incur any brokerage commissions.
Fixed income securities, as well as equity securities traded in the
over-the-counter market, are generally traded on a "net" basis with dealers
acting as principals for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. Certain of these securities may also be
purchased directly from an issuer, in which case neither commissions nor
discounts are paid. For High Yield Portfolio, and transactions having an
aggregate dollar value of approximately $267,393,000, respectively (excluding
short-term securities), were traded at net prices including a spread or markup
during the fiscal year ended October 31, 1995. During the fiscal years ended
October 31, 1995, 1994, and 1993, transactions in equity securities having an
aggregate dollar value of approximately $1,821,750, $80,000, and $136,000,
respectively for High Yield Portfolio. For the fiscal year ended October 31,
1995, High Yield Portfolio's commissions totaled $3,813, amounting to 0% of
average net assets and resulting in an average commission rate of .2%.
Advisers selects and (where applicable) negotiates commissions with the
broker-dealers who execute the transactions for the Portfolio. The primary
criterion for the selection of a broker-dealer is the ability of the
broker-dealer, in the opinion of Advisers, to secure prompt execution of the
transactions on favorable terms, including the reasonableness of the commission
and considering the state of the market at the time. When consistent with these
objectives, business may be placed with broker-dealers who furnish investment
research or services to Advisers. Such research or services include advice, both
directly and in writing, as to the value of securities; the advisability of
investing in, purchasing or selling securities; and the availability of
securities, or purchasers or sellers of securities; as well as analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts. This allows Advisers to
supplement its own investment research activities and enables Advisers to obtain
the views and information of individuals and research staffs of many different
securities firms prior to making investment decisions for the Portfolio. To the
extent portfolio transactions are effected with broker-dealers who furnish
research services to Advisers, Advisers receives a benefit, not capable of
evaluation in dollar amounts, without providing any direct monetary benefit to
the Portfolio from these transactions. Advisers believes that most research
services obtained by it generally benefit several or all of the investment
companies and private accounts which it manages, as opposed to solely benefiting
one specific managed fund or account. Normally, research services obtained
through managed funds or accounts investing in common stocks would primarily
benefit the managed funds or accounts which invest in common stock; similarly,
services obtained from transactions in fixed income securities would normally be
of greater benefit to the managed funds or accounts which invest in debt
securities.
Advisers has not entered into any formal or informal agreements with any
broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of portfolio transactions in exchange for research
services provided Advisers, except as noted below. However, Advisers does
maintain an informal list of broker-dealers, which is used from time to time as
a general guide in the placement of High Yield Portfolio business, in order to
encourage certain broker-dealers to provide
50
<PAGE>
Advisers with research services which Advisers anticipates will be useful to
it. Because the list is merely a general guide, which is to be used only after
the primary criterion for the selection of broker-dealers (discussed above)
has been met, substantial deviations from the list are permissible and may be
expected to occur. Advisers will authorize High Yield Portfolio to pay an amount
of commission for effecting a securities transaction in excess of the amount
of commission another broker-dealer would have charged only if Advisers
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or
Advisers' overall responsibilities with respect to the accounts as to which
it exercises investment discretion. Generally, the Portfolio pays higher
commissions than the lowest rates available.
High Yield Portfolio paid $3,813 in commissions (in connection with
transactions having an aggregate value of approximately $1,821,750) during the
fiscal year ended October 31, 1995. Of this amount, virtually all was paid to
broker-dealers who furnished investment research to Advisers, as outlined above.
High Yield Portfolio will not effect any brokerage transactions in its
portfolio securities with any broker-dealer affiliated directly or indirectly
with Advisers, unless such transactions, including the frequency thereof, the
receipt of commissions payable in connection therewith, and the selection of the
affiliated broker-dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the Portfolios. No commissions were paid to
any affiliate of Advisers during the fiscal years ended October 31, 1995, 1994,
and 1993.
High Yield Portfolio's acquisitions during the fiscal year ended
October 31, 1995, of securities of its regular brokers or dealers or of the
parent of those brokers or dealers that derive more than fifteen percent of
their gross revenue from securities-related activities is presented below:
Value of Securities
Name of Issuer Owned at end of fiscal year
FIRST BANK (N.A.) ---------------------------
$4,240,000
CAPITAL STOCK
Each Funds' shares have a par value of $.01 per share and equal rights to
share in dividends and assets. The shares possess no preemptive or conversion
rights.
On February 22, 1996, the U.S. Government Securities Fund had 50,548,910
shares outstanding. On that date, no person owned of record or, to the Fund's
knowledge, beneficially as much as 5% of the outstanding shares of the Fund,
except as follows:
Class A: Amalgamated Bank of NY C/F TWU-NYC
Private Bus Lines Pension Fund, P.O. Box 370, Cooper Station, NY,
NY 10003-12%
Amalgamated Bank of NY C/F NYC Council & Hotel
Association of NYC, P.O. Box 370, Cooper Station, NY, NY 10003-9%
Class E: Fortis Holdings Profit Sharing Trust
Marshall & Ilsley Trust Co. Trustee
770 N. Water Street, Milwaukee, WI 53202-3509 - 5%
Class B: Mark D. Kayne, M.D.
FBO: Mark D. Kayne Profit Sharing Plan
23928 Lyons Avenue, Suite 110, Newhall, CA 91321-2454 - 5%
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<PAGE>
Class C: Sherri L. Killion Trustee
FBO Killion Family Trust
2710 66th Street, Lubbuck, TX 79413-5326 - 12%
Josephine R. Carlson
Debra J. Beyer - POA
P.O. Box 141, Springfield, MN 56087-0141 - 6%
On February 22, 1996, High Yield Portfolio had 20,483,330 outstanding
shares. On that date, no person owned of record or, to Fortis Advantage's
knowledge, beneficially as much as 5% of the outstanding shares of any Class of
any Portfolio.
The Funds currently offer their shares in multiple classes, each with different
sales arrangements and bearing different expenses. Under the Funds' Articles of
Incorporation, the Boards of Directors are authorized to create new portfolios
or classes without the approval of the shareholders of the applicable Fund. Each
share will have a pro rata interest in the assets of the Fund portfolios to
which the shares of that series relates, and will have no interest in the assets
of any other Fund portfolio. In the event of liquidation, each share of a Fund
would have the same rights to dividends and assets as every other share of that
Fund, except that, in the case of a series with more than one class of shares,
such distributions will be adjusted to appropriately reflect any charges and
expenses borne by each individual class. Each Fund's Board of Directors is also
authorized to create new classes without shareholder approval.
None of the Funds are required under Minnesota law to hold annual or
periodically scheduled regular meetings of shareholders. Minnesota corporation
law provides for the Board of Directors to convene shareholder meetings when it
deems appropriate. In addition, if a regular meeting of shareholders has not
been held during the immediately preceding fifteen months, a shareholder or
shareholders holding three percent or more of the voting shares may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or the chief financial officer. Within ninety days after
receipt of the demand, a regular meeting of shareholders must be held at the
Funds' expense. Additionally, the 1940 Act requires shareholder votes for all
amendments to fundamental investment policies and restrictions and for all
investment advisory contracts and amendments thereto.
Cumulative voting is not authorized. This means that the holders of more than
50% of the shares voting for the election of directors can elect 100% of the
directors if they choose to do so, and in such event the holders of the
remaining shares will be unable to elect any directors.
COMPUTATION OF NET ASSET VALUE AND PRICING
U.S. GOVERNMENT SECURITIES FUND
On July 31, 1995, the U.S. Government Securities Fund's net asset values per
share were calculated as follows:
CLASS E
Net Assets ($470,596,689)
= Net Asset Value Per Share ($9.02)
Shares Outstanding (52,149,917)
To obtain the public offering price per share, the 4.5% sales charge had to be
added to the net asset value obtained above:
$9.02
-----
.955 = Public Offering Price Per Share ($ 9.45)
CLASS A
Net Assets ($4,908,726)
= Net Asset Value Per Share ($9.02)
Shares Outstanding (544,097)
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<PAGE>
To obtain the public offering price per share, the 4.5% sales charge had to be
added to the net asset value obtained above:
$9.02
-----
.955 = Public Offering Price Per Share ($9.45)
CLASS B
Net Assets ($482,701) = Net Asset Value Per Share ($9.02)
Shares Outstanding (53,530)
CLASS H
Net Assets ($4,822,508)
= Net Asset Value Per Share ($9.02)
Shares Outstanding (534,676)
CLASS C
Net Assets ($326,166)
= Net Asset Value Per Share ($9.01)
Shares Outstanding (36,194)
HIGH YIELD PORTFOLIO
On October 31, 1995, the High Yield Portfolio's net asset values per
share were calculated as follows:
CLASS A
Net Assets ($113,267,509)
= Net Asset Value Per Share ($7.61)
Shares Outstanding (14,889,405)
To obtain the public offering price per share for Class A shares, the 4.5%
sales charge must be added to the net asset value obtained above:
$7.61
-----
.955 = Public Offering Price Per Share ($7.97)
CLASS B
Net Assets ($7,529,601)
= Net Asset Value Per Share ($7.60)
Shares Outstanding (990,294)
CLASS H
Net Assets ($23,861,840)
= Net Asset Value Per Share ($7.60)
Shares Outstanding (3,139,420)
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<PAGE>
CLASS C
Net Assets ($2,179,995)
= Net Asset Value Per Share ($7.59)
Shares Outstanding (287,148)
PRICING
The primary close of trading of the New York Stock Exchange (the
"Exchange") currently is 3:00 P.M. (Central Time), but this time may be changed.
The offering price for purchase orders received in the office of the Fund after
the beginning of each day the Exchange is open for trading is based on net asset
value determined as of the primary closing time for business on the Exchange
that day; the price in effect for orders received after such close is based on
the net asset value as of such close of the Exchange on the next day the
Exchange is open for trading.
Generally, the net asset value of the Funds' shares is determined on each
day on which the Exchange is open for business. The Exchange is not open for
business on the following holidays (nor on the nearest Monday or Friday if the
holiday falls on a weekend): New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Additionally, net asset value need not be determined (i) on days on which
changes in the value of the Funds' portfolio securities will not materially
affect the current net asset value of the Funds' shares; or (ii) on days during
which no Fund shares are tendered for redemption and no orders to purchase or
sell Fund shares are received by the Funds.
SPECIAL PURCHASE PLANS
The Funds offer several special purchase plans, described in the
Prospectus, which allow reduction or elimination of the sales charge for Class A
and E shares under certain circumstances. Additional information regarding some
of the plans is as follows:
STATEMENT OF INTENTION
The 13-month period is measured from the date the letter of intent is
approved by Investors, or at the purchaser's option it may be made retroactive
90 days, in which case Investors will make appropriate adjustments on purchases
during the 90-day period.
In computing the total amount purchased for purposes of determining the
applicable sales commission, the public offering price (at the time they were
purchased) of shares currently held in the Fortis Funds having a sales charge
and purchased within the past 90 days may be used as a credit toward Fund shares
to be purchased under the Statement of Intention. Any such fund shares purchased
during the remainder of the 13-month period also may be included as purchases
made under the Statement of Intention.
The Statement of Intention includes a provision for payment of additional
applicable sales charges at the end of the period in the event the investor
fails to purchase the amount indicated. This is accomplished by holding in
escrow the number of shares represented by the sales charge discount. If the
investor's purchases equal those specified in the Statement of Intention, the
escrow is released. If the purchases do not equal those specified in the
Statement of Intention, the shareholder may remit to Investors an amount equal
to the difference between the dollar amount of sales charges actually paid and
the amount of sales charges that would have been paid on the aggregate purchases
if the total of such purchases had been made at a single time. If the purchaser
does not remit this sum to Investors on a timely basis, Investors will redeem
the escrowed shares. The Statement of Intention is not a binding obligation on
the part of the investor to purchase, or the Fund to sell, the full amount
indicated. Nevertheless, the Statement of Intention should be read carefully
before it is signed.
TAX SHELTERED RETIREMENT PLANS
IRAS AND TAX QUALIFIED RETIREMENT PLANS. Individual taxpayers can defer taxes
on current income by investing in certain tax qualified retirement plans
established by their employer's or Individual Retirement Accounts (IRAs) for
retirement. lRAs may be opened by anyone who has earned compensation for
services rendered. Certain reductions in sales charges set forth under "How to
Buy Fund Shares" in the Fund's Prospectus are available to any organized group
of individuals desiring to establish IRAs for the
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<PAGE>
benefit of its members. If you are interested in one of these accounts, contact
Investors for copies of our plans. You should check with your tax adviser before
investing.
Under current Federal tax law, IRA depositors generally may contribute 100%
of their earned income up to a maximum of $2,000 (including sales charge).
Contributions up to $2,250 (including sales charge) can be made to IRA accounts
for an individual and a nonemployed spouse. All shareholders who, along with
their spouse, are not active participants in an employer sponsored retirement
plan or who have adjusted gross income below a specified level can deduct such
contributions (there is a partial deduction for higher income levels up to a
specified amount) from taxable income so that taxes are put off until
retirement, when reduced overall income and added deductions may result in a
lower tax rate. There are penalty taxes for withdrawing this retirement money
before reaching age 59 1/2 (unless the investor dies, is disabled, or withdraws
equal installments over a lifetime). In addition, there are penalties on
insufficient payouts after age 70 1/2, excess contributions, and excess
distributions.
Each Fund may advertise the number or percentage of its shareholders, or
the amount or percentage of its assets, which are invested in retirement
accounts or in any particular type of retirement account. Such figures also may
be given on an aggregate basis for all of the funds managed by Advisers. Any
retirement plan numbers may be compared to appropriate industry averages.
TAX SAVINGS AND YOUR IRA-A FULLY TAXABLE INVESTMENT COMPARED TO AN INVESTMENT
THROUGH AN IRA
The following table shows the yield on an investment of $2,000 made at the
beginning of each year for a period of 10 years and a period of 20 years. For
illustrative purposes only, the table assumes an annual rate of return of 8%.
<TABLE>
<CAPTION>
FULLY PARTIALLY
FULLY TAXABLE DEDUCTIBLE DEDUCTIBLE NON-DEDUCTIBLE
INVESTMENT IRA* IRA** IRA***
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
10 years - 15% Federal tax bracket $24,799 $31,291 $28,944 $26,597
10 years - 28% Federal tax bracket $19,785 $31,291 $26,910 $32,530
10 years - 31% Federal tax bracket $18,702 $31,291 $26,441 $21,591
10 years - 36% Federal tax bracket $16,597 $31,291 $25,659 $20,026
10 years - 39.6% Federal tax bracket $15,744 $31,291 $25,095 $18,900
20 years - 15% Federal tax bracket $72,515 $98,846 $91,432 $84,019
20 years - 28% Federal tax bracket $54,236 $98,846 $85,007 $71,169
20 years - 31% Federal tax bracket $50,526 $98,846 $83,525 $68,204
20 years - 36% Federal tax bracket $44,722 $98,846 $81,054 $63,261
20 years - 39.6% Federal tax bracket $40,820 $98,846 $79,274 $59,703
</TABLE>
- -----------
* This column assumes that the entire $2,000 contribution each year is tax
deductible. Tax on income earned on the IRA is deferred.
** This column assumes that only $1,000 of the $2,000 contribution each year
is tax deductible. Tax on income earned in the IRA is deferred.
*** This column assumes that none of the $2,000 contribution each year is tax
deductible. Tax on income earned in the IRA is deferred.
The 15% Federal income tax bracket applies to taxable income up to and
including $40,000 for married couples filing jointly and $24,000 for unmarried
individuals. The 28% Federal income tax rate applies to taxable income from
$40,000 to $96,900 for married couples filing jointly and to taxable income from
$24,000 to $58,150 for unmarried individuals. The 31% Federal income tax applies
to taxable income from $96,900 to $147,700 for married couples filing jointly
and to taxable income from $58,150 to $121,300 for unmarried individuals. The
36% Federal income tax rate applies to taxable income from $147,700 to $263,750
for married couples filing jointly and to taxable income from $121,300 to
$263,750 for unmarried individuals. The 39.6% Federal
55
<PAGE>
income tax rate applies to taxable income above $263,750 for married couples
filing jointly and to taxable income above $263,750 for unmarried individuals.
(Although the above table reflects the nominal Federal tax rates, the effective
Federal tax rates exceed those rates for certain taxpayers because of the
phase-out of personal exemptions and the partial disallowance of itemized
deductions for taxpayers above certain income levels).
The table reflects only Federal income tax rates, and not any state or
local income taxes.
- --------------------------------------------------------------------------------
If you change your mind about opening your IRA, you generally have seven
days after receipt of notification within which to cancel your account. To do
this, you must send a written cancellation to Investors (at its mailing address
listed on the cover page) within that seven day period. If you cancel within
seven days, any amounts invested in the Fund will be returned to you, together
with any sales charge. If your investment has declined, Investors will make up
the difference so that you receive the full amount invested.
PENSION; PROFIT-SHARING; IRA; 403(B). Tax qualified retirement plans also are
available, including pension and profit-sharing plans, IRA's, and Section 403(b)
salary reduction arrangements. The Section 403(b) salary reduction arrangement
is principally for employees of state and municipal school systems and employees
of many types of tax-exempt or nonprofit organizations. Persons desiring
information about such Plans, including their availability, should contact
Investors. All the Retirement Plans summarized above involve a long-term
commitment of assets and are subject to various legal requirements and
restrictions. The legal and tax implications may vary according to the
circumstances of the individual investor. Therefore, the investor is urged to
consult with an attorney or tax adviser prior to establishing such a plan.
TAX-QUALIFIED PLAN CUSTODIANS AND TRUSTEES. Current fees: IRA and 403(b)-$10
annually; self-employed or small group corporate plan-$15 initial fee plus $30
annually (plus $5 annually per participant account and a per participant account
termination fee of $25). First Trust National Association is the Custodian under
the IRA and 403(b) plans. If a shareholder pays custodial fees by separate
check, they will not be deducted from his or her account and will not constitute
excess contributions. First Trust National Association also acts as Trustee
under the self-employed and small group corporate plans. The bank reserves the
right to change its fees on 30 days' prior written notice.
WITHHOLDING. Generally, distributions from accounts for tax qualified plans
are subject to either mandatory 20% federal tax withholding or optional federal
income tax withholding. Mandatory income tax withholding will not apply if the
payee elects to directly roll his or her distribution to either an IRA or
another qualified retirement plan. Any payee entitled to optional federal
income tax withholding electing to have no withholding must do so in writing,
and must do so at or before the time that payment is made. A payee is not
permitted to elect no withholding if he or she is subject to mandatory backup
withholding under Federal law for failure to provide his or her tax
identification number or for failure to report all dividend or interest
payments. Payees from 403(b) and tax qualified plans also are not permitted to
elect out of withholding except as regards systematic partial withdrawals
extending over 10 or more years.
For IRAs, the withholding amount is 10% of the amount withdrawn.
Withholding for non-resident aliens is subject to special rules. When
payment is made to a plan trustee, Advisers assumes no responsibility for
withholding. Subsequent payment by the trustee to other payees may require
withholding. Such withholding is the responsibility of the plan trustee or of
the plan administrator.
Any amounts withheld may be applied as a credit against Federal tax
subsequently due.
GIFTS OR TRANSFERS TO MINOR CHILDREN
This gift or transfer is registered in the name of the custodian for a
minor under the Uniform Transfers to Minors Act (in some states the Uniform
Gifts to Minors Act). Dividends or capital gains distributions are taxed to the
child, whose tax bracket is usually lower than the adult's. However, if the
child is under 14 years old and his or her unearned income is more than $1,300
per year, then that portion of the child's income which exceeds $1,300 per year
will be taxed to the child at the parents' top rate. Control of the Fund shares
passes to the child upon reaching a specified adult age (either 18 or 21 years
in most states).
56
<PAGE>
SYSTEMATIC INVESTMENT PLAN
The Funds provides a convenient, voluntary method of purchasing shares in
the Funds through their "Systematic Investment Plan."
The principal purposes of the Plan are to encourage thrift by enabling you
to make regular purchases in amounts less than normally required, and to employ
the principle of dollar cost averaging, described below.
By acquiring Fund shares on a regular basis pursuant to a Systematic
Investment Plan, or investing regularly on any other systematic plan, the
investor takes advantage of the principle of dollar cost averaging. Under dollar
cost averaging, if a constant amount is invested at regular intervals at varying
price levels, the average cost of all the shares will be lower than the average
of the price levels. This is because the same fixed number of dollars buys more
shares when price levels are low and fewer shares when price levels are high. It
is essential that the investor consider his or her financial ability to continue
this investment program during times of market decline as well as market rise.
The principle of dollar cost averaging will not protect against loss in a
declining market, as a loss will result if the plan is discontinued when the
market value is less than cost.
An investor has no obligation to invest regularly or to continue the Plan,
which may be terminated by the investor at any time without penalty. Under the
Plan, any distributions of income and realized capital gains will be reinvested
in additional shares at net asset value unless a shareholder instructs Investors
in writing to pay them in cash. Investors reserves the right to increase or
decrease the amount required to open and continue a Plan, and to terminate any
Plan after one year if the value of the amount invested is less than the amount
indicated.
EXCHANGE PRIVILEGE
The amount to be exchanged must meet the minimum purchase amount of the
fund being purchased.
Shareholders should consider the differing investment objectives and
policies of these other funds prior to making such exchange.
For Federal tax purposes, except where the transferring shareholder is a
tax qualified plan, a transfer between funds is a taxable event that probably
will give rise to a capital gain or loss. Furthermore, if a shareholder carries
out the exchange within 90 days of purchasing the shares in the Fund, the sales
charge incurred on that purchase cannot be taken into account for determining
the shareholder's gain or loss on the sale of those shares to the extent that
the sales charge that would have been applicable to the purchase of the
later-acquired shares in the other fund is reduced because of the exchange
privilege. However, the amount of the sales charge that may not be taken into
account in determining the shareholder's gain or loss on the sale of the
first-acquired shares may be taken into account in determining gain or loss on
the eventual sale or exchange of the later-acquired shares.
REINVESTED DIVIDEND/CAPITAL GAINS DISTRIBUTIONS BETWEEN FORTIS FUNDS
This privilege is based upon the fact that such orders are generally
unsolicited and the resulting lack of sales effort and expense.
PURCHASES BY FORTIS INCOME DIRECTORS OR OFFICERS
This privilege is based upon their familiarity with the Fund and the
resulting lack of sales effort and expense.
PURCHASES BY FORTIS, INC. (OR ITS SUBSIDIARIES) OR ASSOCIATED PERSONS
This privilege is based upon the relationship of such persons to the Fund
and the resulting economies of sales effort and expense.
57
<PAGE>
PURCHASES BY REPRESENTATIVES OR EMPLOYEES OF
BROKER-DEALERS
This privilege is based upon the presumed knowledge such persons have about
the Fund as a result of their working for a company selling the Funds' shares
and resulting economies of sales effort and expense.
PURCHASES BY CERTAIN RETIREMENT PLANS
This privilege is based upon the familiarity of such investors with the
Funds and the resulting lack of sales effort and expense.
PURCHASES BY REGISTERED INVESTMENT COMPANIES
This privilege is based upon the generally unsolicited nature of such
purchases and the resulting lack of sales effort and expense.
PURCHASES WITH PROCEEDS FROM REDEMPTION OF UNRELATED MUTUAL FUND SHARES OR
SURRENDER OF CERTAIN FIXED ANNUITY CONTRACTS
SHAREHOLDERS OF UNRELATED MUTUAL FUNDS WITH SALES LOADS-This privilege is
based upon the existing relationship of such persons with their broker-dealer or
registered representative and/or the familiarity of such shareholders with
mutual funds as an investment concept, with resulting economies of sales effort
and expense.
OWNERS OF A FIXED ANNUITY CONTRACT NOT DEEMED A SECURITY UNDER THE
SECURITIES LAWS-This privilege is based upon the existing relationship of such
persons with their broker-dealer or registered representative and/or the lower
acquisition costs associated with such sale, with resulting economies of sales
effort and expense.
PURCHASES BY EMPLOYEES OF CERTAIN BANKS AND OTHER FINANCIAL SERVICES FIRMS
This privilege is based upon the familiarity of such investors with the
Funds and the resulting lack of sales effort and expense.
PURCHASES BY COMMERCIAL BANKS OFFERING SELF DIRECTED 401(K) PROGRAMS CONTAINING
BOTH POOLED AND INDIVIDUAL INVESTMENT OPTIONS
This privilege is based upon the existing relationship of such persons with
their broker-dealer or registered representative and/or the lower acquisition
costs associated with such sale, with resulting economies of sales effort and
expense.
PURCHASES BY INVESTMENT ADVISERS, TRUST COMPANIES, AND BANK TRUST DEPARTMENTS
EXERCISING DISCRETIONARY INVESTMENT AUTHORITY OR USING A MONEY MANAGEMENT/MUTUAL
FUND "WRAP" PROGRAM
This privilege is based upon the familiarity of such investors with the
Funds and the resulting lack of sales effort and expense.
PURCHASES BY CERTAIN PERSONS ASSOCIATED WITH THE PATHFINDER FUND
This privilege is based upon their familiarity with the U.S. Government
Securities Fund stemming from the Fund's acquisition of Pathfinder Fund and
resulting economies of sales effort and expense.
PURCHASES BY CERTAIN CARNEGIE INTERMEDIATE GOVERNMENT SERIES (OF CARNEGIE
GOVERNMENT SECURITIES TRUST) ACCOUNTS
This privilege is based upon their familiarity with the U.S. Government
Securities Fund stemming from its acquisition of Carnegie Intermediate
Government Series and resulting economies of sales effort and expense.
58
<PAGE>
REDEMPTION
The obligation of each Fund to redeem its shares when called upon to do so
by the shareholder is mandatory with certain exceptions. The Fund will pay in
cash all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the net asset value
of the Fund at the beginning of such period. When redemption requests exceed
such amount, however, the Fund reserves the right to make part or all of the
payment in the form of readily marketable securities or other assets of the
Fund. An example of when this might be done is in case of emergency, such as in
those situations enumerated in the following paragraph, or at any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders. Any securities being so distributed would be valued in
the same manner as the portfolio of the Fund is valued. If the recipient sold
such securities, he or she probably would incur brokerage charges.
Redemption of shares, or payment, may be suspended at times (a) when the
Exchange is closed for other than customary weekend or holiday closings,
(b) when trading on said Exchange is restricted, (c) when an emergency exists,
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable, or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist. The Exchange
is not open for business on the following holidays (nor on the nearest Monday or
Friday if the holiday falls on a weekend), on which the Fund will not redeem
shares: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
There is no charge for redemption, nor do the Funds contemplate
establishing a charge, although it has the right to do so. In the event a charge
were established, it would apply only to persons who became shareholders after
such charge was implemented, and it would not, in any event, exceed 1% of the
net asset value of the shares redeemed. Should further public sales ever be
discontinued, the Funds may deduct a proportionate share of the cost of
liquidating assets from the asset value of the shares being redeemed, in order
to protect the equity of the other shareholders.
SYSTEMATIC WITHDRAWAL PLAN
An investor may open a "Systematic Withdrawal Plan" providing for
withdrawals of $50 or more per quarter, semiannually, or annually if he or she
has made a minimum investment in Fund shares of $4,000 ($50 or more per month if
at least $10,000 has been invested), or has acquired and deposited shares having
either an original cost, or current value computed on the basis of the offering
price, equal to the appropriate amount. The minimum amount which may be
withdrawn of $50 per month is a minimum only, and should not be considered a
recommendation.
These payments may constitute return of capital, and it should be
understood that they do not represent a yield or return on investment and that
they may deplete or eliminate the investment. The shareholder cannot be assured
of receiving payment for any specific period because payments will terminate
when all shares have been redeemed. The number of such payments will depend on
the amount of each payment, the frequency of each payment, and the increase (or
decrease) in value of the remaining shares.
Under this Plan, any distributions of income and realized capital gains are
reinvested at net asset value. If a shareholder wishes to purchase additional
shares of the Funds under this Plan, other than by reinvestment of
distributions, it should be understood that he or she would be paying a sales
commission on such purchases, while liquidations effected under the Plan would
be at net asset value. Purchases of additional shares concurrent with
withdrawals are ordinarily disadvantageous to the shareholder because of sales
charges and tax liabilities. Additions to a shareholder account in which an
election has been made to receive systematic withdrawals will be accepted only
if each such addition is equal to at least one year's scheduled withdrawals or
$1,200, whichever is greater. A shareholder may not have a "Systematic
Withdrawal Plan" and a "Systematic Investment Plan" in effect simultaneously, as
it is not, as explained above, advantageous to do so.
The Plan is voluntary, flexible, and under the shareholder's control and
direction at all times, and does not limit or alter his or her right to redeem
shares. The Plan may be terminated in writing at any time by either the
shareholder or the applicable Fund. The cost of operating the Plan is borne by
Advisers. The redemption of Fund shares pursuant to the Plan is a taxable event
to the shareholder.
59
<PAGE>
REINVESTMENT PRIVILEGE
In order to allow investors who have redeemed Fund shares an opportunity to
reinvest, without additional cost, a one-time privilege is offered whereby an
investor may reinvest in the Fund, or in any other fund underwritten by
Investors and available to the public, without a sales charge. The reinvestment
privilege must be exercised in an amount not exceeding the proceeds of
redemption; must be exercised within 60 days of redemption; and only may be
exercised once with respect to the Fund.
The purchase price for Fund shares will be based upon net asset value at
the time of reinvestment, and may be more or less than the redemption value.
Should an investor utilize the reinvestment privilege within 30 days following a
redemption which resulted in a loss, all or a portion of that loss may not be
currently deductible for Federal income tax purposes. Exercising the
reinvestment privilege would not alter any capital gains taxes payable on a
realized gain. Furthermore, if a shareholder redeems within 90 days of
purchasing the shares in the Fund, the sales charge incurred on that purchase
cannot be taken into account for determining the shareholder's gain or loss on
the sale of those shares.
TAXATION
The Funds qualified in their respective tax years ended July 31, 1995, and
October 31, 1995, and intend to continue to qualify, as a regulated investment
companies under the Internal Revenue Code of 1986, as amended (the "Code"). As
long as the Funds so qualify, the Funds are not taxed on the income they
distribute to their shareholders.
Under the Internal Revenue Code of 1986, as amended (the "Code"), each
Portfolio offered through Fortis Advantage is treated as a separate entity for
Federal tax purposes. Therefore, each Portfolio is treated separately in
determining whether it qualifies as a regulated investment company and for
purposes of determining the net ordinary income (or loss), net realized capital
gains (or losses), and distributions necessary to relieve each Portfolio of any
Federal income tax liability.
For individuals in taxable year 1995, long-term capital gains are subject
to a maximum Federal income tax rate of 28% while ordinary income is subject to
a maximum rate of 39.6% (for taxable income in excess of $256,500). (The maximum
effective tax rate may be in excess of 39.6%, resulting from a combination of
the nominal tax rate and a phase-out of personal exemptions and a partial
disallowance of itemized deductions for individuals with taxable incomes above
certain levels.)
Gain or loss realized upon the sale of shares in the Fund will be treated
as capital gain or loss, provided that the shares represented a capital asset in
the hands of the shareholder. Such gain or loss will be long-term capital gain
or loss if the shares were held for more than one year.
Under the Code, each Fund is subject to a nondeductible excise tax for each
calendar year equal to 4 percent of the excess, if any, of the amount required
to be distributed over the amount distributed. However, the excise tax does not
apply to any income on which the Fund pays income tax. In order to avoid the
imposition of the excise tax, the Fund generally must declare dividends by the
end of a calendar year representing at least 98 percent of the Fund's ordinary
income for the calendar year and 98 percent of its capital gain net income (both
long-term and short-term capital gains) for the 12-month period ending October
31 of the calendar year.
The marked-to-market rules of the Code may require the High Yield Portfolio
to the extent that it invests in options and futures, to recognize gains and
losses on certain options and futures held by the Portfolio at the end of the
fiscal year. Under the marked-to-market rules, 60% of any net capital gain or
loss recognized is treated as long-term and 40% as short-term. In addition, the
straddle rules of the Code would require deferral of certain losses realized on
positions of a straddle to the extent that the Portfolio had unrealized gains in
offsetting positions at year end.
If the High Yield Portfolio invests in zero coupon obligations upon their
issuance, such obligations will have original issue discount in the hands of the
Portfolio. Generally, the original issue discount equals the difference between
the "stated redemption price at maturity" of the obligation and its "issue
price" as those terms are defined in the Code. The Portfolio is required to
accrue as ordinary interest income a portion of such original issue discount
even though they receive no cash currently as interest payment on the
obligation. Similarly, in the case of PIK's, High Yield Portfolio is required to
recognize interest income in the amount of the fair market value of the
securities received as interest payments on the PIK's, even though it receives
no cash.
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<PAGE>
Because the High Yield Portfolio is required to distribute substantially
all of its net investment income (including accrued original issue discount and
interest income attributable to PIK's) in order to be taxed as regulated
investment companies, such Portfolio may be required to distribute an amount
greater than the total cash income the Portfolio actually receives. Accordingly,
in order to make the required distribution, the Portfolio may be required to
borrow or to liquidate securities. The extent to which the Portfolio may
liquidate securities at a gain may be limited by the requirement that generally
less than 30% of such Portfolio's gross income (on an annual basis) consists of
gains from the sale of securities held for less than three months.
Pursuant to a special provision in the Code, if Fund shares with respect to
which a long-term capital gain distribution has been made are held for six
months or less, any loss on the sale or other disposition of such shares will be
a long-term capital loss to the extent of such long-term capital gain
distribution, unless such sale or other disposition is pursuant to a Systematic
Withdrawal Plan.
Under the Code, each Fund is required to withhold and remit to the U.S.
Treasury 31% of dividend and capital gain income on the accounts of certain
shareholders who fail to provide a correct tax identification number, fail to
certify that they are not subject to backup withholding, or are subject to
backup withholding for some other reason.
At October 31, 1995, High Yield Portfolio had capital loss carryforwards of
$14,865,044, which, if not offset by subsequent capital gains, will expire in
1999 through 2003. At July 31, 1995, the U.S. Government Securities Fund had
capital loss carry-forwards of $59,084,201, which, if not offset by subsequent
capital gains, will expire in 2002 through 2004. It is unlikely the Funds'
Boards of Directors will authorize a distribution of any net realized gains
until the available capital loss carryovers have been offset or expired.
The foregoing is a general discussion of the Federal income tax
consequences of an investment in the Funds as of the date of this Statement of
Additional Information. Distributions from net investment income and from net
realized capital gains may also be subject to state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, or local taxes.
UNDERWRITER
On December 7, 1995, the Board of Directors of each Fund (including a
majority of the directors who are not parties to the contract, or interested
persons of any such party) last approved the Funds' separate Underwriting
Agreements with Investors dated November 14, 1994, which became effective
November 14, 1994. The Funds' respective Underwriting Agreements may be
terminated by the Funds or Investors at any time by the giving of 60 days'
written notice, and terminates automatically in the event of its assignment.
Unless sooner terminated, the Underwriting Agreements shall continue in effect
for more than two years after its execution only so long as such continuance is
also approved by the vote of a majority of the directors who are not parties to
such Underwriting Agreements, or interested persons of such parties, cast in
person at a meeting called for the purpose of voting on such approval.
The Underwriting Agreement requires Investors or Advisers to pay all
promotional expenses in connection with the distribution of Fund shares,
including paying for printing and distributing prospectuses and shareholder
reports to new shareholders, and the costs of sales literature. See "Plan of
Distribution," below, regarding fees paid to Investors to be used to compensate
those who sell Fund shares and to pay certain other expenses of selling Fund
shares.
In the Underwriting Agreement, Investors undertakes to indemnify the Funds
against all costs of litigation and other legal proceedings, and against any
liability incurred by or imposed upon the Funds in any way arising out of or in
connection with the sale or distribution of the Funds' shares, except to the
extent that such liability is the result of information which was obtainable by
Investors only from persons affiliated with the Funds but not with Investors.
PLAN OF DISTRIBUTION
The policy of having the Funds compensate those who sell Fund shares has
been adopted pursuant to Rule 12b-1 under the 1940 Act. Rule 12b-1(b) provides
that any payments made by the Fund in connection with financing the distribution
of its shares may only be made pursuant to a written plan describing all aspects
of the proposed financing of distribution, and also requires that all agreements
with any person relating to the implementation of the plan must be in writing.
In addition, Rule 12b-1(b)(1) requires that such plan be approved by a majority
of the Fund's outstanding shares, and Rule 12b-1(b)(1) requires that such plan,
together
61
<PAGE>
with any related agreements, be approved by a vote of the Board of
Directors who are not interested persons of the Fund and have no direct or
indirect interest in the operation of the plan or in the agreements related to
the plan, cast in person at a meeting called for the purpose of voting on such
plan or agreement.
Rule 12b-1(b)(3) requires that the plan or agreement provide in substance:
(i) That it shall continue in effect for a period of more than one year
from the date of its execution or adoption only so long as such continuance is
specifically approved at least annually in the manner described in paragraph
(b)(2) of Rule 12b-1;
(ii) That any person authorized to direct the disposition of monies paid or
payable by the Fund pursuant to the plan or any related agreement shall provide
to the Board of Directors, and the directors shall review, at least quarterly, a
written report of the amounts so expended and the purpose for which such
expenditures were made; and
(iii) In the case of a plan, that it may be terminated at any time by
vote of a majority of the members of the Board of Directors who are not
interested persons of the Fund and have no direct or indirect financial interest
in the operation of the plan, or in any agreements related to the plan or by
vote of a majority of the outstanding voting securities of the Fund.
Rule 12b-1(b)(4) requires that such plans may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments of the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the Fund may rely on Rule 12b-1(b) only if the
selection and nomination of the disinterested directors of the Fund are
committed to the discretion of such disinterested directors. Rule 12b-1(e)
provides that the Fund may implement or continue a plan pursuant to
Rule 12b-1(b) only if the directors who vote to approve such implementation or
continuation conclude, in the exercise of reasonable business judgment and in
light of their fiduciary duties under state law, and under Section 36(a) and (b)
of the 1940 Act, that there is a reasonable likelihood that the plan will
benefit the Fund and its shareholders.
The Board of Directors last approved the plan on December 7, 1995.
62
<PAGE>
PERFORMANCE
The "yield" refers to the income generated by an investment over a 30-day
(or one month) period (which period will be stated in the advertisement). It is
calculated by dividing the net investment income per share (as defined under
Securities and Exchange Commission Rules) earned during the period by the
maximum offering price per share on the last day of the period. The result is
then "annualized" using a formula that provides for semiannual compounding of
income. The U.S. Government Securities Fund's yields for the 30-day period ended
October 31, 1995, were as follows:
Class A - 5.31%
Class B - 4.81%
Class H - 4.81%
Class C - 4.81%
Class E - 5.55%
The High Yield Portfolio's yields for the 30-day period ended October 31, 1995
were as follows:
Class A - 10.39%
Class B - 10.22%
Class H - 10.22%
Class C - 10.22%
While each Fund's yield may be compared to that of "CDs" (insured, fixed
rate certificates of deposit issued by financial institutions), the Funds'
yields are not fixed and an investment in the Fund is not insured.
U.S. GOVERNMENT FUND
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CLASS E
TOTAL
YEAR ENDED VALUE OF INITIAL $1,000 REINVESTED CAPITAL GAINS REINVESTED CUMULATIVE % YEARLY
SEPTEMBER 30, INVESTMENTS($) + DISTRIBUTIONS($) + DIVIDENDS($) = VALUE($) CHANGE
<S> <C> <C> <C> <C> <C>
86 1,025 0 109 1,134 13.4%
87 934 8 200 1,142 0.7%
88 960 8 319 1,287 12.7%
89 954 8 445 1,407 9.3%
90 942 8 579 1,529 8.7%
91 985 8 760 1,753 14.7%
92 997 8 926 1,931 10.2%
93 998 8 1,084 2,090 8.2%
94 871 13 1,091 1,975 (5.5)%
95 902 14 1,286 2,202 11.5%
CUMULATIVE TOTAL RETURN Last 5 Yrs. 37.5%
Last 10 Yrs. 120.2%
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
CLASS A
PERIOD VALUE OF + REINVESTED + REINVESTED = TOTAL % YEARLY
ENDED INITIAL CAPITAL GAINS DIVIDENDS($) CUMULATIVE CHANGE
SEPTEMBER $1,000 DISTRIBUTIONS VALUE($)
30, INVESTMENT($) ($)
<S> <C> <C> <C> <C> <C>
95 1,007 0 65 1,072 7.2%
<CAPTION>
CLASS B
PERIOD VALUE OF + REINVESTED + REINVESTED = TOTAL % YEARLY
ENDED INITIAL CAPITAL GAINS DIVIDENDS($) CUMULATIVE CHANGE
SEPTEMBER $1,000 DISTRIBUTIONS VALUE($)
30, INVESTMENT($) ($)
<S> <C> <C> <C> <C> <C>
95 1,053 0 61 1,114 11.4%
<CAPTION>
CLASS H
PERIOD VALUE OF + REINVESTED + REINVESTED = TOTAL % YEARLY
ENDED INITIAL CAPITAL GAINS DIVIDENDS($) CUMULATIVE CHANGE
SEPTEMBER $1,000 DISTRIBUTIONS VALUE($)
30, INVESTMENT($) ($)
<S> <C> <C> <C> <C> <C>
95 1,054 0 62 1,116 11.6%
<CAPTION>
CLASS C
PERIOD VALUE OF + REINVESTED + REINVESTED = TOTAL % YEARLY
ENDED INITIAL CAPITAL GAINS DIVIDENDS($) CUMULATIVE CHANGE
SEPTEMBER $1,000 DISTRIBUTIONS VALUE($)
30, INVESTMENT($) ($)
<S> <C> <C> <C> <C> <C>
95 1,053 0 61 1,114 11.4%
</TABLE>
64
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
MOST 1 2 3 4 5 6 7 8 9 10
RECENT: YEAR YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 6.47% 0.31% 2.89% 4.66% 6.58% 6.93% 7.26% 7.93% 7.10% 8.21%
Class A * - - - - - - - - - -
7.24%
Class B * - - - - - - - - - -
11.43%
Class H * - - - - - - - - - -
11.53%
Class C * - - - - - - - - - -
11.43%
</TABLE>
* Since November 14, 1994 inception.
$2,000 ANNUAL INVESTMENTS
<TABLE>
<CAPTION>
CLASS E
YEAR ENDED CUMULATIVE VALUE OF + REINVESTED + REINVESTED = TOTAL
SEPTEMBER 30, INVESTMENT($) ANNUAL $2,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE
INVESTMENTS($) DISTRIBUTIONS($) VALUE($) FUND
1,3;-2.8]
<S> <C> <C> <C> <C> <C>
86 2,000 2,051 0 219 2,270
87 4,000 3,609 28 569 4,206
88 6,000 5,671 29 1,195 6,895
89 8,000 7,534 29 2,059 9,622
90 10,000 9,326 28 3,181 12,535
91 12,000 11,744 30 4,780 16,554
92 14,000 13,819 30 6,495 20,344
93 16,000 15,745 30 8,312 24,087
94 18,000 15,411 104 9,051 24,566
95 20,000 17,931 108 11,479 29,518
<CAPTION>
CLASS A
YEAR ENDED CUMULATIVE VALUE OF + REINVESTED + REINVESTED = TOTAL
SEPTEMBER 30, INVESTMENT($) ANNUAL $2,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE
INVESTMENTS($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
95 2,000 2,014 0 130 2,144
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED CUMULATIVE VALUE OF + REINVESTED + REINVESTED = TOTAL
SEPTEMBER 30, INVESTMENT($) ANNUAL $2,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE
INVESTMENTS($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
95 2,000 2,107 0 121 2,228
<CAPTION>
CLASS H
YEAR ENDED CUMULATIVE VALUE OF + REINVESTED + REINVESTED = TOTAL
SEPTEMBER 30, INVESTMENT($) ANNUAL $2,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE
INVESTMENTS($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
95 2,000 2,109 0 123 2,232
<CAPTION>
CLASS C
YEAR ENDED CUMULATIVE VALUE OF + REINVESTED + REINVESTED = TOTAL
SEPTEMBER 30, INVESTMENT($) ANNUAL $2,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE
INVESTMENTS($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
95 2,000 2,107 0 121 2,228
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
MOST 1 2 3 4 5 6 7 8 9 10
RECENT: YEAR YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class E 6.47% 2.35% 2.62% 3.48% 4.60% 5.35% 5.90% 6.44% 6.60% 6.97%
Class A * - - - - - - - - - -
7.24%
Class B * - - - - - - - - - -
11.43%
Class H * - - - - - - - - - -
11.53%
Class C * - - - - - - - - - -
11.43%
</TABLE>
* Since November 14, 1994 inception.
Cumulative total return is the increase in value of a hypothetical $1,000
investment made at the beginning of the advertised period. It may be expressed
in terms of dollars or percentage. Average annual total return is the annual
compounded rate of return based upon the same hypothetical investment.
Systematic investment plan cumulative total return and systematic investment
plan average annual total return are similar except that $2,000 annual
investments are assumed (at the beginning of each year). The above tables each
include reduction due to the maximum 4.5% sales charge and assume quarterly
reinvestment of all dividend and capital gains distributions. Had dividends and
capital gains distributions been taken in cash, with no shares being acquired
through reinvestment, the cash payments for Classes E, A, B, C, and H for the
period would have been $11.06, $0, $0, $0, and $0, respectively, for capital
gains distributions and $852, $62, $58, $58, and $58.06, respectively, for
income dividends, and the value of the shares as of September 30, 1995, would
have been $902, $1,007, $1,053, $1,053, and $1,054, respectively. All figures
are based upon historical earnings and are not intended to indicate future
performance.
66
<PAGE>
Investment return and share value fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. No adjustment has
been made for a shareholder's income tax liability on dividends or capital
gains.
HIGH YIELD PORTFOLIO
$1,000 SINGLE INVESTMENT
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED VALUE OF + REINVESTED + REINVESTED = TOTAL % YEARLY
OCTOBER 31, INITIAL $1,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE CHANGE
INVESTMENT($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
88** 947 0 92 1,039 3.9%
89 820 0 200 1,020 (1.8)%
90 546 5 249 800 (21.6)%
91 747 7 493 1,247 55.8%
92 764 8 653 1,425 14.2%
93 826 8 880 1,714 20.3%
94 754 8 978 1,740 1.5%
95 727 7 1,146 1,880 8.0%
CUMULATIVE TOTAL RETURN Last five years 124.2%
Life of Portfolio 88.0%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED VALUE OF + REINVESTED + REINVESTED = TOTAL % YEARLY
OCTOBER 31, INITIAL $1,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE CHANGE
INVESTMENT($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
95* 966 0 107 1,073 7.3%
<CAPTION>
CLASS H
YEAR ENDED VALUE OF + REINVESTED + REINVESTED = TOTAL % YEARLY
OCTOBER 31, INITIAL $1,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE CHANGE
INVESTMENT($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
95* 966 0 107 1,073 7.3%
<CAPTION>
CLASS C
YEAR ENDED VALUE OF + REINVESTED + REINVESTED = TOTAL % YEARLY
OCTOBER 31, INITIAL $1,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE CHANGE
INVESTMENT($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
95* 964 0 107 1,071 7.1%
</TABLE>
67
<PAGE>
High Yield Portfolio
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
MOST 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS LIFE OF
RECENT: PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A 3.21% 2.34% 8.02% 9.53% 17.53% 9.87% 8.12% 8.40%
Class B* - - - - - - - -
7.25%
Class H* - - - - - - - -
7.26%
Class C* - - - - - - - -
7.12%
</TABLE>
$2,000 ANNUAL INVESTMENTS
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED CUMULATIVE VALUE OF + REINVESTED + REINVESTED = TOTAL
DECEMBER 31, INVESTMENT($) ANNUAL $2,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE
INVESTMENTS($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
88** 2,000 1,895 0 184 2,079
89 4,000 3,295 0 623 3,918
90 6,000 3,466 31 1,074 4,571
91 8,000 7,349 43 2,704 10,096
92 10,000 9,472 44 4,195 13,711
93 12,000 12,307 47 6,443 18,797
94 14,000 12,985 43 7,986 21,014
95 16,000 14,348 41 10,385 24,774
</TABLE>
<TABLE>
<CAPTION>
CLASS B
YEAR ENDED CUMULATIVE VALUE OF + REINVESTED + REINVESTED = TOTAL
OCTOBER 31 INVESTMENT($) ANNUAL $2,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE
INVESTMENTS($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
95* 2,000 1,931 0 214 2,145
<CAPTION>
CLASS H
YEAR ENDED CUMULATIVE VALUE OF + REINVESTED + REINVESTED = TOTAL
OCTOBER 31 INVESTMENT($) ANNUAL $2,000 CAPITAL GAINS DIVIDENDS($) CUMULATIVE
INVESTMENTS($) DISTRIBUTIONS($) VALUE($)
<S> <C> <C> <C> <C> <C>
95* 2,000 1,931 0 214 2,145
</TABLE>
68
<PAGE>
CLASS C
<TABLE>
<CAPTION>
VALUE OF REINVESTED
ANNUAL $2,000 CAPITAL GAINS
YEAR ENDED INVEST- DISTRI- REINVESTED TOTAL CUMULATIVE
DECEMBER 31, CUMULATIVE INVESTMENT($) MENTS($) + BUTIONS($) + DIVIDENDS($) = VALUE($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
95* 2,000 1,929 0 213 2,142
</TABLE>
HIGH YIELD
AVERAGE ANNUAL TOTAL RETURN
(Percentages based upon the above hypothetical investment)
<TABLE>
<CAPTION>
MOST LIFE OF
RECENT: 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A 3.21% 2.63% 5.46% 7.25% 11.54% 10.99% 10.17% 9.72%
Class B*
7.25% - - - - - - - -
Class H*
7.26% - - - - - - - -
Class C*
7.12% - - - - - - - -
</TABLE>
Cumulative total return is the increase in value of a hypothetical $1,000
investment made at the beginning of the advertised period. It may be expressed
in terms of dollars or percentage. Average annual total return is the annual
compounded rate of return based upon the same hypothetical investment.
Systematic investment plan cumulative total return and systematic investment
plan average annual total return are similar except that $2,000 annual
investments are assumed (at the beginning of each year). The above tables each
include reduction due to the maximum 4.5% sales charge and assume quarterly
reinvestment of all dividend and capital gains distributions. Had dividends and
capital gains distributions been taken in cash, with no shares being acquired
through reinvestment, the cash payments for Classes A, B, C, and H, for the
period would have been $6, $0, $0, and $0, respectively, for capital gains
distributions and $737, $104, $104 and $104, respectively for income dividends,
and the value of the shares as of October 31, 1995, would have been $727, $966,
$964 and $966, respectively. All figures are based upon historical earnings and
are not intended to indicate future performance. Investment return and share
value fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. No adjustment has been made for a
shareholder's income tax liability on dividends or capital gains.
* = This REFLECTS THE CUMULATIVE TOTAL RETURN FROM November 14, 1994 to
October 31, 1995.
** = January 4, 1988 through December 31, 1988
- --------------------------------------------------------------------------------
Cumulative total return is computed by finding the cumulative compounded
rate of return over the period indicated in the advertisement that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
CTR = [(ERV - P)/P] 100
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period; and
P = initial payment of $1,000
69
<PAGE>
This calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
Average annual total return figures are computed by finding the average
annual compounded rates of return over the periods indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the period
of a hypothetical $1,000 payment made at the
beginning of such period.
This calculation deducts the maximum sales charge from the initial
hypothetical $1,000 investment, assumes all dividends and capital gains
distributions are reinvested at net asset value on the appropriate reinvestment
dates as described in the Prospectus, and includes all recurring fees, such as
investment advisory and management fees, charged to all shareholder accounts.
The systematic investment plan average annual total return (for
hypothetical investments of $2,000 at the beginning of each year) is computed by
finding the average annual compounded rate of return over the periods indicated
in the advertisement that would equate the periodic payment amount invested to
the ending redeemable value according to the following formula:
n
ERV = PMT (1+T) [(1+T) -1]
----------
[ T ]
Where: ERV = ending redeemable value at the end of the period of
hypothetical investments of $2,000 made at the
beginning of each year;
PMT = Periodic payment ($2,000);
T = Average annual total return; and
n = number of years.
This calculation deducts the applicable sales charge from each hypothetical
$2,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the Prospectus, and includes all recurring fees, such as investment advisory
and management fees, charged to all shareholder accounts.
Yield is computed by dividing the net investment income per share (as
defined under Securities and Exchange Commission rules and regulations) earned
during the computation period by the maximum offering price per share on the
last day of the period, according to the following formula:
6
YIELD = 2 ( [ (a-b) + 1 ] - 1 )
---
( [ cd ] )
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of
the period.
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<PAGE>
As noted in the Prospectus, the Fund may advertise its relative performance
as compiled by outside organizations or refer to publications which have
mentioned its performance.
Following is a list of ratings services which may be referred to, along
with the category in which the Funds is included. Because some of these services
do not take into account sales charges, their ratings may sometimes be different
than had they done so:
U.S. GOVERNMENT SECURITIES FUND
RATINGS SERVICE CATEGORY
- --------------- --------
Lipper Analytical Services, Inc. fixed income
Wiesenberger Investment Companies Services U.S. Government Securities
Morningstar Publications, Inc. general government
Johnson's Charts government securities
CDA Technologies, Inc. bond and preferred
HIGH YIELD PORTFOLIO
RATINGS SERVICE CATEGORY
- --------------- --------
LIPPER ANALYTICAL SERVICES, INC. FIXED INCOME
WIESENBERGER INVESTMENT COMPANIES
SERVICES HIGH YIELD BOND
MORNINGSTAR PUBLICATIONS, INC. CORPORATE BOND-HIGH QUALITY
JOHNSON'S CHARTS HIGH YIELD CORPORATE BOND
CDA TECHNOLOGIES, INC. FIXED INCOME-PRIMARILY HIGH YIELD
71
<PAGE>
Following is a list of the publications whose articles may be referred to:
AMERICAN BANKER (The)
AP-DOW Jones News Service
ASSOCIATED PRESS (The)
BARRON'S
BETTER INVESTING
BOARDROOM REPORTS
BOND BUYER & CREDIT MARKETS (The)
BOND BUYER (The)
BONDWEEK
BUSINESS MONTH
BUSINESS WEEK
CABLE NEWS NETWORK
CASHFLOW MAGAZINE
CFO
CHICAGO TRIBUNE (The)
CHRISTIAN SCIENCE MONITOR
CITY BUSINESS/CORPORATE REPORT
CITYBUSINESS PUBLICATIONS
COMMERCIAL & FINANCIAL CHRONICLE
CONSUMER GUIDE
CORPORATE FINANCE
DALLAS MORNING NEWS
DOLLARS & SENSE
DOW-JONES NEWS SERVICE
ECONOMIST (The)
EQUITY INTERNATIONAL
EUROMONEY
FINANCIAL EXECUTIVE
FINANCIAL PLANNING
72
<PAGE>
FINANCIAL SERVICES WEEK
FINANCIAL TIMES
FINANCIAL WORLD
FORBES
FORTUNE
FUTURES
GLOBAL FINANCE
GLOBAL INVESTOR
INDUSTRY WEEK
INSTITUTIONAL INVESTOR
INTERNATIONAL HERALD TRIBUNE
INVESTMENT DEALER'S DIGEST
INVESTOR'S BUSINESS DAILY
KIPLINGER PERSONAL FINANCE
KIPLINGER CALIF. LETTER (The)
KIPLINGER FLORIDA LETTER
KIPLINGER TEXAS LETTER
KIPLINGER WASHINGTON LETTER (The)
KNIGHT/RIDDER FINANCIAL
LA TIMES
LIPPER ANALYTICAL SERVICES
MARKET CHRONICLE
MINNEAPOLIS STAR TRIBUNE
MONEY
MONEY MANAGEMENT LETTER
MOODY'S INVESTORS SERVICE, INC.
NATIONAL THRIFT NEWS
NATIONAL UNDERWRITER
NELSON'S RESEARCH MONTHLY
NEW YORK DAILY NEWS
73
<PAGE>
NEW YORK NEWSDAY
NEW YORK TIMES (The)
NEWSWEEK
NIGHTLY BUSINESS REPORT (The)
PENSION WORLD
PENSIONS & INVESTMENT AGE
PERSONAL INVESTOR
PORTFOLIO LETTER
REGISTERED REPRESENTATIVE
RUETERS
SECURITIES PRODUCT NEWS
SECURITIES WEEK
SECURITY TRADERS HANDBOOK
SAINT PAUL PIONEER PRESS
STANDARD & POOR'S CORPORATION
STANGER'S INVESTMENT ADVISOR
STANGER'S SELLING MUTUAL FUNDS
STOCK MARKET MAGAZINE (The)
TIME
TRUSTS & ESTATES
U.S. NEWS & WORLD REPORT
UNITED PRESS INTERNATIONAL
USA TODAY
WALL STREET JOURNAL (The)
WASHINGTON POST (The)
FORTIS BENEFITS INSURANCE COMPANY
WOODBURY BULLETIN
WIESENBERGER INVESTMENT COMPANIES
SERVICES
74
<PAGE>
TWO GENERATIONS:
INVESTING IN AMERICA WITH
THE FORTIS U.S. GOVERNMENT
SECURITIES FUND
SUSAN AND BILL: CONSERVATIVE
INVESTING FOR GROWTH
When Susan and Bill were in their mid-'20s, they knew it was time to start
saving for their children's college expenses. While they liked the safety of
Certificates of Deposit, they hoped to find a conservative investment that had
the potential for better return.
"We knew about mutual funds, but we didn't want the added risk of investing in
stocks," Bill adds.
That's when their registered representative introduced them to the Fortis U.S.
Government Securities Fund. He explained that while the fund itself is not
guaranteed, it invests in securities that are backed by the U.S. Government.
Bill and Susan liked the history of stability behind the Fortis U.S. Government
Securities Fund, as well as the fact that they could access their money. So on
October 1, 1985, they invested $10,000 in Class E shares.
By September 30, 1995, they had a good start on their children's college fund.
Their account value had grown to $22,018 - with AN AVERAGE ANNUAL RETURN OF
8.24% - SIGNIFICANTLY BETTER THAN WHAT THEY WOULD HAVE AVERAGED WITH CDS.*
Because Susan and Bill felt so positive about their decision to invest in the
Fortis U.S. Government Fund, they recommended it to Susan's mother, Marie.
MARIE: CONSERVATIVE
INVESTING FOR
ADDITIONAL INCOME
An active widow in her early '60s, Marie was seeking current income to
supplement her pension and Social Security. She was getting by, but most of the
income from her CD was absorbed by the cost of food, housing and other basics.
In October, 1985, Marie put $100,000 in the Fortis U.S. Government
Securities Fund. Since then, she has withdrawn $86,634 in dividends (an average
annual dividend of $8,663).
While CD rates were high in the early '80s, they've since fallen. OVER THE LAST
TEN YEARS, THE FORTIS U.S. GOVERNMENT SECURITIES FUND HAS PROVIDED INCOME 32%
HIGHER THAN THAT OFFERED BY 1-YEAR CDS.**
"With the Fortis U.S. Government Fund, the principal is relatively stable and
any dividends give me the income I need for my living expenses," Marie adds.
Though they had different goals, Susan, Bill, and Marie, found that the
Fortis U.S. Government Securities Fund helped them find the security and
performance they wanted.
TWO GENERATIONS...TWO GOALS...ONE SOLUTION -
THE FORTIS U.S. GOVERNMENT SECURITIES FUND (CLASS E)
SUSAN AND BILL: $10,000 invested on October 1, 1985
OBJECTIVE: Conservative total return
RESULT: Over 10 years, Susan and Bill's $10,000 grew to $22,018
MARIE: $100,000 invested on October 1, 1985
OBJECTIVE: Current income plus principal protection
RESULT: Over 10 years, Marie's account generated $86,634 in
income, which was in addition to her ending account value
of $92,056
75
<PAGE>
SUSAN, BILL AND MARIE ARE FICTIONAL CHARACTERS, BUT THE FIGURES DEPICTED IN
THEIR STORY ARE REAL. HYPOTHETICAL INVESTMENT/REDEMPTION DATES AND AMOUNTS UPON
WHICH THIS FICTIONAL ACCOUNT IS BASED ARE AVAILABLE UPON REQUEST.
Investment results are based upon historical earnings, are not intended to
indicate future performance, and may not be representative of the experiences of
other investors. Because investment return and principal value fluctuate, an
investor's shares, when redeemed, may be worth more or less than their original
cost. Returns cited in this brochure reflect deduction of maximum sales charge
of 4.50%, and assume reinvestment of dividends and capital gains. Investments of
$100,000 or more qualify for a sales charge reduction not illustrated by this
example.
The fund is not FDIC insured, is not an obligation of nor guaranteed by any bank
or financial institution, and involves investment risks, including possible loss
of principal.
*If Bill and Susan had invested their $10,000 in one-year CDs over the same time
period, they would have earned an average rate of return of 6.08%. (Source: Wall
Street Journal). CD principal and interest rate are guaranteed by the FDIC;
unlike mutual funds where principal and share value fluctuate. Debt securities
may be sensitive to interest changes.
**One-year CD rates have averaged 6.08% over the past ten years (Source: Wall
Street Journal), while the Fortis U.S. Government Securities Fund had an average
annual rate of 8.21%.
While the Fortis U.S. Government Securities Fund invests in securities that are
backed by the U.S. Government and its agencies (based on timely payment of
principal and interest only and not to the shares of the fund), it is not
guaranteed. The fund seeks stability of principal, but there is no assurance
this will be achieved.
76
<PAGE>
FINANCIAL STATEMENTS
The financial statements included as part of the Funds' 1995 Annual Report
to Shareholders, filed with the Securities and Exchange Commission in September,
1995 (U.S. Government Securities Fund) and December 1995 (High Yield Portfolio),
are incorporated herein by reference. The Annual Report accompanies this
Statement of Additional Information.
CUSTODIAN; COUNSEL; ACCOUNTANTS
First Bank National Association, First Bank Place, Minneapolis, MN 55480
acts as custodian of the U.S. Government Securities Fund's assets and portfolio
securities; Norwest Bank Minnesota, N.A., 8th and Marquette, Minneapolis,
Minnesota 55479 acts as custodian of High Yield Portfolio's assets and portfolio
securities; Dorsey & Whitney , L.L.P., 220 South Sixth Street, Minneapolis, MN
55402, is the independent General Counsel for the Funds; and KPMG Peat Marwick
LLP, 4200 Norwest Center, Minneapolis, MN 55402, acts as the Funds' independent
auditors.
LIMITATION OF DIRECTOR LIABILITY
Under Minnesota law, each director of Fortis Income owes certain fiduciary
duties to it and to its shareholders. Minnesota law provides that a director
"shall discharge the duties of the position of director in good faith, in a
manner the director reasonably believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances." Fiduciary duties of a director of a
Minnesota corporation include, therefore, both a duty of "loyalty" (to act in
good faith and act in a manner reasonably believed to be in the best interests
of the corporation) and a duty of "care" (to act with the care an ordinarily
prudent person in a like position would exercise under similar circumstances).
Minnesota law authorizes corporations to eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of the fiduciary duty of "care." Minnesota law does not,
however, permit a corporation to eliminate or limit the liability of a director
(i) for any breach of the director's duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation of
Minnesota law or for violation of certain provisions of Minnesota securities
laws, or (iv) for any transaction from which the director derived an improper
personal benefit. The Articles of Incorporation of Fortis Income limit the
liability of directors to the fullest extent permitted by Minnesota statutes,
except to the extent that such a liability cannot be limited as provided in the
1940 Act (which act prohibits any provisions which purport to limit the
liability of directors arising from such directors' willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their role as directors).
Minnesota law does not eliminate the duty of "care" imposed upon a
director. It only authorizes a corporation to eliminate monetary liability for
violations of that duty. Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers). Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief. Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the 1940 Act and the rules and regulations
adopted under such act.
ADDITIONAL INFORMATION
The Fund has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the common shares offered hereby. The
Prospectus and this Statement of Additional Information do not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with Rules and Regulations of the Commission. The
Registration Statement may be inspected at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C., and copies thereof may
be obtained from the Commission at prescribed rates.
APPENDIX
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
OPTIONS ON SECURITIES
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date or, in the
case of certain options, on such date. The holder pays a non-refundable purchase
price for the option, known as the "premium." The maximum amount of risk the
purchaser of the option assumes is equal to the premium plus related transaction
costs, although this entire amount may be lost. The risk of the seller, or
"writer," however, is potentially unlimited, unless the option is "covered." A
call option written by a Portfolio is "covered" if the Portfolio owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange
77
<PAGE>
of other securities held in its portfolio. A call option is also covered if a
Portfolio holds a call on the same security and in the same principal amount as
the call written where the exercise price of the call held (a) is equal to or
less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the
Portfolio in cash and high grade government securities in a segregated account
with its custodian. A put option written by a Portfolio is "covered" if the
Portfolio maintains cash and high grade government securities with a value equal
to the exercise price in a segregated account with its custodian, or else holds
a put on the same security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written. If the writer's obligation is not so covered,
it is subject to the risk of the full change in value of the underlying security
from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities and options on indexes of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York Stock Exchange, which are regulated by the
SEC. The Options Clearing Corporation guarantees the performance of each party
to an exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on securities and options on indexes of securities only through a registered
broker-dealer which is a member of the exchange on which the option is traded.
In addition, options on securities and options on indexes of securities may
be traded on exchanges located outside the United States and over-the-counter
through financial institutions dealing in such options as well as the underlying
instruments. The particular risks of transactions on foreign exchanges and
over-the-counter transactions are set forth more fully in the Statement of
Additional Information.
OPTIONS ON STOCK INDEXES
In contrast to an option on a security, an option on a stock index provides
the holder with the right to make or receive a cash settlement upon exercise of
the option, rather than the right to purchase or sell a security. The amount of
this settlement is equal to (i) the amount, if any, by which the fixed exercise
price of the option exceeds (in the case of a call) or is below (in the case of
a put) the closing value of the underlying index on the date of exercise,
multiplied by (ii) a fixed "index multiplier." The purchaser of the option
receives this cash settlement amount if the closing level of the stock index on
the day of exercise is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount
if the option is exercised. As in the case of options on securities, the writer
or holder may liquidate positions in stock index options prior to exercise or
expiration by entering into closing transactions on the exchange on which such
positions were established, subject to the availability of a liquid secondary
market.
A Portfolio will cover all options on stock indexes by owning securities
whose price changes, in the opinion of Advisers, are expected to be similar to
those of the index, or in such other manner as may be in accordance with the
rules of the exchange on which the option is traded and applicable laws and
regulations. Nevertheless, where a Portfolio covers a call option on a stock
index through ownership of securities, such securities may not match the
composition of the index. In that event, the Portfolio will not be fully covered
and could be subject to risk of loss in the event of adverse changes in the
value of the index. A Portfolio will secure put options on stock indexes by
segregating assets equal to the option's exercise price, or in such other manner
as may be in accordance with the rules of the exchange on which the option is
traded and applicable laws and regulations.
The index underlying a stock index option may be a "broad-based" index,
such as the Standard & Poor's 500 Index or the New York Stock Exchange Composite
index, the changes in value of which ordinarily will reflect movements in the
stock market in general. In contrast, certain options may be based on narrower
market indexes, such as the Standard & Poor's 100 Index, or on indexes of
securities of particular industry groups, such as those of oil and gas or
technology companies. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks so included.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES, STOCK INDEXES AND FOREIGN
CURRENCIES
A Futures Contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price. By its terms, a Futures Contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that
78
<PAGE>
they are bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. Futures Contracts call for settlement
only on the expiration date, and cannot be "exercised" at any other time during
their term.
The purchase or sale of a Futures Contract differs from the purchase or
sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the Futures Contract fluctuates, making positions
in the Futures Contracts more or less valuable, a process known as "marking to
the market."
U.S. Futures Contracts may be purchased or sold only on an exchange, known
as a "contract market," designated by the CFTC for the trading of such contract,
and only through a registered futures commission merchant which is a member of
such contract market. A commission must be paid on each completed purchase and
sale transaction. The contract market clearing house guarantees the performance
of each party to a Futures Contract, by in effect taking the opposite side of
such contract. At any time prior to the expiration of a Futures Contract, a
trader may elect to close out its position by taking an opposite position on the
contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the initial
position. At that time, a final determination of variation margin is made and
any loss experienced by the trader is required to be paid to the contract market
clearing house while any profit due to the trader must be delivered to it.
Futures Contracts may also be traded on foreign exchanges.
Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities and U.S. Treasury Bills. In addition, interest rate futures contracts
include contracts on indexes of municipal securities. Foreign currency futures
contracts currently are traded on the British pound, Canadian dollar, Japanese
yen, Swiss franc, West German mark and on Eurodollar deposits.
A stock index or Eurodollar futures contract provides for the making and
acceptance of a cash settlement in much the same manner as the settlement of an
option on a stock index. The types of indexes underlying stock index futures
contracts are essentially the same as those underlying stock index options, as
described above. The index underlying a municipal bond index futures contract is
a broad based index of municipal securities designed to reflect movements in the
municipal securities market as a whole. The index assigns weighted values to the
securities included in the index and its composition is changed periodically.
OPTIONS ON FUTURES CONTRACTS
An Option on a Futures Contract provides the holder with the right to enter
into a "long" position in the underlying Futures Contract, in the case of a call
option, or a "short" position in the underlying Futures Contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of Futures Contracts, such as payment of variation margin
deposits. In addition, the writer of an Option on a Futures Contract, unlike the
holder, is subject to initial and variation margin requirements on the option
position.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by affecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
Options on Futures Contracts that are written or purchased by a Portfolio
on United States exchanges are traded on the same contract market as the
underlying Futures Contract, and, like Futures Contracts, are subject to
regulation by the CFTC and the performance guarantee of the exchange clearing
house. In addition, Options on Futures Contracts may be traded on foreign
exchanges.
An option, whether based on a Futures Contract, a stock index or security,
becomes worthless to the holder when it expires. Upon exercise of an opinion,
the exchange or contract market clearing house assigns exercise notices on a
random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
timing of such exercise.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A Currency Contract is a contractual obligation to purchase or sell a
specific quantity of a given foreign currency for a fixed exchange rate at a
future date. Currency Contracts are individually negotiated and are traded
through the "interbank currency market," an informal network of banks and
brokerage firms which operates around the clock and throughout the world.
Transactions in the interbank market may be executed
79
<PAGE>
only through financial institutions acting as market-makers in the interbank
market, or through brokers executing purchases and sales through such
institutions. Market-makers in the interbank market generally act as principals
in taking the opposite side of their customers' positions in Currency
Contracts, and ordinarily charge a mark-up commission which may be included
in the cost of the Contract. In addition, market-makers may require their
customers to deposit collateral upon entering into a Currency Contract, as
security for the customer's obligation to make or receive delivery of currency,
and to deposit additional collateral if exchange rates move adversely to the
customer's position. Such deposits may function in a manner similar to the
margining of Futures Contracts, described above.
Prior to the stated maturity date of a Currency Contract, it may be
possible to liquidate the transaction by entering into an offsetting contract.
In order to do so, however, a customer may be required to maintain both
contracts as open positions until maturity and to make or receive a settlement
of the difference owed to or from the market-maker or broker at that time.
OPTIONS ON FOREIGN CURRENCIES
Options on foreign currencies are traded in a manner substantially similar
to options on securities. In particular, an option on foreign currency provides
the holder with the right to purchase, in the case of a call option, or to sell,
in the case of a put option, a stated quantity of a particular currency for a
fixed price up to a stated expiration date or, in the case of certain options,
on such date. The writer of the option undertakes the obligation to deliver, in
the case of a call option, or to purchase in the case of a put option, the
quantity of the currency called for in the option, upon exercise of the option
by the holder.
As in the case of other types of options, the holder of an option on
foreign currency is required to pay a one-time, non-refundable premium, which
represents the cost of purchasing the option. The holder can lose the entire
amount of this premium, as well as related transaction costs, but not more than
this amount. The writer of the option, in contrast, generally is required to
make initial and variation margin payments, similar to margin deposits required
in the trading of Futures Contracts and the writing of other types of options.
The writer is therefore subject to risk of loss beyond the amount originally
invested and above the value of the option at the time it is entered into.
Certain options on foreign currencies, like Currency Contracts, are traded
over-the-counter through financial institutions acting as market-makers in such
options and the underlying currencies. Such transactions therefore involve risks
not generally associated with exchange-traded instruments, which are discussed
below. Options on foreign currencies may also be traded on national securities
exchanges regulated by the SEC and on exchanges located in foreign countries.
Over-the-counter transactions can only be entered into with a financial
institution willing to take the opposite side, as principal, of a Portfolio's
position unless the institution acts as broker and is able to find another
counterparty willing to enter into the transaction with the Portfolio. Where no
such counterparty is available, it will not be possible to enter into a desired
transaction. There also may be no liquid secondary market in the trading of
over-the-counter contracts, and a Portfolio could be required to retain options
purchased or written until exercise, expiration or maturity. This in turn could
limit the Portfolio's ability to profit from open positions or to reduce losses
experienced, and could result in greater losses.
Further, over-the-counter transactions are not subject to the guarantee of
an exchange clearing house, and a Portfolio will therefore be subject to the
risk of default by, or the bankruptcy of, the financial institution serving as
its counterparty. One or more of such institutions also may decide to
discontinue their role as market-makers in a particular currency or security,
thereby restricting the Portfolio's ability to enter into desired hedging
transactions. A Portfolio will enter into an over-the-counter transaction only
with parties whose creditworthiness has been reviewed and found satisfactory by
Advisers.
80
<PAGE>
Part C - OTHER INFORMATION
ITEM 24. (a) FINANCIAL STATEMENTS:
The following financial statements are included in the registration
statement:
Financial Statements included in Part A:
Financial Highlights
Financial Statements included in Part B:
All financial statements required by Part B were incorporated
therein by reference to Registrant's 1995 Annual Report to
Shareholders.
ITEM 24.(b) EXHIBITS:
(1) Copy of the charter as now in effect;
*******
(2) Copies of the existing by-laws or instruments corresponding thereto;
*
(3) Copies of any voting trust agreement with respect to more than
5 percent of any class of equity securities of the Registrant;
Inapplicable
(4) Copies of all instruments defining the rights of holders of the
securities being registered including, where applicable, a relevant
portion of the articles of incorporation or by-laws of the Registrant;
See Item 24(b)(1)
(5) Copies of all investment advisory contracts relating to the management
of the assets of the Registrant;
*
(6) Copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of all
agreements between principal underwriters and dealers;
a) Underwriting Agreement -- ********
b) Dealer Sales Agreement -- *******
(7) Copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
<PAGE>
directors or officers of the Registrant in their capacity as such; if
any such plan is not set forth in a formal document, furnish a
reasonably detailed description thereof;
Inapplicable
(8) Copies of all custodian agreements, and depository contracts under
Section 17(f) of the 1940 Act, with respect to securities and similar
investments of the Registrant, including the schedule of remuneration;
*****
(9) Copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part at or
after the date of filing the Registration Statement;
Inapplicable
(10) An opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when sold be
legally issued, fully paid and non-assessable;
Inapplicable
(11) Copies of any other opinions, appraisals or rulings and consents to
the use thereof relied on in the preparation of this Registration
Statement and required by Section 7 of the 1933 Act;
Accountants' consent - attached
(12) All financial statements omitted from Item 23;
Inapplicable
(13) Copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their purchases
were made for investment purposes without any present intention of
redeeming or reselling;
See Original Registration Statement
(14) Copies of the model plan used in the establishment of any retirement
plan in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model plan.
Such form(s) should disclose the costs and fees charged in connection
therewith;
***; ****; ******
(15) Copies of any plan entered into by Registrant pursuant to rule 12b-1
under the 1940 Act, which describes all material aspects of the
<PAGE>
financing of distribution of Registrant's shares, and any agreements
with any person relating to implementation of such plan.
Attached
(16) Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 (which need not be
audited).
**
(17) A Financial Data Schedule meeting the requirements of Rule 483 under
the Securities Act of 1933.
Attached
(18) Copies of any plan entered into by Registrant pursuant to Rule 18f-3
under the 1940 Act, any agreement with any person relating to the
implementation of a plan, any amendment to a plan or agreement, and
a copy of the portion of the minutes of a meeting of the Registrant's
directors describing any action taken to revoke a plan.
Attached
*Incorporated by reference to Part II of Post-Effective Amendment Number 33 to
Registrant's registration statement, filed with the Securities and Exchange
Commission in February, 1992.
**Incorporated by reference to Part C of Post-Effective Amendment Number 29 to
Registrant's registration statement, filed with the Securities and Exchange
Commission in March, 1989.
***Incorporated by reference to Part C of Post-Effective Amendment No. 35 to the
Registration Statement of Special Portfolios, Inc. (File No. 2-24652 -- filed
December 24, 1990).
****Incorporated by reference to Post-Effective Amendment No. 51 to the
Registration Statement of AMEV Growth Fund, Inc. (File No. 2-14784 -- filed
December, 1991).
*****Incorporated by reference to Post-Effective Amendment No. 34 to the
Registrant's Registration Statement, filed with the Securities and Exchange
Commission in February, 1993.
******Incorporated by reference to Post Effective Amendment No. 72 to Fortis
Equity Portfolios, Inc.'s Registration Statement, filed with the Securities and
Exchange Commission in November, 1993 (SEC File No. 2-11387).
*******Incorporated by reference to Post Effective Amendment No. 36 to the
Registrant's Registration Statement, filed with the Securities and Exchange
Commission in September, 1994.
********Incorporated by reference to Post Effective Amendment No. 37 to the
<PAGE>
Registrant's Registration statement, filed with the Securities and Exchange
Commission in July, 1995.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Furnish a list or diagram of all persons directly or indirectly controlled by or
under common control with the Registrant and as to each person indicate (1) if a
company, the state or other sovereign power under the laws of which it is
organized, and (2) the percentage of voting securities owned or other basis of
control by the person, if any, immediately controlling it.
Inapplicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
State in substantially the tabular form indicated, as of a specified date within
90 days prior to the date of filing, the number of record holders of each class
of securities of the Registrant:
Title of Class Number of Record Holders
-------------- ------------------------
Common Shares, Class A: 1,517; E: 27,152; B: 198;
par value $.01 per share Class H: 786; Class C: 132
(2/22/96)
ITEM 27. INDEMNIFICATION
State the general effect of any contract, arrangement or statute under which any
director, officer, underwriter or affiliated person of the Registrant is insured
or indemnified in any manner against any liability which may be incurred in such
capacity, other than insurance provided by any director, officer, affiliated
person or underwriter for their own protection.
Incorporated by reference to Part C of Post-Effective Amendment Number 28 to
Registrant's registration statement filed with the Securities and Exchange
Commission in March, 1988.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Describe any other business, profession, vocation, or employment of a
substantial nature in which each investment adviser of the Registrant, and each
director, officer, or partner of any such investment adviser, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner, or trustee.
In addition to those listed in the Statement of Additional Information:
<PAGE>
Other business professions,
vocations, or employments
Current Position of a substantial nature
Name With Advisers during past two years
- -------------------------------------------------------------------------------
Michael D. O'Connor Qualified Plan Officer Qualified Plan Officer of
Fortis Benefits Insurance
Company and Qualified Plan
Officer for Investors
David L. Greenzang Money Market Portfolio Debt Securities Manager
Officer with Fortis, Inc.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing securities of the
Registrant also acts as a principal underwriter, depositor, or investment
adviser.
Fortis Advantage Portfolios, Inc.
Fortis Equity Portfolios, Inc.
Fortis Fiduciary Fund, Inc.
Fortis Growth Fund, Inc.
Fortis Income Portfolios, Inc.
Fortis Money Portfolios, Inc.
Fortis Securities, Inc.
Fortis Series Fund, Inc.
Fortis Tax-Free Portfolios, Inc.
Special Portfolios, Inc.
Variable Account C of Fortis Benefits Insurance Company
Variable Account D of Fortis Benefits Insurance Company
(b) Furnish the information required by the following table with respect to
each director, officer, or partner of each principal underwriter named in the
answer to Item 21:
In addition to those listed in the Statement of Additional Information:
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- -------------------------------------------------------------------------------
Carol M. Houghtby* Second Vice President & Accounting Officer
Treasurer
John E. Hite* Second Vice President Assistant Secretary
and Assistant Secretary
Scott R. Plummer* Corporate Counsel and Assistant Secretary
Assistant Secretary
- -------------------------------------------------------------------------------
<PAGE>
*The business address of these persons is 500 Bielenberg Drive, Woodbury, MN
55125
(c) Furnish the information required by the following table with respect to all
commissions and other compensation received by each principal underwriter who is
not an affiliated person of the Registrant or an affiliated person of such an
affiliated person, directly or indirectly, from the Registrant during the
Registrant's last fiscal year.
Inapplicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
With respect to each account, book or other document required to be maintained
by Section 31(a) of the 1940 Act and the Rules (17 CFR 270, 31a-1 to 31a-3)
promulgated thereunder, furnish the name and address of each person maintaining
physical possession of each such account, book or other document.
Fortis Advisers, Inc., 500 Bielenberg Drive, Woodbury, Minnesota 55125
ITEM 31. MANAGEMENT SERVICES
Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part I of this Form (because the contract was
not believe to be material to a purchaser of securities of the Registrant) under
which services are provided to the Registrant, indicating the parties to the
contract, the total dollars paid and by whom, for the last three fiscal years.
Inapplicable
ITEM 32. UNDERTAKINGS
Furnish the following undertakings in substantially the following form in all
initial Registration Statements filed under the 1933 Act:
(a) An undertaking to file an amendment to the Registration Statement
with certified financial statement showing the initial capital received
before accepting subscriptions from any persons in excess of 25 if Registrant
proposes to raise its initial capital pursuant to Section 14(a)(3) of the 1940
Act;
Inapplicable
(b) An undertaking to file a post-effective amendment, using financial
statements which need not be certified, within four to six months form the
effective date of Registrant's 1933 act Registration Statement.
Inapplicable
(c) If the information called for by Item 5A is contained in the latest
annual report to shareholders, an undertaking to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
We undertake to furnish each person to whom a prospectus is delivered with
a copy of the Registrant's latest annual report to shareholders, upon request
and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Woodbury, State of Minnesota, on February 29, 1996.
Fortis Income Portfolios, Inc.
By: /s/
-----------------------------------
Dean C. Kopperud, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates shown.
Signature and Title
- -------------------
/s/ Dated February 29, 1996
- ----------------------------------
Dean C. Kopperud, President
(principal executive officer)
/s/ Dated February 29, 1996
- ----------------------------------
Tamara L. Fagely, Treasurer
(principal financial and accounting officer)
Richard W. Cutting*
Director
Allen R. Freedman*
Director
Robert M. Gavin*
Director
Benjamin S. Jaffray*
Director
Jean L. King*
Director
Edward M. Mahoney*
Director
Thomas R. Pellett*
Director
/s/
---------------------------------
Robb L. Prince* Dean C. Kopperud, Pro-Se
Director and Attorney-in-Fact
Dated: February 29, 1996
Leonard J. Santow*
Director
<PAGE>
Joseph M. Wikler*
Director
*Registrant's directors executing Power of Attorney dated
March 30, 1995
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Fortis Income Portfolios, Inc.
Fortis Advantage Portfolios, Inc.:
We consent to the use of our report incorporated herein by reference and the
references to our Firm under the headings "Financial Highlights" in Part A and
"Custodian; Counsel; Accountants" in Part B of the Registration Statement.
/s/
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT
OF CHANGES IN NET ASSETS FOUND ON PAGES 7 - 11 OF THE ANNUAL SHAREHOLDER
REPORT.
</LEGEND>
<CIK> 0000049929
<NAME> FORTIS INCOME PORTFOLIOS INC.
<SERIES>
<NUMBER> 1
<NAME> FORTIS U.S. GOVERNMENT SECURITIES FUND (CLASS E)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 475,636,924
<INVESTMENTS-AT-VALUE> 479,504,553
<RECEIVABLES> 17,740,330
<ASSETS-OTHER> 252,179,800<F1>
<OTHER-ITEMS-ASSETS> 43,544
<TOTAL-ASSETS> 749,468,227
<PAYABLE-FOR-SECURITIES> 14,771,875
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 253,559,562<F1>
<TOTAL-LIABILITIES> 268,331,437
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 537,043,809
<SHARES-COMMON-STOCK> 52,149,917
<SHARES-COMMON-PRIOR> 61,482,167
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (17,686)
<ACCUMULATED-NET-GAINS> (59,756,962)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,867,629
<NET-ASSETS> 481,136,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,392,499
<OTHER-INCOME> 321,417<F2>
<EXPENSES-NET> (3,923,602)
<NET-INVESTMENT-INCOME> 37,790,314
<REALIZED-GAINS-CURRENT> (33,680,898)
<APPREC-INCREASE-CURRENT> 31,855,826
<NET-CHANGE-FROM-OPS> 35,965,424
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (37,825,032)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,223,444
<NUMBER-OF-SHARES-REDEEMED> (15,398,667)
<SHARES-REINVESTED> 2,842,973
<NET-CHANGE-IN-ASSETS> (74,137,882)
<ACCUMULATED-NII-PRIOR> 202,721
<ACCUMULATED-GAINS-PRIOR> (26,019,682)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,579,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,008,498
<AVERAGE-NET-ASSETS> 504,413,000
<PER-SHARE-NAV-BEGIN> 9.03
<PER-SHARE-NII> .67
<PER-SHARE-GAIN-APPREC> (.01)
<PER-SHARE-DIVIDEND> (.67)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.02
<EXPENSE-RATIO> .77<F3>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>VALUE OF COLLATERAL ($253,179,800) FROM THE SECURITY LENDING PROGRAM.
<F2>INCOME RECEIVED FROM THE SECURITY LENDING PROGRAM.
<F3>ANNUALIZED
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT
OF CHANGES IN NET ASSETS FOUND ON PAGES 7 - 11 OF THE ANNUAL SHAREHOLDER
REPORT.
</LEGEND>
<CIK> 0000049929
<NAME> FORTIS INCOME PORTFOLIOS INC.
<SERIES>
<NUMBER> 2
<NAME> FORTIS U.S. GOVERNMENT SECURITIES FUND (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> NOV-14-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 475,636,924
<INVESTMENTS-AT-VALUE> 479,504,553
<RECEIVABLES> 17,740,330
<ASSETS-OTHER> 252,179,800<F1>
<OTHER-ITEMS-ASSETS> 43,544
<TOTAL-ASSETS> 749,468,227
<PAYABLE-FOR-SECURITIES> 14,771,875
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 253,559,562<F1>
<TOTAL-LIABILITIES> 268,331,437
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 537,043,809
<SHARES-COMMON-STOCK> 544,097
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (17,686)
<ACCUMULATED-NET-GAINS> (59,756,962)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,867,629
<NET-ASSETS> 481,136,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,392,499
<OTHER-INCOME> 321,417<F2>
<EXPENSES-NET> (3,923,602)
<NET-INVESTMENT-INCOME> 37,790,314
<REALIZED-GAINS-CURRENT> (33,680,898)
<APPREC-INCREASE-CURRENT> 31,855,826
<NET-CHANGE-FROM-OPS> 35,965,242
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (123,171)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 656,757
<NUMBER-OF-SHARES-REDEEMED> (123,015)
<SHARES-REINVESTED> 10,355
<NET-CHANGE-IN-ASSETS> (74,137,882)
<ACCUMULATED-NII-PRIOR> 202,721
<ACCUMULATED-GAINS-PRIOR> (26,019,682)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,579,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,008,498
<AVERAGE-NET-ASSETS> 504,413,000
<PER-SHARE-NAV-BEGIN> 8.63
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> .39
<PER-SHARE-DIVIDEND> (.46)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.02
<EXPENSE-RATIO> 1.02<F3>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>VALUE OF COLLATERAL ($253,179,800) FROM THE SECURITY LENDING PROGRAM.
<F2>INCOME RECEIVED FROM THE SECURITY LENDING PROGRAM.
<F3>ANNUALIZED
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT
OF CHANGES IN NET ASSETS FOUND ON PAGES 7 - 11 OF THE ANNUAL SHAREHOLDER
REPORT.
</LEGEND>
<CIK> 0000049929
<NAME>FORTIS INCOME PORTFOLIOS INC.
<SERIES>
<NUMBER> 3
<NAME> FORTIS U.S. GOVERNMENT SECURITIES FUND (CLASS B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> NOV-14-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 475,636,924
<INVESTMENTS-AT-VALUE> 479,504,553
<RECEIVABLES> 17,740,330
<ASSETS-OTHER> 252,179,800<F1>
<OTHER-ITEMS-ASSETS> 43,544
<TOTAL-ASSETS> 749,468,227
<PAYABLE-FOR-SECURITIES> 14,771,875
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 253,559,562<F1>
<TOTAL-LIABILITIES> 268,331,437
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 837,043,809
<SHARES-COMMON-STOCK> 53,530
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (17,686)
<ACCUMULATED-NET-GAINS> (59,756,962)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,867,629
<NET-ASSETS> 481,136,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,392,499
<OTHER-INCOME> 321,417<F2>
<EXPENSES-NET> (3,923,602)
<NET-INVESTMENT-INCOME> 37,790,314
<REALIZED-GAINS-CURRENT> (33,680,898)
<APPREC-INCREASE-CURRENT> 31,855,826
<NET-CHANGE-FROM-OPS> 35,965,242
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,070)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 55,065
<NUMBER-OF-SHARES-REDEEMED> (2,236)
<SHARES-REINVESTED> 701
<NET-CHANGE-IN-ASSETS> (74,137,882)
<ACCUMULATED-NII-PRIOR> 202,721
<ACCUMULATED-GAINS-PRIOR> (26,019,682)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,579,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,008,498
<AVERAGE-NET-ASSETS> 504,413,000
<PER-SHARE-NAV-BEGIN> 8.63
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> .39
<PER-SHARE-DIVIDEND> (.41)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.02
<EXPENSE-RATIO> 1.77<F3>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>VALUE OF COLLATERAL ($253,179,000) FROM THE SECURITY LENDING PROGRAM.
<F2>INCOME RECEIVED FROM THE SECURITY LENDING PROGRAM.
<F3>ANNUALIZED
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT
OF CHANGES IN NET ASSETS FOUND ON PAGES 7 - 11 OF THE ANNUAL SHAREHOLDER
REPORT.
</LEGEND>
<CIK> 0000049929
<NAME> FORTIS INCOME PORTFOLIOS INC.
<SERIES>
<NUMBER> 4
<NAME> FORTIS U.S. GOVERNMENT SECURITIES FUND (CLASS C)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> NOV-14-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 475,636,924
<INVESTMENTS-AT-VALUE> 479,504,553
<RECEIVABLES> 17,740,330
<ASSETS-OTHER> 252,179,800<F1>
<OTHER-ITEMS-ASSETS> 43,544
<TOTAL-ASSETS> 749,468,227
<PAYABLE-FOR-SECURITIES> 14,771,875
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 253,559,562<F1>
<TOTAL-LIABILITIES> 268,3331,437
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 537,043,809
<SHARES-COMMON-STOCK> 36,194
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (17,868)
<ACCUMULATED-NET-GAINS> (59,756,962)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,867,629
<NET-ASSETS> 481,136,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,392,499
<OTHER-INCOME> 321,417<F2>
<EXPENSES-NET> (3,923,6021)
<NET-INVESTMENT-INCOME> 37,790,314
<REALIZED-GAINS-CURRENT> (33,680,898)
<APPREC-INCREASE-CURRENT> 31,855,826
<NET-CHANGE-FROM-OPS> 35,965,242
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,511)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 36,045
<NUMBER-OF-SHARES-REDEEMED> (358)
<SHARES-REINVESTED> 507
<NET-CHANGE-IN-ASSETS> (74,137,882)
<ACCUMULATED-NII-PRIOR> 202,721
<ACCUMULATED-GAINS-PRIOR> (26,019,682)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,579,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,008,498
<AVERAGE-NET-ASSETS> 504,413,000
<PER-SHARE-NAV-BEGIN> 8.63
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> .38
<PER-SHARE-DIVIDEND> (.41)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.01
<EXPENSE-RATIO> 1.77<F3>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>VALUE OF COLLATERAL ($253,179,800) FROM THE SECURITY LENDING PROGRAM.
<F2>INCOME RECEIVED FROM THE SECURITY LENDING PROGRAM.
<F3>ANNUALIZED
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, AND STATEMENT
OF CHANGES IN NET ASSETS FOUND ON PAGES 7 - 11 OF THE ANNUAL SHAREHOLDER
REPORT.
</LEGEND>
<CIK> 0000049929
<NAME> FORTIS INCOME PORTFOLIOS INC.
<SERIES>
<NUMBER> 5
<NAME> FORTIS U.S. GOVERNMENT SECURITIES FUND (CLASS H)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> NOV-14-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 475,636,924
<INVESTMENTS-AT-VALUE> 479,504,553
<RECEIVABLES> 17,740,330
<ASSETS-OTHER> 252,179,800<F1>
<OTHER-ITEMS-ASSETS> 43,544
<TOTAL-ASSETS> 749,468,227
<PAYABLE-FOR-SECURITIES> 14,771,875
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 253,559,562<F1>
<TOTAL-LIABILITIES> 268,331,437
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 537,043,809
<SHARES-COMMON-STOCK> 534,676
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (17,686)
<ACCUMULATED-NET-GAINS> (59,756,962)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,867,629
<NET-ASSETS> 481,136,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,392,499
<OTHER-INCOME> 321,417<F2>
<EXPENSES-NET> (3,923,602)
<NET-INVESTMENT-INCOME> 37,790,314
<REALIZED-GAINS-CURRENT> (33,680,898)
<APPREC-INCREASE-CURRENT> 31,855,826
<NET-CHANGE-FROM-OPS> 35,965,242
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (101,319)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 588,648
<NUMBER-OF-SHARES-REDEEMED> (62,931)
<SHARES-REINVESTED> 8,959
<NET-CHANGE-IN-ASSETS> (74,137,882)
<ACCUMULATED-NII-PRIOR> 202,721
<ACCUMULATED-GAINS-PRIOR> (26,019,682)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,579,719
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,008,498
<AVERAGE-NET-ASSETS> 504,413,000
<PER-SHARE-NAV-BEGIN> 8.63
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> (.41)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.02
<EXPENSE-RATIO> 1.77<F3>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>VALUE OF COLLAREAL ($253,179,800) FROM THE SECURITY LENDING PROGRAM.
<F2>INCOME RECEIVED FROM THE SECURITY LENDING PROGRAM.
<F3>ANNUALIZED
</FN>
</TABLE>
<PAGE>
FORTIS MUTUAL FUNDS
PLAN OF DISTRIBUTION
This Plan of Distribution (the "Plan") is adopted pursuant to Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940 (as amended, the "1940 Act") by
Fortis Advantage Portfolios, Inc., Fortis Equity Portfolios, Inc., Fortis
Fiduciary Fund, Inc., Fortis Growth Fund, Inc., Fortis Income Portfolios, Inc.,
Fortis Money Portfolios, Inc., Fortis Tax-Free Portfolios, Inc. and Fortis
Worldwide Portfolios, Inc. (hereinafter collectively referred to as the
"Funds"), for and on behalf of each class (each class is referred to hereinafter
as a "Class") of each Fund, and each series for those Funds that are "series"
Funds. The classes of each Fund and series that currently have adopted this
Plan, and the effective dates of such adoptions are as follows:
FORTIS ADVANTAGE PORTFOLIOS, INC.
Asset Allocation Portfolio, Class A* January 31, 1992
Asset Allocation Portfolio, Class B November 14, 1994
Asset Allocation Portfolio, Class C November 14, 1994
Asset Allocation Portfolio, Class H November 14, 1994
Capital Appreciation Portfolio, Class A* January 31, 1992
Capital Appreciation Portfolio, Class B November 14, 1994
Capital Appreciation Portfolio, Class C November 14, 1994
Capital Appreciation Portfolio, Class H November 14, 1994
High Yield Portfolio, Class A* January 31, 1992
High Yield Portfolio, Class B November 14, 1994
High Yield Portfolio, Class C November 14, 1994
High Yield Portfolio, Class H November 14, 1994
Government Total Return Portfolio, Class A* January 31, 1992
Government Total Return Portfolio, Class B November 14, 1994
Government Total Return Portfolio, Class C November 14, 1994
Government Total Return Portfolio, Class H November 14, 1994
<PAGE>
FORTIS EQUITY PORTFOLIOS, INC.
Fortis Capital Fund, Class A* January 31, 1992
Fortis Capital Fund, Class B November 14, 1994
Fortis Capital Fund, Class C November 14, 1994
Fortis Capital Fund, Class H November 14, 1994
Fortis Value Fund, Class A January 1, 1996
Fortis Value Fund, Class B January 1, 1996
Fortis Value Fund, Class C January 1, 1996
Fortis Value Fund, Class H January 1, 1996
Fortis Growth & Income Fund, Class A January 1, 1996
Fortis Growth & Income Fund, Class B January 1, 1996
Fortis Growth & Income Fund, Class C January 1, 1996
Fortis Growth & Income Fund, Class H January 1, 1996
FORTIS FIDUCIARY FUND, INC.
Fortis Fiduciary Fund, Inc., Class A* January 31, 1992
Fortis Fiduciary Fund, Inc., Class B November 14, 1994
Fortis Fiduciary Fund, Inc., Class C November 14, 1994
Fortis Fiduciary Fund, Inc., Class H November 14, 1994
FORTIS GROWTH FUND, INC.
Fortis Growth Fund, Inc., Class A* January 31, 1992
Fortis Growth Fund, Inc., Class B November 14, 1994
Fortis Growth Fund, Inc., Class C November 14, 1994
Fortis Growth Fund, Inc., Class H November 14, 1994
FORTIS INCOME PORTFOLIOS, INC.
Fortis U.S. Government Securities Fund, Class A November 14, 1994
Fortis U.S. Government Securities Fund, Class B November 14, 1994
2
<PAGE>
Fortis U.S. Government Securities Fund, Class C November 14, 1994
Fortis U.S. Government Securities Fund, Class H November 14, 1994
FORTIS MONEY PORTFOLIOS, INC.
Fortis Money Fund, Class A* January 31, 1992
Fortis Money Fund, Class B November 14, 1994
Fortis Money Fund, Class C November 14, 1994
Fortis Money Fund, Class H November 14, 1994
FORTIS TAX-FREE PORTFOLIOS, INC.
National Portfolio, Class A November 14, 1994
National Portfolio, Class B November 14, 1994
National Portfolio, Class C November 14, 1994
National Portfolio, Class H November 14, 1994
Minnesota Portfolio, Class A November 14, 1994
Minnesota Portfolio, Class B November 14, 1994
Minnesota Portfolio, Class C November 14, 1994
Minnesota Portfolio, Class H November 14, 1994
New York Portfolio, Class A November 14, 1994
New York Portfolio, Class B November 14, 1994
New York Portfolio, Class C November 14, 1994
New York Portfolio, Class H November 14, 1994
3
<PAGE>
FORTIS WORLDWIDE PORTFOLIOS, INC.
Fortis Global Growth Portfolio, Class A* January 31, 1992
Fortis Global Growth Portfolio, Class B November 14, 1994
Fortis Global Growth Portfolio, Class C November 14, 1994
Fortis Global Growth Portfolio, Class H November 14, 1994
*For the Class A shares identified above, with the exception of the Class A
shares of Fortis Income Portfolios, Inc. and Fortis Tax-Free Portfolios, Inc.,
this Plan constitutes an amended and restated plan of distribution.
- -------------------------------------------------------------------------------
1. Compensation
CLASS A
Class A of each Fund is obligated to pay the principal underwriter of the
Fund's shares, Fortis Investors, Inc. ("Investors"), a total fee in connection
with the distribution-related services provided in respect of said Class A and
in connection with the servicing of shareholder accounts of said Class A. This
fee shall be calculated and payable monthly and, with the exception of Fortis
Advantage Portfolios, Inc., and Fortis Money Portfolios, Inc., at an annual rate
of .25% of said Class A's average daily net assets. With regard to Fortis
Advantage Portfolios, Inc., the annual rate shall be .45% on the Asset
Allocation and Capital Appreciation Portfolios and .35% on the High Yield and
Government Total Return Portfolios. With regard to Fortis Money Fund, as
discussed in greater detail below, the annual rate shall be .20% of average
daily net assets. All or any portion of such total fee may be payable as a
Distribution Fee, and all or any portion of such total fee may be payable as a
Shareholder Servicing Fee, as determined from time to time by the Funds' Board
of Directors. Until further action by the Board of Directors, all of such fee
shall be designated and payable as a Distribution Fee.
4
<PAGE>
CLASS B, CLASS C AND CLASS H
Each of Class B, Class C and Class H of each Fund is obligated to pay
Investors a total fee in connection with the servicing of shareholder accounts
of said Class B, Class C or Class H (as applicable) and in connection with
distribution-related services provided in respect of said Class B, Class C or
Class H (as applicable), calculated and payable monthly, at the annual rate of
1.00% of the value of said Class B's, Class C's or Class H's (as applicable)
average daily net assets. All or any portion of such total fee may be payable
as a Shareholder Servicing Fee, and all or any portion of such total fee may be
payable as a Distribution Fee, as determined from time to time by the Funds'
Board of Directors. Until further action by the Board of Directors, .25% per
annum of each Class B's, Class C's, and Class H's average net assets shall be
designated and payable as a Shareholder Servicing Fee and the remainder of such
fee shall be designated as a Distribution Fee.
2. Expenses Covered by the Plan
(a) Except as qualified herein, the Distribution Fee may be used by
Investors for the purpose of financing any activity which is primarily intended
to result in the sale of Class shares. For example, such Distribution Fee may
be used by Investors: (i) to compensate broker-dealers, including Investors and
its registered representatives, for their sale of Portfolio shares, including
the implementation of various incentive programs with respect to broker-dealers,
banks, and other financial institutions, and (ii) to pay other advertising and
promotional expenses in connection with the distribution of Class shares. These
advertising and promotional expenses include, by way of example but not by way
of limitation, costs of prospectuses for other than current shareholders;
preparation and distribution of sales literature; advertising of any type;
expenses of branch offices provided jointly by Investors and any affiliate
thereof; and compensation paid to and expenses incurred by officers, employees
or representatives of Investors or of other broker-dealers, banks, or other
financial institutions, including travel, entertainment, and telephone expenses.
(i) With regard to Class A shares of Money Fund, it is contemplated that
Fortis Advisers, Inc. ("Advisers"), pursuant to an Investment Advisory and
Management Agreement dated January 31, 1992, will receive a monthly fee for
services provided for Fortis Money Fund equivalent on an annual basis to .60% of
the average daily net assets for the first $500 million of assets under
management and .55% of assets under management in excess of $500 million. Under
the Plan, Advisers will then pay to Investors on a monthly basis a fee equal to
.20% of 1% of such average daily net assets as full compensation to Investors
for its services as distributor of Fortis Money
5
<PAGE>
Fund shares pursuant to this Plan; provided, however, that Advisers may directly
pay expenses otherwise payable by Investors and deduct such amounts from the .20
of 1% otherwise payable to Investors.
(b) The Shareholder Servicing Fee may be used by Investors to provide
compensation for ongoing servicing and/or maintenance of shareholder accounts
with each applicable Class of the Fund. Compensation may be paid by Investors
to persons, including employees of Investors, and institutions who respond to
inquiries of shareholders of each applicable Class regarding their ownership of
shares of their accounts with the Fund or who provide other administrative or
accounting services not otherwise required to be provided by the Fund's
investment adviser, transfer agent or other agent of the Fund.
(c) Payments under the Plan are not tied exclusively to the expenses for
shareholder servicing and distribution related activities actually incurred by
Investors, so that such payments may exceed expenses actually incurred by
Investors. The Funds' Board of Directors will evaluate the appropriateness of
the Plan and its payment terms on a continuing basis and in doing so will
consider all relevant factors, including expenses borne by Investors and amounts
it receives under the Plan.
3. Additional Payment by Advisers and Investors
The Funds' investment adviser, Fortis Advisers, Inc. ("Advisers"), and
Investors may, at their option and in their sole discretion, make payments from
their own resources to cover the costs of additional distribution and
shareholder servicing activities.
4. Approval by Shareholders
The Plan will not take effect with respect to any Class, and no fee will be
payable in accordance with Section 1 of the Plan, until the Plan has been
approved by a vote of at least a majority of the outstanding voting securities
of such Class.
5. Approval by Directors
Neither the Plan nor any related agreement will take effect until approved
by a majority vote of both (a) the full Board of Directors of the Funds and (b)
those Directors who are not interested persons of the Funds and who have no
direct or indirect financial interest in the
6
<PAGE>
operation of the Plan or in any agreements related to the Plan (the "Independent
Directors"), cast in person at a meeting called for the purpose of voting on the
Plan and the related agreements.
6. Continuance of the Plan
The Plan will continue in effect from year to year so long as its
continuance is specifically approved annually by vote of the Funds' Board of
Directors in the manner described in Section 5 above.
7. Termination
The Plan may be terminated any time with respect to any Class, without
penalty, by vote of a majority of the Independent Directors or by vote of a
majority of the outstanding voting securities of such Class.
8. Amendments
The Plan may not be amended with respect to any Class to increase
materially the amount of the fees payable pursuant to the Plan, as described in
Section 1 above, unless the amendment is approved by a vote of at least a
majority of the outstanding voting securities of that Class (and, if applicable,
of any other affected Class or Classes), and all material amendments to the Plan
must also be approved by the Fund's Board of Directors in the manner described
in Section 5 above.
9. Selection of Certain Directors
While the Plan is in effect, the selection and nomination of the Funds'
Directors who are not interested persons of the Funds will be committed to the
discretion of the Directors then in office who are not interested persons of the
Funds.
10. Written Reports
In each year during which the Plan remains in effect, Investors and any
person authorized to direct the disposition of monies paid or payable by the
Funds pursuant to the Plan or any related agreement will prepare and furnish
to the Funds' Board of Directors, and the Board will review at least
quarterly, written reports, complying with the requirements of the Rule,
which set out the amounts expended under the Plan and the purposes for which
those expenditures were made.
11. Preservation of Materials
The Funds will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 10 above, for a period of not less
than six years (the first two
7
<PAGE>
years in an easily accessible place) from the date of the Plan, agreement or
report.
12. Meaning of Certain Terms
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Funds under the 1940
Act by the Securities and Exchange Commission.
13. Maximum Aggregate Sales Charge Calculations
In calculating the "remaining amount" under Section 26(d) of the National
Association of Securities Dealers, Inc.'s ("NASD") Rules of Fair Practice for
purposes of determining the maximum aggregate sales charge for each Class of
each Fund, the Funds are authorized to transfer a portion of the "remaining
amount" of a Class in the event of an exchange between that Class and another
Class of the same Fund or the other Funds. However, such a transfer of the
"remaining amount" must be conducted in accordance with Section 26(d), and any
subsequent amendments to such Section, as well as any interpretations of such
Section by the NASD.(1)
- --------------------------
(1) Paragraph 13 was added to the Plan pursuant to an amendment adopted by the
Funds' Boards of Directors on December 7, 1995.
8
<PAGE>
FORTIS ADVISERS, INC.
AND
FORTIS INVESTORS, INC.'S
MULTIPLE CLASS SHARES PLAN FOR :
FORTIS ADVANTAGE PORTFOLIOS, INC.
FORTIS EQUITY PORTFOLIOS, INC.
FORTIS FIDUCIARY PORTFOLIOS, INC.
FORTIS GROWTH FUND, INC.
FORTIS INCOME PORTFOLIOS, INC.
FORTIS MONEY PORTFOLIOS, INC.
FORTIS TAX-FREE PORTFOLIOS, INC.
FORTIS WORLDWIDE PORTFOLIOS, INC
DECEMBER 7, 1995
<PAGE>
MULTIPLE CLASS SHARES PLAN FOR FORTIS FUNDS
I. INTRODUCTION
This Multiple Class Shares Plan (the "Plan") for the Fortis Funds(1) (the
"Funds") has been prepared to provide the Funds' Boards of Directors with an
overview of the multiple class structure that Fortis Advisers, Inc. and Fortis
Investors, Inc. implemented for the Funds on November 14, 1994. In addition,
this document fulfills the requirements of SEC Rule 18f-3(d), promulgated under
the Investment Company Act of 1940, that provides for the creation and
maintenance of a multiple class shares structure without the necessity of an SEC
Exemptive Order.
Pursuant to Rule 18f-3(d), this document sets forth the separate arrangements,
characteristics, and expense allocations for each class and all related
conversion features and exchange privileges, thus providing the framework for
the Funds' multiple class structure. In addition, the Boards' responsibilities
with respect to the multiple class shares program are set forth. Any material
amendments to the Plan will be presented to the Boards for their approval.
II. BACKGROUND
The Funds' multiple class program became effective on November 14, 1994 pursuant
to: (i) Board approval of the program received on June 28, 1994; (ii) an SEC
Exemptive Order dated June 21, 1994; and (iii) an IRS Private Letter Ruling
dated May 10, 1994(2). With the effectiveness of Rule 18f-3 in early 1995, fund
groups operating with a multiple class share structure pursuant to an SEC
Exemptive Order are given the option to continue to operate under the Exemptive
Order or elect to comply with the provisions of Rule 18f-3. At the Boards'
June 27, 1995 meeting the Directors approved the Funds' election to operate
under Rule 18f-3 effective on such date as Fund management selected. Fund
management selected July 31, 1995.
In light of the fact that, as of July 31, 1995, the Funds' multiple class
program has not been materially modified since its approval on June 28, 1994 and
amendment on December 8, 1994, all that was
- ------------------------
(1) The Fortis mutual funds that, as of January 1, 1996 will have a multiple
class shares structure are the four portfolios of Fortis Advantage Portfolios,
Inc. (Asset Allocation Portfolio, Capital Appreciation Portfolio, High Yield
Portfolio and Government Total Return Portfolio), the three portfolios of Fortis
Equity Portfolios, Inc. (Capital Fund, Value Fund and Growth & Income Fund),
Fortis Fiduciary Fund, Fortis Growth Fund, the sole portfolio of Fortis Income
Portfolios, Inc. (U.S. Government Securities Fund--"USG"), the sole portfolio of
Fortis Money Portfolios, Inc. (Money Fund), the three portfolios of Fortis Tax-
Free Portfolios, Inc. (National Portfolio, Minnesota Portfolio, and New York
Portfolio) and the sole portfolio of Fortis Worldwide Portfolios, Inc. (Global
Growth Portfolio).
(2) The Funds also received an opinion letter from KPMG Peat Marwick LLP,
dated September 7, 1994, that concludes that Class H shares, which were not
included in the request for the Private Letter Ruling, are consistent with the
holdings and requirements of the Ruling.
1
<PAGE>
necessary to effectuate the transition to Rule 18f-3 was the creation of this
Plan and filing it with the SEC as an exhibit to the Funds' registration
statement. No additional Board approvals were necessary and the Plan was filed
and became effective July 31, 1995.
The Plan is now being amended, effective January 1, 1996, primarily due to the
creation of two additional portfolios of Fortis Equity Portfolios, Inc. (namely
Fortis Value Fund and Fortis Growth & Income Fund) that will have a multiple
class share structure and become available on January 1, 1996. In addition,
effective March 1, 1996 Class Z shares will become available for Fortis Growth
Fund.
III. MULTIPLE CLASS SHARES STRUCTURE
The Funds' multiple class shares program allows an investor to select not only
the Fund that has an investment objective that best suits his or her investment
needs, but also the most appropriate distribution method. Specifically, the
investor is able to choose a method of purchasing shares that the investor
believes is most beneficial given the amount of the investment, length of time
the investor expects to hold his or her shares and other relevant circumstances.
The investor's choice of a class also determines how the investor's sales
representative will be compensated on that sale of shares.
Rule 18f-3 authorizes the Board to create additional classes of shares that are
tailored to particular customers, distribution channels and shareholder
servicing arrangements. This flexibility will allow the Funds to quickly adapt
to future changes in the marketplace.
A. CLASS SPECIFICATIONS
The multiple class shares program consists primarily of five classes of shares.
Generally, the characteristics of each of these five classes are laid out in the
following chart:
2
<PAGE>
FORTIS FUNDS
MULTIPLE CLASS STRUCTURE
(Summary of Information Contained in Exhibit A)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLASS A*/** B/H*** C E**/****
Front End
Sales Charge 4.5%-4.75% None None 4.5%
(None on Money Fund)
Dealer Concession 4.0% 4.0% 1.0% 4.0%
5.25% on H
CDSC None 4%, 4%, 3% 1%/ None
3%, 2%, 1% 1 Year
(6 Years)*****
Conversion to A N/A Year 9 None N/A
Total 12b-1 .20%-.45% 1.0% 1.0% None
Trail Commission .20%-.45% .25% 1.0% None
No Trail Year 2+
On H
</TABLE>
- ---------------------------------------------------------------------------
* Includes a class of shares for new purchasers of USG and/or Tax-Free
that has a .25% 12b-1 fee.
** The Million Dollar NAV Program, which predates the multiple class
shares program, remains intact. However, it only applies to purchases of Class A
and Class E shares.
*** Class B is identical to Class H in all respects EXCEPT Class H has a
5.25% dealer concession with no trail commission compared to a 4% dealer
concession and a .25% trail commission on Class B shares. From time to time, at
Investors' sole discretion, the concession on Class H may be uniformly increased
to 5.50%.
**** Class E is available for USG and Tax-Free only. This class has no 12b-
1 fee and is designed for additional purchases and reinvestment of
dividends/capital gains by USG and Tax-Free shareholders of record on November
13, 1994.
***** With respect to Class B and H shares only, the CDSC does not apply to
an amount that represents, on an annual (non-cumulative) basis, up to 10% of the
amount (at the time of the investment) of a shareholder's purchases. On all
classes the CDSC does not apply to amounts representing an increase in share
value due to capital appreciation and shares acquired through the reinvestment
of dividends or capital gains distributions. In addition, the CDSC is waived in
the event of a shareholder's death or disability.
3
<PAGE>
The specifics as to how each Fund has implemented the multiple class structure
and the characteristics of each Fund's classes are set forth in Exhibit A.
Class Z shares, which are not depicted in the preceding chart and which will not
become available until March 1, 1996, are limited to Growth Fund and are only
available for continued and future investment to particular individuals.
Specifically, Class Z shares will be available to all shareholders of record of
the Special Stock Portfolio of Special Portfolios, Inc. on March 1, 1996, the
date this portfolio is merged into Class Z of Growth Fund. In addition, Class Z
shares will be available to personnel of Fortis, Inc. and its affiliates,
officers and directors of Growth Fund and pension, profit sharing and other
retirement plans created for the benefit of such persons. Class Z shares are
pure "no load" shares, they are not subject to any sales charge or 12b-1 fees
and no dealer concession is paid on their purchase.
As referenced in the preceding chart and discussion, as well as in Exhibit A,
the multiple class structure for USG, the Tax-Free Portfolios and Growth Fund is
somewhat different than for the other Funds. The other Funds each have four
classes of shares: Class A, Class B, Class H, and Class C. USG and the Tax-
Free Portfolios have an additional class of shares (Class E) due to the fact
that at the time the multiple class shares program was implemented they were the
only Funds whose shareholders were not assessed a Rule 12b-1 fee. In light of
this fact, and recognizing that in order to remain viable and competitive,
future sales of these Funds' shares must provide an ongoing trail commission to
the sales force funded by a Rule 12b-1 fee, it was determined that in the
interest of fairness and as a reward for their loyalty to these Funds, the USG
and Tax-Free shareholders of record on November 13, 1994 should not be asked to
incur a Rule 12b-1 fee. Class E was developed for these shareholders and it
will not be subject to any Rule 12b-1 fee (unless a Rule 12b-1 plan is
subsequently adopted by the Class E shareholders). Class E shareholders are
allowed to obtain additional Class E shares of their Funds through reinvestment
of dividends and capital gains and/or additional purchases. Other individuals
seeking to purchase shares of these Funds with a front end sales charge have to
purchase Class A shares that are subject to a .25% 12b-1 fee that funds a .25%
trail commission.
Growth Fund has five classes of shares: Class A, Class B, Class H, Class C and
Class Z.
B. EXCHANGES
With respect to exchanges of shares, the general rule under the multiple class
shares program is that Fund shares of one class can only be exchanged for shares
of the same class of another Fund. For example, the holder of Class A shares of
Growth Fund is allowed to exchange those shares for Class A shares of the
Fiduciary Fund or any other Fund. However, that shareholder is not allowed to
exchange his or her Class A Growth Fund shares for Class B, Class H, or Class C
shares of Fiduciary Fund, Growth Fund or any other Fund.
There are two exceptions to the general rule concerning exchanges. First, Class
E and Class Z shareholders may only exchange their shares for Class A shares of
another Fund. However, they will be allowed to move back into Class E or Class
Z of their original Fund through an exchange.
4
<PAGE>
The second exception relates to Money Fund. New purchases of Money Fund are only
allowed into Class A. However, Class A Money Fund shareholders are allowed to
exchange their shares (using the systematic investment/dollar cost averaging
mechanism or otherwise) for Class A shares of any of the other Funds (in which
case a front end sales charge is imposed) or for shares of the other available
classes (not subject to a front end sales charge, but subject to a CDSC). Once
Class A Money Fund shares have been exchanged into Class B, Class H or Class C
shares of another fund, they cannot be exchanged back for Class A Money Fund
shares. However, each class of shares has a corresponding Money Fund class
(i.e., Class A, Class B, Class H and Class C) that allows shareholders of that
class to exchange their shares back and forth into Money Fund. For example,
Class B shareholders of Growth Fund could exchange their shares for Class B
shares of Money Fund and then exchange back for Class B shares of Growth Fund or
Class B shares of any other Fund.
C. CONVERSIONS
As the multiple class shares structure is presently structured, the only
conversion that takes place is the conversion of Class B and Class H shares
(except those purchased by reinvestment of dividends and other distributions
paid on those shares) to Class A shares on the ninth anniversary of the purchase
of those shares. Shares of these classes purchased through the reinvestment of
dividends and other distributions paid on such shares are, for purposes of
conversion, considered to be held in a separate sub-account. Each time any
Class B or Class H shares convert to Class A, a proportionate number of the
shares of the same class in the sub-account converts to Class A.
D. COMPLIANCE GUIDELINES
Investors has adopted compliance standards for the sale of Fortis Funds and
requires that all persons selling Fortis Funds agree to abide by these
standards. Generally, these standards are based on the following principles:
1. If the investor intends his or her investment to be a long-term
investment, he or she should invest in Class A shares.
2. A long-term investor should not invest in Class C.
3. Any investor who is eligible for an exemption from the sales charge
(i.e., they may purchase Fund shares at net asset value) should invest
in Class A shares, or, where applicable, Class Z shares.
4. While Class A shares have no maximum order, Class B and H shares have
a $500,000 maximum and Class C shares have a $1,000,000 maximum.
Orders greater than these limits are treated as orders for Class A
shares.
IV. ALLOCATION OF EXPENSES
Under the multiple class shares program, Fund-Level expenses are allocated to
the various classes based upon the relative net assets held by each class. For
Class-Level expenses, each Class is allocated the amount of that expense
actually incurred by the Class. Specifically, expenses are
5
<PAGE>
allocated as follows:
- ------------------------------------------------------------
Type of Expense Allocation
- --------------- ----------
Direct Shareholder Expenses:
Investment Advisory & Management Fees Fund-Level
12b-1 Fees Class-Level
Operating Expenses:
Director Fees & Expenses Fund-Level
Directors' Travel & Expenses Fund-Level
Legal Fees & Expenses Fund-Level
Audit Fees Fund-Level
Custodian Fees Fund-Level
Insurance, Errors & Omissions Fund-Level
Dues Fund-Level
Expense Limitation Fund-Level
Registration & Filing Fees Fund-Level
SEC Fund-Level
Blue Sky (State) Fund-Level
Mailing & Postage-Reports, Prospectuses Fund-Level
Printing-Reports Fund-Level
Mailing & Postage-Proxy Fund-Level
Printing-Proxy Fund-Level
Money Fund-specific Class-Level
transfer agent expenses
(e.g. check writing and
postage for confirmations)
- ------------------------------------------------------------
The foregoing methodology for the allocation of expenses has been reviewed and
approved by the Board of each Fund. Any subsequent changes to the allocation
methodology must similarly be reviewed and approved by the Board of each Fund.
However, under Rule 18f-3, the Boards' approval of the Plan constitutes an
approval of the included allocation of expenses.
The Board of each Fund receives and reviews, at least quarterly, a written
report of the Fund's expenses. In its review of these reports the Directors
should continue to keep in mind that the IRS issued a Private Letter Ruling
relating to the Fund's multiple class structure at least partially on the basis
of a representation by the Funds that the allocation of class expenses,
excluding 12b-1 fees, will not cause a differential of 50 basis points or more
among the per share distribution of a Fund's classes.
On a related basis, the Boards also receive quarterly and annual statements
concerning, as applicable, distribution and shareholders' servicing expenditures
under the Funds' Rule 12b-1 plans. These statements, including the allocations
upon which they are based, are presented for approval by the Directors in the
exercise of their fiduciary duties.
6
<PAGE>
V. BOARD RESPONSIBILITIES
The responsibilities of the Board of Directors under the multiple class shares
program and Rule 18f-3 are as follows:
A. BOARD APPROVALS:
As discussed earlier, the Board of each Fund must approve all material
amendments to the Plan. Specifically, this approval requires the vote of a
majority of each Fund's Directors and a majority of each Fund's non-interested
Directors. In order to approve the amended Plan, the Board of each Fund must
find that the amended Plan, including the expense allocation, is in the best
interest of each class individually and the Fund as a whole. Before any vote on
the Plan, the Directors are obligated to request and evaluate, and any agreement
relating to a class arrangement shall require the parties thereto to furnish,
such information as may be reasonably necessary to evaluate the Plan.
B. MONITORING FOR CONFLICTS OF INTEREST:
On an ongoing basis, and pursuant to their fiduciary responsibility under
the 1940 Act, the Directors monitor the Funds for the existence of any material
conflicts between the interests of the shareholders of different classes. If
such a conflict arises, the Boards, including a majority of the independent
directors, will take such action as is reasonably necessary to eliminate the
conflict. Fortis Advisers, Inc. ("Advisers") and Fortis Investors, Inc.
("Investors") have agreed that they will be responsible for reporting any
potential or existing conflicts to the directors. If a conflict among classes
arises, Advisers and Investors will remedy such conflict at their own expense,
up to and including establishing a new registered management investment company.
C. APPROVAL OF RULE 12B-1 PLANS:
The implementation of the multiple class shares program has not altered the
requirement under Rule 12b-1 that the Board annually approve each Fund's 12b-1
Plans and their related agreements.
D. DIVIDEND RATE APPROVAL:
The dividend setting committee of the Board of Directors will be
responsible for approving the daily and other periodic dividend rates.
VI. CONCLUSION
The foregoing information provides an overview of the Fortis Funds' multiple
class structure. In addition, this document provides the Directors with an
outline of their duties in monitoring the class shares program. Therefore, it
is suggested that each Director retain this document for use in connection with
their future responsibilities with regard to the multiple class shares program.
7
<PAGE>
EXHIBIT A
FUND BY FUND SPECIFICATIONS OF THE
FORTIS MULTIPLE CLASS SHARES STRUCTURE
<PAGE>
FORTIS ADVANTAGE PORTFOLIOS, INC.
Asset Allocation Portfolio
Capital Appreciation Portfolio
High Yield Portfolio
Government Total Return Portfolio
SUMMARY: Each Advantage Portfolio will have four classes of shares: Class
A, Class B, Class H, and Class C.
SPECIFICS: The Multiple Class Shares Structure for the four portfolios of
this Fund is, except to the extent indicated below, identical.
CLASS A SHARES
Front End Sales Charge ("FESC"): 4.5% on High Yield and Government Total Return
and 4.75% on Asset Allocation and Capital Appreciation (With breakpoints on
sales of $100,000 or more.)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or more)
Contingent Deferred Sales Charge: None (Except for sales of $1,000,000 or more
("CDSC"): which are subject to a CDSC, but not a FESC - the "Million Dollar NAV
Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: Asset Allocation Portfolio .45%
Capital Appreciation Portfolio .45%
High Yield Portfolio .35%
Government Total Return Portfolio .35%
Trail Commission: Asset Allocation Portfolio .25% (.45%*)
Capital Appreciation Portfolio .25% (.45%*)
High Yield Portfolio .25% (.35%*)
Government Total Return Portfolio .25% (.35%*)
* The higher Trail Commission amount is paid when the aggregate current value of
the portfolio accounts for the Dealer's customers exceeds $1,000,000.
A-1
<PAGE>
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
A-2
<PAGE>
FORTIS EQUITY PORTFOLIOS, INC.
Fortis Capital Fund
Fortis Value Fund
Fortis Growth & Income Fund
SUMMARY: Fortis Capital Fund, Fortis Value Fund and Fortis Growth & Income
Fund will have four classes of shares: Class A, Class B, Class H
and Class C.
SPECIFICS:
CLASS A SHARES
FESC: 4.75% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-3
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
A-4
<PAGE>
FORTIS FIDUCIARY FUND, INC.
SUMMARY: Fortis Fiduciary Fund will have four classes of shares: Class A,
Class B, Class H and Class C.
SPECIFICS:
CLASS A SHARES
FESC: 4.75% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-5
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
A-6
<PAGE>
FORTIS GROWTH FUND, INC.
SUMMARY: Fortis Growth Fund will have five classes of shares: Class A,
Class B, Class H, Class C and Class Z. Class Z will become
available March 1, 1996.
SPECIFICS:
CLASS A SHARES
FESC: 4.75% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-7
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
CLASS Z SHARES
FESC: None
Dealer Concession: None
CDSC: None
Conversion to A: None
Total 12b-1 Fees: None
Trail Commission: None
A-8
<PAGE>
FORTIS INCOME PORTFOLIOS, INC.
Fortis U.S. Government Securities Fund
SUMMARY: Fortis U.S. Government Securities Fund will have 5 classes of
shares: Class A, Class B, Class H, Class C and Class E.
SPECIFICS:
CLASS A SHARES
FESC: 4.5% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-9
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
CLASS E SHARES
FESC: 4.5% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC, but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: None
Trail Commission: None
A-10
<PAGE>
FORTIS MONEY PORTFOLIOS, INC.
Fortis Money Fund
SUMMARY: Fortis Money Fund will have four classes of shares: Class A,
Class B, Class H and Class C.
SPECIFICS:
CLASS A SHARES
FESC: None
Dealer Concession: None
CDSC: None
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .20%
Trail Commission: .20%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-11
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
A-12
<PAGE>
FORTIS TAX-FREE PORTFOLIOS, INC.
Minnesota Portfolio
National Portfolio
New York Portfolio
SUMMARY: The Fortis Tax-Free Portfolios will have five classes of shares:
Class A, Class B, Class H, Class C, and Class E.
SPECIFICS:
CLASS A SHARES
FESC: 4.5% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (No Trail Commission on Class H shares)
A-13
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
CLASS E SHARES
FESC: 4.5% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $100,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC, but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: None
Trail Commission: None
A-14
<PAGE>
FORTIS WORLDWIDE PORTFOLIOS, INC.
Fortis Global Growth Portfolio
SUMMARY: Fortis Global Growth Portfolio will have four classes of shares:
Class A, Class B, Class H and Class C.
SPECIFICS:
CLASS A SHARES
FESC: 4.75% (With breakpoints on sales of $100,000 or
more)
Dealer Concession: 4.0% (Which decreases on sales of $1,000,000 or
more)
CDSC: None (Except for sales of $1,000,000 or more,
which are subject to a CDSC but not a FESC - the
"Million Dollar NAV Program")
Conversion to Class A: Not Applicable
Total 12b-1 Fees: .25%
Trail Commission: .25%
CLASS B/CLASS H SHARES
Except where indicated below, the characteristics of Class B shares are
identical to the characteristics of Class H shares.
FESC: None
Dealer Concession: 4.0% (5-1/4% on Class H)
CDSC: 4%, 4%, 3%, 3%, 2%, 1% (6 years)
Conversion to Class A: Year 9
Total 12b-1 Fees: 1.0%
Trail Commission: .25% (no Trail Commission on Class H shares)
A-15
<PAGE>
CLASS C SHARES
FESC: None
Dealer Concession: 1.0%
CDSC: 1% for 1 year
Conversion to A: None
Total 12b-1 Fees: 1.0%
Trail Commission: 1.0% (Beginning in Year 2)
A-16
